Kentucky Downs Believes in Pari-Mutuel Gaming

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As money from added gaming has flowed into the industry, providing a boost for purses, most racetracks have missed a golden opportunity to fully take advantage of the stability provided by that added revenue by trying new approaches-namely lowering prices--with their pari-mutuel product.

With that new revenue from added gaming providing tracks some money and improving purses, one would have expected such tracks would have used the opportunity to try some new approaches to strengthen their core product, pari-mutuel wagering. Specifically, it seemed like an opportunity to lower takeout (the money retained from each wagering pool largely to pay tracks and purses) to make it more competitive with other wagering forms.

Instead, as new low-takeout gaming like slot machines was welcomed at tracks, the vast majority of those tracks did not address the relatively high takeout pari-mutuel model in place.

In the short term this approach has allowed tracks to offer larger purses as money from added gaming was added to pari-mutuel revenues already in place. But by not strengthening the pari-mutuel product in an effort to attract new players, pari-mutuel wagering remains, at best, stagnated. With the stagnation of racing's core product, the sport has reduced race days. Tracks without added gaming have closed or struggled.

From 2002-2004, pari-mutuel handle on Thoroughbred racing in the United States topped $15 billion each of those years. But from 2011-2016, racing failed to reach $11 billion in any of those single years. With no real growth in racing's economic engine, racing opportunities have declined. The 37,814 races offered in the U.S. in 2016 is down 27% in 10 years and about half the number offered in 1989. Foal crops have declined to the size of the mid-1960s.

While added money from gaming has offered some stability in purses, and has helped tracks that have added-gaming money attract horses from tracks without added-gaming, the industry overall has not seen added interest in the sport's economic engine, pari-mutuel wagering

Without added interest in pari-mutuel wagering, the sport's current model has made racing more and more dependent on supplements from added gaming, which now fund about 40% of the purses awarded in the United States. It's a precarious model. That added gaming money to the industry will always be something closely eyed by lawmakers, who could easily reduce or shut down the pipeline.

One track that thought more long-term when added money from its Instant Racing operation began to flow into purses is Kentucky Downs, which is scheduled to open its five-day meet Sept. 6. It actually lowered takeout when this added money arrived.

The added money from Instant Racing still inflated purses, helping attract huge fields, which are attractive to bettors. The track's added step of lowering takeout when it received that added money has fueled interest from horseplayers in the meet and increased churn (winnings bet back into pari-mutuel pools). Wagering records have followed.

A record $22,540,761.22 was bet on last year's five-date meet for an average of $4,508,152 a day. That reflected a 34% increase over the previous record total set the previous year.

Kentucky Downs' takeout rates of 14% on the Pick 5 and 16% on win, place, and show wagers are among the lowest in the country. No Thoroughbred track is lower than Kentucky Downs' 18.25% takeout on exactas and 19% takeout on trifecta wagers.

"Kentucky Downs has been able to go from completely off the national radar to a premier track by going against the norm of the industry, right now, which is to get a higher percentage from less handle," said professional horseplayer Paul Matties Jr., who captured the 2016 National Handicapping Championship, in a release. "We need the exact opposite for the benefit of the game. We need to grow handle and spawn interest, and Kentucky Downs has been a leader on that front. It's not a surprise to me horseplayers have responded and their handle has skyrocketed. Horseplayers are smart and they will gravitate to the best products and the best value for the betting dollar, and I expect that will continue this year."

Increasing takeout rates and leaving high rates in place eventually will drive players from the game or force them to reduce play, whether a conscious decision or just the fact that there are a few less dollars coming their way when they win. These high rates also make it difficult to attract new players, who may be used to lower takeout games that match gambling and skill, like poker and Daily Fantasy.

Takeout rates for horse racing will always be higher than casino games, as there is a whole sport to fund. Most horseplayers understand that, and are willing to pay a higher price because they love the puzzle of handicapping and the excitement of watching horses race as opposed to the tedium of pushing a slot machine button. But it's not an unconditional love.

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