Price Sensitive - By Eric Mitchell

 (Originally published in the February 12, 2011 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.

By Eric Mitchell - @EJMitchellKy on Twitter

By Eric Mitchell
Wagering at Santa Anita Park in January was down, lagging 10.81% behind the same month in 2010 and worse than the nationwide decline of 9.71%. Reasons for the decline are varied, but one factor is an ongoing boycott of California by members of the Horseplayers Association of North America, known simply as HANA.

The boycott is a protest of the state’s increase in takeout from 20.68% to 22.68% for exacta wagers and from 20.68% to 23.68% for wagers involving three or more horses (trifectas, superfectas, Pick 3s, etc.). As a quick explainer, takeout is what drives the Thoroughbred racing industry. A percent of each dollar wagered is taken out to pay for state taxes, racetrack operating expenses, purses, and state incentive programs. All the “costs” associated with a wager are important, but every fraction of a percentage withheld is that much less going into the pockets of gamblers—and the serious players know which tracks are offering the greatest returns.

California’s ability to grow purses is limited. Compacts with Native American casinos have effectively shut out the option for slot machines or video lottery terminals at the tracks. And the state doesn’t have any money to offer a subsidy to racing as an agricultural venture. The state has approved exchange wagering, but that won’t be available until at least 2012.

So how did the state decide to increase purses? It raised takeout.

The racetracks and the Thoroughbred Owners of California have pointed out the takeout on win, place, and show wagering is still among the lowest compared to other racing states. Santa Anita’s is 15.43%, certainly lower than Tampa Bay Downs (17.5%), Gulfstream Park and Fair Grounds (17% each), and Aqueduct (16%). The takeout on trifectas and superfectas is also lower compared with Tampa Bay Downs (25.9%), Gulfstream Park and Aqueduct (26% each), and Fair Grounds (25%). Santa Anita, however, is the highest among these tracks on exacta, daily double, Pick 3, Pick 4, and Pick 6 wagers, with the exception of Fair Grounds, which has a 25% takeout on Pick 3s, Pick 4s, and Pick 6s.

The downside of raising takeout is it discourages the large bettors from participating. Why wager on a Pick 3 at Santa Anita with a 23.68% takeout when Tampa Bay Downs’ Pick 3 takeout is 18%? While the tracks and owners argue the higher takeout will still generate more money despite the lower handle, the horseplayers are arguing the tracks would have gotten more had they lowered the takeout and promoted more wagering.

But takeout is only part of California’s problems. The Golden State also suffers from declining field size. Gamblers don’t like betting on small fields either because the odds are typically low for each horse. Larger fields provide more opportunity to find a horse at a price. Through the end of January, Santa Anita’s field size is tracking on average 4.2% smaller than it was through the end of January 2010. The average field size is 7.71 horses per race compared with 8.05 a year ago. As a comparison, Tampa Bay Downs is averaging 9.11 per race and Gulfstream Park is 9.68 per race. Graded races should offer big wagering opportunities because they are the highest-profile events, but California’s graded stakes in January averaged 6.17 horses per race compared 7.73 in January 2010. The Jan. 9 Santa Ysabel Stakes (gr. III) had three starters.

Other factors hurting California include the languishing economy and, even though it started with rave reviews, the new dirt surface. A change in surface makes bettors cautious. Even if big players hated the synthetic, they won’t invest a lot on Santa Anita until they see how the surface is behaving.

With all these other issues challenging California racing, raising the takeout this year seemed like an unnecessarily risky move. Raising takeout is actually risky anywhere considering horse racing’s place in the overall world of gambling and entertainment. An important presentation made by New York Racing Association Chairman Steve Duncker during The Jockey Club Round Table in August had to do with the competitive pricing of Thoroughbred racing. The blended takeout on Thoroughbred racing is around 20-21%, while it’s 10% on sports wagering, 8% on poker, 6% on slots, and 3% on blackjack. So, Santa Anita’s argument that its racing is more attractive because the trifectas have a 23.69% takeout instead of 26% is like boasting that they’re selling Angus hamburgers for $18 instead of $20 when racing’s competition is serving them up for $5.

Instead of jacking up takeout, let’s focus on a way to divert more money into purses from advance deposit wagering; find the right mix that offers widespread distribution at a fair price. It is the only way for racing to remain competitive.

21 Comments

Leave a Comment:

Joe

The take-out is not the problem it is getting people back to going to the Tracks. Just look at Power Ball. Jacket-Pot they take 50% off the total and Now you are down to 50%. Now the Feds take 28% and the State where the jackpot is Hit 6-8% now that is High. What the Track and Horse Men have to do is put more money into The Tracks carry-over pools. Like a National Pic-6 Pic-7 Pic-8 Pic-9 and start running the pools just like the LOTTERY that is what the people want.

08 Feb 2011 2:13 PM
Equination.net

Excellent article.  It's so frustrating that the industry continues to shoot itself in the foot during such times.  Perhaps if people actually won a bit more than just slightly breaking even when they did pick a winner they would be more inclined to stick around and continue their betting.  If you go in knowing you're likely only going to break even at best because the payouts are so awful, it's no wonder no one wants to head to the track anymore.  I especially like your comparison to other forms of gambling.  It's ridiculous that the takeout in racing is so high.

08 Feb 2011 2:15 PM
Dave T

I could forgive Santa Anita if they consistently have big quality fields.  Why would I want to bet a race with 5 horses? There is no value to be made, and the payouts are so low you feel like you're being nickeled and dimed.

08 Feb 2011 2:49 PM
Walter Toner

Nice piece. Spot On

Fixed odds wagering with limited take is the only salvation for horse racing!!

Folks are nostalgic for the massive crowds of the 50's and 60's, ain'g gonna happen. They should be nostalgic for fixed odds from the 20's when calculating a horse's chances really meant something.

08 Feb 2011 4:56 PM
Cangamble

Handle should at least be flat because they shifted from 5 days to 4.  You'd also expect field size to go up because of this too, especially with the fake purse increase that happened as well.  This kind of proves that higher purses don't attract more horses, nor do players bet because of purses.

You also have to look at the fact that because they raised prices they would lose business regardless.  If Walmart increased prices, they would lose business even if the prices were still lower than the competitors...or lets face it...they would raise prices, because if they did this and had the same sales, they would simply make more money...the fact is that they know they wouldn't.

Your competition prices are a bit off btw.  Sports betting (one game) rake is 4.6%.  Two team parlay 12.5%.  Blackjack is under 2% I believe.

08 Feb 2011 5:56 PM
The_Knight_Sky racing blog

What could have been a a "coming out party" for Santa Anita with the return to dirt racing was sabotaged by ill-advised horse owners who have no business running a horse race track.

Let the racetrack owners run their business the way they see fit.

As it stands the wrong groups are running (and ruining) the California racing experience.

They'll do anything to keep the status quo of short fields and a decline of 5-10-15% in all sources handle.  

What happened to working towards  long term solutions?  The takeout raises have taken away many possibilities for profit for the horse racing customer. But it is one problem.  

WHO in the Golden State is striving to fix the various problems that plague the circuit?

09 Feb 2011 9:24 AM
EJMitchellKy

Cangamble, Thanks for the update on the pricing on other games. I went with the numbers presented at The Jockey Club Round Table.  

09 Feb 2011 9:46 AM
NDOpus

The "easy" fix is always take money away from someone else and say you've solved the problem.  So take money from players (higher takeout) or from ADWs (none of which, BTW, are earning huge profits), and don't address the root problems:  gamblers are not attracted to horse racing because (a) the product delivered to them has not been attractive, and (b) they see they can get a better price for their gambling experience somewhere else.  Perhaps horse racing will always have higher costs than slots or other gambling alternatives and, therefore, always have a higher price for the gambler.  Or maybe the price needs to be lowered substantially through something like exchange wagering.  But if you decide to be the high-priced alternative, the way to get someone to pay a higher price vs your competition is to make your product more attractive than the competition (ask why does Starbucks charge more for their coffee than Dunkin Donuts, even though a lot of people say they like Dunkin Donuts coffee better?)  If you can do so, history shows that the consumer will perceive value and pay more; if not, the consumer will go where the higher value is perceived.  Just raising prices and delivering the same product that the consumer has already rejected does nothing but drive more customers away.

09 Feb 2011 9:53 AM
Roger Way

Good article, I think to go along with raising purses by other means is a GREAT idea.

How about getting the horsemen to accept responsibility to put on a show that attracts customers instead of turning them off with 5 horse fields?

How about examining and reducing costs to maintain a racehorse in California, among the highest in the nation?

How about receiving purse raises the old fashioned way...Earning them, by attracting fans and handle by giving the customers what they want,instead of putting on the show for themselves.

Start by reducing the absurd new take out in the face of declining business, padding horsemens purses at the expense of the racetrack and its customers.

RIDICULOUS...

Roger Way

09 Feb 2011 10:01 AM
Horse Rugs

Sounds like with Californias other problems raising the takeout was done with bad timing.

09 Feb 2011 10:56 AM
cover2

Those are the facts,but I don't

think the take out is reason.

Fans are not wagering for many

other factors. Raising T/O no

issue, doesn't wash !!

09 Feb 2011 12:15 PM
John F.

The takeout hike in California was done to raise purses which hopefully would induce more owners to race in California.  This would in turn increase field sizes to make for more interesting races and bigger handle.  I think everyone involved with the decision knew that it might work, or it might not work in the short run, but it was a triage short term solution.  You have to keep the patient alive to even get to the operating room for the real surgery.  California needs to allow big rebates for big bettors.  This will cause some savvy players to win, and stories of consistent winners is what will attract new players.  THIS IS SO OBVIOUS.  WHY DON'T THEY GET IT?  

09 Feb 2011 4:42 PM
Brian Russell

The worst part was the condescending attitude of the race racing official who said that takeout was on the radar of 1/10 of 1% of the players.  Not only does this offend much more than 1/10 of 1% of the players, said 1/10 of 1% of the players probably provide at least 15% of the handle.  How do incompetent people like this get and maintain potitions of responsibility in this industry?  

09 Feb 2011 6:21 PM
myoldnags

The takeout increase resulting in the purse increase benefits owners and trainers.  It certainly hasn't helped Santa Anita overall.  I'm boycotting Santa Anita not because of the increased take out but because of the field size you mentioned.  I was boycotting before there was a boycott.  Tell me why a track with 2400 filled stalls can match the field sizes of tracks with 1500 stalls (Tampa, Oaklawn, etc)  Seems to me the owners and trainers are having their cake and eating it as well to the detriment of all other parties involved.  Well the wall will come soon because at the current revenue of Santa Anita and the the payout for purses, purse cuts are going to come soon.  It's such a shame that a track which was once one of the bright lights of the industry has gone to the toilet.

10 Feb 2011 8:43 AM
shanehbmjb

Re ADW;  make a deep cut into their operating costs.  Reducing headcount, including television personnel would be a good start.

Divert savings back into a  reduced takeout.

11 Feb 2011 9:58 PM
steve

Santa Anita handle was down 3 million today.

12 Feb 2011 10:25 PM
John F.

ADW's do not need to make as big a percentage as they currently make.  That is the elephant in the room.  If they were to contribute a bigger percentage to purses, and to the racetracks putting on the show, and offer rebates to big bettors, our game will fix itself.  ADW wagering should be encouraged even ontrack.  If the host track owns the ADW taking the bet, it should be more than a wash for them as they need fewer employees manning the windows.  FRANK, ARE YOU LISTENING ?

13 Feb 2011 12:54 PM
kbrick

like your thoughts...still can't figure out why when i hit a pick 3 play that cost me 60 bucks, the state gets to treat it like i only bet one dollar, and i'm signing !!

13 Feb 2011 2:31 PM
Denmark

I no longer bet exactas and doubles.  Sometimes the exacta pays $1 more than a win so why bother.  I was at Hollywood Park for the Zenyatta race that Gov Arnold showed up - the place went ballistic booing and hissing at him.  It was scary.  He deserved it, I'm sorry I voted for him.

14 Feb 2011 2:51 PM
Craig Amundson

As a horseplayer, I can only tell you why I haven't been playing Santa Anita this year.  

UNFAIR TRACK CONDITIONS!! And that is the only reason

I am not interested in such a bias speed track where horses are coming home in unheard of Turf Paradise times.  I love the fact they went to dirt this year but not when horses run 113 and change for 6 1/2 furlongs and 3 tracks records fall on one day.

When horses can run under 120 in 7 furlong races, those should be once in a lifetime horses not the first 2 finishers. JOKE

Santa Anita hasn't had a decent fair surface in years, first the polytrack where only closers could win (check breeders cup results) and now only front runners.  What does it take for horse racing to realize players don't want this!!

22 Feb 2011 11:14 PM
MartyC

Eric Tampa did 2,900,000 in tri and super bets on 02 27 2011 and their take-out was 600,000 or 400,000 more than their purses..the 18% pick 3..4...5...6s did 212,000...WHEN WE USE A LOW TAKEOUT ON THE GIMMICKS AT THE EAST COAST TRACKS DO WE HAVE A RESPONSIBILITY TO INFORM OUR READERS....the real money is in tris and supers...Marty Callinan

27 Feb 2011 12:39 PM

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