The racing industry would be wise to pay close attention to the goings-on in Maryland as legislators try to get the horseracing back in the barn. Not even the sliver bullet of slot machines may be enough to ward off the demise of a once proud and prosperous enterprise – Maryland Racing. With Magna Entertainment in Chapter 11 bankruptcy and the fate of the Laurel Park, Pimlico in the balance, Maryland is trying to devise a way to use state funds to prop up the only thing of real racing value left - The Preakness.
Governor O’Malley signed into legislation an emergency bill allowing the state to exercise eminent domain of the Pimlico Race Course and all right associated with the Preakness as well as the other racing properties of the Maryland Jockey Club. The state may be able to legislate that The Preakness stay put, but it cannot do that same for the horse breeders in the state who have been making a steady exodus to greener pasture for the past decade.
Unlike AIG, CitiBank and the other struggling financial institutions, horse racing in Maryland and any other states across the country isn’t too big to fail. But it’s one thing when a track like Great Lakes Downs closes and quite another when the second jewel of Racing’s Triple Crown is about to fall from its setting. Exhibit A – this year’s Pimlico meets has been reduced from 31 to 20 racing days in order to maintain a respectable daily purse structure.
Neighboring tracks in Delaware, Pennsylvania and West Virginia are fairing much better because slots, which make up the casino portion of the gambling amalgam known as racinos, are subsidizing the racing. And given the dominance of slots, perhaps the term racino should be replaced by “casino-racing”, because when you go there you “can see no racing”.
And this is the problem industry refuses to see. The slot revenues that are apportioned to horseracing have been a boon to the tracks and the horsemen, but it has done little to bring in new customers or significantly grow track handle. In fact, it may be having the opposite effect. A 2007 Baltimore Sun article on this subject indicated that after the first six month of slots at Philadelphia Park betting was down 20% at the track, and betting on live races at Delaware Park is down 40% since slots were introduced back in 1996.
Without the benefit for slot revenues, many tracks that are trumpeting success would look a lot like the state of racing in Maryland. If horseracing wants to grow, then it’s going to have to learn to stand on its own four legs as it competes for its piece of the gambling pie. And if you don’t think state governments won’t let the industry fail, than I have just two words for you – General Motors.
Saturday, April 18, 2009
Sunday, April 12, 2009
A Second Take on Takeouts
There has been a lot of chatter recently about track takeout. The knee-jerk response is that the takeout is too high, and as a result, the two-dollar bettor is slowly going broke or leaving the game while the big bettors are wagering through rebate shops getting as much as 7% on every dollar wagered. But what many horseplayers fail to appreciate is that tracks get a relatively small portion of the takeout. For example, in California about 73% of the takeout is out of the track’s control.
Some suggest that reducing this tax on the bettor not only keeps more players in the game through increasing the churn, but also attracts new players, which in turn increases wagering pools and as the saying goes: you’ll make it up in volume. Well, let’s suppose a track has a handle of $1M per day with a takeout of 20%. Then the takeout is $200K per day. Now suppose the takeout was reduced to 10%, then the track would have to handle $2M per day to maintain its takeout. If this is the only track with a 10% takeout, then it may attract enough bettors from other tracks, but if this move is successful, then more tracks will follow suit. And once enough tracks had done so, where will the extra revenue come from? Bettors are not going to start doubling down, and slot players in the racinos will not be racing to the windows. And don’t count on the big money players. The rebate shops are not going to give up their best customers without a fight. And also there’s the unintended consequence of limiting wagers from off-site locations. This is what happened in 2007 when Ellis Park had a 4% takeout for the Pick 4. Sportsbooks in Vegas weren’t accepting bets because the 3% fee they were required to pay to carry the signal left only a 1% margin to cover their cost.
The argument of lower takeout is a straw man; if takeout was such an overpowering factor in the mind of horseplayers, then why do exotic wagers account for roughly 70%of all monies wagered on horse racing. The takeout for WPS is normally 17% - 18%, while the takeout for exotic wagers are mostly 25% or higher. Smart players will tell you that’s because there’s more value to be found in these wagers. And why is there more value, because the overwhelming majority of players in these pools are just looking for a big score – to heck with takeout.
In the end, the great takeout debate is less about keeping the two-dollar player at the track and more about the big bettors getting just a little more edge on the game. If you’re a player pushing a half-million dollars through the windows per year, then just a 2% reduction in the takeout puts another $10,000.00 in your pocket. As tracks do a better job catering to their high-end customers with their own version of rebates and incentives, you will hear less about high takeout. After all, it’s cold hard cash that wins the hearts and minds of horseplayers.
Some suggest that reducing this tax on the bettor not only keeps more players in the game through increasing the churn, but also attracts new players, which in turn increases wagering pools and as the saying goes: you’ll make it up in volume. Well, let’s suppose a track has a handle of $1M per day with a takeout of 20%. Then the takeout is $200K per day. Now suppose the takeout was reduced to 10%, then the track would have to handle $2M per day to maintain its takeout. If this is the only track with a 10% takeout, then it may attract enough bettors from other tracks, but if this move is successful, then more tracks will follow suit. And once enough tracks had done so, where will the extra revenue come from? Bettors are not going to start doubling down, and slot players in the racinos will not be racing to the windows. And don’t count on the big money players. The rebate shops are not going to give up their best customers without a fight. And also there’s the unintended consequence of limiting wagers from off-site locations. This is what happened in 2007 when Ellis Park had a 4% takeout for the Pick 4. Sportsbooks in Vegas weren’t accepting bets because the 3% fee they were required to pay to carry the signal left only a 1% margin to cover their cost.
The argument of lower takeout is a straw man; if takeout was such an overpowering factor in the mind of horseplayers, then why do exotic wagers account for roughly 70%of all monies wagered on horse racing. The takeout for WPS is normally 17% - 18%, while the takeout for exotic wagers are mostly 25% or higher. Smart players will tell you that’s because there’s more value to be found in these wagers. And why is there more value, because the overwhelming majority of players in these pools are just looking for a big score – to heck with takeout.
In the end, the great takeout debate is less about keeping the two-dollar player at the track and more about the big bettors getting just a little more edge on the game. If you’re a player pushing a half-million dollars through the windows per year, then just a 2% reduction in the takeout puts another $10,000.00 in your pocket. As tracks do a better job catering to their high-end customers with their own version of rebates and incentives, you will hear less about high takeout. After all, it’s cold hard cash that wins the hearts and minds of horseplayers.
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