A survey of analytical studies and wagering articles from pari-mutuel jurisdictions around the world inevitably leads to the same conclusion: takeout rates for betting on Thoroughbred racing are too high. In the 2004 Player’s Panel Report, America’s National Thoroughbred Racing Association (NTRA) asserted, “Virtually all known studies of the dynamics of pari-mutuel wagering indicate an inverse relationship between takeout rates and handle, such that a reduction in takeout inevitably results in significantly greater handle.” If this is true (and I believe it is) then the high takeout rates in almost all Thoroughbred-racing jurisdictions are hurting the business and all of its participants. If nothing is done, racing will continue to lose customers to other gaming and leisure activities where they get more “return” for their money. So why haven’t industry leaders acted to reduce takeout? Good question.
Reducing takeout is not as simple as shaving a certain percentage off the existing rate in question. In the modern era of simulcasting, customers routinely bet on multiple racecourses with different takeout rates and wagering menus. Additionally, account-wagering customers receive rebates that effectively amount to takeout reductions. In this environment, it is difficult for a single racecourse to reduce its takeout due to limited knowledge of when and where the benefit from the takeout reduction will occur. For this reason, it may seem counter-intuitive for racing executives to consider reducing the takeout as a strategy to increase revenue for wagering. Hence, no action.
Let’s examine the high racing takeout in my home market, New York state. From the advent of the New York State Off-Track Betting system in the early 1970s, there was constant pressure from the politically connected Off-Track Betting parlors (OTBs) to seek legislative increases to takeout rates at the three New York Racing Association (NYRA) tracks – Aqueduct, Saratoga, and Belmont. Politicians had no qualms about increasing takeout at the expense of the customer, and the way the system was set up, the OTBs had much to gain. The law was written so that if takeout at NYRA tracks was increased, the OTBs received 100 percent of the takeout increase for wagers made through their channels. The result: today NYRA has four different takeout rates for different types of bets with a total blended rate that exceeds 20 percent.
In 2001, the New York Legislature passed a law establishing “racinos” at six harness tracks and two Thoroughbred venues within the state. These racinos were allowed to operate video lottery terminals (VLTs) – effectively slot machines. Tellingly, when the takeout rate for these machines was established, the policy makers did not emulate racing’s high takeout rate and set the rate for VLTs at nine percent, where it remains today. In addition, the racinos all lobbied the Legislature to provide them with the option to provide additional “free play” for marketing purposes, which effectively reduced the takeout below the nine percent level. Fact: if the racinos charged 20 percent takeout consistent with racing, customers would quickly lose their money and have no incentive to return. As for other forms of betting, legalized sports betting is generally half the takeout of New York’s VLTs, and table games at casinos generally have takeout rates in the low single digits.
It has been argued that people who bet on horses are not takeout sensitive, and do not alter their wagering behavior based on takeout rates. While generally true, this is beside the point. The recent introduction of low takeout wagers – 14-15 percent for small denomination (50 cent) minimums on multiple leg wagers such as Pick 4’s and Pick 5’s – suggest that bettors will respond to lower takeout wagers. I accept that most betting customers are not overtly sensitive to takeout rates when they wager. However, that does not mean that they are unaffected by the higher takeout rate.
In aggregate, a takeout reduction can have a material impact on the money returned to bettors for future wagers. If a track that handles $5 million a day were to introduce a three percent takeout reduction, bettors on that track would have an additional $150,000 in their collective pockets by the end of the day. Research suggests that a very high percentage of these additional funds would be bet back into the wagering pools as “churn.”
The concept of churn provides an opportunity to examine the complexities of tracking the impact of takeout reduction. For example, if a track operator reduces takeout by three percent in the off-track simulcast market of today, there is no guarantee that a customer will bet his or her increased winnings back into that track’s pool when there are so many other simulcast options available. Also, the types of wagers on which takeout reductions are offered may be slow in returning funds to the customer for another wager. A reduction in takeout in rolling daily doubles can be bet, won, and churned back into the wagering pools multiple times in a day, while a Pick 6 wager with a lower takeout will return money to the customer only once a day.
A further complicating factor may be the liquidity or size of the pool that the customer is betting into. A large superfecta or trifecta pool at a track with a higher takeout may be preferable for some larger bettors to a track with a smaller superfecta pool and lower takeout. Account-wagering sites with large robotic players can also complicate the takeout for a particular racing jurisdiction. Racecourses welcome the high host fee that they receive from these customers. However, if these robotic players bet successfully, their winning wagers can have an increase in the effective takeout rate for the rest of the customer base. Also, the robotic player may not churn as much of their winnings back into the pool as the average player.
Why examine takeout rate issues? How does the topic relate to our goals at Thoroughbred Racing Commentary? This site was developed to promote best practices in Thoroughbred racing around the globe. On takeout, our plan is to contact experts on wagering activity and racing executives in racing jurisdictions worldwide to study this issue in detail with current data and relevant comparisons. I would also invite any readers to make suggestions on related issues that we should consider. The goal will be to develop action plans that can be proposed for implementation in individual racing jurisdictions. The long-term hope is that our coverage of this issue will help industry leaders understand the economic benefits of a more competitive, lower takeout rate.
The articulation of takeout as presented here only scratches the surface and this piece is meant to be TRC’s introduction to the topic. Many other factors such as track “breakage,” fractional bets, field size, rebates, and bet types will have to be considered as well.
Once we have a better understanding of how one should proceed in implementing an effective takeout program, we need to study further how those takeout funds are distributed. This is an issue of increasing revenue for racing’s participants at every level. The proper distribution of takeout to racecourses, bet takers, purses, breeders, and government has a major impact on the financial well-being of the industry, and the perils of ignoring the issue are grave.