The mathematical relationship between betting revenue (i.e., handle) and takeout rates on wagers is not publicly known.  It is possible, of course, that racetracks have privately conducted experiments and have data-based evidence of how bettors and handle respond to changes in takeout percentages on various types of bets.

One thing is publicly known:  the relationship is nonlinear.  A takeout rate is like a tax on betting and eventually the tax becomes so onerous that it curbs betting.  At 100% takeout, there would be no betting at all.  At the other extreme, a takeout rate of 0% would produce plenty of betting handle but no net pari-mutuel revenue.

Note that net pari-mutuel revenue is what remains of handle once winning bets are paid off.  The calculation is simply:  betting handle x percentage takeout.  The goal of a racetrack is to optimize net pari-mutuel revenue as opposed to maximizing handle.

The well-known Laffer Curve (named after economist Dr. Arthur Laffer) conceptualizes the interaction between government revenue from collecting taxes and tax rates (shown below as rendered by Investopedia).  In the Laffer-Curve, substitute net pari-mutuel revenue for tax revenue on the vertical axis and takeout rate for tax rate on the horizontal axis and one sees a plausible hypothesis.  (At T* revenue is optimized.)  However, instead of the smooth asymmetrical curve shown in the Laffer drawing, the curve could be a trapezoid or some other shape.


Without empirically testing various takeout rates over time and for specific kinds of bets (WPS, exactas, trifectas, etc.) one cannot determine the shape of the curve and the takeout rate that optimizes net revenue.  Furthermore, the curve might take different shapes for serious bettors more knowledgeable about takeout rates and less aware casual bettors.

Ignorance will continue to put pari-mutuel wagering at a distinct competitive disadvantage.

Copyright © 2015 Horse Racing Business


Mathematician Jordan Ellenberg wrote about the Laffer Curve as follows in his 2014 book How Not to Be Wrong, The Power of Mathematical Thinking:  “His [Laffer’s] drawing made the fundamental and incontrovertible mathematical point that the relationship between taxation and revenue is necessarily nonlinear.”  The same can be said about the relationship between takeout rate and net pari-mutuel handle.


Like other sports, horse racing must gain a critical mass in the millennial generation to perpetuate itself.  Millennials were born between 1981 and 1997, so in 2015 they range in age from 18 to 34.  This generation now comprises the largest share of the American workforce.

The ideal way to develop horse racing fans is for a parent or other family member to cultivate the interest in children, perhaps in the beginning by watching races together on television and later by taking the boy or girl to the racetrack when they are old enough.  However, this leaves out the vast majority of young people whose family members are not fans of horse racing.

Social media is the next best way to foster interest among millennials, and there are many choices such as Twitter and Instagram.  Snapchat may be the superior option.

According to Snapchat, there are almost 100 million daily active Snapchatters and the user base is growing.  Thirty-seven percent of Snapchatters are 18-24 year-olds and 23% are 25-34 year olds.  Sixty percent of the people who use Snapchat create content every day.  More than three-fifths of 13-34 year-old smartphone users in the United States are Snapchatters.

The Los Angeles Times wrote in a September 22, 2015 article:  “If the future of media is distributing content across numerous digital apps, media executives see Snapchat at the forefront, thanks to its engaged audience of young people.  ‘If you throw mobile, video, millennials and explosive growth together, people would be crazy not to focus on it,’ says an executive.

Getting in isn’t easy. The courting period lasts months and usually involves submitting numerous examples of original content to a private content management system.”

Though one would not ordinarily associate a Wall Street bank like Goldman Sachs Group with Snapchat, the firm has recently turned to the company for help in interesting millennials in working at Goldman.  Last week, Goldman Sachs placed recruiting advertisements on Snapchat meant to lure potential hires.

Snapchat is made to order for the social-media efforts of racetracks and other pari-mutuel companies, as well as the Jockey Club, that are intended to promote American horse racing to younger segments of the population.

Copyright © 2015 Horse Racing Business


Whether it is the stock market, horse racing, or Sunday’s NFL match-ups, touts and tips are plentiful.  Buy this sleeper of a stock, bet on a longshot that is sitting on a big race, or take the Bears and the points.  Email has empowered con artists among the analysts/prognosticators to leverage the math in their favor.

The bestselling book How Not to Be Wrong, the Power of Mathematical Thinking (by Jordan Ellenberg) lives up to its billing as “The Freakonomics of math” and in one chapter it addresses the math behind unsolicited mass touting of stocks and horses.

Dr. Ellenberg (Distinguished Professor, University of Wisconsin) explains the pre-Internet parable of the “Baltimore Stockbroker.”  This devious broker mails a paper newsletter to 10,240 recipients predicting that a certain stock will either rise or fall in the following week.  He sends the newsletter for 10 consecutive weeks and is correct in his prediction every week.  On the eleventh week, he asks recipients to invest money with him based on his shrewd prescience in selecting stocks to buy or short.

The odds of the Baltimore stockbroker being correct 10 weeks in a row are 1/1024 or 0.00098 (1/2 x 1/2 x 1/2 x 1/2 x 1/2  x 1/2 x 1/2 x 1/2 x 1/2 x 1/2).  How did he defy such long odds?

On week 1, he sent the newsletter to 10,240 recipients; half were told the stock would rise in the coming week and half were informed the opposite.  In week 2, the newsletter went only to the 5,120 people who got the correct prediction the previous week.  This winnowing process continued until, after the final newsletter, only 10 people were left who had received a correct prediction every time.  Some of them undoubtedly thought the stockbroker was a seer and were likely to rush to “invest.”

Dr. Ellenberg says a stunt from a British reality TV show is the closest real-world example he found of the Baltimore stockbroker parable.  Magician Derren Brown mailed sundry horse-racing selections to thousands of Britions and kept doing so until, ultimately, one person was left that believed Brown had “devised a foolproof prediction system.”  Click here for a link to a website that explains the Brown illusion in detail.

Plenty of experts are adept in picking stocks to buy and sell or horses to bet on or avoid.  None of them are likely to be mass mailing unsolicited free selections week after week and none of them are perfect in identifying winners.

In the era when newsletters went out in stamped envelopes there was a real monetary cost involved.  In the age of email, countless people can be reached at virtually no cost.  This is a modus operandi made to order for touts employing the Baltimore stockbroker scheme to provide tips on stocks or horses, or anything…in order to prey on gullible people.

Copyright © 2015 Horse Racing Business