Archives for October 2015


Nominal or published takeout percentages on bets at racetracks are somewhat akin to the MSRP, or the manufacturer’s suggested retail price, on the vast majority of new automobiles…in that they are the price in name only and are negotiable.  While buyers may have to pay the MSRP on cars in high demand, nobody but the most naïve buyer pays the sticker price on run-of-the-mill makes and models.

If a bettor spends enough money, he or she will be able to get a discount in the way of a rebate.  For example, Churchill Downs, Inc. has a business entity, Velocity, that caters to its best customers.  Velocity is a separate holding under the advance deposit wagering (ADW) profit center TwinSpires.  Churchill Downs describes it as “a business that is licensed in the British Dependency Isle of Man focusing on high- wagering-volume international customers.”

Monetary rebates have the net result of reducing takeout rates for the most prolific bettors, as measured by the cumulative amount wagered over some specified period of time, just as special deals and rebates on cars lower selling prices.

Suppose, for example, that the aggregate amount wagered at a racetrack on win bets during its fiscal year was XYZ dollars and that the published takeout on such bets is 17%.  Further, say that 70% of this total win-bet handle was derived from large-scale bettors who received rebates to varying degrees.  Thus the racetrack’s weighted average takeout rate for win bets was lower than the advertised 17%…and maybe much lower.

Additionally, because rebates vary across racetracks, each racetrack will have a different takeout structure from the one it shows to the overall public as well as compared to other racetracks.

Ergo, one must have access to the betting data held by the racetracks and ADWs to know with any degree of surety what the true takeout percentages are for the potpourri of bets at each racetrack and ADW.  Yet those of us who are not privy to the data can reliably infer that reduced takeout rates via rebates have a salutary effect on handle…or else the racetracks and ADWs would not give them.

Quantitative insights regarding the effects of reduced takeout rates on betting handle (i.e., price elasticity of demand) could be obtained by statistically analyzing the historical data in racetracks’ and ADW databanks pertaining to high-volume customers.  However, the elasticity coefficients for this cohort are likely to be much different than for casual bettors who are not nearly as cognizant of or as concerned with takeout rates.

For this reason, the reactions or responses of casual bettors to takeout rate reductions need to be determined via controlled experiments in which racetracks lower rates, for instance, on exactas for at least a year while simultaneously launching well-funded promotional campaigns for less-sophisticated bettors that educate them on the advantages of lower takeout on returns.

It could be that racetracks and ADWs have been correct all along in reducing takeout rates only for large-scale bettors and keeping them extraordinarily elevated for relatively price-insensitive individuals who bet infrequently or in comparatively small amounts.  On the other hand, reduced takeout rates for all bettors might eventually boost overall betting volume enough to compensate for the lower rates.

Until scientifically conducted studies are initiated, we are left to hypothesize and speculate.  Meanwhile, pari-mutuel handle stagnates and the horse-racing enterprise in North America continues to downsize.

Copyright © 2015 Horse Racing Business


The Blood-Horse Daily (October 23, 2015) published a revealing article by Jeremy Balan titled “Debate Ensues Over Takeout Rates.”  Comments attributed to an official of The Stronach Group are mostly factually incorrect and demonstrate a glaring lack of knowledge about pricing products/services and U. S. antitrust law.

The article read in part:

“California racing officials intend to have further discussions about lowering pari-mutuel takeout rates, but judging from the disagreement evident at an Oct. 21 California Horse Racing Board committee meeting, it won’t be an easy sell.  (An official) of The Stronach Group said lower takeout would be healthy if it was implemented industry-wide, but ‘it’s impossible to act in unison in our industry.’  He also said experiments with reduced takeout for the most part haven’t been productive.”

(Note:  The focus of Horse Racing Business is on dispassionate analysis of issues, ideas, and events rather than on personalities; therefore the name of the Stronach Group executive in the forgoing quote has been redacted.)

Key takeaways:

  •  It is startling that a spokesman for a leading racetrack and advance deposit wagering company would state in a public forum that “lower takeout would be healthy if it was implemented industry-wide.”  U. S. antitrust laws explicitly prohibit industrywide collusion to fix prices.  In addition, price fixing is a patently anti-consumer criminal activity and thus “it’s impossible to [legally] act in unison in our industry” or any other industry.
  •  A racetrack that lowered takeout would have a first-mover competitive advantage, so why would it want the industry to move in unison in the first place?  Bold executives don’t encourage me-too strategies and tactics.
  • Racetracks across the country already have in place divergent takeout percentages on various types of bets and routinely raise takeout percentages without regard for what other racetracks charge on the same bets.  Why then is industry cooperation needed to dramatically lower takeout percentages?  Obviously, cooperation is not required.
  • Where is the historical hard evidence for the assertion that “experiments with reduced takeout for the most part haven’t been productive?”  Name them, please.  The BH Daily article states:  “CHRB member (name redacted) said the board is regularly asked why rates can’t be lowered.  He said the CHRB has no answer as to why the issue hasn’t been thoughtfully studied.”
  • What, in fact, has not been productive is for racetracks to maintain the traditional uncompetitive pricing structure while bettors have fled in large numbers and pari-mutuel handle has plunged in the United States.
  • In order for an experiment to yield useful information it would need to be conducted over a protracted period of time (perhaps a year) so that the reduced takeout percentage could be promoted to bettors and potential bettors and results evaluated.  Further, the takeout percentage in the experiment would need to be a significant reduction, not a barely noticeable change.

The entire racing industry, with all its small businesses, ultimately depends on pari-mutuel handle for sustenance.  Candidly, I would not want my future prosperity to be dependent on racetrack leaders who appear to be uninformed about basic economic concepts and are timid about trying something new.

No one knows what effect prolonged and markedly reduced takeout percentages would have on pari-mutuel handle, but we may never find out.  It’s a modern-day version of fiddling while Rome is burning.

Copyright © 2015 Horse Racing Business


The 2015 Forbes 400 list of wealthiest Americans was published in a special edition of the magazine on October 19.  At least four of the individuals are actively involved in horse racing and in one case the wife of the individual is a prominent owner.  (It is possible, of course, that I have overlooked the name of a present-day owner.)

In 2014, Forbes began using a “self-made score” for each member of The Forbes 400Forbes explains:   the score is on a scale from 1 to 10, with “a 1 indicating the fortune was completely inherited, while a 10 was for a Horatio Alger-esque journey.”  According to this score, four of the racehorse owners on the list are mostly self-made.


John Malone, Elizabeth, Colorado, ranked number 68 on Forbes 400
Estimated net worth $7.2 billion
Age 74
Wealth is primarily from cable television and he is also the largest individual land owner in the United States
Self-Made Score 8

Bridlewood Farm, Ocala, Florida


Kevin Plank, Lutherville, Maryland, ranked number 145 on Forbes 400
Estimated net worth $3.9 billion
Age 43
Wealth is primarily from Under Armour (founder)
Self-Made Score 8

Sagamore Farm and Sagamore Racing, Glyndon, Maryland


B. Wayne Hughes, Lexington, Kentucky, ranked number 293 on Forbes 400
Estimated net worth $2.3 billion
Age 82
Wealth is primarily from self-storage facilities (founder of Public Storage)
Self-Made Score 9

Spendthrift Farm, Lexington, Kentucky


Brad Kelley, Franklin, Tennessee, ranked number 307 on Forbes 400
Estimated net worth $2.2 billion
Age 58
Wealth is primarily from tobacco and he is also one of the leading land owners in the United States
Self-Made Score 9

Calumet Farm, Lexington, Kentucky


Sid Bass, Ft. Worth, Texas, ranked number 342 on Forbes 400
Estimated net worth $2 billion
Age 59
Wealth is primarily from oil and investments
Self-Made Score 4

Husband of Romana S. Bass, who is a well-known racehorse owner and philanthropist.  Her father, Arthur Seeligson, Jr., bred and raced stakes winners in the United States and Europe, as well as co-owned Hialeah Park Race Track.


Two former racehorse owners are also on the Forbes list:  Carl Icahn (#22/400 and $20.5 billion) of New York and Robert McNair (#194/400 and $3.3 billion) of Texas.

Copyright © 2015 Horse Racing Business