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.

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