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Friday, January 22, 2010

Horseplayers Revolt

For any track thinking of raising their takeout to raise additional revenue, here is a cautionary tale. Los Alamitos, a quarter horse race track in California, had recently asked the CHRB for a 2% increase in the take out to increase revenue for the track, horsemen and the satellite locations in state which were threatening to close early and not take the signal from Los Al. The owner of Los Al did state sympathy for horseplayers, realizing it would not be popular for them as it will take money out of their pockets, but it was necessary to keep the satellite locations open.  However, if the takeout increase was only to keep the satellite locations open, he would have asked for a 1% takeout increase (the other 1% of the increase is being split between horsemen and the track).

Well, the horseplayers have revolted. Thanks to the Internet and with the help of HANA, an apparent boycott of Los Al races has begun. The handle dropped roughly 25% last night as a result of an Internet campaign by horseplayers. If this protest continues to be successful, a message will be sent not only to Los Alamitos management, but to track management, horsemen, and racing commissions all over, regardless of breed that today’s horseplayers are sophisticated to know they have a choice where to spend their discretionary gambling dollars and will vote with their money. Gamblers love the game but it is hard enough to win as is; there is no need to make the game tougher by increasing takeouts.

It is basic economic theory that the cheaper a product is, the more consumers will buy. To put it in context of this discussion, the lower the takeout, the more people will bet and increase the handle. Obviously you can't price the product too low where you lose money, but no one is realistically expecting the takeout rate to drop to 5% or so. Hopefully, with this Los Al protest, race track management and horsemen will remember this basic rule of economics.

To the credit of many race tracks, they recognize the benefit of cutting takeout rates. Unfortunately, there is a history of simulcast locations and ADWs dropping a signal when a takeout reduction has been attempted, thus killing the handle. The question must be asked is this punishment of dropping a signal an exercise of the free market or is it restraint of trade? I suspect one day this may be resolved in court and if ruled restraint of trade, then you will see takeout rates dropping all over.

I sympathize with Los Al attempting to keep the satellite wagering locations open, but they must realize with the rise of ADWs, the need for these OTB locations is decreasing. Rather than attempting to prop up these OTBs (they have been subsidizing some of these locations to keep them open) at the expense of horseplayers, the answer may be to adapt to the new business model instead.

1 comment:

Cangamble said...

It is bad business to raise takeout to try to make more money. It goes against economic theory too.
If any track wants a better bottom line, they need to reduce takeout to come close to the optimum takeout level (which we know is 12% tops and probably lower), not diverge from it farther.