Experts Take Aim on Takeout in Tucson

Betting on horse racing is too expensive in today's competitive gaming environment. That's a message that speakers delivered in presentations on the opening day of the Global Symposium on Racing in Tucson, Arizona Tuesday. The annual event is sponsored by the Race Track Industry Program at the University of Arizona.

Several experts emphasized the need to reduce takeout rate to increase churn and thus increase the track's bottom line. Racing's takeout is a turnoff for many sports bettors or casino regulars, they agreed.

“We need to listen to our customers and get more money back into their hands,” said Stan Bowker, general manager of Premier Turf Club, LLC. “It's that simple. Having said that, I should just drop the mic and sit down.

“Our customers are saying that they don't trust the game,” Bowker continued. “They think drugs are rampant. They don't think there is much value in the pools. They think the game is too expensive. They want big fields. They lament that super trainers win so many races, and that causes people to not bet because they can't win.”

As an example, Bowker said that his customers often ask him why tracks charge for parking while casinos don't.

“Bottom line, we need to find a way to put more money back in the customer's hands,” he said. “We need to change the betting menu to increase churn. Years ago, the big thing tracks needed to do was to make our TV presentation as attractive as possible. Now it's lowering takeout.”

Ed Comins, president of Watch and Wager, the fourth largest Advance Deposit Wagering firm in USA, gave attendees a wake-up call when he said, “Handle is not stagnating. It is massively declining. To my mind, unless things change, U.S. racing is in a terminal decline.”

Comins said that racing seems more intent on “protecting the cake rather than growing it.”

“Most of the innovation is coming from outside the US,” he continued. “Things are not lost, but racing needs to stop the infighting. It needs to embrace technology. We are a cashless society. Why can a bettor swipe a credit card to make purchases just about anywhere else, but not in at a race track?”

Bill Nader, principal of Grand Slam Consultancy, LLC, talked about his experience in Hong Kong and noted that horse racing outhandles the Hong Kong lottery 17-1. He said racing needs to make a concerted effort to increase handle through reduced takeout on win-place-show and exacta bets, allowing dollars to turn over and create churn.

“Average field size is 12.6 horses per race in Hong Kong, and that helps drive the handle,” said Nader. “When fields are small, takeout should be reduced. It's like a merchant putting out a sign that reads 'Reduced for a quick sale.'”

Nader emphasized that racing is unique because customers can connect with the sport of racing through pari-mutuel betting.

“We just need to work on fundamentals: field size, integrity, quality racing, and liquidity,” he said.

Nader concluded by saying, “It's time to implement real change in racing. We need to make a bet on ourselves.”

Marshall Gramm, PhD, an avid bettor, described himself by saying, “I'm the degenerate on this panel.”

Gramm teaches a class at Rhodes College in Tennessee on the mathematics of betting horses, that has proven very popular with students.

“It is hard to talk value in a game with an 18-25% takeout,” Gramm pointed out. “Not when students can bet sports with lower takeouts. Racing no longer has a monopoly in regional gambling. It has limited marketing power. Potential new racing customers are priced out by takeout rates.”

Like Nader, Gramm emphasized that racing should experiment with lower takeout on races with short fields and raise it on the larger fields.

He also advocated eliminating breakage.

“That would create churn,” he said. “Breakage is just hidden takeout. Eliminating it will push more money into the place and show pools.”

“Encourage innovation,” Gramm stressed. “Racing should give customers the tools to do computer analysis of handle to find the most efficient plays. The data is not out there in horse racing, but it is in other sports. Racing is afraid of computer bettors, but we should embrace them. Why not let everyone be a computer bettor? Make the data available.”

The day's opening session asked the question how racing can “do more with less” and several speakers offered advice about coping with a contracting Thoroughbred breeding industry.

Consultant Wilson Shirley detailed the precipitous drop in Thoroughbred foal crops and said that the three causes of those declines were the 1986 Tax Reform Act, the Mare Reproductive Loss Syndrome of 15 years ago, and the recession of 2008.

“The number of races in the United States declined 25.7% from 2006 through 2016,” Shirley said.

Alex Waldrop, president and CEO of the National Thoroughbred Racing Assn., spoke about the current tax reform bill in Congress and its potential impact on horse racing.

“We start with the premise that tax policy does matter to horse racing,” Waldrop said. “Horse racing suffers from a lack of owners because owners are sensitive to tax policy.”

Waldrop detailed the impact of the 1986 Tax Reform Act in lowering marginal rates and how revised active/passive participation distinctions caused an exit of horse owners. He said that the 2017 tax bill reconciliation in Congress is a “very fluid process” and noted, “I see the House of Representatives version moving more toward the Senate version of the bill, but this is far from a done deal. Certainly, the 1986 tax changes were bad for horse racing. I wish I could tell you that the 2017 tax law will be beneficial, but I don't know. On balance, however, I think so.”

Lonnie Powell, CEO of the Florida Breeders and Owners Assn., emphasized that in his long career the horse racing has always had to do more with less. He said that the challenges of today are really long-standing challenges.

Powell said that two economic engines of the Thoroughbred industry are horse players and horse owners.

“They are tough to identify, recruit, and retain,” said Powell. “We have to sell them what they want because these are people who vote with their feet.”

Getting new owners is important and also more challenging than ever before, Powell stressed.

“Tracks need to improve the owner environment and experience,” he said. “Owners deserve better communication. They also need to be involved in racing's efforts at our state capitols.”

Moderator Dan Fick, representing the Racing Officials Accreditation Program, outlined the efforts of various racing organizations to promote horse ownership, not only in the Thoroughbred world but also by the American Quarter Horse Assn. and the U.S. Trotting Assn.

In a later session titled “Hair Testing: Giving New Meaning to Having a Bad Hair Day,” Janet Van Bebber, president of the American Quarter Horse Racing Assn., emphasized that horse racing had a problem with the “massive abuse” of anabolic steroids and clenbuterol.

“Some horsemen think that if a little of a drug is good, a lot is better,” Van Bebber said, noting that she had witnessed the disastrous results of overdosing horses with certain drugs. “Our responsibility is to protect the welfare of the American Quarter Horse and also protect the integrity of our racing product. I am comfortable with breed specific regulations we now have.”

The American Quarter Horse Association has adopted a zero tolerance for clenbuterol while Thoroughbreds and Standardbreds permit clenbuterol use with different withdrawal times.

Van Bebber was joined by Dr. Scott Stanley of the University of California-Davis and Ismael Trejo, executive director of the New Mexico Racing Commission. Dr. Stanley spoke about research on the impact of clenbuterol, while Trejo outlined the enforcement policy in New Mexico.

An afternoon panel addressed how racing can leverage handicapping tournaments to advance the sport.

Addressing this issue were Keith Chamblin, COO National Thoroughbred Racing Assn., John Hartig, DEO of the Daily Racing Form, and horseplayer John Fisher. Chamblin spoke about the National Handicapping Challenge and said its purpose is to drive interest in wagering. He detailed how much increased handle the contest has generated for tracks.

“The handle is generated on-track right through the pari-mutuel windows,” he said. “We love that. We don't think we have the price point quite right. We need to work harder with our racetrack partners to get that correct.”

The Global Symposium on Racing concludes Wednesday.