Pricing Pits Industry Against Some High-Volume Bettors
by Tom LaMarra
Date Posted: 3/5/2004 3:16:33 PM
Last Updated: 3/6/2004 4:38:48 PM

The debate over pricing, rebating, and computer betting has put the pari-mutuel industry at odds with some of its best customers, and judging from the latest exchange of opinions and statistics, it could be some time before the situation is resolved.

"We're not in Kansas anymore, but we're not in the Emerald City, either," said Bennett Liebman, who heads the Albany Law School Government Law Center in New York. "This in an industry that can't decide whether racetrack is one word or two words ... Nothing is going to happen easily."

Liebman was one of several officials who participated in panel discussions March 5 during the joint meeting of the Thoroughbred Racing Associations and Harness Tracks of America in Fort Myers, Fla. The primary focus was on a pricing system which, depending on the opinion, has generated new handle or merely shifted it around at the expense of revenue for racetracks and horsemen.

David Willmot, president of the Woodbine Entertainment Group, said racing's economic model doesn't lend itself to a healthy bottom line to begin with, and the situation is aggravated by "opportunistic third-party operators" that have lured customers away from the track to wager through systems that offer financial incentives. He spoke in regard to rebate shops that pay host fees but retain a large percentage of revenue that otherwise would go to support live racing operations.

"We are fools as an industry to be selling our product on the same pricing structure that we sell it to other racetracks," Willmot said. "Why allow four or five (percentage) points to go to a third party? It's a self-defeating distribution and pricing model."

Though firm figures are unavailable, the industry believes that about 1,000 high-volume bettors account for $1.5 billion in handle -- 10% of the Thoroughbred total -- each year. Some say it's new money, while others say it's old money that no longer goes through the windows at racetracks.

Dave Cuscuna, a pick six player who operates through rebate shops, said on-track handle began to drop well before the first rebates were offered at Nevada casinos in the 1990s. He cited California, where on-track handle has consistently declined 3% to 5% each year since 1993.

"You're better off as a racetrack with the current structure than without it," Cuscuna said.

Steve Mitchell, vice president of operations and mutuels for WEG, called the shops "SMPOs" -- secondary pari-mutuel operations -- that cater to big bettors. He offered WEG statistics that suggest rebates could eventually bankrupt regular customers by effectively hiking takeout.

Mitchell said WEG doesn't do business with SMPOs. Tampa Bay Downs for its current meet cut off two shops track general manager Peter Berube said were creating imbalance in the pools, and the decision was in part responsible for an increase in handle through the first 57 days of the meet. The shops are said to employ "batch-betting" technology that drops large sums of money into pools at the last minute.

Berube said the two shops, which he didn't name, accounted for $7.4 million in handle and a net contribution of $5.7 million. He said the customers ended up with $8 million in "winning dollars," or $2.3 million above what they contributed to the pool.

"That's just unheard of in this industry," Berube said. "They're basically harvesting our pools from our everyday players. Access should only be granted or denied based upon anticipated impact on the (wagering) network as a whole."

Berube said handle is up about $35 million from the corresponding meet last year, and that $10 million of that has come from the cut-off of certain wagering outlets. Not everyone agreed, however, that Tampa Bay is looking out for its customers' best interests.

Maury Wolff, an economist and like Cuscuna a member of the National Thoroughbred Racing Association Players' Panel, said takeout rates at Tampa -- 18.9% on win bets, 22.5% on exactas, and 25.9% on trifectas -- are among the highest in the country.

"As a customer, I don't think that's a business looking out for my best interests," Wolff said. "These are extremely high takeout rates, and if I were playing Tampa, I wouldn't feel highly protected."

Wolff, like Cuscuna, believes there are price-sensitive players who respond to shifts in takeout or rebate percentage points. He noted the pari-mutuel industry has very little flexibility on pricing, and therefore has "probably the worst pricing model a business has ever devised."

Chris McErlean, vice president and general manager of Meadowlands for the New Jersey Sports and Exposition Authority, said the track isn't ready to remove rebate shops from the equation. He estimated 15% to 20% of the about $800 million wagered on Meadowlands and Monmouth Park racing is generated by high-volume bettors.

"We are an addict," McErlean said. "I liken it to methadone treatments. Once you get started, it's difficult to break the habit ... How is that money replaced? It's chipping away at our handle and our economic model, and it might be sooner rather than later Meadowlands will have to make a decision on it. But it is a fix, and it's difficult to give up."

During an earlier panel discussion on account wagering, Michael Veitch, chief marketing officer for Youbet.com, said a decision late last year by Magna Entertainment Corp. to pull signals from account-wagering providers proved rather telling on a few counts.

"Our business is better because we're not carrying (the signals), and revenue in absolute dollars is up," Veitch said. "The customer expressed a preference for an Internet site over content. But we owe Magna a debt of gratitude, because the results of their experiment are out there for all to see."

AmericaTab, an account-wagering provider that like Youbet.com hubs through Oregon, also lost the MEC signals. Handle, however, was up 44% in January and 30% in February compared with 2003 numbers, said Mike Weiss, general manager of Beulah Park, one of the primary owners of AmericaTab.

The decision by MEC, which operates the XpressBet account wagering service, to restrict access to its signals was supposed to be a major part of the panel discussion. McErlean, the moderator, said Ron Luniewski of XpressBet was unable to attend.

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