In California, Politics Colors Takeout Fight

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by Tom LaMarra and Tracy Gantz

An ongoing battle over pari-mutuel takeout rates in California isn’t only a major issue in the war over horsemen’s representation in the Golden State, but it also has moved horseplayers’ involvement in political issues in racing to a new level.

The movement picked up momentum earlier this year with a “boycott” of California racing after certain takeout rates were increased at the urging of an industry coalition. A law to that effect was passed in September 2010 and took effect Jan. 1.

Takeout on exactas and daily doubles went from 20.68% to 22.68%, while the rate for exotic wagers involving three or more betting interests went from 20.68% to 23.68%. The rates increased 9.6% and 14.5%, respectively.

The goal was to increase purses, which the legislation has done. The purse hike, however, has done little to aid field size in California, a veritable island compared with states whose racetracks are within easy shipping distance.

The Southern California numbers maintained by The Jockey Club Information Systems indicate a good bump in purses but not the number of runners per race when comparing 2011 with 2010.

At this year’s Santa Anita Park winter/spring meet, purses paid totaled $29,335,718 over 65 days, up from $28,005,440 for 73 days in 2010. Average daily purses increased 17.6%, from $383,636 in 2010 to $451,319 in 2011.

Field size at Santa Anita, however, went from 7.77 horses per race last year to 7.61 this year even though its synthetic surface was replaced with dirt at the urging of horsemen.

Through 37 days of this year’s Hollywood Park spring/summer meet, purses paid totaled $15,080,052, up from $13,299,606 last year. Average per day increased 13.3%, from $359,449 in 2010 to $407,569 in 2011.

Field size at Hollywood Park has dropped as well, from 7.81 last year to 7.64 this year.

At Golden Gate, long plagued by field-size woes, purses are up but handle is down as well.

Horseplayers got vocal

The takeout hike was a call to action of sorts for the Horseplayers Association of North America, which advocates decreases in pari-mutuel taxation in all jurisdictions. HANA, along with other bettors based in California, called for the boycott of racing at Southern and Northern California tracks.

With nationwide handle down almost 8%, it’s hard to gauge the scope of the boycott. But HANA projects total decline of about $400 million by year’s end in California, given a $150 million drop at Santa Anita alone.

A months’ long email barrage and regular posts on message boards garnered enough attention to land several horseplayers invitations to industry-issues meetings that began this spring in California. California horseplayer Andy Asaro, who attended the most recent meeting, said two individuals commented that 97% of racetrack customers don’t know about or care about takeout.

“It was a very ignorant comment,” Asaro said. “It implies that 97% of customers are suckers. If you’re going to compete with other games of skill you have to be able to compete for customers. There is a lot more awareness of takeout today.”

That would appear to be true. In a trend that started catching on last year, racetracks around North America—Thoroughbred, Standardbred, and Greyhound—began experimenting with lower takeout rates for certain types of wagers or added wagers with lower rates. At the urging of horseplayers, Hollywood Park this spring added a pick five with a 15% takeout rate; according to reports, however, management had to fight to win approval for it.

Through June 21, total handle at Hollywood Park was down $29.68 million (about 12%) from the previous year’s figures, according to handle statistics. The wager-by-wager declines were across the board—from 1.4% for the pick six to 21.9% for trifectas.

The pick five generated $6.56 million in “new” handle for the period. If there was no pick five, and the money didn’t migrate to other Hollywood pools, total handle would be down about $36 million.

Despite the handle decline, Hollywood Park announced June 23 it will increase purses 10% effective June 30 for the final three weeks of its meet.

The Thoroughbred Owners of California, the official horsemen’s representative in the state, has taken most of the heat for the takeout hike, though the California Horse Racing Board hasn’t been spared criticism. The announced objective for the increase was simple: to increase purses and bolster field size.

“I think the TOC position is in line with the industry coalition that enacted (the legislation),” TOC chairman Jack Owens said. “It was the product of an industry-wide effort led by the CHRB to increase purses in California in order to try to protect and build the inventory of horses.

“It was a coalition. (The legislation) was supported by every major racing interest in California. It was a clear recognition by that coalition that the additional funds needed to go to purses in order to keep California competitive with other states and in order to try to maintain, and even improve, the horse population in California.

“It was an example of industry unity and leadership by the CHRB. And the industry recognition of the importance of doing it is evidenced by the fact that all the California organizations forswore their commissions. The money was primarily dedicated to purses. Not a dollar goes to TOC; not a dollar goes to track commissions in California.

“The coalition worked very, very well until right at the end when the handful of trainers who are behind (California Thoroughbred Horsemen’s Association) switched positions at the final CHRB meeting, and unlike any other industry element, sought to get the money into their pensions. The CTHA is really about a fairly small group of trainers primarily interested in increasing their pensions.

“That group right at the end switched positions and tried to block the law unless they were given a significant contribution to their pensions. Well, the thing had too much momentum and it went on through.”

The California Thoroughbred Trainers, which supports a vote for representation, disputes that contention. Officials said the CTT opposed the bill because an exchange wagering provision had been added, not because of pensions, which were discussed months after the legislation signed into law.

Takeout becomes political chip

Attorney Roger Licht, a one-time member of the CHRB who is assisting the CTHA in gathering signatures with the eventual hope of being certified as the official horsemen’s representative, said the takeout issue is part of the battle, and horseplayers have played a role.

“So many mistakes have been made by horsemen—ignoring the racetracks, horseplayers, and owners and acting on their own without getting the support of other constituencies,” Licht said. “Are they doing what they believe is in the best interests of racing, or are they acting in what they thought was in the best interests of racing?

“I think the horseplayers are a critical part of the game, and they need to be listened to. Studies are in accord with what (HANA) says. You can’t just raise prices and figure the customers are stupid. California guys are at the forefront, and may be more educated (on the issues), but what’s going on is this: They are an important voice to listen to.”

The TOC said it has been analyzing betting patterns to glean more information and, according to Owens, hasn’t ruled out recommending changes. Owens also said the CHRB makes the ultimate call, and that the TOC wasn’t “the architect of the specifics of the takeout structure that was adopted,” something disputed by the horseplayers.

“We’re looking at this on a weekly basis,” Owens said. “We’re trying to study the objective information to see if maybe there’s a better balance with some tweaking here and some tweaking there. That’s not ultimately our call, obviously. That will be decided by powers greater than we are.

“But we are certainly not closed-minded about this subject. We’ve had meetings with the gambling groups. We’re looking at this constantly. There have been meetings with HANA. Believe it or not, all the board members are horseplayers, too. But I think that we’ve got to step back if we can and try to keep the decision-making based on objective facts, and try to protect the health of the business as much as we can overall.”

Supporters of the takeout hike have noted Belmont Park in New York generated a record pick six pool that paid out June 15 even though the takeout rate for the bet was 26% because of a carryover. According to the New York Racing Association Web site, the takeout rate is 26% for other wagers, including pick threes, pick fours, trifectas, and superfectas.

(As noted by a New York racing fan, because more was paid out June 15 than was bet because of the carryover, there effectively was no takeout on that pick six.) 

In Pennsylvania last year total export handle on Thoroughbred and harness racing actually increased, mostly because of an improved product aided by revenue from slot machines. Pennsylvania tracks, however, have some of the highest takeout rates—30% or more—on certain types of wagers, including trifectas.

Dean Towers, a horseplayer, said he believes handle volume in Pennsylvania is attributed to rebates given the amount of money betting outlets keep because of the high takeout. Therefore, he said, “published takeout rates don’t seem to make too much of a difference.”

In California, however, residents who wager through advance deposit wagering systems are capped at 3% for rebates. And, because of archaic simulcast laws that limit the number of imported races tracks can offer on site, patrons are forced to wager through ADW systems if they want a full menu.

Asaro said horseplayers are lobbying for changes beyond takeout rates. “We’d like rebates similar to what others give their players,” he said.

TOC takes proactive stance

The TOC has been more proactive in the wake of the challenge by the CTHA, sending an email newsletter recently and scheduling two open forums for horsemen: June 25 at Hollywood Park and June 26 at the satellite wagering facility at the Alameda County Fair in Pleasanton. TOC directors will be there to answer questions.

Licht said the push by the CTHA will continue.

"We’re confident we’ll get more than the 800 signatures (required to move forward),” he said. “We’ve got well over half without sending out letters of solicitation. In and of itself, that says a lot, because not one candidate for the TOC board could muster up enough signatures to run.

“If this gets to an election, it will be an indication of the number of active people and how they feel.”

Owens said the TOC will continue to explain its policies and positions to members, some of whom are trainers. He also claimed the anti-TOC sentiment stems from a desire by some for a trainer-controlled organization.

“The CTHA is actually controlled by the dissident trainer group that took over the (California Thoroughbred Trainers),” Owens said. “It comes down to whether owners want an independent owners’ organization representing their interests or an organization that will be largely controlled by the trainers who took over CTT.

“I believe that it’s very much in the interest of owners to understand why it is that an owners’ organization, with owner-trainer input, does a better job of trying to advance their interests.”

National group chimes in

The TOC has picked up a supporter in the Thoroughbred Owners and Breeders Association, which released a statement June 23 endorsing the TOC and its mission.

“Since its formation in 1993, the TOC has performed exemplarily as the representative of Thoroughbred owners in California,” the statement from the TOBA board of trustees said. “It has been and remains the model structure for owners’ representation at the state level. As the primary stakeholders in the sport, racehorse owners should demand an independent owners’ organization, and the TOC has provided the necessary leadership on vital issues for its constituency.

“The board of trustees of TOBA strongly endorses the TOC to remain in its current role as the representative horsemen’s group in California. TOBA’s mission is to improve the economics, integrity, and pleasure of the sport on behalf of Thoroughbred owners and breeders, and our purpose and ideals closely parallel those of the TOC.

“Members of the TOC board of directors are not only significant investors in Thoroughbred racing, but their collective business experiences are a valuable resource for all owners racing in California. The TOC has performed well representing owners and should be continued in its present form.”

Accusations and allegations of various agendas continue to fly, but HANA and the more politically active California horseplayers claim to be focused on one goal: returning takeout rates to 2010 levels—or less.

HANA president Jeff Platt, who in May called for a continuation of the betting boycott, said that in the summer of 2010 he told the CHRB at a meeting plans to raise the takeout at Los Alamitos in California was a mistake. The racing board approved the rate hike.

Platt, in strongly worded comments, said the entire process since last summer has been driven by “utter incompetence.”

“Proponents of the takeout increase used flawed revenue projections saying there was little or no elasticity between takeout and handle,” Platt said. “They argued handle would remain the same, enabling purses to increase dramatically, and that field size would go up as a result of the increased purses—in turn generating increased handle and revenue. Of course none of that happened.

“HANA gave the legislature a more realistic argument. We told them the CHRB, TOC, and track management were using flawed revenue projections. We told them that racing’s customers see takeout as already too high, and that racing’s customer base would not support further takeout increases. We told them a takeout increase would cause handle to plummet, which in turn would have disastrous long-term consequences for track bottom lines and purses.

“We told them exactly what would happen beforehand, and then watched it play out almost exactly as we called it.”

HANA member Roger Way of California said horseplayers will assist the industry in assessing takeout rates. He also said change is coming, but it may not be enough.

“We will see a reduced takeout in the near future of perhaps 1%, but anything less than the 2%-3% increase at the first of the year will not be satisfactory,” Way said. “We will win this thing in the long term because we have the big gorilla in the room. His name is ‘competition and economics,’ and his best pals are the horseplayers, also known as the customers.”

“Look, nobody wants a price increase for anything, gas or anything else,” Owens said. “Nobody wants an angry fan. But you have to balance these things as best you can for the sake of the overall health of the business.”