Anne M. Eberhardt

Panel: Racing Should Invest in Pricing Study

The issue of optimal pari-mutuel takeout rates was discussed Dec. 7 at the symposium.

Difficulty in obtaining pari-mutuel wagering pool data and detailed player data is a major hindrance to the racing industry determining the optimal price point for takeout rates, speakers said Dec. 7 during the University of Arizona Symposium on Racing & Gaming in Tucson.

If attendees were hoping to hear a magic number, they were out of luck. But they were told by Dr. Caroline Betts, an economist at the University of Southern California, to invest in experimentation.

“Field experimentation is far and away the most efficient way to determine optimal business decisions,” said Betts, who spoke during a panel discussion on pari-mutuel takeout. “But because the model is an abstract object, it’s always going to be wrong to some degree.”

Steve May, vice president and business manager of the Association of Racing Commissioners International, outlined some research on takeout rates he did while in the University of Arizona Race Track Industry Program. May said it was extremely difficult getting information from within the industry, but it was a starting point.

“I think there is something there,” May said. “The onus is on different groups in the industry to provide the data. It’s essential.

“It’s going to take a lot of time and a lot of money from the industry to do this, but there are a lot of problems with how we’re looking at (takeout rates) right now.”

May said earlier studies, some of which are 50 years old, are no longer relevant. He also said there is no proof to back up claims by some handicappers that 9%-10% is an optimal takeout rate.

The blended average in the industry is about 20%, or 20 cents per every dollar wagered. In the last two years, however, more than a few racetracks have experimented with per-bet takeout reductions with some success from the standpoint of increased handle.

The key, said May and Betts, is matching increased handle with increased revenue, which isn’t always the case.

“Making business decisions without any real data becomes a big problem,” May said.

Various economic studies have been performed on the issue of wagering taxation, but the industry never has rallied behind a broad effort to study optimal pricing.

Economist Will Cummings, a principal in Cummings Associates, suggested advance deposit wagering companies have “extensive” data on wagering pools, player profiles, and rebates. That information, however, is closely guarded by ADW providers.