Ed Comins at the Global Symposium on Racing in Tucson, Ariz.

Ed Comins at the Global Symposium on Racing in Tucson, Ariz.

RTIP/Veronica R. Branson Photography

Symposium Panel Calls for Reduced Takeout Rates

Panel roundly supported reduced takeout in single-race wagers.

There was a dead silence after Ed Comins delivered one sentence during a panel discussion titled "Handle Stagnation: How to Move the Needle Upward" Dec. 5 at the University of Arizona Race Track Industry Program's Global Symposium on Racing.

Comins, the president of advance-deposit wagering company and racetrack operator Watch and Wager, took issue with the title of the session.

"Handle is not stagnating. Handle is massively declining. ... To my mind, unless things change, U.S. racing is in a terminal decline," Comins said.

The statement may have been an exaggeration for effect, and the uncomfortable quiet wasn't long as Comins paused, but it was palpable. Despite more opportunity than ever to wager on horse racing, pari-mutuel handle is not growing, and the consensus remedy during the panel discussion Tuesday in Tucson, Ariz., was to reduce takeout rates.

Comins was the last of four speakers during the session, and each urged industry stakeholders to decrease takeout, specifically on single-race wagers, in an effort to increase churn and provide a path to the long-term viability of the pari-mutuel model. The takeout rate is the percentage of money removed from each pari-mutuel pool, largely to pay tracks and purses.

If the consensus on the panel was to decrease takeout for the long-term health of the industry, why hasn't there been a substantive movement toward that goal on a national level? Todd Bowker, general manager of ADW operator Premier Turf Club, said the most significant hurdle is "short-term pain."

"The industry knows what it needs to do ... but I think in many cases it's reluctant because it's not going to be easy," Bowker said. "It's going to involve short-term pain for long-term gain."

The specific call for decreased takeout on single-race wagers is to incubate churn. Bowker warned against lowering takeout on a single pool, which many tracks have done on multi-race wagers like the Pick 5, because increased wagering on "Pick (N)" bets does not lead to as much churn. Bowker cited his own internal statistics, which indicated players who put 75% or more of their total wagering dollars into "Pick (N)" bets had the lowest churn rate.

"Let's look at (decreasing takeout in) the win pool, let's look at the exacta poll, let's look at anything that's a single-race pool, because customers can take those added winnings and bet that on something quick, instead of having their money tied up in the system for a long period of time," Bowker said.

Multi-race wagers also present issues in terms of tying up players' wagering dollars, according to William Nader, who most recently served as the executive director of racing for the Hong Kong Jockey Club and previously served as the senior vice president and chief operating officer at the New York Racing Association.

Nader said a single takeout rate for one wager covering multiple races is detrimental when compared to a scenario where that rate could be applied to each race, if the player were to wager on each race individually.

"I don't personally understand why 15% takeout is needed on a Pick 5 bet, where the takeout only comes out one time and that money can be tied up for two, three, four, even five races," Nader said. "The industry is going to get a small number, relative to what it could get on lower takeout on win, place, show, and exactas."

Marshall Gramm, the chair of the Department of Economics at Rhodes College who called himself "a horseplayer first and an economist second," implored tracks to experiment with lower takeout, but similar to Bowker, indicated short-term losses might be necessary.

"Why are tracks raising takeout? ... Each track is competing for a bigger piece of what is a smaller pie, in what would be an even smaller pie in the future," Gramm said. "This is unfortunately what we're seeing."

Gramm also said increasing takeout, like Keeneland did in 2017, could bring gains in the short term, but would eventually "chase away" customers.

"Raising takeout in the short run is not going to have a large impact on handle," Gramm said. "But it will have a smaller impact in the short run than in the long run. ... What ends up happening is we raise takeout for short-run gains—total revenue will go up in the short run. ... But in the long run, it will chase away players from the game and we need to focus on the long run."

Gramm also brought up the availability and cost of data in racing, as well as industry apprehension to embrace "computer bettors," which he feels is an impediment to handle generation.

"We have a number of students who are enrolled in a course called 'Data Management Analysis,' so they're basically working with big data and analyzing big data," Gramm said. "You can't do that with horse racing. The data isn't out there, so they're going to run a lot of data replications on baseball, because it's easy to get baseball data—it's free and available. ... Wouldn't it be great for these students to do that with horse racing, and then come up with betting systems and then upload those bets?

"That's something that a lot of people will be able to do in the future. We're afraid of computer bettors, but I think we should embrace them."

Other aspects the panel felt would be beneficial to generating handle are eliminating breakage, altering takeout for races with fields of five or less horses, and listening to and addressing common customer complaints.

In an earlier session at the Symposium, a related issue to handle generation was discussed with a panel addressing field size.

Consultant Wilson Shirley started the session with a detailed look at the yearly decreases in foal crop, starters, and races in the U.S. He estimated a 7% decrease in "racing inventory" through the end of the decade and a loss of about 3,000 races.

National Thoroughbred Racing Association president and CEO Alex Waldrop later responded to the declining numbers by pointing to declining ownership.

"When we're talking about horse population, we're not really talking about lack of foals. We're talking about lack of owners," Waldrop said, before he gave a presentation on the tax changes pending in Congress. After his presentation Waldrop said he felt the proposed changes in tax policy would be "on balance, a good thing" for the industry.

To the question proposed in the title of the panel discussion, Florida Thoroughbred Breeders' and Owners' Association CEO Lonny Powell provided an answer.

"This industry has dealt with multiple forks in the road for at least as long as I've been involved, which has been my whole life. And your answer always has to be, 'Yes, but we understand it's going to take a lot of hard work and it's not going to be easy and it's going to be full of challenges,'" Powell said. "There are ways to do more (with less)."

Powell emphasized the need for new owner acquisition as well as owner retention, which, he said, requires extra effort.

"We need to improve the owner environment and the owner experience. ... All horse owners and potential horse owners expect us to market and deliver the ownership experience," Powell said. "It includes the sporting competition, it includes the social aspects—which are really important if you're going to be involved in the game of ownership—and it includes fun, and I say that in all capital letters and with an exclamation point."

Powell then advised those in the industry not to have a self-deprecating humor about ownership and wagering on the game.

"Hey, you know, I'd like to buy a horse. You know what, take all your money put it on a conference table and take a picture of it, because that's the last time you're going to see it," Powell said, imitating a common joke about getting into racehorse ownership. "That makes us laugh and we know it's a tough game, but I submit to you we have to rethink the way we have those types of conversations with members outside our industry. ... It's not always well-taken."