Moon: Getting Back To Basics Will Attract Handle, New Horseplayers

Wagering handle in North America has been on a negative trajectory for over a decade. It peaked at just under $16 billion in 2003 but has dropped year over year in nine of the last eleven years. In 2014, the total North American wagering handle was just over $11 billion, which is equivalent to 1995 levels. The global economic decline surely played some part in this negative trend but it cannot account for a 30% drop since the 2003 peak. I believe the other major factor driving this trend is the over-saturation and push towards super-exotics (Pick 4, Pick 5, Pick 6, Superfecta and Super High Five).

The Thoroughbred racing industry spends a significant amount of money marketing these exotic wagers in an attempt to attract new horseplayers and to increase wagering handle. In recent years, there has been a hard push towards super-exotics. Some of these wagers have been transformed into jackpot style bets that only pay out if there is a single winning combination. Others have had their takeout rates lowered, making them more player-friendly while the rest continue to be offered with unacceptably high takeout rates.

From a handle growing perspective, lowering takeout rates is a proven winner. Just look at the past few meets at Kentucky Downs for proof. Jackpot wagers are the polar opposite because they often keep tens of thousands or hundreds of thousands of dollars out of the wagering pools for long periods of time — then all of the money is paid out to a single winner. This is a double-edged churn killer. First, by holding the carryover money out of the pockets of horseplayers for days, weeks or months, it becomes stagnant because it cannot be reinvested into the wagering pools. Secondly, by distributing all of the money to a single winner, the money cannot be reinvested as quickly or efficiently because one person will take much longer to do so than a group of dozens or hundreds of people.

The low takeout super-exotics are a step in the right direction but they too are not without fault. The first was the “Players Pick 5,” which was the brainchild of a horseplayers' advocate group in Southern California in response to the California Horse Racing Board's decision to increase takeout rates on the entire wagering menu. The Players Pick 5 was added to the wagering menu at Southern California tracks with a 14% takeout rate and $0.50 minimum wager amount. It quickly became the most popular wagering option despite being offered on what are almost always the least appealing betting races of the day. Its continued success has now grown to a level worthy enough to question the viability of the Pick 6, which has not surprisingly suffered since its inception. In fact, Del Mar recently proposed changing its Pick 6 from the traditional version to a jackpot wager similar to Gulfstream Park's Rainbow Pick 6 but with a $2 minimum instead of a $0.20 minimum.

For horseplayers, the success of the low takeout Pick 5 is no surprise. It is proof that lower takeout rates will increase participation in the wagering pools. Fortunately, other tracks realized this and as of this writing, one third of North American tracks offer a low takeout (15% or lower) Pick 5. It is a move in the right direction and ideally will trigger a downward shift in takeout rates for all wager types at all tracks. Being a realist, I do not see that happening quickly because nothing seems to happen quickly in the horse racing industry, but I do see an opportunity to continue the movement and at the same time, reverse the negative handle trend the industry currently faces.

Win, Place, Show, Exacta and Daily Double
The low takeout Pick 5 is a welcome addition to the wagering menu, but it is not the optimal way to increase wagering handle. The reason is that selecting five consecutive winners, even with a low $0.50 minimum wager amount, is very difficult and not suited to small and medium bankrolled players. Sure, those players can take a shot at the Pick 5 occasionally, but doing so on a daily basis will likely put a severe strain on their bankroll because there will be inevitable long losing streaks. It is the same reason why these players should avoid the $2 Pick 6 and $1 Super High Five. There are too many combinations and given the bankroll size, not enough can be covered to give the player a reasonable chance of long term profits without getting extremely lucky.

While the low takeout Pick 5 may not be the ideal wager for growing wagering handle, it is proof that lowering takeout rates will generate more wagering handle. Combining this principle with less risky wager types will result in increased handle because of higher churn rates. By putting more money back into horseplayers pockets through lower takeout rates and more frequent winning bets, there will be more money to put back into the wagering pools. This is why I believe the industry should focus on lowering takeout rates on Win, Place, Show, Exacta and Daily Double wagers. They are the least risky wager types.

Here's a perfect example of how focusing on these bets can increase churn rates. A few weeks ago, I played in a cash handicapping contest at Delaware Park. The format was Win, Place and Show bets only with a minimum wagering amount of $10. My bankroll was $100 and I had to make at least ten $10 bets, but I could bet more or go all in at any time. Here's what happened. I hit two of the first three win bets I made and had quickly doubled my bankroll. Over the next few hours, I connected on a few more bets but also lost a few. At the end of the day, I totaled my contest wagers and I had bet just over $300 dollars. My churn rate was three times my original bankroll. By limiting the contest bets to the most basic of wagering options and combining that with my handicapping skills, my wagering handle for the day was three times my original bankroll.

Another positive example of focusing on these low risk wager types occurred last spring. I noticed Atlantic City was running and decided to look at the short, all-turf meet. With only six races each day, the fields were large. Looking at their takeout rates, I noticed that the Win, Place, Show, Exacta and Daily Double were the only player-friendly options. Going into the short meet, I had not planned to focus on these wagering pools, but afterwards I was happy I did. I was profitable the first five days of the meet, and my R.O.I. was astronomical. Needless to say, I was completely distraught when the final day of the meet was cancelled due to heavy rain and even more so when it was announced the track would be closing earlier this year.

I know these are only two examples of how focusing on the basic wagering options can lead to increased wagering handle, but it should be obvious that if more money is wagered into lower risk pools, more players will cash more often and will put some or all of that money back into the wagering pools. If you combine this idea with lower takeout rates on these pools, the effect can be amplified and wagering handle growth can occur at an accelerated rate. This idea can be further amplified by marketing these low risk, low takeout wagers to new players.

Misplaced Marketing
If you tune into TVG or HRTV you will, in any given hour, be bombarded with Pick 4, Pick 5 and Pick 6 tickets from their on-air talent. The focus is always on the hardest-to-hit multi-race wagers and I can understand why. These wager types produce the biggest payoffs. Of course, we know why this is the case. It's because they are the most difficult to hit even if some of them have $0.50 minimums. On most horse racing websites, there are ads from various race tracks, and they too promote the same type of wagers. There is a perpetual push towards the types of wagers that are best left to large bankrolled players that are able to withstand long losing streaks without tapping out.

If you are playing with $100 or $200 per session, you should never bet the superfecta, Super High Five or Pick 6. The Pick 5 could be played on rare occasion and the trifecta and Pick 4 a little more often. The exacta and Daily Double, however, could be played multiple times per session for many more units than the minimum and provide a much higher hit rate. Win, Place, and Show could be played even more extensively. Using the average field size across all North American tracks for 2014, which was 7.69 horses per race, here's how many combinations each of these options contains:

Win/Place/Show – 8
Exacta – 51
Daily Double – 59
Trifecta – 293
Pick 3 – 455
Superfecta – 1,373
Pick 4 – 3,497
Super High Five – 5,066
Pick 5 – 26,893
Pick 6 – 206,804

Using the typical TVG Pick 4, which limits the budget to $50 on a single caveman ticket, you would only cover 1.4% of the 3,497 possible combinations. With this type of ticket, it is unlikely you would be able to include fringe contenders that are the type of horses that trigger four and five figure payoffs. Instead, you will probably be limited to the top two or three choices in most of the races. The resulting payoff will almost always be disappointing under these conditions, and combined with the low probability of winning, is a losing proposition in the long run. Additionally, by playing only one ticket, you are betting all combinations with equal weight. The situation is worse when tackling the Super High Five, Pick 5 and Pick 6. Even if the ticket limit is increased to $150 or $200, the number of combinations covered is so low that it is not worth betting.

Now consider that in that same four race sequence of that hypothetical Pick 4, there are three Daily Doubles if the track offers rolling doubles. For the same $50, you could play all three doubles or pick one or two. You could bet more on your most confident opinions and less or nothing on your least confident opinions. Statistically you are much more likely to cash a Daily Double than a Pick 4. You can play the Pick 4 and cover 1.4% of the combinations or 2.8% (if you play a $0.50 ticket), or you can crush one of the Daily Doubles and have it ten, twenty or fifty times instead of once.

I am not a marketing expert, but I can see that the Daily Double is not as sexy as the Pick 4, 5 or 6 and the exacta is not as sexy as the superfecta or Super High Five. You will not see articles about a $49 Daily Double or $63 exacta but you will about a $6,678,939 Pick 6 and a $1,186,327 Super High Five. Of course, the first two could have been had by any player while the other two took huge investments to take down. What can be marketed is that you can beat the game if you focus on the right wager types and if you acquire the appropriate handicapping skills. Let's take a look at an example from this past weekend to illustrate this point.

Penn National All Stakes Pick 4
Saturday night was the biggest night in racing for Penn National with five stakes races and over a million dollars in total purses. The first four stakes races made up an all stakes Pick 4. Tracks market these wagers because they consist of the highest quality horses and typically attract more wagering dollars. The Penn National Pick 4 handled just under $200,000. The sequence consisted of winners that returned $6.20, $10.80, $5.80 and $20.00, and it paid $389.50 for $0.50. The sequence also offered three Daily Doubles which paid $36.60, $47.20 and $72.80.

From a high level, the Pick 4 return looks best but considering that most people probably only had it once (or twice if they played a $1 combination) it does not stack up with the Daily Double returns. Using the TVG example mentioned earlier, let's assume you stayed within limits and spent $50 on the Pick 4. If you connected for $0.50, you won $389.50, and if you played it for a buck, you won $779.00. What if, instead of playing the Pick 4, you played one of the Daily Doubles with the same $50? If you played one horse in each race your returns would have been $915.00, $1,180.00 or $1,820.00. Rather than betting the same amount on every combination in a four race sequence, you could have crushed your strongest opinion — making more money with far less risk involved.

Looking Ahead to Belmont Stakes Day
The Penn National All Stakes Pick 4 was a big pool for that track, but it will pale in comparison to the Pick 4, Pick 5 and Pick 6 pools at Belmont this Saturday. With a Triple Crown on the line and ten stakes races on the wagering menu, the pools will be five, ten or more times the size of the near $200,000 Penn National handled. The opportunity to cash a four, five or six figure ticket will exist but it will not be easy. The fields will be larger and that means the number of combinations in each multi-race sequence will be exponentially bigger than those at Penn National. The reward will definitely be higher, but the risk will be just as high. It will be tempting to take a shot at all the guaranteed multi-race pools, but before jumping in with both feet take a look at the rolling Daily Doubles. Crushing one or two of those could just as easily make your day very profitable. Likewise, instead of trying to cash a big superfecta, take a look at the exacta will pays. You will probably find a race or two that is offering huge overlays on your preferred combination. Crush them instead.

The Path Forward
I know I am not in the minority in believing that handicapping and betting on horse races is a skill-based game. Sure, there is some luck involved, but it is not like playing the lottery or pushing the button on a slot machine. The sport can grow but not without attracting new horseplayers. In my opinion, the best way to do that is to teach them how to handicap and bet and also to market to them the wager types appropriate for their novice skill level. We should not be pushing jackpot wagers which are hard to hit and kill churn. We should not be pushing Pick 4's, 5's or 6's. We should not be pushing superfecta's or Super High Fives. These bets are appropriate to some but not to novice players that will be turned off quickly when they walk away losers the first few times they go to the track.

Instead, we need to promote the most basic wagering options because they are low risk and new players will have a real chance of cashing a few tickets right from the start. These are the bets that can bring new blood to the sport and simultaneously increase handle because they are high churn. Marketing these bets and lowering the takeout rates on them should be a no-brainer because it will put more money in the pockets of players and because of increased churn and handle, in the pockets of race track owners.

We need to grow new players by letting them get their feet wet in the basic wagering pools. After finding success there, they can take some of their action to the more difficult wagering pools because with the bigger bankroll they have accumulated and the handicapping and betting skills they have developed, they will be properly equipped to go for these bigger challenges without having to worry about tapping out.

Lenny Moon is the founder of Equinometry.com, a site dedicated to educating horseplayers of all levels about handicapping, betting and handicapping contest strategy and about issues within the horse racing industry that directly affect horseplayers such as takeout rates and lack of transparency by industry organizations.