Takeout and betting handle: Inquiring minds want to know

Advance deposit wagering was supposed to increase handle by making it more convenient for horseplayers to wager on just about any race, at any time, from anywhere. Yet overall North American handle has fallen sharply since the ADW explosion of the last decade.

Rebates were supposed to increase handle by putting more money back in the pockets of horseplayers so they could wager more. Yet since rebate shops began to flourish in the last decade, overall handle has fallen sharply.

New wagers, including rolling pick 3 bets, pick 4, and pick 5 – some with low takeout – were supposed to increase handle by giving horseplayers more opportunities for jackpot payoffs. Yet even with all these new bets, overall handle has fallen sharply.

From what I could tell, the three-day International Simulcast Conference from Scottsdale, Ariz., didn't address these issues with any degree of specificity. In fact, I'm not sure these issues have ever been seriously addressed.

Why, when it's easier than ever to make a bet, when races can be viewed on television or live-streaming video, when rebates are available to big players, when new bets often designed by players are offered … why does handle continue to fall?

And, please, don't tell me “it's the takeout, stupid.” It's not that simple. And the loss in handle exceeds the decline in product being offered nationally.

The pari-mutuel business is a complicated one that's gotten a lot more complicated when racetracks and horsemen began selling their product for too low of a price to middlemen like ADWs and rebate operations. Migration of dollars previously wagered on-track to off-track and off-shore sites has been devastating in terms of commissions received by the tracks and horsemen who are putting on the show. The theory was tracks and horsemen could afford to take a smaller slice of a much bigger pie. But the pie, instead of getting bigger, is getting smaller.

I was hoping there might be some answers at this year's International Simulcast Conference, but there wasn't. Instead, there were the usual generalities like:

– Coordination of post times will help handle. (Note to simulcast coordinators: the United Kingdom and Australia have been doing this for many years; you didn't really need to go all the way to Arizona to learn this.)

– If you lower the takeout, handle will go up. (Wow, now that is a revolutionary concept. I wonder if WalMart knows that lower pricing increases volume?)

Racing has conducted dozens of takeout “experiments,” yet I'm not aware of a single one that shows exactly how pricing the betting product effects commissions. Would it be that difficult for some track manager that's conducted one of these lower-takeout experiments to run some real numbers and share them with the industry.

Here's what I want to know, and it's not that complex of a question: Will a lower takeout result in increased handle to the extent that commissions retained by the tracks and horsemen are equal to or greater than commissions retained at a higher takeout rate. It shouldn't be that tough to answer.

If WalMart is selling a widget for $100 that it paid $60 to purchase, what would happen if the store lowered the price to $80?

We know the volume of sales would go up. But would it go up to the extent that its overall profits would stay the same or increase? If it expected to sell one million widgets at a retail price of $100, WalMart would have to double sales to two million if the individual price was lowered to $80.

Reducing takeout shouldn't be that much more complicated. How much does the volume have to go up in order to absorb the lower cost to the customer?

Racing has to uncover the answer to this most fundamental question.

If it doesn't, it's difficult to have confidence in the current business model as a sustainable one for many racetracks. How much longer can we sustain declines in handle, leakage in revenue to ADWs and off-shore businesses, and a customer base increasingly believing it is being gouged?

This does not look like a recipe for success.