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Have the Volume Players Finally Had Enough With Horse Racing?

There was a comment on the Paulick Report yesterday from an unnamed source, purported to be from a US betting syndicate.
  • not in a position to discuss specifics but we have scaled back dramatically in the u.s due to margin compression. major tracks have priced themselves out as far as we are concerned and our returns are just not commensurate with the positions risks we take. 
What this commenter is referring to is what we've discussed at the blog here for years: The signal (Host) fee squeeze, and added taxation/fees in places like New York, Illinois, Pennsylvania and  Virginia* along with New Hampshire**.  For years, the price that tracks charge for their signal has been increasing, some tracks have formed a consortium to have the Monarch's or Troutnets of the world negotiate for them (which is why you see some signals off your ADW in 2014... and some smaller tracks handle decimated); much to the cheers of racing insiders. Despite warnings of the damage this can do to handles and the long term health of the game by many players, it's gotten worse and worse in 2014.

When you squeeze a signal fee too high, a few things can happen: Takeout rates can go up and there is less incentive to lower them (like we saw at Churchill this year), innovation can stop, and player rewards can go down, which affects both small and large players.

When you add smaller fields - like we've seen at Keeneland - higher takeout and signal fees, and less incentive to bet, a negative reaction occurs. Handle goes down. In theory anyway.

Is this comment accurate in real life? Are bigger players pulling out, or scaling back? From my discussions with a few the last 24 hours, the answer is yes.

From one large player who has scaled back big in 2014, and is playing more poker: "Whale versus whale with high host fees has soured me"

From another betting vet, with some knowledge of the teams: "There is no doubt this is true"

From another: "I like horse racing and it is not a conscious decision  to play fewer dollars. Short fields and high fees make it impossible to create winning margins"

My handle is off well over 50% in 2014, probably 80% at Keeneland alone with the short field dirt fests.  I know many of yours is off as well, because it is getting really difficult to find good bets that any of us have a hope to convert to long term positive ROI. You don't have to be a whale to know you are not getting the best of it.

When racing concentrates on raising prices - whether it be on the top with a rake hike, or on the bottom with a signal fee increase - the result is less handle. The long term result is even worse because bettors who might have an incentive to play horse racing see it as a mugs game; a novelty to play on a big day like Derby Day. No sport can survive like that.

I don't have an answer to racing's ADW issues. What I do know however, is that what racing's braintrust is doing in 2014 with regards to pricing and signal fees is not the answer to increasing revenues to the sport. It's only making things worse.

* A 10% "source market" fee was supposed to allow live racing to thrive in Virginia.  Seven years later there are no racedates in Virginia.
** New Hampshire repealed their 2009 10% fee after handle in the state was decimated. 

Comments

BitPlayer said…
And I should regret the the departure of these batch betting syndicates who depress my odds in the last flash while they profit from rebates because . . .?
Ron said…
If a few more whales drop out,then there will be a real life drop in takeout for other players, unless the remaining whales increase their wagers to compensate. Short term handle will go down, but should bounce back some since the remaining players will have a lower affective takeout with whales dropping out.A few yrs ago RGS reported their whales with an avg. return of 1.90 per 2.00 bet. At the same time it was estimated whales bet 20% of all monies. Thus turning a 20% take into a 23% take for all others if my math is correct.
Pull the Pocket said…
The post is about a symptom, not a cure. If high signal fees become old hat, players who play everyday, say at a Premier Turf Club or other places that have rebates for small players, those all go away. What you are left with is 22% blended rakes for all of us, a few guys owning their own "tracks" or OTB's with a 10% rebate, tops.

So handle for the everyday player goes down, because their rake goes up - by a lot - by a lot more than any effective rake change with the whales in the pool.

PTP
Ron said…
Rebates and lower take are good, whales skimming the pools with last second bets that short circuit the tote board are bad. I'm sure that has made more than a few players quit or reduce their handle. Oaklawn is the only track I've bet all year and if my adw isn't allowed to carry them next yr, which is a distinct possibility. I may be done. Poly to dirt score Ptp 1 Ron 0.
Anonymous said…
Keeneland down another 1.7 million today. I'm not sure how Santa Anita did.
Anonymous said…
Can you imagine any other business where you could take a fabulously successful venue doing record numbers in a down market and turn it upside down like Keeneland just did? How can this happen?

Michael A

Anonymous said…
Hi Mike,

I don't think I've seen it in any other business. They were building something very special there in, like you say, a terrible down market.

Nice job on the pick 4 Sunday. You work hard for that.

PTP
Anonymous said…
Thanks Dean
I ran a tournament on Keeneland in the spring and can honestly tell you the support of that meet was sensational. People yelling,exciting stretch drives, just a perfect betting venue. Difficult place to cash tickets but that was the allure of the place.You only had to be right only once a day to show a profit.
This meet you can tell there is a general malaise from the players. There is no buzz. I simply cannot understand how something so wonderful can be shredded to pieces.

Michael A
BitPlayer said…
I think it’s a mistake to lump signal fees and source market fees/taxes together. The rise of off-track wagering has divided horse racing, which used to be one business, into two businesses: (1) putting on horse races and (2) offering betting on horse races (which requires a license from business 1). Under the current pricing system, Business 1 is failing. The only way it stays alive is through subsidies from the casino, which will eventually go away. Business 2 is doing fine and continues to attract new entrants, but cannot exist without Business 1. All that suggests to me that Business 1 needs to charge Business 2 more for its product (higher signal fees). Source market fees, however, are not the price for a product. They are a tariff for access to bettors in a particular area.

About Keeneland. They are in Business 3: auctioning thoroughbred horses. They are involved in Business 1 only as an adjunct to Business 3. Since the people who buy and sell horses prefer horses bred to perform well on dirt, not on synthetic surfaces, Keeneland has moved back to dirt.
Sal Carcia said…
It reminds me a little of when people say medical doctors are quitting the profession because they are getting squeezed. I haven't met one yet. A recent racing conference showed the rebate play upwards of 30% of the handle.
Sal Carcia said…
This comment has been removed by the author.