great takeout article

[Dunbar]

Originally Posted by Mag

That article should be required reading for anyone entering the track and for every legislator, and every horseman, in a nutshell:

"The track exec-coached player
is almost broke - he has
around $2 left. He has bet in
total, around $24,000. Not too bad at all. He
played for a long time and he contributed a lot to
purses. 15 percent of $24000 is $3600. That is
$3600 to purses and profits.

The professionally coached player, with the 5
percent rebate did better. A whole lot better. That
small rebate helped the player win. He ended up
with over $4000, or $3000 profit. Well, of course
he did, you say. He took some of the tracks profit
and purses, so he had to have made money. He
made money at the expense of us! He took our
$3000 profit for himself!

Not so fast.

Our player, with that small rebate, bet over
$330,000 in those same 150 days of betting.
That's three hundred and thirty thousand dollars!
How about the proceeds to the track and
horse-owners for purses? Well we gave a 5 per
cent rebate, so instead of charging 15 percent we
charged 10 percent. 10 percent of 330,000 is
$33,000. That player, with a little help, contributed
$33,000 to purses instead of the player
we did not help, who contributed $3600 - almost
10 times more.

More importantly, (the winning) player is still
playing. Remember, the first player is broke. The
winning player will be playing for a long, long
time too. And ... he will tell friends."

It should maybe be pointed out that if everyone followed Player 2 (lose at 4% but get a 5% rebate, then you can churn til doomsday and there will still be no money for purses, the state, the track or anyone else except the happy bettors. The comparison between the "contributions" to purses of the two players in the article is contrived.

The reason lowering the takeout percent could result in more overall takeout is not directly because of churning. It's because when people get a run for their money, they are more likely to come back with additional "bankroll". (and as the article suggests, they are more likely to tell their friends.) They will play more often and commit more funds to playing. Players who lose quickly are more likely to leave the game for extended periods or permanently.

Casinos learned this a long time ago. A row of slot machines that pay back just 80% of money bet is often less profitable than machines that pay back 90%. People get discouraged when they lose quickly. They are encouraged when they get to be ahead for awhile ("I should have quit when I was ahead!" type thinking), and they are more likely to experience being ahead with 90% payout than an 80% payout.

I'm not sure tracks have enough patience to wait for that kind of effect to take hold. If there is not an overnight jump in handle after a drop in takeout (and I'm not aware of anything to suggest that horse bettors are sharp enough to flock to a lower takeout), then the tracks will conclude that lowering takeout is pointless. If that happens, then the longterm benefits of lowering takeout will never be seen.

--Dunbar