Keep It Simple - Ray on Racing from 148.ca

Takeout: The Odds and Ends

Ray Cotolo
April 25, 2014

In any society, the government can only function with assistance from its citizens. The citizens will provide goods and services within their society, then giving a portion of their earnings to the government in an effort to fund its budget. This method, known as taxes, is widely disliked by people, feeling they have been robbed of money they earned. Yet, it is because of their funding that the government is able to provide services such as police forces, firefighters and other jobs located in the public sector. Even though it is widely disliked by the people, the government is in turn returning the payment, just in a different form.

The issue of takeout, the amount in a certain wager pool in which the track takes a portion from for things such as maintenance, purses and taxes, is widely hated among avid horseplayers. Since the recent Churchill Downs takeout increase of about 18% total, bettors have began developing a boycott of Churchill Downs. They are closing accounts with the Churchill Downs affiliated ADW (Advanced Deposit Wagering) site TwinSpires, as well as not investing any money towards the renowned Kentucky Derby undercard and the Derby itself. I have always known of the adherents reasoning behind their journey to lower takeout, as it theoretically increases payoffs. Since it is a complicated issue, an explanation, of both devil's advocate and the advocate, is needed.

The racetracks are technically the equivalent of the Internal Revenue Service (IRS) in regards of American examples. They handle every payment to the government and, in certain cases, refund said payment to the respective citizen. Racetracks handle every wagering pool, from either on or off-track. From win, place, show pools to exotic pools, there is a certain percentage that is dissected for the track, hence the term takeout. The citizens in our harness racing civilization are the bettors, investing their money into the pools in hopes of a return. The bettors fund the tracks, like the citizens fund their governments.

Why is takeout important? If it's too high, it's unfair to the bettors. If it's too low, it's unfair to the track. The fair median for takeout is around 15-18% across every pool, with a majority of racetracks, both thoroughbred and harness, falling within this standard. Of course, in the case of Churchill Downs, takeout was increased to help cover holes created by raises in the executive cabinet (at least allegedly). While many bettors are still against takeout floating closer to the maximum of the median, they likely wouldn't challenge it if a portion of the money was dedicated to marketing the sport, a tactic in which we, as an industry, have procrastinated on utilizing.

Looking at it mathematically, the theory behind takeout is that the more takeout is decreased, then the payoffs are increased because there is a greater amount of money in the pool. This is a complicated equation, as it is part right and part wrong. Payoffs are based on the percentage of tickets that match the actual result. The more people who hit it, the smaller the payoff and vice versa. This is where it gets tricky: comparing a track with 20% takeout on exactas to a track with 18% takeout from the same pool, the payoff at the track with 18% takeout will be higher, but not substantially. For example, at the Meadowlands on Saturday, April 20, the third race exacta paid $37.00 with a 19% takeout on exactas. If the takeout were 17%, the payoff would be increased by less than a dollar.

While for small bettors, takeout isn't significant, it becomes vital when handling large amounts of money. For that same exacta, if played on a $200 ticket, theoretically the payoff would be $3,700. If there was 17%% of the pool taken out, $74 would be added to that payoff. Still, the increase isn't gigantic, but it is a fair bit of extra money. Lower takeout would then benefit the bigger bettors, while the smaller bettors will too benefit, but not in as great amounts.

Advocates of lower takeout claim that raising it would "drive away bettors". The bettors they likely are referring to are the ones that handle the large sums of wagers. For the Joe that has a day out at the track with his friends, takeout doesn't mean anything; they don't even know what the term means. Yet, the amount of small bettors could not compensate for the loss of the big bettors. It is a sensitive balance that if thrown off, can have dire consequences.

Takeout benefits the large bettors. The lower the fraction of the pools that the track gets to keep, the larger the payoffs for the big bettors. It is them that tracks should worry about when takeout becomes an issue. The lower the takeout, it would hypothetically attract more of the larger bettors, likely increasing a tracks handle. Yet, there will never be a time where there will be takeout in the 5% to 0% region, as tracks would have to then survive on government and/or casino funding, both of which are unreliable sources of income.

Several scales are involved in the math behind takeout, all of them sensitive. They all need to maintain balance, or else one entity will fall. The fall of any subject in these scales would onset an apocalypse in the industry, at least that's the conjecture. It is up to the citizens of our racing society to have their voices heard, and the governments, or the racetracks, have to listen to these voices. That becomes another issue in this conundrum. As Darwin stated, those with the ability to adapt to their environment will survive. We must evolve as an industry to survive, and the only way we can do that is by looking at our environment. In this case, that is our economic situation. Those tracks that are best fit to adapt into the economic situation shall survive, while the rest will perish.

Ray Cotolo, long time follower of the harness racing industry, is a presenter on North American Harness Update.

Home/Archive | North American Harness Update