Is the $2 Win Wager a Thing of the Past?

This post appeared in the Horseplayer’s Association of North America’s June 2014 Newsletter. It is reproduced here by the author.
The official stance of HANA on betting minimums effectively comes down to “the lower the better”. In the North American track rankings, our algorithms give bonus points to $0.50 pick-Xs and trifectas, and $0.10 superfectas. The strongest reason for lower minimums is the IRS – if you have two $0.50 Trifecta tickets for $550 each, you’re getting $1100 back from the windows. If you have a single $1 Trifecta for $1100, you’re getting $825 back after formally letting the US Treasury Department know you’ve won that money and them keeping 25% aside for that privilege.
There’s a downside, however, to lower betting minimums in that, in some instances, they can lower payouts of exotic bets. Lenny Moon (of @Equinometry and HANA) debated this briefly around Preakness weekend. He’s a staunch advocate of higher minimums on some bets (namely pick-5s and 6s with carryover conditions) where lower minimums enable strategies that cover more combinations in these bets, frequently lowering payouts. I countered that it’s a two-way street – spreading will frequently increase the payout on higher-likelihood combinations (multiple favorites winning) while reducing the payouts when two-plus longshots win. Lenny – always on the search for great value horses in these horizontal wagers – would be negatively impacted more often than not, and his advocacy for higher minimums is reasonable. Joe Chalk, who likes to play dime super keys 20x , might rightly enjoy more dead money in his pools without having to notify Uncle Sam.

I want to take a third position, however, that a certain betting minimum may be much too low. The $2 Win bet has been the staple of North American horse racing since pari-mutuel betting was legalized in 1927. Most jurisdictions retain the $2 straight bet (Win/Place/Show) as their minimum, but some like NYRA and Keeneland have $1 minimums. Many commentators (including me) have cited the low minimum bet as a way to enjoy gambling on horses with low risk and keeping bet size low is necessary for attracting new fans to the wagering side of the sport.

I have changed my mind. Now, often when I take a controversial stance, I’m just being contrary and argumentative. Not in this case – I genuinely think the $2 Win bet may be hindering the growth of wagering on racing. The phrase that best summarizes how I arrived at this conclusion: “skin in the game”. Allow me to explain:

1. History and inflation: In 1948, when Citation won the Triple Crown, a $2 bet was worth $20 in today’s dollars. In 1937, when betting on Seabiscuit, a track attendee would have been placing the equivalent of $33 on his nose. A $2 bet was a non-trivial sum of money to bettors in racing’s heyday – in 1937, that was a day’s worth of meals. The modal bettor was more invested in the outcome of the race because more dollars were on the line, there was more skin in the game. Wins were also much more exciting because the payouts represented a meaningful haul. A $2 win bettor today – again, still the most common kind – isn’t as excited from the win because the typical payoff amount to a Lincoln and 2 Washingtons – not the equivalent of a Benjamin.

2. Comparison to Casinos: Go to any major casino on a weekend night and they typical table game (Blackjack, Craps, Roulette, etc) will have a minimum of $25. Ten years ago one table in ten would have a $5 minimum. Now it’s one in ten for $10 – casinos figured out, effectively, that patrons will push their limits just to sit at a table and end up betting more.

Have you ever considered what the “handle” of a craps table is? In racing, handle is total bet, and the takeout is track/ADW/purse revenue. In craps, however, every role of the dice can be considered the equivalent of a race. At a $25 minimum craps table with 12 players, it would not be unreasonable for handle per roll to be $2000 or more. And those rolls are coming every 45 seconds or so. To that end, casinos don’t try to calculate their craps “handle”, just reporting their net revenue/take at the end of the month.

Now I know people (not naming names) who frequently attend big race days and may handle $40 total betting $2 Win and Show bets, just for a little action. This is mind-boggling to me – hard to win anything that way. Those same people, however, would not blink twice having $150 of chips spread out on a craps table, eagerly anticipating the next roll. It might be there’s a group of gamblers out there that need higher minimums at the races to feel invested and, if they win, have enough returned to actually have more than just pocket change. The conversion rate of $2 bettors to $10 bettors need not be very high (20%) .to pay off with an increase in handle.

3. Higher minimums would greatly reduce the impact of breakage: Since most jurisdictions round down win bets to the nearest dime, the breakage versus true odds can be as much as $0.09 of $2.00, or 4.5%. If the minimums were $10 and dime rounding still in place, breakage impact would be reduced by 80% (as the maximum breakage would be only 0.9%)

4. Helping bettors optimize wagers: You’ve probably heard the utterance more than once – “I’m a good handicapper but a bad bettor” or “If only I had a bigger bankroll, I could spread more to hit that [fill in the exotic bet]”. Rule one of betting, however, is try to find the winner. If I’m better at picking winners but frequently squander that advantage by chasing longshots in exotics or spreading tickets to hit them, then I am not optimizing my play. If, however, higher straight betting minimums encourage a greater investment in win pools, I may actually win more more often.

5. Increase the ROI of bet-takers: Compare Costco to Walmart – the average sales per employee at Costco is 3x that of Walmart’s because the sales per trip at Costco are much higher. Apply this logic to the racetrack – by upping minimums, the ROI of tellers increases even if there are fewer people at the windows

6. Reduce the longshot bias: Longshots are universally overbet compared to their real odds, a phenomenon most prominently seen in wagering on the Kentucky Derby. This is probably from lots of people “taking a shot” with a small bet and depressing payouts – higher minimums would discourage this.

7. Take it from Hong Kong: The world’s most successful racing organization is the Hong Kong Jockey Club – their minimum bet is $HK10. They do not have the long history of $2 minimums the US does, and they have approached the idea rationally, even if there minimum bet is equivalent to less than $2 US

8. The most common sports betting ticket is $110 because that’s how the odds are expressed – 110 to win $100 – $2 minimums likely seem ridiculous to most serious sports bettors

All this leads me to the conclusion that betting minimums should be higher. I’m sensitive to the IRS issue so, for the time being, I think betting minimums on exotics should be kept low until such time as the current “300X & $600+” rule is changed. Straight bets (WPS), however, almost never pay 300-1 so there are no withholding concerns.

I’ll plant a flag saying that the minimum wager for Win, Place, and Show bets should be $10 as a starting point but potentially higher. If ultimately the industry wants winners to win more, then a good place to start is asking them to bet more. It might have side effects, like driving small (but frequent) players to exotics only. It would be a truly audacious move and one that prompts an immediate reaction, but I predict it would increase both handle and engagement from the casual segment if implemented properly. We were braver bettors 75 years ago; time to increase the stakes.