The Decade Double

Here’s a Daily Racing Form headline from 2024 (yes, the future):

North American Racing Handle Doubles Over the Last Decade

Do you find this headline completely unbelievable? It shouldn’t be. Let me ask this: how much would betting handle have to grow year-over-year for 10 years for that headline to be true? It’s not large – it’s only a 7.2% growth rate, compounded annually. In terms of growth above normal economic growth, it’s only a 3-4% adder to normal national growth trends.

Doubling handle would mean that contributions to track earnings and purses would also double during that period. (Neither earnings nor purses would double, since those are supported now by other sources like admission, concessions, and slots) I think most observers, seeing that handle was at an historic high, would no longer say that “horse racing is dead” but that racing was as good as it had been in 30-40 years.

Now, here’s two alternative beginnings to the article that accompany the headline. Which do you find more plausible?

1. Industry officials celebrated the 10th consecutive year of handle growth, noting that wagering on thoroughbred racing has doubled since the US marked the unofficial end of the Great Recession in 2014. Attendance and off-track wagering both doubled, track revenues increased 80%, and purse accounts increased by 60%. The purse account increase reflects that purse subsidies from other sources (racino/slots revenue, sales, supplemental fees) remained flat during this time. Tracks and horsemen used the windfall to increase races by 35% while the average purse went up 18%. Breeding finally reversed a two-decade long decline as the 2023 foal crop of 40,000 returned to levels not seen since 1991.

Most track officials credited their marketing and promotional efforts to get fans back to the track as the main source of success, but acknowledged that Jess’s Dream – the first foal of popular 2009 Horse of the Year Rachel Alexandra – winning the Triple Crown in 2015 kick-started their efforts. When “Taco” came back to race in 2016 and dueled in a cross-country campaign with the late-developing Cozmic One (Zenyatta’s first foal), the Breeders Cup Classic at Belmont Park featuring their final duel (won in a late nose by Cozmic One) set betting and ratings records for a non-Triple Crown race and energized the sport…

2. Industry officials acknowledged that the 2014 “Decade Double” initiative pioneered by The Jockey Club, NTRA, and a consortium of racetracks and other racing industry groups has met their goal of doubling betting handle on North American races in 10 years. The Decade Double initiative began with the premise that the $23 billion target for wagering on throughbreds would represent an all-time, inflation-adjusted, high indicator of interest in the sport. The leaders of the “Decade Double” campaign credit its focus on customers and getting buy-in from tracks and horsemen on how to share gains.

” We knew that the sport couldn’t grow without customer support,” said Jeff Gural, Jockey Club board member and head of the Decade Double Initiative. “Significant gains had to be realized by the customer – the bettor – and ultimately that meant lowering the price of betting on racing.”

“Working with our horsemen and tracks, we concluded – and believe me, it was a tense fight at times –  that bettors needed to see the lion’s share of gains, with tracks and horsemen splitting the rest. We settled on a 40/30/30 split, and that’s when efforts to reduce takeout by 40% began.”

This year, the average on-track takeout for a Win bet was 10%, which horseplayer’s Decade Double representative Andy Asaro noted was “much nearer betting the LA Jaguars and the points in the Super Bowl.” Exotics averaged 12-14%; in 2014, however, the typical takeout on exacta or trifecta pools was 20-25%.

The Decade Double and industry groups like NYRA and the CHRB aggressively promoted the takeout decreases, at first in hopes to keep track revenues and purse accounts level. Most groups acknowledge that the success was unexpected: track revenues have increased by 48% and total purses by 36%, despite the lower takeout. Racing days and total races have remained flat in response to a lower profile DD initiative meant to prop up field size in response to low foal crops. Even those have since recovered to a “healthy level” of 35,000, what many breeders consider sustainable at this level of betting…

It truly is amazing how growth can positively impact everyone while stagnation leads to tribalism and in-fighting and decision-making based on the fear of loss as opposed to the hope of gain. That’s unfortunately where horse racing is today.

Article 2, even if the numbers aren’t exact, shows that broad-based gains are possible if they accompany a plan and a target for growth. If we collectively bet $20B on racing, no one could rightly claim that racing was dead. It is, however, hard to envision that future if customers do not share in those gains. And again, the numbers are not daunting:

  • To double in volume, handle needs to increase by 7.2% a year.
  • To decrease takeout by 40% over 10 years, takeout needs to decrease by 5% a year.

The key, of course, is to offset the short-term revenue decrease from pricing with 2 other Ps of marketing.

  • Promote the heck out of the sport emphasizing lower prices (and other promotions)
  • Product quality needs to stay high /  improve (larger fields, showcase racing days, etc.)

The time element is the hardest part, because it’s not an overnight fix. Nothing worth doing ever is.

Racing’s Target Segments, Part 1 – Racing as Entertainment

Recently Chris Kay, the head of CEO of the New York Racing Association (NYRA), defended the planned admission increases at Saratoga and Belmont (from $3 to $5) by comparing the relative affordability of a day at the races to a Yankees game, placing the sport of racing into the same entertainment category as professional baseball. By extension, racing is therefore competing with other premium-priced sports experiences that includes the NFL, NBA, NHL, and NCAA Football and Basketball.

Other commentators (and one or two NYRA board members, thankfully) pointed out the obvious difference between horse races and those events is the ability, at the track and online, to legally wager on their outcome. Racing is a gambling game and, for better or worse, derives most of its revenue from the takeout on wagers. Higher admission will inevitably lead to lower attendance and on-track handle; therefore, whatever gains you planned from raising admission will be somewhat offset by lower revenues from wagering. Hard to say how much, but multiplying last year’s attendance at Saratoga and Belmont by the $2 increase in admission is not a sufficient forecast for revenue gains – it’s one or two levels more complicated.

Yet the contrary claim that racing is not entertainment is equally untrue. If gambling was not entertainment, Las Vegas would not exist – very few people can make a living gambling, and may only do so based upon the contributions of those who play for entertainment. Poker, sports betting, and horse racing are the games that a dedicated few can beat because the public likes to play for fun. I know for certain that I am one of those bettors. I track my ROI, and despite having learned a lot about racing over 3-4 years, my expected value is not much above the takeout. I play for fun (as my income allows) and the chance at the big score one day.

All this discussion led me to tweet this:

Racing has 3 “modes”.  1.”Day at Races”->Entertainment 2. Gambling->Entertainment 3. Gambling->Serious/Pro | Racing needs strategy for all 3

— Mike Dorr (@mikedorr77) December 5, 2013

I thought the idea worth exploring further with a longer series of posts, the first of which is below the fold: Continue reading

Towards a Better Handicapping Contest – Part 2

If you asked most professional poker players what World Series of Poker (WSOP) event they would be proudest about winning, I think few would say the $10K buy-in No-Limit Hold-Em (NLHE) main event so popularized by ESPN. The large crowds and the nature of NLHE means that luck plays a much larger role in a successful outcome for those seasoned veterans. (They might say any schmo can suck out a straight on the river to beat my set, in the parlance).

I think most would say they would prefer to win the 50K HORSE event. HORSE combines, in a rotating tournament, five different types of poker that test different skills and play-styles. (That’s Hold-Em, Omaha, Razz, Stud, Stud-Eights or Better). I’m a fair Hold-Em player (positive lifetime ROI) and I can honestly say I’d have a better shot at winning a 10,000 person hold-em tournament than a 100 person HORSE tourney. I simply haven’t studies the other four games – I would very much be the dead money at the table.

Given the stakes and the multi-game skill involved, the WSOP HORSE tournament winner very rightly deserves the prize earned. I think the HORSE model is one that could be implemented for a skill-determining horse racing handicapping contest. The idea would be to combine the structures of different contests while introducing novel scoring mechanisms. Below, I have some suggestions that might get racing contests closer to that outcome.

  1. Combine the two types of Win-Place contests today, live scoring and upfront picks – if 50% of your score is determined by who you really think will win 2-4 hours in advance and the other half determined by assessing conditions, picking logical longshots, or reaching for a score, you have diminished (but certainly not eliminated) the element of luck inherent in either scenario.
  2. Utilize the win parlay – A frequent argument from contest players is that they want to be rewarded for picking winners. A parlay component would aid that. Say, for example, 20% of a hypothetical contest bankroll was bet on each race. With live scoring, contestants who picked winners early would be able to wager additional dollars on their next pick. (If you have $100 to start, bet $20 on a 2-1 horse that wins, the next round (with $160 in bank, you may bet $32). First-race losers only have 20% of $80 to bet ($16).
  3. Bowl for picks – Inspiration can be found in the most unlikely of places. Bowling (that of the ten pins and an alley) has one of the very best mechanisms for rewarding streaks and consistency: a strike adds the next two rolls to your total; a spare one. Apply the same to your handicapping contest – a win gets you 50% payout of your next two races, a place your next one (or some other percentage)
  4. Devise synthetic pick-Xs –  Allow a portion of the contest bankroll to be dedicated to picking potential winners of a set of races. If in an 8-race contest, have 2 potential Pick-4s that the contestant try to hit with a hypothetical (say $200) bankroll. This would identify skill in ticket-making (very valuable in handicapping, generally) but would lead to an interesting set of choices. Should you heavily lean on favorites for more than the minimum (say $1) or spread? The payout would be determined by a simple parlay of the four winners.
  5. Show Parlays – Again, portion the bankroll for a show parlay over all races. Rewards consistency for identifying competitive horses, but not producing huge multiples.
  6. Rolling Doubles, Pick 3s – Like options 3 and 4, rewards streaks and consistency.

Without a doubt, these scoring ideas trade simplicity for rewarding skill. To implement properly, the holder of the contest must be very thoughtful about how to weight the various elements. A lot of trial and error will probably be involved. That said, I have been tossing around a handicapping contest design around for some time. This is a first iteration, but I believe it would be a fun contest to play.

  1. 40% Weighted Upfront Picks, Win-Place-Show, Uncapped – This is designed to reward handicapping in advance of the event. The show payoffs reward identifying longshots that may figure into payouts, but may not win. Uncapped winnings reward identifying horses whose morning line do not reflect its eventual payout – a handicapping skill in and of itself.
  2. 40% Weighted Live Scoring, Win-Place, Capped (20-1, 10-1) – The traditional handicapping design. Allows players to change picks to changing conditions and longshot players to get back in, but with a lower chance of catching up to those who handicapped correctly in the first place.
  3. 20% Parlay, Live Scoring – Win, Capped (20-1) – Rewards consistency of picks in order to maintain a bankroll. Picks can be changed to reflect conditions. Multi-winners should have larger bankrolls into final races. Cap evens out impact of large longshots.

Given the ubiquity of free tools, like Google Sheets, to track this information, such a contest would not be too difficult to coordinate. It may be somewhat difficult for a 10th place contestant to figure out how exactly to bet the final race to make the top 5. You know what, that’s okay – the simple designs make it too easy.

If my work and life allows, I may inaugurate a contest like the above. Do stay tuned.

Towards a Better Handicapping Contest – Part 1

The handicapping contest in horse racing is a special animal: it offers the promise of a better return on investment (ROI) for the skilled handicapper because the parimutuel takeout does not apply or is effectively lower. A $100 entry into a contest with 100 competitors may pay out $9000 in total prize, meaning the average return for all players is 90%. $10,000 of bets into parimutuel pools may pay $7500-8500 depending on what pools are bet, exotics having higher average takeout than straight pools.

 Of course, a handicapping contest doesn’t pay out unless you finish in the top 5-10% of all competitors, and often your winning is an entry into an even larger (but more lucrative) handicapping contest. This is essentially what the National Handicapping Contest (NHC) tour is about – win a qualifying event to play for a million-dollar-plus prize. Other contests, like Derby Wars, offer the more standard contest: pool the money, winners take all.

 There are more casual events that may be played among friends or, say, a large e-mail list following a prominent racing meet. Serious handicappers should devote a portion of their handle to playing in these contests for several reasons:

  1. They may improve your ROI
  2. They encourage an in-depth look at races that can improve your parimutuel wagering
  3. They can be a tremendous amount of fun

The last is important. I understand that people, generally, gamble because they may win money but the activity of gambling itself is a form of entertainment. I will not bemoan a trip to Vegas losing a few hundred dollars if that time was spent, with friends, at a blackjack or craps table. I know the risk, I know the outcome is mainly luck; if I’ve passed the time in the company of friends, it’s money well spent.

Racing is the same – betting on the ponies is meant to be fun. I think handicapping contests capture that spirit better than most. It is true, however, that the contests themselves leave something to be desired in how the winners are ultimately decided. Let me explain.

The most popular contest today is the win-place contest. Eight to ten races across a single or multiple racing cards are selected for contestants to pick horses. For each race, a contest picks a horse and, if it finishes first or second, the contestant wins the win, place, or win+place payout on that horse toward their contest score. Trouble is, sometimes a huge longshot comes in; those that had it are almost impossible to beat in the contest. So, most contests place a cap on how much can be won – typically 19-1 to win, and 9-1 to place.

Those same contests, however, usually have scoring that is updated live, such that each contestant knows where they stand. Those in the back of the pack, trying to get into contention, will only pick longshots in the hopes that a placing will vault them back up the standings. Those in front, who might have picked legitimate chances, may find themselves losing to luck instead of skill, when the contest is mainly designed to reward skill.

Thus, the skilled handicapper says, all picks should be made in advance. A different skilled handicapper may rightly say, however, that her picks are based on odds nearer to post-time, she is picking between two horses, and besides the track for this race has shown a bias that I want to play (or it’s come off the turf, or turned sloppy). An upfront contest couldn’t anticipate such an outcome and would be as much determined by luck as the live scoring option.

You might notice that both the above options sacrifice the impact of skill (vs luck) for simplicity. It’s very easy to comprehend the rules for a win-place(-show) contest, capped or uncapped, and their simplicity I have no doubt makes them popular. Common variations like the NHC introduce more races, mandatory and optional races, and best bets (2x payoff). The Breeders Cup contest is a “live money” contest where the contestants can play anything on the BC races. If I recall correctly, however, the winners of recent ones simply made a large win bet on the BC Classic winner – while recognizing their skill, ultimately the contest came down to picking the winner of one race.

For a handicapping contest to truly identify skill (consistency in picking winners) over luck, the scoring system must ultimately increase in complexity. In my next post, I will make some suggestions to improve contests that do that very thing.

Takeout – The Price Isn’t Right – Part 2

In the previous installment, I argued that the takeout on bets in thoroughbred racing is too high, both for current players and for other bettors who do not now find racing to be a profitable betting opportunity. In this update, I want to examine why tracks and racing associations are so reluctant to lower takeout. In the next installment, I propose a solution that could lead the industry to finding the optimal price for its product.

Tracks (or frequently, state racing associations owning several tracks, like NYRA) do not want to lower takeout because they believe they will lose revenue doing so. Frequently, they are right. Allow me to explain.

Takeout accounts for most of the direct racing-related revenue that a track earns. The track, however, does not capture all that revenue – it is split among multiple parties, but two are the most important: track operators and bet-takers. The track operator usually must split its revenue share according to certain terms: purses get 25% of revenue, the state gets 5% in taxes, the track keeps 70%. Consider then two scenarios (for simplicity sake, assume takeout is 20% on every bet):

  1. A $1 bet is placed at the track – as the bet-taker, the track gets $0.20, dedicates $0.05 to purses, sends a penny to the state, and keeps $0.14.
  2. A $1 bet is placed at an OTB/ADW – the bet taker now gets $0.12, the track gets $0.08, purses get $0.02 of that, the state still needs its penny, and the track gets $0.05 (and these may be generous terms for simulcasting – I do not have the agreements in front of me.)

As an aside, this dichotomy is frequently explored by Fred Pope in what appear to be quarterly opinion pieces. I’ve linked to a Paulick Report index of his articles. His argument boils down to that this structure is what is hurting racing, not the overall price level. I agree that the revenue sharing is genuinely an artifact of the early days of simulcasting, when new bet-takers needed to be compensated for large capital investments that have long since been recouped. I think Pope mistakes a secondary pricing issue (structure), however, for a primary one (level), since vertically-integrated racing firms like CDI, Magna, and (to some extent) NYRA have largely obviated the structure issue by owning their own ADWs.

Arithmetic explains the rest. In the last installment, I laid out that handle necessarily goes up when takeout goes down because incremental winnings get re-bet. But how much so – in this case, my 20% handle world gets a takeout decrease to 19% – yay. Handle on all pools is $100,000/race, on-track bets only.

  1. After first race, winners collect $1000 more than they normally would have and bet all incremental winnings in race 2.
  2. Handle race 2 is $101K – winners win $101 more than usual….and so on
  3. At the end of the day, handle is up 1.01%
  4. Racing-related revenue is down 4.04%, as the 1% takeout decrease

In this world, horseplayers did not bet more into more-profitable pools nor did new money come in. This is essentially the tracks’ stance: if horseplayers do not change their behavior (i.e. bet more), then the math-driven increase in churn and handle is simply not going to cut it.

In other words, incremental handle decreases are not going to improve track revenues. (This is especially true when you take the bet-taker’s share into account; if the track has to take a $0.01/bet decrease on every dollar, that can mean a 20% decrease in operating revenue from simulcasting.) There is, however, a takeout rate at which thoroughbred handicapping becomes cost competitive with sports betting and poker. At this rate, whales – large handle bettors – should become interested in betting into racing’s pari-mutuel pools. At this takeout level, we should see a step-function increase in handle and track revenues.

What is this takeout rate? I don’t know, obviously, but I imagine it is closer to 10% (the sports betting rate) than 20% (approx. the racing rate). It’s not hard to imagine track officials are frightened to cut racing revenues by 40-60% to find out. A wrong guess can put their livelihoods in jeopardy – who wants to be that guy? Plus, it’s hard – the negotiations would be extensive with horsemen, ADWs, and state commissions, each of whom would be difficult to convince that their revenue would not go down. Instead, we get small, low-risk changes like 15% Pick 5s that won’t be taking money out of any pools, or money out of any pockets.

Price discovery is not a risk-free proposition, but it need not be as scary or difficult a proposition as the industry is making it out to be. I’ll propose a solution with my next 750 words.

Takeout – The Price Isn’t Right – Part 1

The price of betting on horse races in the United States is too high. I say that as a horseplayer, a student of economics, and a professional whose job is literally pricing. Now, there are many industry insiders who would say the opposite, that the price of betting on races is too low, that more revenue is needed to support purses, track operations, and generate a little profit for owners. The “price” of horse betting is, of course, the takeout on a bet which for most bets is between 15 and 30%.

We horseplayers say takeout is too high for many reasons, but the one I find most compelling is that the horse betting is highest compared to other forms of betting, most importantly sports betting and poker. Horse racing shares with these the fact that the player does not bet against the house, but against other players, the casino or bookie taking a percentage of every bet as their revenue. Vegas sportsbooks across the board charge a 10% fee; on a 50/50 prop bet (e.g. with point spreads), the house will take $110 to win $100. A typical poker room will take 10% of every pot – however, most tables will have a max rake per hand (say $4 at low levels) that decreases the effective take rate on really large pots. These are player-friendly business practices – clear pricing and volume discounting.

It is no wonder smart money bets sports or poker tables. Any edge a player can garner over the public is not whittled away by the house. A 55% strike rate can win in sports betting at even odds. Poker has a different strike rate, but the biggest money games have a very low takeout % – it costs house just as much to put on $1/2 No-Limit game as it does a $1000/2000 game, so the rake is adjusted accordingly.

Most horseplayers, however, bet into pools with takeout between 16-22%, requiring a much higher success rate to break even. The common argument from tracks is that most players do not respond to lower takeout nor do they change their behavior much when takeout increases. But basic math tells us that handle will decrease with higher takeout, and vice versa, holding player behavior constant. As winning bets win less, players will have less money to bet into subsequent pools, decreasing “churn” and handle in turn.

Coordinated efforts such as the HANA boycott of California tracks last year have had a one-time impact on handle, but Santa Anita (at least) has come back this year, driven primarily by the increase (by over 1 horse/race) in average starters. Lenny Moon over at Equinometry suggests a similar tactic, diverting play into pools with lower takeout rates in hopes of convincing tracks to bring rates down. I like this tactic but am afraid that the “herding cats” metaphor applies to horseplayers all too clearly – it is very difficult to drive collective action when there are so many other factors that drive players to bet.

Similarly, I find it telling that a lot of racing handle is being diverted to forms of play that have lower takeout naturally. For example:

  • Carryovers – frequently, large carryovers create positive expectation bets because the free money part of the jackpot pool is frequently a greater percentage than the takeout
  • Syndicates and Players Pools – Players will use these to go after the jackpot Pick-X races (and carryovers) which have higher total takeout but averaged across races are lower. Usually, the payouts exceed the win parlay for the X races, partially a product of the lower average takeout.
  • ADWs – ADWs have rewards programs for large bettors that frequently provide cash for higher betting volumes. This cash back policy reduces effective takeout for the player.
  • Handicapping Tournaments – entry fees are pooled and winnings split, frequently with no takeout. Even when these tourneys have a live bankroll playing into the pari-mutuel pools, the effective takeout is much lower for the winning players.

I certainly have taken advantage of all these options, even if most of my play is in p-m pools. I especially want to give the tourney structure more of a try, but Saturday afternoons are prime family time and I cannot yet play Derby Wars in my state. Regardless, I find it fascinating that betting is growing where the price is the lowest, and technology is enabling those lower prices – a trend I expect to last well into the future.

In the next installment, I’ll look at the track’s perspective and why so many are reluctant to try lower takeouts in their main pools and what I think is the best solution for finding the right price to play the ponies.