Opinion: Low Takeouts Are Our Friend

July 14, 2008

I’d like to issue a challenge. Two people are picked at random who have never bet before. It could be anyone really. Each person gets a coach who is a good handicapper. One coach is a track executive picked from any North American racetrack, and he has to play by his rules. The other coach is a professional bettor, and he gets to play by his rules. Each hand-picked person gets a mythical $1000 bankroll. At the end of 150 days of betting we get to see who helps racing the most and who will continue to help the game in the future.

Let’s make each player a losing player. Each player has a return on investment of 0.96, or on each dollar bet, they lose 4%. This is a very good player. It is difficult to lose only 4% with such high rakes in our game. But regardless, they will both be losers.

The regular player, coached by the track executive plays by track rules. No rebates. Let’s say the vig, or rake is 15% on win bets. The professionally coached player gets to play by his rules. Rebates are not outlawed. Let’s make the rebate fair. Say 5%. So, the takeout on his win bets is 10%, not 15%.

Each day, each player bets his bankroll in full. Since our starting bankroll is $1000 that means each player makes ten win bets of $100 on the first day, and so on, depending on his bankroll.

So, all the rules are equal except for the rakes. Now, let’s play and see what player helps the business more.

After day one, the player coached by the track executive loses 4%, with his 0.96 ROI. That means he bets $1000, gets back $960 for a loss of $40.

After day one for the professional player’s student, the ROI is the same. He bets $1000 and gets back $960. He loses $40. BUT, he gets a rebate of 5% remember? So when that $50 is added to his account, he now has $1010. This seems like a minute amount, because after all, what is 5 percent, right? It’s only ten dollars to his bankroll on the plus side!

Now we keep playing, with the same rules, with the two people of completely equal skill.

After 150 days of playing, this is the result:

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 really contributed a lot to purses. 15% of $24000 is $3600. That is $3600 to purses and profits.

The professionally coached player, with the 5% rebate (remember the takeout reduction was tiny right?) did better. A whole lot better. That small rebate helped the player win. Not a life changing or earth shattering amount, but it helped. 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 takeout reduction, 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% rebate, so instead of charging 15% we charged 10%. 10% 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, that player is still playing. Remember, the first player is broke. I bet the winning player will be playing for a long, long time too. And I bet he will tell friends.

Now you know why in online poker, a player can play for months and months with a small bankroll and he tells his friends to play too, and the game grows. Or why betting giant betfair with their low vig has a million clients and is growing. Their business model assures it.

It’s churn. It’s low takeouts. It helps people win and become long-term horseplayers. Players who are serious about the game and might be, or were, our best customers have left to play new low rake games. Let’s get them back.

Low takeout is our friend. And the rest of the gambling world from slots, to poker, to sports betting has known it for generations.

It is time racing joined the party.

This opinion piece has been printed with permission from the Pull the Pocket blog. He has joined HANA, as many of the principles he supports; and he, like all HANA members, wants to see the game grow and be a force in the 21st century gambling landscape.