California Lottery Success a Lesson for State’s Racing Industry?
The California Lottery and California’s horse racing industry both were experiencing economic declines in 2010. The lottery benefits public schools and state officials became concerned after 2009 when the revenue stream to education, while still over $1 billion per year, hit its lowest point since 2003.
Horse racing interests were concerned, too. On-track attendance and overall wagering, with the exception of Del Mar, were in steep decline. Competition with other forms of gambling in and out of state was growing. Breeding activity was falling and racehorse ownership was down. Leaders of horsemen’s organizations and racetracks believed increased purse levels would stimulate horse ownership, leading to larger field sizes and a reversal of wagering declines.
The legislature took on both problems from different approaches.
Lottery officials felt not enough prize money was being returned to lottery players. California law capped the percentage returned to prizes at 50 percent, with a minimum 34 percent of revenue going to education.
A new law gave the lottery pricing flexibility, permitting officials to effectively reduce takeout. In 2011, according to a recent Los Angeles Times article, the portion going to prizes was increased to 55 percent. In 2012, that percentage was increased even further, to 59 percent.
There was only one rub to the law: education contributions were required to grow year-to-year. If they fell, the lottery was required to return to the previous formula capping prize money at 50 percent of revenue.
It worked. Helped in part by the introduction of new games, lottery revenue soared by 42 percent over the first two years of the new law. The contribution to education increased by 21 percent, even though the percentage of revenue going to public schools fell from 34 percent to 30 percent.
Horseracing went in a different direction. Instead of returning more to horseplayers, a new law passed in 2010 returned less by increasing the takeout by 2 percent on exactas and by 3 percent on trifectas and multi-race bets. All of the revenue from the takeout increases went toward purses.
Statewide handle has declined since the law passed and went into effect in 2011, dropping 10.5 percent from $3,441,290,099 in 2010 to $3,077,584,646 in 2012. In response to the wagering declines and an outcry from some vocal horseplayers, a few new bettor friendly wagers have been created, including a low takeout Pick 5 that has become very popular, and three low takeout daily doubles offered since the start of the Santa Anita Park meeting Dec. 26.
The headline in a recent Los Angeles Times article reads: “California Lottery Is Booming, Creating More Players – And Excitement.” It’s been awhile since California horse racing saw a headline like that.