I, Robot: The Future of Horse Race Wagering?

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For nearly as long as computers have existed, professional gamblers of all kinds have used them to seek an edge.

As far back as the early 1980s, computer betting outfits operated in the shadows, trying to outsmart the sports books in Las Vegas. In the mid-80′s, Australian Alan Woods and his partners began tinkering with a software program that took reams of data on previous horse races and crunched the numbers to find overlays. Once polished, the system made Woods and his computer team more than $150 million betting on races in Hong Kong.

In 1989, a 21-year-old computer geek spent the summer in his statistics professor’s garage programming algorithms that could predict stock prices moments into the future. It was the birth of high-frequency trading (HFT), the process of buying and selling massive amounts of stock in fractions of a second. By 2010, HFT accounted for more than 60% of stock market volume in the U.S.


Slowly but surely, the development of such complex computer models made its way into North American racing’s pari-mutuel pools. The first computer teams appeared in the late ‘90s, most of them basing offshore to avoid regulatory red tape in racing’s complicated state-by-state oversight structure.

That fact alone made them appear shadowy and mysterious to racetracks, regulators and the public. Offshore was most associated with illegal bookmaking, and these new shops were also secretive – gamblers who think they have an edge usually are. From a distance, they must have seemed like your father’s bookie. In reality, though, they were a new breed of horseplayer – more Wall Street Journal than Daily Racing Form, more business than sports, more whale than shark. Investors and scientists came together to build computer laboratories that would take a whole new approach to playing the ponies.

Initially, track management knew very little about these gamblers who created algorithms to identify betting opportunities and cover far more wagering combinations than a human ever could. But over time, as the number of Computer Robotic Wagering (CRW) teams grew, and they began forming inside the U.S., tracks not only gained a much better understanding of CRW, many of them embraced it.

“It’s math. It’s just like stock market arbitrage,” said Chris Scherf, executive vice president of the Thoroughbred Racing Associations, a member organization of tracks in the U.S. and Canada. “They write programs, and the programs wager accordingly.”

 

No ‘I’ in Team
Starting a Computer Robotic Wagering team isn’t for everyone. It takes money, time, and manpower.

”It’s not just one guy. To do this, you have to go out there and get your own math whiz, get an MIT grad to write a program that you then feed tons of race data into and develop your own forecasting model,” said Scherf. “Then you’ve got to test that over a period of a year and refine it and refine it. I’ve always heard it’s going to cost you at least a million dollars to set up.”

Dana Parham, one of the pioneers of computer-assisted wagering, told the International Simulcast Conference in 2010 that it cost him $6 million to run his business with 30 employees.

Clearly, the computers don’t do all the work, but they handle a majority of it. Racing and Gaming Services, a group based on the island of St. Kitts with a U.S. pari-mutuel hub, has about 90 customers who invest in the team’s wagering strategies. Last year, RGS said 60% of its betting was done robotically.

“The point of the computer is to come up with a true or fair market value for each horse,” said Scherf. “If I run this race a thousand times, and this horse will win 500 times, then he should be even money. If he’s 4-5, he’s not a bet. If he’s 6-5, he’s a bet, the computer says. They do that for every horse in the race.”

In an interview with Standardbred Canada, Parham explained the key advantage of computer-driven wagering. It’s not just about speed; the computer takes a long-range, statistical view that defies human handicappers.

“Bettors are people who make quick decisions, like ‘the inside posts are doing exceptionally well tonight, let me give that extra credence.’ The computer formulas don’t vary with emotion from race to race. That’s the good part of computer racing. The computer isn’t all that smart, and it doesn’t get that off course, either,” Parham said. “That’s where I think the average gambler gets in trouble. Everything is kind of the same except bettors overemphasize good results because we have short-term memories. The computer doesn’t.”

 

Giving Back
Because CRW is costly, and computer teams wager such high volumes, they universally believe they should be compensated by racetracks. Many tracks have obliged by giving high-volume shops what amounts to a rebate. Since these wagering services operate as their own Advance Deposit Wagering outfits (ADWs), the discount comes in the form of a lower “host fee” for taking the track’s signal.

Earlier this year, the Meadowlands harness track struck an agreement with a computer wagering team that promised to dramatically increase its betting volume (to the tune of $300,000 a night) if the price was right. Darin Zoccali, director of racing operations, said management asked “every question imaginable” of the players but was satisfied it was an up-and-up deal and a good one for the track. Horsemen went along with it, banking on a spinoff effect that would attract other bettors seeking big pools.

“Handle drives more handle,” Zoccali said. “If these guys are betting more, maybe it drives more interest elsewhere. They started out being responsible for about 45% of the initial handle increase in January. That number is now down to 18%, so they’re betting the same amount of money they were when the meet started but there’s more money coming in from other sources.”

The amount of money now coming into U.S. pools from high-volume, computer-driven shops is estimated to be about $2 billion a year, roughly 15-20 percent of total handle.

That’s no drop in the bucket. One racetrack executive who allows computer teams in his pools likened the wagering volume to “crack cocaine.” It’s highly addictive.

“If the computer wagering handle disappeared tomorrow, the industry would be shell-shocked,” said Scherf.

But would the CRW teams, with their sophisticated software and capability to bet at lightning speed, win without concessions from the tracks?

It’s debatable.

Rob Terry, vice president of Racing and Gaming Services, told horsemen at a conference last year that the company lost 6% in 2011 not factoring in the track discounts.

One track executive said the CRW team playing its pools is in the neighborhood of break-even for 2013.

At the Meadowlands, Zoccali said because computer-driven betting is mostly about covering a high percentage of combinations, the margins are small.

“They’re looking to come out ahead, essentially with the rebate,” Zoccali said. “They’re not looking to make a ton of money. It’s very interesting when you talk with the guys, they’re not in it to show 30% profit or anything like that. It’s about getting the program to run efficiently and effectively.”

But what effect does robotic wagering have on other players? And on the pools?

 

“Flesh and Blood”
Not every track is comfortable allowing CRW teams into their pools. Oaklawn Park has shunned computer-assisted bettors for years, arguing that they win often enough to discourage other gamblers.

Tampa Bay Downs doesn’t say an outright “no” to CRW players, but the track deters them by offering unappealing “discounts.”

“For the most part, when we do that calculation to come up with the price, most of the computer betting outfits decline to accept that price,” said General Manager Peter Berube. “So we effectively keep them out of the pools by pricing our product beyond what they think is reasonable.”

Berube said one or two groups are betting into Tampa’s pools, but they are paying a relative premium to do so. He believes the computer gamblers distort pools by betting so many combinations, and they drive away other bettors who represent the daily churn.

“Very rarely will you see odds changes at Tampa Bay Downs because those type of wagers are not coming in at the last second,” said Berube.

But is Tampa Bay Downs missing out on a nice chunk of handle?

“Oh, absolutely,” he said. “But it’s a slippery slope. You go down that road, and then all of the sudden, you get hooked on this handle, and you see the effect that it has on your pools, but you’ve already gone down that road, and it’s hard to kick that handle out. So I’d rather not go down that road at this point and time.

“Effectively what happens when you have these high-volume outfits and they win more than the norm, you’re effectively raising your takeout on the rest of the players in your pools. And that’s just not good business.”

The Swedish tote company, ATG, doesn’t think it’s good business either. In May, ATG banned computer “bot” wagering altogether.

“We want people of flesh and blood to bet on horses, not robots,” said ATG’s CEO Hasse Skarplöth. “I do wish to emphasize that these account holders have not done anything wrong, violated any laws nor breached any rules, but they have, nonetheless, used a method that, in the long run, puts a great number of regular players at a considerable disadvantage, and consequently, is having a detrimental effect on the entire horse racing economy.”

Before making its decision, ATG spent a year investigating robotic wagering and learned to detect such wagers because of the number of bets placed, the high stakes involved, the high number of horses included in each wager and because the bots did “not bet on horses but instead bet according to how other players bet on horses.”

 

Who’s Watching?
In North America, the Thoroughbred Racing Protective Bureau, an arm of the racetrack organization, TRA, keeps a close eye on all ADWs, including those that specialize in or welcome robotic wagering.

The TRPB is led by former FBI agent, Frank Fabian.

”Beginning in 2005, TRPB initiated a very robust due diligence program at the request of the TRA membership, which looked into the ownership, business operations, regulatory environment, and the technical capabilities of ADWs that were wagering into our members’ pari-mutuel pools,” said Fabian.

Essentially a vigorous background check, the TRPB process was prompted in part by the Uvari indictment of 2005, which involved charges of money laundering, tax fraud and race-fixing against a group with some connection to offshore “micro-ADWs.” Fabian said tracks wanted to know more about all of the entities betting into their pools. Since then, almost all ADWs, both offshore and U.S.-based, have voluntarily agreed to the due diligence program.

“Ninety-nine percent of them have gone through this process and some of them twice,” Fabian said, noting that the ADW services that do robotic wagering have been forthcoming.

“Most of these folks are very proud of what they do,” he said. “They’re very sophisticated operations, and there’s certainly nothing improper about what they do. The industry may have a view on robotic play, as to whether that’s good or bad for bettors, but those are things that TRPB does not comment on. We’re here to ensure the integrity of the pools… and that we have a good understanding of everyone that’s wagering into our pools.”

Even though Tampa Bay Downs currently keeps the computer wagering outfits at a distance, GM Peter Berube said the TRPB process instills high confidence that there’s nothing shadowy about them.

“Any of the entities that are in our pools have gone through the TRPB due diligence process, which thoroughly vets out the principals behind the operation, criminal background checks, etc, so you really know who you’re doing business with. In the past, that wasn’t the case,” said Berube.

 

Pool Tricks?
On May 21, 2012, a filly named Eye Look the Part was heavily favored to win a seven-horse maiden race at Thistledown Racetrack. As post time approached, she was the overwhelming favorite at 1-5, but as the final odds appeared shortly after the race went off, Eye Look the Part was the longest shot in the field at 5-1.

She proceeded to win the race like a 1-5 favorite – by 16 1/2 lengths – but she paid $12.80 to win. So what happened?

Thousands of dollars, bet legally through parimutuel accounts, came in at the last minute on all of the other horses in the field. Racing officials theorized that someone was trying to drive up the price on Eye Look the Part and then collect at non-pari-mutuel offshore sites that paid off at track odds. Officials were also suspicious of an $8,359 win bet and $968 show bet placed through an ADW well before the race went off. Because of the unusual amounts, officials believed robotic wagering was behind the wagers.

But after an investigation, that part turned out not to be true. Robotic betting was not involved in the incident.

Still, because of well-publicized, unusual occurrences such as the one at Thistledown, the perception exists that CRW teams are somehow manipulating pools by intentionally influencing the odds or by “past-posting” – getting their wagers in at lightning speed after the gates open.

Frank Fabian of the Thoroughbred Racing Protective Bureau says unequivocally that neither is true. Past-posting has occurred due to human or mechanical errors, and Fabian admits the fact that the final cycle of betting often doesn’t appear on the tote until after the race goes off creates the impression that something is not right.

“It gives this perception that there may have been wagers coming into the pool after the start of the race or some sort of manipulation going on, and that is not the case,” said Fabian. “I don’t have a concern with respect to pool manipulation in U.S. wagering. I have no concern with respect to that.”

The reason for Fabian’s confidence is that since 2006, the TRPB has been analyzing wagering data at all of its member tracks on a near real-time basis. Analysts develop historical betting patterns and scour daily for “atypical variances” in odds fluctuations, cashing, and pari-mutuel prices. All ADWs taking a track’s signal, including robotic wagering teams, have their own code, which allows the TRPB to pinpoint any issues.

“Let us say there’s some irregularity,” said Fabian. “We can identify the location, the ADW; we can take it right down to the account with the ADW.”

Fabian said since CRW teams are only permitted into the pools by the tracks themselves, those players have no incentive to raise red flags.

“I can assure you that the ADWs today are not going to risk their relationship with the industry, with the tracks with whom they have simulcast agreements and are allowed to enter their pools,” he said. “None of the ADWs that come into TRA pools want to have account holders who are doing something nefarious. They value the fact that they have relationships with TRA and non-TRA racetrack associations.”

The Meadowlands’ Darin Zoccali agrees. When the track signed a simulcast deal with a computer betting group earlier this year, the contract included an “out clause” if any problems arose.

“If we saw anything that concerned us with any possibly negative impact on our other customers or our pools, we can get out of the contract within 72 hours, no ifs ands or buts,” Zoccali said. “We can just tell these guys it’s not working out for us anymore – we’re out.”

But Zoccali said the track has seen no issues with astronomically high wagers, odds manipulation, or out-of-whack payouts.

“We couldn’t be happier with it the way that it’s gone. We’ve had no issues at all.”

 

The Future of Race Betting?
So, will there come a day when “flesh and blood” bettors are replaced entirely by bots wagering at warp speed against each other?

It seems highly unlikely.

For one thing, there are about a dozen high-volume, robotic wagering entities currently betting into North American pools, but not only are the start-up costs a barrier to growth of the sector, the TRA’s Chris Scherf believes there’s probably a point of saturation, too.

“I don’t know how many computer teams this could absorb because they would squeeze the profit out of the odds if they were all going against each other,” he said.

There is evidence elsewhere that computer arbitrage reaches a tipping point. Australian pioneer Alan Woods had phenomenal success for years but went on a lengthy losing streak once other computer teams got in on the action in Hong Kong.

On Wall Street, the cracks are already appearing in high-frequency trading. From 2008 to 2011, as much as two-thirds of all stock trades in the U.S. were attributed to HFT companies. This year, it’s down to about half, and both overall profits and profits per trade are down significantly. Some HFT firms have gone out of the business. The market is less volatile, and that has cut into HFT’s edge, but so has competition.

Still, sophisticated computer-modeled gambling isn’t going anywhere. In Las Vegas, both bettors and sports books are still ramping up their statistically-driven technology. North American racing can choose to continue on that path or reverse course, but the consensus seems clear.

“At this point, do you really want to scare these guys away just because you’re not sure how their computer program works even though everything has checked out? I don’t think you want to go down that road,” said the Meadowlands’ Zoccali.

The computer teams clearly do well enough to survive – some of them like RGS and Elite Turf Club have been around for years. Many tracks and horsemen have decided, however reluctantly, that the handle is too good to pass up. Overall wagering has seen a steady decline, however, and it’s fair to wonder whether high-volume shops have affected the odds enough over time to scare away other customers.

But Zoccali and Scherf both say they’ve seen little to no pushback from day-to-day gamblers.

“They say, let those guys in. We want them in,” said Scherf. “One thing they do is create pools, and they’re not always right. Computers aren’t always right.”

What's your take on high-volume, computer robotic wagering in horse racing?

View Results

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  • AndrewA

    Good article Scott.

    It’s about time that people learned that these groups would lose money without their massive rebates. Their strategy is different from the average player who is trying to win. They some bets just to churn more money and get the rebates. Anyone looking to grow the game and get new people in it know that you have to lower takeout for everyone. Saying that you’re looking to grow the game and then offering massive rebates to these people is disingenuous.

    • salthebarber

      Yes! Many complain about higher takeouts. But, computer aided betting essentially raises the takeout of all the other players. I was always curious about how the head of HANA fought for lower takeouts and then was referrring players to rebate shops. I am certain he believed he was helping players. But, maybe he was not.

      • AndrewA

        Anyone who can get rebates should take them in my opinion. I know Jeff P. and I can tell you that he would like lower takeout for all because it would create bigger pools over the long run with more new people trying horse racing and sticking around instead of what happens now.

        • salthebarber

          When Peter Berube spoke of this years ago, it was the computer-aided people that were getting the greatest return. They are definitely more of an issue with respect to causing an increase in effective takeout than the other rebate players.

        • LongTimeEconomist

          Particularly if they are foolish enough to bet trifectas, pic-fours and other garbage bets like that. New players who don’t cash tickets don’t stay around very long.

  • Roger

    I’ve always felt this robotic wagering created an UNEQUAL playing field along with a hidden additional tax on human horseplayers. The more winning tickets by the robotic wagering computers…..the payouts are now LESS because of their involvement.
    The tracks greed and desire for increased handle will likely sway most of the major tracks but they should be required to have state of the art security technology before they are allowed to accept robotic playing customers. Additionally, these tracks must have video technology that shows horse number/odds on each horse after 25 seconds to the finish line so all customers
    can see on a daily basis if there is anything going on out of the ordinary with LATE odds drop,etc.

  • salthebarber

    Computer aided wagering is the ‘silent killer’ of horseracing in the U.S. These betting syndicates are skimming money out of the pools at the expense of everyone else. It is in effect an increase in the takeout % for everyone else. The head of simulcasting at Oaklawn figured it to be over a 1% increase in takeout for everyone else. Horseracing is not wise to allow this to continue daily.

  • Dave

    Outstanding article. This is the main reason why I stopped playing the horses. I have no problems competing against computer-driven systems on a level playing field, but these guys are playing a different game with rebates. It’s no longer parimutuel wagering if they get a break on the takeouts. No thanks.

    • salthebarber

      Dave, you have made the decision consciously. Most just get discouraged from having their bankrolls drained more quickly than normal and not knowing why.

    • Don Reed

      That’s a “double take out” – the one the track takes from your wagering money, and the rebate that your competitor gets. In a sense, the track is subsidizing some of the computer program operator’s losses, who can afford to lose if it costs him less to lose.

      Let’s put it this way: We’re the department store owners who pay our taxes in full, at the same time that the store owner down the street only pays half of his. Assuming that our sales volume is roughly the same, guess who’s going to go out of business first?

      • nu-fan

        Exactly right! I like your analogy.

  • ryanc

    i don’t see how anyone can believe that these groups have any positive effect on horse racing. all they do is skim money from the individual on-track and online bettors. and those bettors are leaving the sport faster than ever.
    ask any poker player you know if they would stay and bet at a table where some of the players only had to match 80% of the bets of other players. and if those same players didn’t have to contribute to the rake. NOT ONE would stay. first they would laugh. then they would leave. asking horse players to do this is a crime. and many, if not most, don’t even know they are being cheated like this. it shouldn’t be legal to call it parimutuel betting anymore. and the fact that race tracks are not required to, nor do they voluntarily, notify bettors that they are competing at a major disadvantage is a sad state of affairs.
    sacrificing the dollars and happiness of true racing fans and handicappers for the benefit of these computer groups and the short-term benefit of the track is disgraceful. once the true handicappers and fans are all gone (which is happening fast), all the computer people will leave too if they are only competing against each other. and then the tracks will have no customers at all.

    • Don Reed

      Well said. Thank you.

  • Travis Stone

    Keeping out “computer bettors” is a futile exercise. It’s like saying we’re going to keep cell phones out of mainstream society. We’re in the computer age. Thus the issue is not these players and how much money they put into the pools but rather when they impact odds at the last second. It’s a perception issue at that point but that’s not their fault, it’s the technology handling bets in horse racing.

    • AndrewA

      Are you OK with them getting 20% or more in rebates on wagers whether or not they win or lose? Why should they be given such an unfair advantage by giving them huge rebates. They aren’t able to show a profit in may cases without a rebate. If you want to grow the game long term then you need to make betting on horse racing a better bet for EVERYONE, not just a few.

      • LongTimeEconomist

        A lot of regular bettors could break even or show a small profit if there were no takeout. Level the playing field.

        • Don Reed

          Are you suggesting that there should be “no takeout”? None?

    • Sal Carcia

      Gaming establishments have the right to turn away players, if they so choose. Casinos turn away players regularly that have a history of beating the house. In the case of horseracing, it can be done based on good business practices. But, even if horseracing does not turn them away, horseracing can at least do away with the practice of giving CRWs direct data access to betting pools and horseracing can also stop giving them rebates.

      • ryanc

        I agree. Even worse, at many tracks, and Lousiana Downs especially this year, it seems as though the CRWs might have direct access to the betting pools AND the jockeys’ room. I wouldn’t think it would take more than a cursory examination of the mutuels from this season to find the relevant parties.

    • ryanc

      I’m really surprised you don’t have a better grasp of the situation. It isn’t the fact that they use computers to place bets. It is the fact that the rebates they get effectively increase the odds they receive and decrease everyone’s at the track. there is no way for one of your customers at louisiana downs to compete with a rebate-aided computer gambler.

      at the end of the day, the CRW/ADW will have gradually taken all of the money from handicappers who in the past could have played for an entire weekend on the same amount of money. and they will have turned most break-even players or low level winners into losers. and all of the money that those individuals would have continued betting AT THE RACETRACK where lousiana downs would get 17-28% of the wager, has now been transferred to the CRW which will only pay a small fraction of that to lousiana downs as it methodically skims all of the money away from the individual bettors. even the bettors that are clear winners are winning less because the CRWs are able to invest so much more into the pools that they drive all of the payoffs down as they take a greater fraction of the payouts.

      eventually, there will be almost no one paying the takeout that is needed for the track to function. it will be all contract rates with CRWs as they cannibalize each other before moving on to the next venture like junk bonds or the harvesting of the rain forests. they are just taking as much as they can until people catch on and realize that a great big fraudulent scam has killed the horse racing industry. CRWs will be a lot like CDOs from subprime mortgages. Except racing won’t recover from the crash like the housing and stock markets have.

      The whole horrible situation frustrates and saddens me. I went from being a diehard fan of Oaklawn Park to a true admirer when they had the brains and guts to stand up for their patrons. One day people will realize how right Oaklawn’s decision was.

    • brian

      Travis, Sal does bring up an interesting point. I believe I read that you are also the head of mutuels at Louisiana Downs. So, in that capacity, could you tell me whether or not the CRWs have direct access to the betting pools and can see what has been wagered into the trifecta, superfecta, and pick 5 pools, for instance? I appreciate any information you can give me.

  • Don Reed

    Superb article – far more intelligent than the run of the mill junk ["fill in the winning horse owner's name here"] offered by the other racing internet sites and physical publications. Congratulations on a cosnistently fine job.

    What is the possibility that down the road, some of the computer program operators, needing cash, will allow ordinary bettors to become investors, thus making the CPOs something like a stock market mutual fund?

  • Alexa Pilcher

    … and the horse becomes more and more faceless. Can’t imagine these computer people give much of a hoot about the fact that these are live animals at the center of their ‘programs’.

  • wayzer

    This is very enlightening info-so much that I personally will never wager on a horse race again-thanks Ray for saving me a lot of money-I’ll pass this info on to my racing friends whom I’m sure will feel the same way as I do…….

  • Indulto

    Excellent presentation of the situation, Mr. Jagow!

    The problem with
    rebates extends beyond computer robotic wagering. The practice tilts the
    playing field against the majority of players who receive no rebate.

    IMO
    there should be no individual rebates on pari-mutuel wagering. Direct
    takeout for all needs to be lowered for all pari-mutuel pools. The
    optimal takeout rate for each wager type at each track needs to be
    determined through experimentation.

    If some tracks can find value
    in rewarding wager volume, then let them do so collectively by lowering
    the takeout, dynamically, to pre-defined levels for individual pools
    whose handle reaches corresponding pre-defined levels.

    The
    computer has had, and can still have, a positive impact on racing.
    On-line distribution of past performance data (charts, video replays,
    machine-readable data, etc.), on-line teller-less wagering, automated
    handicapping, video replays, and celebrity analysis have all enhanced
    the
    racing experience for many fans; especially those who reside in
    states without racing, or in remote locations in those that do have it.

    The
    potential for racing handle growth does not lie with with individually
    rebated entities, but rather with non-professional betters incentivized
    by competitive events and a level playing field.

    Planned,
    intelligent contraction of racing is the only hope for the surviving
    tracks to get their fair share of handle from the expanding off-track
    betting public. Multi-venue horizontal exotics are racing’s future and
    that includes parlays. If Hollywood Park with all its graded stakes
    could not survive the status quo, it doesn’t bode well for other
    non-boutique venues.

    There must be fewer graded stakes races
    and elimination of divisional scheduling conflicts. Inflated purses must
    give way to purse minimums by grade that are incentivized by
    sliding-scale bonuses for combinations of top-four finishes across
    multiple events.

    Opportunities for huge cumulative earnings
    should be made available through at least one 3-race series of G1 races
    in each Eclipse award division. Each series would be scheduled within a
    90-day window so that one such series race would be run somewhere every
    Saturday. Ideally one series in each division would end in a Breeders’
    Cup race.

    Five G2, G3, or other G1 races could also be allocated
    to each Saturday such that no race was scheduled within some defined
    duration before or after any other race in its division. This would
    support a weekly, multi-venue, all-graded stakes, non-carryover Pick 6
    (and P5,P4, P3) with
    revenue split among the host venues for each wager.

    Those
    six races could be televised live as a one-hour show. Free online PPs,
    early bird wagering, and a quarter P6 minimum (a dime at tracks with
    live racing starting 30 MTP) would fuel exposure and anticipation
    starting mid-week, and give fans plenty of time to prepare for their
    “investment opportunity.”

    It all boils down to giving the
    customer what he wants, i.e., to ensure that the best face the best
    under the most competitive circumstances as frequently as possible, and
    as fairly as practical for both horse and bettor.

    • Sal Carcia

      Indulto, this approach is right on. It is comprehensive and most importantly customer-focused. From my point of view, customers just want the opportunity to test their skills against others. And making bets affordable is a big part of that. It is nice to see that you have addressed this along with your other important suggestions.

      • Indulto

        SG,
        Thanks for the kind words.

        In my opinion, declining racing product quality is as
        damaging to the game as decreased opportunity for profit by non-professionals.
        It will probably take the creation of a National Horse Racing Commission with
        authority superseding that of individual states to turn things around.

        • Indulto

          Sorry, I meant SC.

        • Sal Carcia

          In Boston, the sports franchises all improved their businesses by improving the quality of their products. I think the one-two punch is quality and customer service.

  • Ron Zuercher

    Computer Robotic Wagering has absolutely nothing to do with take out. If the computer and I both pick the same horse, our payouts are exactly the same. The takeout is taken out of the pool and then the pay out is calculated. Whether you bet $2 or $200,000, our payoffs are the same.

    Rebates also do not affect other players in the pool.

    Let me explain.

    In the days before simulcasting, the racetrack made money by selling admission tickets, parking, beer etc. They also received a portion of the takeout, about 10% if my memory is correct. If the track averaged a million dollars a day and the takeout was effectively 25% for $250,000, the track would get $25,000.

    When racing fans started to no longer attend the races and the tracks could no longer sell enough beer and the handle also fell, reducing income even more, the tracks needed new sources of income. They came up with the idea of selling their racing signal to other tracks. The track buying the signal would get the 10% of the takeout generated on the handle wagered at the receiving track, while the host track took in extra money by charging for their signal. At the time, it was around 5%. An apparent win-win.

    When Advance Deposit Wagering became legal, the ADW’s essentially became a “racetrack” and shared in the takeout. ADW’s have grown in strength and handle and generally negotiate about 2.5% for purchase of the signal.

    When CRW was invented, they needed a place to make their wagers and went to the ADW’s. If you were an ADW company and your CRW customers were generating a $1,000,000 handle a day and you were getting $25,000 as your share of the takeout and the CRW’s threatened to go wager somewhere else, wouldn’t you give them a rebate of 1 to 1-1/2% ($10,000 to $15,000) to keep your gravy train rolling?

    Rebates come out of the pockets of the ADW’s, not from you or me.

    CRW’s are sophisticated businesses and like all businesses, they want to maximize profits. What better way to do that than to cut out the ADW and go straight to the racetracks to buy their signal and act as their own ADW and share in the takeout distribution?

    This could be why Tampa Bay Downs balks at the idea of selling direct to the CRW’s. They might see this as a parasitical way to get money from the racing industry while they have no vested interest in the racing industry. This is just a shrewd business plan.

    The CRW’s admit they are usually just breaking even on their wagers. Why would you not want them in the pools? They are not taking your money and they make it easier for an individual to make a sizeable wager without changing the odds. The more money wagered also means more money for purses.

    I do agree 100% though, that the odds do have to quit changing after the gate opens as that just gives all the wrong appearances. That is a very easy solution. Close the betting earlier. It will only take the average fan one or two times of getting shut out and you will pay attention to pool closing time.

    Ron Zuercher

    • Sal Carcia

      The real issue with CRWs is that they win more often than normal bettors. Then, if you give them more money to play with, it increases their winnings. It is easy enough to build a computer model that shows their gain is everybody else’s loss. The ADW manager at Oaklawn showed their presence in the pools increased the effective takeout by 1.64%. Ed DeRosa has shown mathematically that a small increase in takeout has a serious adverse effect on players’ bankrolls.

      Casinos have turned away winning players. Racing can as well. It is for a different specific reason, but overall it has to be a business decision. In the case of horseracing it has to be decided whether the CRW business is worth it if it is driving other players away. Oaklawn made the decision to drop them and Oaklawn is thriving.

      There are couple more points. In the past, CRWs have been allowed direct access into the betting pools. Their access is at a different level than the normal player. This in itself can be an issue. Also, none of this would be possible without rebates. Even though the CRWs win more often, they still don’t beat the take. The rebates allow them to get over the profit hump.

    • ryanc

      you could not be more wrong. but i am guessing you are motivated to keep people in the dark.
      there is not even any gray area here. if two people are betting into a parimutuel pool and they each bet $100 on a horse that is 10-1, they are supposed to be equals. But with rebates, if the CRW gets $10 or more refunded, the CRW is actually getting odds of over 11-1 while the individual player only gets 10-1….for the exact same bet. For exotics the disparity is much greater. so, over time, all the CRW has to do is bet more money and they will eventually take all of the individuals money even if the individual does slightly better handicapping.

      The CRWs have simply become similar the ‘house’ in casino gambling. As long as they stick to their program rules, they automatically beat the individual bettor because the odds are stacked in their favor. The system is no longer parimutuel. Individuals are paying at a huge and definite disadvantage just like the customer who sits down at a roulette wheel or craps table.

      The racetracks have given away the one thing that made handicapping better than casino gambling…the ability to win by being better than the other players in the pool. Now you have to be 30-40 percent better than a lot of the players. And they are players who will never run out of money because even when they lose, they win.

      There is no argument that justifies what is happening other than to say the tracks have decided it is ok to charge individuals a much higher takeout than the law allows in order to get the increases in handle that the CRWs bring. To me, it should be illegal. It is certainly unethical on the part of racetracks to not very clearly point this out to each and every bettor and let them decide if they want to play at such a disadvantage.

      If people could see the daily effects of this system and where the money is actually going, I believe most tracks would become ghost towns rather quickly…and rightfully so.

  • radar303

    It seems like it is always stacked against the “regular” players. The only thing missing is what is the REBATE percentage? I would like to see a statistical model. If they bet 100,000 how much do they get back? 2,000, 5,000???

    • Anonymous

      It depends on a lot of factors. Assume the blended take out rate is 20% The host charges the guest (ADW) a fee for using its racing. Let’s say 8%. that leaves 12% to the ADW. The ADW has to use so much for overhead, etc. A likely scenario would be a 50/50 split. Thus, the large better would get 6,000 back on the 100k bet, plus any winnings. In the long term, I beleive that these large bettors win at around 6-8%. That is a 12-14% RoR.

      • radar303

        Thanks for the explanation. It sure seems unfair to the small, medium and mostly large players. I get it from the racetracks side, bigger handle = more profits. Remember this is from an industry that was not big on letting TV come in at the beginning. An old salt from MD Racing Coverage(Dale Austin) told me once that the powers that be in racing were opposed to having much of their races being on TV in the 50′s and 60′s because they thought that they might lose the TWO dollar admission fee!!! People would stay home and watch.

        Promotion in racing game has always been off. It sure seems short sighted to BURN all of your regular players bankrolls(in the short term) to get the computer model sharks in. As one poster said… these outfits will move out of racing if there is ANY blow back OR they try to offer LESS Rebates…. and the tracks may have chased away GOOD customers for a little short term gain.

        • ryanc

          in many (if not most) cases it is much worse than what you were just told. several of the large computer bettors simply became ADWs themselves. they have no overhead really and they don’t split the rebate with anyone. for a trifecta bet, they are only paying the 5-8%fee for the track signal while you might be subject to a 28% takeout. so you are playing with a takeout roughly 4 times higher than them. and most of them don’t win at 6-8%. they consistently lose and are very happy with returns of 0.90 or greater (-10%). Because even with a loss of 10%, they make a 10% profit because they have the 20% returned to them rather than given to the host track. all they have to do is wager more money and keep their losses below whatever perectage discount they get. so while everyone else slowly (or quickly) loses their bankroll with a -10% ROI, these guys are turning a profit and have even more money to flood the pools with.

  • Indulto

    Ron Zuercher wrote, “Rebates come out of the pockets of
    the ADW’s, not from you or me.”

    Rebates are only possible when direct takeout is excessive
    which results in a lower effective return to non-rebated bettors when they win
    and—unlike rebated bettors–nothing when they lose.

    The rebated bettor is able to purchase more exotic wager
    combinations for the same effective investment as the non-rebated bettor.

    Rebates and takeout may be transparent to those players
    who never cash a bet, but what percentage of handle is typically contributed by
    such betters?

    The result is a collective subsidy to the rebated minority
    of players at the expense of the non-rebated majority–a substantial obstacle to
    staying in the game, much less being profitable, among the latter.

  • MutuelGuy

    Let’s look at the definition of “Pari-Mutuel Wagering”. How can Robot Wagering even be legal under this definition?

    pari mutuel wagering
    Web definitions
    Taken from the French term meaning “betting between ourselves”;
    Someone should investigate and report the payout percentages that these computer groups average. CAWs often win more than they wager. Most of these groups can adjust their win percentages. Mr.Parham will tell you that his group can program their computers to raise or lower their win % if the host track is smart enough to pay attention to it.
    You’ve only begun to scratch the surface of the truth behind Robotic Wagering. Looking forward to part 2.

  • Jack

    The first rule for a serious player is bet on value (return on risk). Since computers were given direct access to the pools, odds often fluxuate wildly as the horses enter the stalls. It’s not uncommon to see odds drop from 6/1 to 7/2…It works the other way, too….just yesterday, a horse a Prarie Meadows went from 14/1 to 23/1 during the race. The problem is, a player doesn’t know which direction the odds are going to move in the last minute, and therefore the whole concept of value is thrown out the window. If a horse at 6/1 deserves a $500 win bet, it certainly does not deserve the same bet at 7/2. Some may argue that it has always been the achilles heel of pari-mutuel betting, but in the past, you’d only see such wild swings once or twice a monh….nowadays, it’s every race. The obvious solution to this would be to lock out computers at 3 minutes to post, but the computer bettors have become racing’s version of “too big to fail”.

    Betting exchanges will certainly help, but then the exchange operators will try to turn the screw on the winning players….maybe they’ll charge winning players 60% commission, as Betfair does.

  • littleal

    How does this compare to uk racing?

  • dave

    ” It’s no longer parimutuel wagering if they get a break on the takeouts.”
    …and what if there is NO computer groups at a track… but they say there is? hmm? hmm?

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