Tampa Bay GM: A believer in lower takeout
Peter Berube, the vice president and general manager of Tampa Bay Downs – which opens its 2011-12 race meeting on Saturday – is a former accountant who understands numbers. Berube is a believer that you can sell more of a product if you lower the price. In racing, at least among serious horseplayers, the price of a bet is the takeout.
“I am convinced reducing takeout does increase handle,” Berube said. Furthermore, he said he is convinced the increase in handle makes up for the lower commissions from each dollar wagered when takeout is lowered.
Selectively reducing takeout is something Berube has been doing the last several years and Tampa Bay Downs has bucked the national trends: daily average handle increased by 9.2% in 2010-11 after a 5.2% increase in daily handle the previous year.
I asked Berube if he'd seen a recent article written by a Maryland horseplayer, Lenny Moon, in his blog entitled equinometry.com. Moon examined handle on Tampa Bay's pick 4 wager during the month of February over several years and suggested that a 1% drop in takeout in 2009-10 and another 1% drop in 2010-11 led to enormous increases in wagering: the daily average in February went up 29% from 2008-09 to 2009-10 and 53% from 2009-10 to 2010-11, according to Moon.
Berube said he'd read the article but didn't remember the details. When I reminded him what they were, Berube threw some lukewarm water on Moon's conclusions.
“It's so hard to quantify when you reduce takeout,” Berube said. “There are many factors when analyzing handle: weather, field size, competition, and changes from year to year.”
Berube provided pick 4 numbers for the entire meet over the same three years. In 2008-09, the total pick 4 handle was $3.6 million; in 2009-10, it increased to $7.5 million; and in 2010-11 to a total of $11 million after an early pick 4 was added as a bookend to the late pick 4.
Berube said the big jump from 2008-09 to 2009-10 was attributable in large part because of the reduction in the bet minimums from $1 to 50 cents. During last year's race meeting, Southern California tracks increased from 150 to over 500 Tampa Bay races it offered to its customers and they bet 400% more on that product than they did the previous year. Most of those races were late in the day and included the second pick 4 that Moon analyzed in his blog. In addition, TVG promoted the late pick 4 aggressively in 2010-11 after cutting a marketing agreement with Tampa to guarantee a $35,000 daily pool.
Still, up is up, though Berube said one of his challenges is to convince simulcast receiving sites that a decrease in takeout is good for their business, too. Reduced takeout means a lower percentage of handle for the receiving site. (For example, if a track pays Tampa 4% for the signal and the blended takeout is 20%, the receiving track and its horsemen divide 16% [not including other fees related to transmission of the signal]. If that blended takeout drops to 18%, the receiving track/horsemen divide 14%.)
“Your partners get nervous when you reduce takeout,” Berube said. “If a reduction in takeout doesn't increase handle, they lose money. But I would argue it does increase.”
For the upcoming meeting, Tampa Bay is adding a Player Pick 5 with a 15% takeout. It is no longer going to offer a pick 6 wager, a bet Berube said never took off at Tampa Bay Downs.
One thing that hasn't changed much over the last three years is the amount going to daily average purses. In 2008-09, daily purses were $156,159, or 3.9% of the daily average handle of $3,972,989. Last year's average purses of $160,944 a day represented 3.5% of the daily average handle of $4,572,054.
So as handle increased by more than 15%, purses rose by just 3%.
All tracks depend on simulcasting and advance deposit wagering for the vast majority of their handle, but Tampa Bay Downs is an extreme example. Of last year's daily average handle of $4,572,054, only $226,855 (5% of the total) was wagered on-track, where higher commissions for the track and purses are retained. That daily average is down from $254,502 bet on-track two years earlier.
Berube has built Tampa Bay's pari-mutuel growth around simulcasting and ADWs, but he doesn't do business with everybody, excluding RGS and Elite Turf Club from the track's pools because he “doesn't like their business model and they refuse to pay what I think is a fair price.” Computer gamblers at RGS and Elite lead to negative settlements (where horseplayers consistently win more than they wager). “That takes money out of pools and churn,” Berube said.
“There are other rebaters and we do business with them,” he added. “It's just the computer players. That's not to say they still don't try to get into our pools. We monitor our pools every day using the CHRIMS system, so we know what's going on.”
As I said, Berube understands numbers.