Tampa Bay GM: A believer in lower takeout

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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.

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  • Andrew A.

    I almost fell out of my chair when I saw that you did this article Ray. LOL

    In California we’ve had all the Track Executives and quite a few Customers ask for the takeout to be adjusted not because it’s only good for the Player but because it’s good for California Racing. The TOC has been the main obstacle and they refuse to let the Tracks in California compete for Customers. To this day they are taking a bigger cut out of the low takeout P5. They basically wouldn’t approve the wager unless the got a bigger cut of the takeout.

    The TOC has clearly been an adversary and not a partner with the Tracks when it comes to attracting Customers.

    I’m glad that you did the article.

  • http://www.equinometry.com Equinometry

    Did Mr. Berube consider that the reason California wagering increased on Tampa Bay was because the takeout in California was much higher? If a horseplayer has the option to bet into a pool with an 18% takeout or a 23.68% takeout most will opt for the former.

    I applaud Mr. Berube for his foresight and I expect another successful meet for Tampa Bay Downs. Hopefully other track executives will take notice of the successful formula that is being implemented at Tampa Bay Downs and we will see a shift towards reduced takeout across the board.

    For anyone interested here is the link to the post mentioned above: http://www.equinometry.com/2011/11/17/the-effect-of-decreased-takeout-percent-on-wagering-handle/

  • Ray Paulick

    Equinometry…

    The Southern California increase in handle on Tampa Bay Downs was roughly parallel with the increase of product offered. California is limited in the number of domestic races it can import for simulcasting. In 2010, only about 150 races from Tampa Bay were available to simulcast players in Southern California. In 2011, the number increased to more than 500. Did the SoCal increase have something to do with lower takeout on exotic bets? Perhaps, but as Pete Berube says it is difficult to quantify because of varying conditions from one year to another, and the number of races available to Southern California players was one of those variables.

    I thought your study was quite interesting and led me to call Berube for more details.

    The aspect that concerns me is that while handle has increased significantly for Tampa Bay, purses have been flat. It’s the antithesis of handle down/purses up, which I’m not suggesting is a healthy or sustainable trend, either.

  • http://yahoo roger

    Mr.Berube truly understands this game and to add what he said about the “computer system” accounts….they lower payoffs too which in itself which reflects a hidden tax on horseplayer’s.

  • Andrew A.

    It’s all about common sense and incremental adjustments. If the Tracks had willing “partners” instead of the current TOC leadership California would be ahead of the curve on this.

    If a California Track put in a 15.43% Daily Double like the Tracks suggested during Del Mar we would be discussing how the wager was doing right about now.

    Did the low takeout Wager help increase handle on the entire card? Normally when someone has a Daily Double going they box an exacta or two in the hit leg to cover their bet. Would a low takeout Double help increase the exacta pools? Absolutely. Would a low takeout Double cause more people to download the California PP’s absolutely. And guess what? If the bet doesn’t perform to expectations then you raise the takeout on the wager. Not Rocket Science is it?

    All successful businesses make adjustments in pricing and product to attract the most customers and to make the most money for their business. The only way to find the right balance is to start adjusting and innovating.

    What’s been going on in California is nothing short of astonishing. And not in a good way.

  • http://www.theknightskyracing.blogspot.com The_Knight_Sky

    Recently were are seeing several racetracks offering lowered pricing on multi-race wagers on their card. But the key to horse racing’s revival remains the basic wagers.

    Win – Place – Show pools must be reduced to 10% or lower similar to the way it was during horse racing’s heyday.

    There are two immediate benefits.
    1) These are the wagers newcomers to the game should learn and master before attempting the pie-in-the-sky wagers. 2) These three wagers can provide overlay opportunities for both novices AND skilled bettors.

    With that the handle figures to rise over the course of a season when bettors’ bankrolls either grow exponentially or tap out less rapidly.

    The racetracks that implements lowered takeout rates on low-risk/high reward WPS wagering pools offers a complete and balanced menu of wagering. We have yet to see that.

  • ace

    I believe exactly the opposite is true. No one wants to win $6. They want a chance to win a bigger prize, and that’s where the takeout should be reduced.
    Your old fashioned way of looking at wagering is a thing of the past-give it up, its gone-forever.

  • CG

    Ace, sure Horseplayers want to win big, but the reality is 33-40% of all bets are in the WPS pools. It really doesn’t matter if the player is cognizant of the takeout or not, the more they cash, the longer they last, the more they bet back, the more likely they are to continue playing over other competitive games.

    Lower takeout on WPS, doubles and exactors is key to growth in horse racing.

  • David

    I don’t know if 10% is the right number but agree straight wagers at least hold down the degree of difficulty for non-seasoned players. In general a lower take translates to higher payouts, which serve to keep core players in the game longer, something that does spike handle. IMO, however, lowering the take per se fails to address a bigger task of attracting new players. The ratio of winners to losers at the racetrack is likely similar to deposits vs. withdrawals in ADW accounts. Racing has got to step back a look at the current pari-mutuel model and somehow increase winning play. Yes, straight bets but even $2 WPS plays are often difficult to muster a bottom over the course of 10 races. How about taking a page from the past and have a parallel pool that has a 12-horse field coupled in to 4 betting options?

  • rwwupl

    Ray,

    Thank you for picking up the phone and getting another point of view and reporting on it. Many of us have been advocating an optimum take out is best for all concerned in racing for some time.

    Berube and others are taking proper steps through experimentation towards this goal.

    California and other jurisdictions who refuse to consider the big picture are bound by self interest are paying the price.

    Anyway, thanks for some much needed balance in you recent stories.

    Roger Way

  • kyle

    Ace,
    People want to win…or at least stay in the game…period. I don’t bet 2-1 shots, but 90% of my handle is win. I bet only when I get the odds I require. The lower the takeout the more likely I am to get those odds, hence the more I will bet. If racing, through takeout structure, drove more wagering to the straight pools it would increase churn, increase handle, and maintain the player pool.

  • http://www.theknightskyracing.blogspot.com The_Knight_Sky

    #7 ace -
    I suggest you get your hands on books by Barry Meadow and Dick Mitchell. These are two authors who have explained sufficiently how the overlay concepts work.

    It is not about “winning $6.00″ It’s about watching your $500 bankroll grow over the course of the season to say, $1000 or $2,000 using bankroll building techniques such as the Kelly Criterion.

    For a vast majority of bettors coming out ahead is a major victory rather than tapping out one-third into the season and remaining home and watch the San Jose Sharks all winter.

    Flat bet competency should be a high priority for both bettors AND racetrack managements. That can be achieved by steadily lowering of the win-place-show rates.

  • Tinky

    If exchange wagering were to be adopted (intelligently), W-P-S wagering would skyrocket, and there would be huge incentive for all to utilize those ‘simple’ wagers.

    The most successful wagering platform in the world relies almost totally on W/P wagering, so “ace” couldn’t be more off base.

  • David

    Tinky, Sky and Ace. You guys (T & S) presuppose new players will get excited about even money, keep records and actually study pp’s (kind of like us). And Ace, they may want to win big but few do and they tap out usually before lightening can strike. The point here is that reform should properly come from those not infected with a lot of prior experience. Just ‘sayin . . .

  • http://pullthepocket.blogspot.com/ PTP

    Tampa’s increase in purses with a greater increase in handle is not some sort of problem, it’s reality on where we are as a business. We have competition now and we are no longer a monopoly so we can’t see 6%-8% of all handle going to purses like it had been. In other parts of the world, who has lived with competition, like the UK and Australia, they have lower margins. It’s about 2% of handle going to purses in Australia and about 0.95% in the UK.

    Tampa, back in the 1990′s raised their rates to 20% in straight pools and 28% in all others. Handle fell and they were at $500,000 per day in handle. Purses, I guess we can assume, would have been around $50,000 per day (that’s a guess, I do not have the figures). Fifteen or so years later, in an industry that has lost upwards of half its business during that time, Tampa is doing $161,000 per day in purses (some of it from alternate revenue), or about a 300% increase. And they are doing over $4.2 in handle at the lower rates, instead of $500k at the higher rates, about an 850% increase.

    One can only imagine what purses would have been today if they stayed at the old business model? Maybe $40k per day, or a super short boutique meet. It’s likely they would’ve shut their doors, and we would not even be speaking about them today.

    PTP

  • Milo

    I’ve been betting horses so long that I’ve lost count of the years. From the back room books in Newport Ky to betting exclusively on line in todays world. I play many tracks looking for what I hope is a winner. I have never worried about the take-out of any one specific tracks because there are so many opportunities each day. The name of the game is to pick winners. Maybe my payoff is a little less one track compared to another, but a winner will always keep you going.

  • kyle

    David,
    With all due respect……………….
    Reform cannot come from the inexperienced and ignorant. We’ve had decades of the latter; it’s no time to ry the former. As for new players, you cannot play this game without study, not seriously. Trying to get around that fact is one of the biggest mistakes racing could make. Low priced payouts are fine for beginners. Most other forms of gambling, except for maybe slots and lotteries, offer odds in the even money range. Speaking again from personal experience, I started out betting one of the top three favorites to win and or place. And I’ve now been at the game 30 years.

  • David

    Kyle, with similar respect, you’re implying the market must adjust to the product and, unfortunately I rest my case. This might come as a shocker but “new players” are the ones who must replace us and, guess what, they don’t want to study or devote as much expendable time that perhaps you have over the past 30 years. And less experienced individuals aren’t always “ignorant” are they?

  • Charli125

    David,

    Sports bettors get excited about hitting 2-1 shots all day. They also put a lot of time and studying into their bets.

  • Get The Facts Straight

    One thing that goes hand in hand with lowering take-out is lowering signal fees tracks charge to simulcast outlets. When industry contributions are a fixed amount (taxes, breed funds, purses…etc) the equation gets completely out of kilter when a track lowers the take-outs but does not lower the signal fee they charge.

  • kyle

    David,
    Your mistake is that you don’t recognize racing for what it is. I’m not trying to change the market. I don’t have to. I know there is a market for a (correctly priced), highly challenging, multi-faceted gamble like racing. The audience isn’t the size of American Idol’s(it doesn’t have to be); it’s more like the early audience for Seinfeld. It’s a real niche with significant growth potential.But it has to be true to it’s essential allure.

  • SteveG

    I would present the current scheme to tempt the uninitiated (new customers) with jackpots & life changing scores & compare that to the reality of its failure to do so as evidence the current approach is failing.

    In other words, if marketing what were once known as “sucker” bets was working, where’s all the new blood?

    Given that, marketing the game Kyle is describing in post #21 makes alot of sense & that’s what racing, to date, has failed to do, even in the face of dismal results for their current practices in attracting new, long-term players.

  • Ray Paulick

    Get the Facts Straight…

    If anything, the price of the signal should go up, not down, in order to ensure the host track and horsemen receive a fair share for putting on the show.

    I’m interested in your logic. What is the reason you think it should go down?

  • Milo

    Kyle’s comments are great, but you have to realize that playing the slots takes no brain power, no studying and all you have to do is push the button or pull the handle. Playing the horses takes time and a commitment that few of the younger generation want to give. Playing the horses is slow tedious work but it can be very rewarding if you can learn what is going on. Racing seems to be trying the slot or rouleete mentality. Just pay the numbers and you can win. Also this methodology can work for the uneducated who just can not learn how to bet horses.

  • kyle

    Hey Milo,
    There is a truism in business that it is much less costly to keep an existing customer than it is to attract a new one. Obviously, racing needs to attract new customers, but they have to be the “right” kind….the kind you can keep. You can’t keep the non-handicapper in sufficient numbers. Between high takeout and the penalty of lack of knowledge they are at too big a disadvantage. Other forms of gambling will be more appealing to them.

  • Get The Facts Straight

    Ray,

    Let’s say you have a blended take-out of 20% and a signal fee of 4%. That leaves a net of 16%. Now let’s say you have to pay 2% tax, 2% to breed funds and 7% to purses at your facility. That leaves 5% for the “brick and mortar” facility that is offering the wager in what should be considered their market.

    Now if you lower take-out to where the blended take-out is now 18% and you still pay the 4% signal fee. After you continue to pay the other items listed above (taxes, purses, breed funds) you end up with only 3%. You still have ALL the expenses you normally have as in utilites, maintenance, labor…etc…etc… to deal with but now with 2% less in revenue.

    In order to cover that lost revenue you have to have a fairly substancial increase in wagering to cover that 2% loss.

  • Get The Facts Straight

    As for host track getting their fair share you also have to take into account that a guest track has a right to KEEP their fair share since after all it is their customers in their market. If all anyone ever worries about is the host track’s financial stability then it won’t be long before there are maybe 10 tracks (controlled by Monarch and Churchill), a CRAPLOAD of ADW wagering and a huge economic impact on the breeding industry.

    The little guys need to survive also in order to keep this industry stable.

  • David

    The genesis of the pricing model was live track’s signal to a fixed, bricks and mortar off site and the 2-3% fee was thought to be found money against fixed costs. Of course it made no sense the manufacturer was at the bottom of the food chain but that was then. Unfortunately, the industry has never entirely shed the mentality even with the advent of ADW. As to getting more, new blood to consider this game on essentially the same basis we’ve become to know and use it, you guys gotta get out more. Odds says you could go up and down your block and not find a single individual that has darkened the door of a track in the past year. Niche indeed.

  • kyle

    David,
    Please enlighten us as to the other basis on which to consider this game. The pretty horses? As to your challenge, as I happen to live in a rare place where racing hasn’t been completely killed off, if the wager is big enough I’d be glad to fly you in to take the walk with me.

  • David

    16b around ’00, likely won’t hit double digits in ’11. The quote/adage (you know, the one attributed to Einstein) fits. Talk about lowering the take all you want, their ain’t a board room in this business willing to take the risk that you guys are right; and, guess what, if any of you were one of those Directors you wouldn’t either. Since you asked, reduce dates by a factor of 20-25%, turn over video rights (less TC and BC races) to an Equibase-type model, revise ADW to be channeled through disinterested, authorized, 3rd party sell-through agents (re Australian TAB), initiate a parallel pari-mutuel pool that has entries coupled to a maximum of to 3-5 entries depending upon the field size, med standardization w/centralized testing, etc., etc., etc. I live in a rather seasoned pari-mutuel market of some repute and stand by my original comment. Last day for golf, see ya.

  • kyle

    It should go without saying, but Einstein’s adage describes what has gone on all these years, not our ideas which have never been tried, certainly not in a systematic way. We don’t disagree on a dates reduction or ADW pricing overhaul. I think we already have the parallel pool. It’s called show wagering. Enjoy your round.

  • Jerry Jam

    …………….SHUT UP PETE……………………………….

    SHUT UP PETER BREUBE, YOUR COMMENTS SHOULD NOT BE DISCUSSED OR FOLLOWED BECAUSE THEY WOULD HELP IMPROVE CA HORSERACING. WE DON’T NEED THE TRUTH RIGHT NOW!!!!!!!!!!

    ALSO, WE DON’T CARE ABOUT HORSES OR HANDLE, WE ONLY CARE ABOUT INCREASING THE TAKEOUT!!!!

    GO BACK TO TAMPA, SHUT UP AND QUIT TELLING THE TRUTH!!!!

    SIGNED
    BETFAIR CRAPPOOL, TOCC, CHRBB

  • Support Tampa with your $$$

    The racing has gotten a lot better over the years at Tampa. Derby winners and derby contenders.

    I would like to see Tampa get on par with Gulfstream. All good horses in Florida for the winter.

    Forget California, let them learn the hard way.

  • Indulto

    What #10 rwwupl said.

    Agree with TKS #6, #12 that racing would get biggest bang immediately with 10% WPS (and $.01 breakage). Good for whale and minnow alike.

    Best hope IMO for major long-term expansion:
    1)15% takeout, 10c minimum, jackpot pick six with no consolation and jackpot carryover limited to 10%
    2)ADW-enabled partnerships which, like mini-Player Pools, could distribute tax liability to participating individuals.

  • Vernon

    First off when it comes to takeout one shoe doesn’t fit all so expecting all tracks to drop their takeout down to a fixed percentage won’t work. What I would suggest is to drop down two, three or four percent then apply a sliding scale based on increases in handle and the tracks can guarantee those drops according to their experience. They can do the math based on their overhead. My gut feeling on what’s going on now is the only growth that’s happened over the last few years was the growth in ADW handle but very little growth in the number of players. That tells me what’s occurring is the wagering dollars are being shifted around to tracks that are finely offering lower takeout on some mutual’s and full fields. I’ve been proposing doing away with the W2G’s and do away with the withholding or increase the winnings to over a hundred grand. That will with no doubt increase handle because that money will be churned and players won’t be taxed again by the States or the Fed on the W2G’s.

    What I would also like to see happen is for players to be able to form partnerships via the ADW’s, that can happen very easily. More money being churned and higher handle. Another thorn in my side is the rebates, do away with them or give every player the same rebate. Between the last two proposals players will have a better chance of competing with the whales that get obscene rebates. Rebates are a form of lower takeout, I want a level playing field for all players. These ideas will also draw in more players.

  • The $2 Bettor

    Ace, when racing was in its most popular era 50 years ago, there was almost no exotic wagering and there were many more fans going home winner at of a given day. And eager and financially able to return for more the next day or the next weekend.

    But to maintain that it’s no fun to cash a $6.00 ticket on a 2/1 is to forget that the present day players are betting $20 on 2/1 horses and happy to profit $40.00 where their grandfather’s wagering of $2.00 fifty years ago (adjusted for inflation) is virtually the same stake.

    Simply because $2.00 was in the ’50′s and still is the standard minimum bet, many decry low payoffs — forgetting that $2.00 then converts into $20.00 now.

    Try raisng your bet. Grandpa would if he were around.

  • Wildhorse13

    While Berube continues to talk about lowering his takeout rates, one must recall that when Hialeah went out of the TB business TBD then was left with the highest blended takeout in the U.S. at about 23.5%. It stayed at that level until a few years ago when he slowly began lowering it to its present 21% blended rate which is still on the high side.

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