Balch on takeout: We’re in the Stone Age

by | 03.12.2011 | 1:11pm

In a strongly-worded column, Alan Balch, executive director of California Thoroughbred Trainers, takes off on the issue of takeout – not just in California but everywhere:

“Name me one other product category (or any brand) that has its essential offering priced according to immutable law, regardless of market forces, and has that simplistic price enforced by a regulator? … If they exist, they're probably in the same trouble that racing is. As Milton Friedman, the Nobel Laureate economist , once said, “Any price the government sets is wrong.” Or, more famously, “If you put the government in charge of the Sahara Desert, in five years there would be a shortage of sand.”

Balch's solution?  A collaborative effort that embraces flexible takeout – bets priced according to the market:

“Let's stop yelling at each other, and get together to improve our pricing in a collegial fashion. We just might be able to fix the problem if we stop wasting our time fixing the blame. The entrepreneurs originally responsible for the concept of takeout as it is still largely imposed upon our sport and our markets have been laughing at us from their clouds for quite some time now.”

Your thoughts?

  • caroline

    This is by far and away the most intelligent commentary I’ve seen from a horsemen’s group representative on the subject of takeout. Hallelujah.

  • ITP

    Thanks to Alan Balch and Carlo Fisco for finally listening to the bettors and understanding that the way things are done now is just amazingly moronic.

  • If the Takeout Bill wasn’t kept secret by the CHRB before it went to Sacramento…..dialogue like Balch’s BEFORE the Bill was signed may have proven beneficial.

    Balch’s plea to stop the bickering,etc……why? Santa Anita’s numbers are down sharply and it’s obvious many customers have boycotted CA Racing.This is why Balch wrote his PRICING piece so why stop now until TRACK MANAGEMENT begins honest discussion.They’ve had 2 meetings with HANA in the last 6 weeks or so….track execs have been quiet since and no action.

    I think Balch should focus more on the CA Power Groups than trying to control the emotions of boycotting customers.

  • Ray Paulick

    FYI, for those who don’t remember, Alan Balch was the longtime Santa Anita marketing exec back in the 1970s and ’80s when Santa Anita led the nation in daily average attendance (30,000-plus daily). In my opinion one of the brightest people to have worked in this industry.

  • caroline

    Well I hope that he’s in a strong position to influence dialogue now. The word takeout should be obliterated from racing’s dictionary and replaced by the word pricing.

  • For those that don’t remember …I created Horse Player’s Revolt in 1989 after Alan Balch responded to my letter objecting to $5 minimum exactas,$2 phone charges for race results,etc. Balch’s reply to me,” I’m a Harvard grad and I know what I’m doing.” I wrote back that ‘I’m a Cal Berkeley alum and will show you how wrong you are.”

    There was no e-mail/internet back then so I took full page ads out in the DRF to see what the fans thought.We wound up picketing SA on Strub Day and later picketed Bay Meadows on other fan issues.

    I spent $30,000 in that year for Horseplayer’s Revolt and every issue we fought for was changed within a year.Balch was part of the elitist arrogant attitude Santa Anita had back then.Santa Anita had expanded exactas from 2 to every race and kept the $5 minimums and we fought to get them reduced to $2 so all fans could afford to play them. Cliff Goodrich was President/GM was quoted,”they want us to reduce exactas to $2….can you imagine the long mutuel lines we’d have…they’re already long for $5 exactas.” A young talented writer Jay Privman got that quote.

  • Ray Paulick

    Roger,

    Too bad they changed. If you had your way, every Vegas casino would have to have 50 cent blackjack tables.

  • Typical Ray-
    Keep Vegas out of it….so you’re saying exactas should be $5 minimums…wow.

  • caroline

    Very interesting roger.

    Got to say that the only thing I see to seriously object to in the current piece is the implicit notion that raising prices somehow can precede or induce increases in product quality – that makes no economic sense whatsoever, but that is just a function of the insanity that is takeout as attempted financing.

  • Ray Paulick

    Roger,

    Santa Anita’s paternalistic attitude ($5 exacta minimums, limited exotics) encouraged players to bet more in the low takeout WPS pools. Increased churn and kept more people in the game. Typical me, wanting horseplayers to be more successful.

  • Thoro

    Caroline,

    A bet is a service (intagible) and not a product (tangible). Raising price can indeed make a service less valuable.

  • Ray Paulick

    Roger…
    Are you sure you tangled with Alan Balch in 1989? I don’t think he was at Santa Anita then.

  • caroline

    Thoro, I think you can reasonably interpret a bet in many alternative ways but I’m not using the word “product” in the sense of a tangible vs. intangible in any case.

    A bet on a horse race is a “commodity” in a fundamental economic sense; it is a good (desired) produced with scarce resources – it therefore commands a positive market price – and which has a specific set of characteristics or qualities which define the commodity. It is, for example, viewable as a financial investment and economists have repeatedly interpreted pari-mutuel wagering in that way.

    In any event, raising its price ahead of any improvement/change in quality or characteristics is hardly capable of acting as a signal of higher quality when the existing set of characteristics are there for all to see publicly.

    Raising price does one thing for sure – it reduces demand (for all but a tiny portion of commodities known as “snob” goods and services, Veblen goods I think we call them – they are so rare I forget what they are termed). And in the context of takeout, that reduces revenues to all recipients except the beneficiary of the take increase – which in and of itself can potentially produce reductions in quality.

  • Ray….he was there and he was the person that replied back to me.I’m 100% certain.Jane Goldstein was there also.How else would I know he went to Harvard without internet back then?

    I went to about 8 straight CHRB meetings back then and battled with Goodrich on a few occasions.I made copies of all the fan letters from my DRF ads and presented them to all the Board members.I also showed copies of Los Angeles Turf Club members (Santa Anita)political contributions to the Senator that wrote the inter-track Bill….25 mile restriction in Nor Cal and 50 miles in So Cal because SA didn’t want 25 miles.

    I received the political contribution records from CA Secretary of State March Fung Yu and showed the timing of those contributions were at about same time as bill passed and also the amount of contributions exceeded CA laws.Anyway, that Senator 8 months later held a press conference announcing that the So Cal inter-track distance would now be the same as Nor Cal at 25 miles so Los Alamitos and HPark now could operate as satellite facilities during SA meet.

  • Picksburg Phil

    Not only is the takeout rate in the stone age, pari-mutuel betting itself is pre-stone age. Ironically, book-making, which is older than pari-mutuel, is far superior as a betting platform, as is exchanges.

  • Picksburg Phil

    I should have written that pari-mutuels are OK for the lottery type bets, but fixed odds and peer-to-peer are superior for straight bets.

  • Mike R

    Ray P. #4–Alan Balch may well be bright I do not know the man–but citing statistics from the 70’s and 80’s do not necessarily correlate with Mr. Balch’s expertise. The people that have been running are not necessarily genisus–they just have a great venue at a great time of the year–Justin Bieber could probably show a profit running Del Mar.

  • Mike R

    sorry I left out”the people that have been running Del Mar…”

  • ace

    Ray, I cannot believe you are championing $5 exactas WTF

  • Ray Paulick

    Mike R,

    I agree that it’s easier to run Del Mar than, say, Beulah Park. But Del Mar does better today than–at least on big days– than it did in the early 80s when you couldn’t even wager at Santa Anita, Hollywood Park, or Los Alamitos and had to make the trek from LA to bet Del mar.

    In my opinion, they’re doing something right beyond having a nice location by the ocean.

  • The Punisher

    That’s it! Justin Bieber!! We need Bieber! He will bring more youngsters into the game. Someone get to work on it!

  • PTP

    Phil,

    I think in ten years we will have exchanges for win betting, with a possible fixed odds system as well. Win takes about 6% with it. The exotics will be run by a system which gives semi-accurate odds for all pools, probably originated by betfair or someone with back end tech expertise. Bob Evans will fight it, but what else is new.

    It’s a win-win if that happens. Price sensitive folks get their fix with fixed odds at low rake. Newer/younger players wanting to trade get an exchange. Jackpot players get their bets at a higher rake (and so do tracks and horsemen). Exotics players get things at a lower price, subsidized by the jackpots.

    Three or four tiered betting systems with choice will be in NA sometime, in my opinion. The ball is in their court and people like Balch (whether this is simply political or not) are beginning to push modernization. Horseplayers have pushed this for some time now, but we mean so little to the industry, it is nice to see someone inside start to push it too. It has a chance if it is done by them.

    PTP

  • Ray Paulick

    Ace,

    All I’m saying is that Santa Anita had a philosophy to herd people into lower takeout, churn-building wagers by resisting multiple exotics and low minimums.

  • caroline

    It is really quite bizarre to think of a business offering a product that it wishes to actively discourage purchase of.

  • Pauxatauny Phil

    Didn’t Alan Balch leave his last job at the American Horse Shows Association under a cloud? I can’t remember the details but it was very unpleasant.

  • Ray Paulick

    I heard nothing of the sort, Phil. Pretty low blow there if you ask me.

  • Ray-
    That philosophy when challenged by HPark in the 90’s clearly showed what fans wanted.I think we had better mutuel handle meets the entire 90’s which was significant given Santa Anita’s lofty status.

    Santa Anita lowered their minimums I believe a year later….at least by 1991.Santa Anita then was sold in mid 90’s as I reflect and Goodrich and Balch were gone.

  • Ray Paulick

    Roger,

    Is that when you worked for Hollywood Park?

  • Yes, R.D. Hubbard saw my Horse Player Revolt ads and later took control of HPark in 1990 and hired me as Consultant but kept my NBA consulting business.I eventually ran 3 departments.

    We immediately put in fast free race results among many other fan friendly policies. Hubbard was a very bright businessman and as long as you were productive….great person to work for.

  • Thoro

    Phil did not like Balch’s article so he resorts to attacking him personally thru innuendo rather than focusing on the content.

  • Santa Anita Saturday Handle
    ———————————–$10.3 million from which $5.1 million out of state. Tomorrow has P-6 Carryover of $134k.
    ———————————–
    Gulfstream Park did $13.1 million from which $11.2 million out of state

  • CG

    Caroline, think of it as finding optimum takeout on a micro level. Maybe it was deemed that it was better if the masses stuck to WPS, when it comes to making the most money for the tracks, but those who could afford to gamble more, and churn more because of a bigger bank roll are the better candidates for exotics with higher takeouts.

    The problem is that since the 80’s racing has made it easier for those in the first category to play higher takeout exotics by putting them in every race, and cutting the minimums even lower than a dollar in many instances.

  • On 03-12 santa anita did 10.5million in handle and awarded over 875,000 in purses…On tampa biggesr day for purses they handled 11 million and awarded 750,000 in purses…a track that handleds an average of 4.5million dollars in handle and gives back a purse structure of 135,000 a day is the real joke….Marty

  • Ray Paulick

    Comment # 33

    Keep in mind that Tampa Bay handled less than $1 million on-track on its biggest day ever yesterday and Santa Anita’s on-track was $2.3M on-track and $5.1 in-state.

    Out of state handle, which makes up the vast majority of Tampa Bay’s handle, pays far less to purses than on-track or in-state handle. It takes $5 or $6 wagered out of state to equal $1 wagered on-track.

  • Charli125

    Response to Marty Post 33.

    Maybe you think it’s a joke but owners and players disagree.

    TAM field size is about 1.3 higher than SA. TAM field size is up this year while SA is down.

    TAM handle is up 4%, SA is down 15%.

    Owners through field size and players through handle have spoken. TAM is not a joke.

  • rwwupl

    Comments by Roger, #14…
    ———————————–
    I support what roger said about his past activities, I was there then and was also involved.The distance thing also involved Fairplex because Santa Anita did not want Fairplex to have the Santa Anita signal..(Too Close).. It was resolved later.

    Yes Alan Balch was V.P. Marketing at Santa Anita then and had a lot of theory on things, but I must say that hearing him recently, representing the CTT, he is singing another tune, and I like it and have told him to keep up the good work.

    Roger(N), forget the past,listen and give Alan Balch a new hearing.He is promoting a new start that will include many horseplayer needs.

    Roger Way

  • FLA tracks do quite well out of state so fans,including CA fans, support their product.There’s no reason to slam them because they don’t have big state mutuel handle. The noteworthy mutuel stat from yesterday was the total handle both Tampa Bay and Gulfstream Park did as FLA tracks.

    CA tracks and some owners have drawn the line in the sand on the takeout issue.I’ve basically accepted that I won’t be playing HPark and Del Mar this year.In fact, I’m just going to forget about CA so no more mutuel handle stats.This is worse than the NFL/Union battle because that will eventually be settled.

    I’ll support the FLA tracks,Keeneland and Monmouth Park then play college football from September to December.Good luck CA and hope everything improves.

  • Charli125

    As I posted on another board.

    I trust rwwpl’s opinion because he’s very knowledgeable on the CA happenings.

    I’m slightly skeptical since the CTT was entirely in favor of the takeout increase until the exchange wagering portion was added. At that point they were all of the sudden against it and billed it as joining with the horseplayers to oppose high takeout. From the CTT’s actions all I can extrapolate is that they’re opposed to exchange wagering and for higher takeout.

    I’m really hoping they change my mind, but I guess I need to see a lot more before I form a strong opinion.

  • rwwupl

    Slight correction for the record. Alan Balch left Santa Anita in 1986 and had no policy roll after that but did have some remaining connections.

  • Alan Balch replied back to my letter that I sent Santa Anita AFTER 1986 and his arrogant response was the sole reason I created Horse Player’s Revolt and accepted no donations from fans because I didn’t want SA/Balch someone or group was behind my actions.If you were involved with Horse Player’s Revolt then you must have joined the picket lines at Santa Anita…..wasn’t that 1990?

    I immediately set course to prove Balch wrong and in 12 months tops we picketed Santa Anita in spring of 1990 and Bay Meadows in December of 1990.

    I don’t care what Balch is telling you or has on his resume…..I didn’t wait 4 years to picket SA after his reply to my letter.

  • Indulto

    roger #6, I had to laugh when you reminded me of Goodrich’s similarly infuriating logic in a Santa Anita newsletter article defending their outrageous exacta policies. Reading that immediately stopped me and some fellow west-siders with whom I used to attend the races from driving to Arcadia altogether until the 1993 BC. (One of them actually played Arcangue that day!) Perhaps that’s one reason why I wasn’t aware of the boycott at the time, although I was also more involved in work during that period.

    Before going to work for Hubbard, were you also targeting HOL? Were you able to accomplish anything as an insider that you might not have as an outsider? The owners constitute the primary opposition to horseplayer interests today. Was that true back then, and if not, what has caused the change in your opinion?

  • rwwupl

    Roger, Yes I(Roger Way) was involved but I do not wish to re-hash history.It would take too much to explain.

    Alan Balch was at Golden gate and Bay Meadows from 86-90 setting up satellite betting operations there and had no roll in Santa Anita policy during that period.

    Can we get back to the thrust of the subject article..which is Flexible takeout and optimal pricing?

    The essence of pricing and marketing is to be able to change as markets change — the law and regulation ***always*** lag markets! That’s the key point. Pricing needs to be optimized to suit market conditions.

    I think that is what Alan stands for today and horseplayers (including myself) are glad that it is being given serious consideration.

    Roger,your efforts were noble then but lets look ahead and solve today’s problems.

    Roger Way

  • Mr.Way-
    Check the Oregonian archives on John Canzano article in 2004 I believe when I tried to stop Charlie Ruma’s illegal Players’ Pool P’6 bets that were bet through Oregon hub to So Cal P-6 pools. I spent over 6 months battling Oregon Racing Board AG office on the illegality.I then changed strategy and appealed to CA AG and month later ruled those P-6 bets from Oregon hub illegal and had CHRB send a cease and desist order.

    I’ve kept current and helped CA Racing without fanfare or compensation so I’m a little peeved when you say forget the past or don’t re-hash history…..for me and my experiences in racing they are important lessons.

    As far as solving today’s problems….my solutions have been clearly spelled out.I also told your HANA organization I’d be willing to donate $500 for DRF ADS to enlighten more horseplayers on the CA boycott because after 2 meetings…nothing has beendone or said by track management.That was my solution…attack.HANA never responded….fine, no problem but don’t say look ahead and solve today’s problems.

    Furthermore, it shouldn’t take much time to explain your involvement with Horse Player’s Revolt because you either pickted SA or not….everything else I did on my own given there vwas no internet or email from creating the varios ads to picket date,to talking with Arcadia police prior to picket,CHRB meetings, the two SA meetings, the rental of bus for Bay Meadow picketers,etc. So Mr. Way ….other than being on the picket line at Santa Anita how were you involved that it would take too long to explain.

  • Hey Indulto-
    I was basically a weekend player back then and Santa Anita controlled CA Racing.I lived closer to HPark than Santa Anita.

    I understood Santa Anita’s “churn ” philosophy but I told them when they started adding more exactas on the card they had to reduce the minimums.

    Santa Anita could’ve just stayed with the one exacta in the 5th race or maybe added one more and kept the $5 minimums but it just wasn’t fair to the majority of customers to have a slew of exactas on the card at that high minimum price. They changed their policy once they saw the pools results from HPark and later Del Mar with lower minmums.

  • rwwupl

    Roger,

    Your generosity is noted (thank you) and no,I did not carry a picket sign,I have a different style.

    Your efforts inspired a lot of players,and I meant no put down, and yes we (HANA) can use your fine efforts on today’s issues…

    What do you think of flexible takeout and optimum pricing?.. can you support that?

    Roger Way

  • Indulto Part 2-
    RD Hubbard was a progressive thinker,horseplayer,owner,breeder and very astute businessman.

    He instituted many things right away….Fast Free Race Results with Trevor’s call,TGIF at discount admission price for young fans,music,college recruiters and the next year one of our marketing personnel (Remi) came up with $1 promotion for hot dogs,sodas,etc.

    We also were the first to have an early and late double then the following year put in “rolling” doubles for the 1st time in 1991 or 1992.We were the first So Cal track to have Early Bird wagering year around….usually it only happened when you were the host track.We did a lot of fun things in marketing to generate fan interest like the Best Pal contest where you bring a friend and get in free with a raffle and if you’re name was selected and if you picked the winning horse you’d split $1,000 or $2,000 with your Best Pal…if no one had the winner the $1,000 or $2,000 carried over to next race.There were several others too.

    I don’t recall any owner issues back then because our business at HPark was very good.Hubbard sold HPark to Churchill Downs in 1999 for a price higher than Santa Anita sold for a few years earlier which pleased me.

  • Mr.Way-
    Flexible takeout and optimum pricing.I can support that if its in the best interests for the majority of horseplayers. I must confess that Caroline,CG,Indulto,Tinky,etc. are much smarter than I am on the mathematics of that proposal so I defer to them.

    I’ve taken the position of ….simplicity and execution = success thus I’ve recommended ONE RATE for all bets at 17%.I know that’s too high for some but it’s a starting point.I also recommended we reduce our high BREAKOUT RATE so more money is given back to the customers.

    I am willing to accept good faith proposals by Mr.Balch or any other person that can get CA Racing back on track.I just think you have to ATTACK your position on an issue in California if afterseveral months nothing has been said or done to improve things.Lets hope this is a start to more meaningful communication between CA Power Groups.

  • rwwupl

    Roger,
    When you here the news that I think is in our future, prepare to smile.

    Can not promise anything because we do not have a vote,but I think the wind is at our back. There will be more action soon.

    Your support makes us stronger.

    Best, Roger Way

  • rwwupl
  • Indulto

    roger #47,
    Thanks for the kind words, but I assure you that even if you didn’t have a Berzerkley class ring to flash at Mr. Balch, I’d suspect your mathematical prowess exceeds my own.

    Indeed the silence and secrecy since the Hpark meeting is deafening, yet as the boycott’s most aggressive advocates among our representatives have also been relatively tight-lipped, I have to assume some progress is being made.

    It disturbs me that someone with your “revolting” credentials is/has not been in direct contact with the boycott’s leadership. Two of your statements in particular suggest to me that you should be once again actively representing California players:

    “Flexible takeout and optimum pricing.I can support that if its in the best interests for the majority of horseplayers.”

    “Santa Anita could’ve just stayed with the one exacta in the 5th race or maybe added one more and kept the $5 minimums but it just wasn’t fair to the majority of customers to have a slew of exactas on the card at that high minimum price.”

    For several years now, I’ve been fighting for a return to a level playing field for bettors with very little support from any fellow internet blowhards. Until rwwupl started articulating that position more effectively than I had, the journey was a relatively lonely one. I want to see as many people as possible looking out for the horseplaying “majority.”

  • Thoro

    Comparing Berkeley to Harvard is like comparing Mine that Bird to Secretariat.

  • caroline

    It was always and remains a risky investment strategy with uncertain payoffs and payoff date, quite apart from the loss of custom: raise purses, attract horses back to state, increase field size, raise handle.

    A company in the real world might finance that initial investment in purses by issuing debt, for example. It would have to project eventual revenues from increased handle, and the timing of those revenues.

    Issue discount bonds with a face value equal to projected revenues from additional handle in year T of “success” of the project, with a maturity date of year T. Let the market price them. The discount efficiently reflects default and other risks.

    What would the market have paid, cents on the dollar, for such a discount bond issued by California racing on Jan 1 2011?

    All proceeds go to purses.

  • C’mon Thoro-
    Better analogy would’ve been if you used Stanford instead of Berkeley:)

  • Caroline-
    Quite creative and interesting.

  • caroline

    What would you have paid roger? Give me a discount based on probability of successful repayment at maturity of say 3 years (and assuming no financing via takeout).

  • Caroline-
    Quite frankly I would’ve passed after that secret Takeout Bill was signed.What would you pay?

  • caroline

    Lol. You have to assume no secret takeout bill roger. I’d put it at about 10c in the dollar, based on all available information I have about CA racing management otherwise.

  • Caroline-
    The potential X factors with CA Racing makes one to really “deep study” the discount bond if the payoff at face value is in 3 years.

    You have the new SA track that has a rash of injuries and increase of fatalities.Could there be a work shortage? Probably not but it’s a legitimate issue to be concerned about.

    Hollywood Park’s performance and status in 3 years.

    Del Mar’s decision by new Governor Jerry Brown if the Pegram group can take over.

    The level of decline in pari mutuel handle in CA for years 2012 and 2013
    after Betfair’s Exchange Wagering is up and running in 2012.That’s an X factor….we really don’t know at this time.

  • caroline

    Yes, we might have to reduce the maturity roger to eradicate some of those risks which I’m currently accounting for. I guess we could offer really small minimum denominations to encourage small investors.

  • This interests me because all creative ways to raise purses without increasing the takeout tax should be discussed by CA Power Groups.

  • caroline

    If they believe in the investment strategy roger, they should go for it – ask the markets to finance it.

  • HANA you should bring Caroline to your invited track meetings in the future.

  • Indulto

    Caroline,
    Without an understanding of why horsemen aren’t coming to California, and some positive steps taken to address that issue, why would investors find such bonds attractive?

  • Indulto

    Thoro #51,
    Whose Derby was more visually impressive and exciting? The reputation of both academic institutions is based on the brilliance of a few of its most illustrious attendees, but other schools also enroll overachievers who often find the spotlight even without a perfect storm. Sometimes students as well as horses are constrained by their connections.

  • caroline

    But Indulto, I can only assume that all of that fundamental research was already undertaken by those choosing to raise the takeout rate as financing for this project. Which leads me to ask again, why not take it to the markets with suitably designed bonds?

  • Caroline-
    I really think you are “on” to a very creative proposal.Again, creative proposals to increase purses without further impositions to customers/horseplayers is PRECISELY what we need for CA Racing.

    I’m sure there are some members of the TOC/CHRB Boards that could have productive discussion on this subject.

    HANA propose a meeting and have CHRB webcast it LIVE…. that would be awesome.

  • Indulto

    Sorry, Caroline. Some of us are constrained by a lack of connections.

    Assuming Santa Anita’s surface issues of safety and bias have been a factor, then perhaps HOL with the most stable surface of the three So Cal tracks might be a suitable candidate for such investment by horseplayers if HOL were to commit to finding the optimal pricing point (under your guidance, of course). The boycott continues to build my bankroll so I’d be able to participate on all fronts. Now if we could only do something about that stakes schedule… LOL!

  • caroline

    Well sadly, Indulto, if the investment’s expected return and risk have not been reasonably projected by those seeking financing, markets will reflect that information and price the bonds accordingly – financing will indeed be constrained by that. Perhaps no-one will show up to buy the bonds at all? It does seem overall (between you, myself and roger) that there is a distinct lack of enthusiasm for the bonds although some variant of this type of funding for a risky investment project would be fairly typical in other industries and even among states/governments (as opposed to – you know – raising prices).

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