Tuesday, November 3, 2009

Pennsylvania Takeout: The Garbage

Most sports industries have to battle conflicting interests of the parties involved.

Ownership and management, the athletes, the league and spectators all have a stake in a sport such as, say, the National Football League. Operating a sports franchise and a league of franchises is a delicate balancing act of trying to run a well-organized operation that pleases fans well enough to rake in the cash for owners and athletes.

A post on Monday at the Horseplayers Association of North America blog illustrates that it's possible that nobody does it worse than horse racing.

HANA points out that an Allentown Morning Call story credits slots at Pennsylvania tracks with saving the state's horse racing industry. It's a fair claim. Once struggling to stay in business, Pennsylvania tracks have not only stabilized, but flourished and, with the addition of Presque Isle Downs, expanded in number. Purses have ballooned by roughly 400 percent and rival any state's racing programs.

All of this is excellent news for the tracks, for the state which collects considerable revenues for its budget, and for horsemen, who can come a lot closer to making a good living (or at least breaking even) in a business where losing money on a horse is a very real prospect every time you breed or buy one to race.

But HANA notes that Pennsylvania is screwing over its horseplayers (my term, not theirs), and horseplayers are letting them know it by withholding their wagering dollars.

HANA notes that total handle in Pennsylvania has declined by 15.3 percent between 2006 and 2008. That's because the takeout is so high -- 35 percent, HANA reports as an example, on tri- and superfecta wagers on harness racing at Pocono Downs. Which, HANA says, swallows up more of the financial pie, leaving less for the gamblers, than even the Massachusetts state lottery.

As a result, on HANA's 2009 rankings of 72 North American thoroughbred racetracks for their friendliness to horseplayers, Penn National ranks 43rd, Philly Park finishes in 63rd, and Presque Isle is 68th.

Now, losing $100 million in handle between 2006 and 2008 would more than alarm everyone involved if it weren't for all the money from slots to make up for it. So while it can be argued that slots at the racetrack are beneficial, they also can mask very real inadequacies or inefficiencies in the overall operation.

No reasonable business owner would sit idle while revenues shrank so dramatically in so short a time. He would determine what was necessary to bring his customers back through the doors and spending at least the kind of money they used to spend, if not more.

Now, it might be a stretch to expect politicians to be reasonable. And I suspect that track management is just so happy to be back on the positive side of the ledger that its executives aren't losing sleep over shrinking handle. Yet.

But anyone who stops for even a moment to consider these numbers can see that the takeout is killing handle. More and more over time. And anyone with business sense ought to reach the conclusion that a reduced takeout (easily made possible by those same slot revenues that provide so much revenue) would allow handle to grow again.

Talk about your diminishing returns: Pennsylvania is taking so much out of horse racing wagers that horseplayers have reduced their wagering, resulting in less revenue realized for the state than if Pennsylvania were to take out a more reasonable share.

If I were a politician in Pennsylvania, I'd much rather see the state take out half as much from a handle that is twice as much. The net revenues to the state would be the same, while the horse racing business within the state would be thriving more than ever, increasing revenues collected by the state in the form of sales tax at the track, property tax from increased investment and value in horse farms and racetracks, and income tax from all of the industry's employees and principals. That includes horseplayers, who would bet more, win more, and pay more tax on those winnings.

But the current takeout in Pennsylvania, as HANA shows, is garbage.


  1. Look at who owns those tracks: Pen - Penn Gaming; Pid - MTR Gaming; Pha - Greenwood Gaming; same on the harness side with Harrah's Chester, Pocono Downs (Mohegan Sun) and whoever will end up as the owner of Magna's The Meadows.

    The reason takeouts are the highest at those tracks that need them least is that General Gaming companies such as the listed ones want those tracks to fail. You know how much their bottom line goes up if they don't have to waste a good portion of their casino gains on the racing product?
    This is so much pure profit to them that Pid and Chester were build in unattractive locations only so their parent companies were allowed to operate a casino next to them.

    It's very reasonable for a general gambling enterprise to sit idle while there are fewer and fewer arguments for why they ave to keep up funding the racing arm. They won't forget to shift over a bit of the profits to the politicos, who really don't care if that money comes from slots or horseplayers.

    This isn't bad business by either the politicians or the gambling enterprises, this is just a case of stupid, stupid horsemen who wouldn't know a trojan horse if were inside looking out.

  2. Any racetrack owner and the state in which it resides would do well to incrementally lower the takeout rates to the levels of the era in which horse racing was a viable and profitable endeavor.

    That means 8 to 12% takeout rates on all the wagering pools. Not some of the pools.
    Not some of the time. But all the time !

    Once again "less" is ultimately more.
    There are plenty of competent and break-even bettors still in the game today. They're ready to donate more to the wagering pools if they're allowed to keep their bankroll's healthy.

    When the novelty of slot-racing wears off in just a few years the horse racing industry is going to wonder what do we do next ?

    Well the chance is now to right the ship and invest in a horse racing clientele that can profit from wagering on the horses - and come back again tomorrow. A larger segment of horse bettors must be cultivated. There is no excuse for horse racing to be so short-sighted as it currently is.

  3. PA horse people need to worry about the politicians as they continue to squeeze the gaming revenue targeted for horse-racing.

    Getting the gaming revenue was a slick move by the track owners as they ballyhooed "saving jobs and investments in racing" as they shifted funding for the game from a narrow, declining population (horseplayers) to the general population.

    As state revenues continue to decline and choices have to be made between funds for schools, health care, general welfare and pony pork, guess which one is going to lose.

    So long as the racino operators keep the pols happy with big slices of the gaming-revenue pie then getting rid of barns, manure hauling, health inspections, yada, yada, through attrition and finding other more profitable uses for the real estate is just good business.

  4. Agreed that take out is a contributing factor but also add to the mix construction at everyone of these facilities making it not fan friendly to get to. Parking for the fan who used to be able to park right up front now has to contend with thousands of cars. Add to it an additional venue for the betting dollar. Let's not even bring up the shift in managements focus. Before slots you focused on your money maker, i.e. racing. A place like Philly Park made 20-30 million a year and as a year around race track that was pretty incredible. Now the focus is on slots as it should be where they make 100 million a year and so what if racing dropped to 10-15 million a year. Still a 70 million plus gain for the year. Where would your focus be? Yep take out is but just one cause but dont make it out to be the only cause because you are making yourself sound ignorant to the facts. It has not gone up in years when the handle was stable before these new gaming venues came in.

  5. First of all there is no sales tax at the race tracks in Pa. Unless you are talking about the hot dog concession. There is no sales tax on claiming or purchasing Thoroughbreds, feed, or equipment (for Thoroughbreds). This is mandated by law. The resaon: to help the agriculutral community and employment etc.-exactly the same reason the slot bill was passed.
    From everything I read "Handle" is down at virtually every race track in the United States, due to the economics of today. I don't have the exact figures of each individual states downward spiral in handle but I would think this author would or at least should. Then compare that to Pa.

  6. Handle is generally down in 2009; not a surprise in this economy. But handle was only down around 2.2 percent at Saratoga this season. And Keeneland's fall meet that just closed actually saw an 8.7 percent INCREASE in wagering.

    So it isn't all bad news, everywhere.

    Handle reportedly has been declining at about 12 percent per year in Ohio, much sharper than Pennsylvania. But then it's pretty widely recognized that Ohio's industry is in worse shape than Pennsylvania's, isn't it?

  7. The Chief wrote:

    And Keeneland's fall meet that just closed actually saw an 8.7 percent INCREASE in wagering.

    Well when the bar is set so low from the 2008 Keeneland autumn meet it's quite easy to show any kind of an increase, is it not?

    Last year the Breeders Cup Ltd. tried to put a positive spin on the numbers (if not with additional races. This year it will likely be with BetFair handle lumped in.

    I'm not sure if they are actually going to add Betfair wagering that into the equation and then do a comparison, but I would not be surprised.

    After last year's lethargic numbers, even slight European participation in the wagering pools will make help go a long way towards the word "success".

    The same will hold true when Aqueduct starts to reap in with BetFair wagering from across the pond. But just because "handle was up" is being reported does not necessarily mean all is well.

    They'd like to you and I to belive it doesn't matter how the grapes were crushed as long as the wine turns out fine. We're smarter than they are. The educated consumer is the obviously the best customer. ;-)

  8. Ed,

    Handle was down in PA by a big margin where it was relatively flat in North America overall.

    At every slots jurisdiction since inception in 1995 handle has gone down. In PA it was no different and when the horseplayer gets the shaft while billions are doled out in purses, that should not be a surprise to anyone.



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