As most know, I have long given up on California Racing steering themselves out of the abyss, and don't pay much attention anymore, but I got an email with a link to yesterday's meeting. And I listened.
"Racetrackandy" on twitter - not employed by the industry, but a guy who probably works harder for it than a lot of people who are paid by it - drove up to make a public comment, as is customary at CHRB meetings. His comment - well thought out - regarded takeout rates in California, their changes, and the analysis of them.
It was an academically sound question and comment: 'There is a proper takeout rate for wagers in California that increases purses and increases payouts to customers to encourage more betting, both short-term, but particularly the long-term. Can California racing move toward this number, professionally and academically, rather than specious, arbitrary changes that no one can learn a thing from?'
The response, and question, from CHRB member Madeline Auerbach shows how far racing needs to go to change its preconceived notion of what gambling and takeout is, and how to begin to move the sport forward.Paraphrasing, she said "How can you guarantee these takeout changes will not hurt the people who invest in horse racing."
The thinking is: We now have "$X" because takeout is "set". We may have less than $X if we adjust off this "set" number.
That question is misguided (the easy answer to that is, "with real handles off 50%, purses down, racedates down, foal crops down, the threat of online poker from Indian casino's up, and everything else, how can you afford to not find optimal takeout rates."), but it's much more than that.
Racing has clung to a takeout number that has never been set by the gambling market. It's guaranteed to be wrong. I'll type that again: The current pricing structure in California (and elsewhere) is 100%, bet all you got, Secretariat in the Belmont, never a doubt, no question, unequivocally, wrong.
Neighborhood bookies are not charities; they did not come up with 5 cent or 10 cent lines because someone told them to. Slot machines, long in Vegas priced at terrible 15-25% takeout rates in the 1960's and 1970's, did not come down to their present 2%-7% levels because a politician told them to set them there. Poker, long played in more than spaghetti westerns over the years, does not rake 4% out of a pot because someone liked Bobby Orr's number.
Those rates were all set by markets.
Racing's current takeout structure was not created from analysis, trial and error, the market, or anything else. They were set in 1907, and changed based on whims. As a monopoly, this could be done. Cash strapped governments who haven't liked a program they did not want to fund, needed more and more money; racing happily went along for the ride. Even though this price setting did not work and never really has (read up on the handle and revenue changes in the 1940's to see evidence of that), at least racing had a monopoly, where some sort of average cost, rather than marginal cost pricing could allow it to get by.
That all changed in the 1970's, 1980's and then through the massive disruption of the Internet beginning in about 2000.
Ms. Auerbach is asking a question that has no basis in reality, in terms of academically and fiscally sound pricing policy. She's asking to protect a takeout rate that has never been set by the market. She's protecting a phantom number.