The Takeout Battle
It’s been a hot topic recently. Actually it’s been among the issues-of-the-day for some time now. Takeout. It’s too high. And with legal sports wagering now on the verge of exploding in America, “horse racing” needs to adapt by reducing takeout across the board to make wagering on horses an attractive option for bettors who might otherwise place their bets on a football game with a takeout of less than 5%. I think at this point, we are all familiar with the issue, the logic, and the benefits.
But I don’t think it’s ever going to happen, and I base this opinion on my experiences working in Corporate America. In a nutshell, the issue is this:
Johnny and his friends are the people who get to decide if LoneSpeed Downs, the imaginary racetrack used for this discussion, should offer a takeout reduction from 20% to 10%. However, Johnny and his friends earn a handsome annual salary to do their job at LoneSpeed Downs, and they aim to keep their jobs for as long as possible. And the way Johnny and his friends are measured in terms of their professional performance is based on how much profit LoneSpeed Downs makes every year. So, let’s imagine the following hypothetical conversation between me and Johnny:
Me: Hi Johnny
Johnny: Hey there Justin.
Me: What if I told you that I had a way for LoneSpeed Downs to increase it’s profit by 25% from 2018 to 2022? Would that interest you?
Johnny: Would it ever!!! You bet!!! Just tell me what to do!!!
Me: Ok. Just reduce takeout from 20% to 10% immediately.
Johnny: Ooooooooooh. Yeah. That’s gonna be tricky.
Me: Why?
Johnny: Well, my friends and I here at LoneSpeed Downs earn annual bonuses based on profit, and the profitability of LoneSpeed Downs is tied directly to takeout. So….ya know.
Me: Yes, I thought of that. And while there may be a short-term drop in profit as a result of this change, the long-term benefits will more than make up for the short-term losses.
Johnny: But then I’ll have to go to my boss and tell him that I won’t be making my profit number next year. And he won’t like that. I could get fired.
Me: But just explain to him that not only will wagering handle increase as a result of this reduction, but horse racing as a wagering activity will be more competitive with sports betting, further solidifying the sport of horse racing as a whole.
Johnny: Yeah, I am not sure my boss cares about the future of horse racing. We really only need the racing to get the casinos and the sportsbooks.
Me: What if I guaranteed you and your boss a 25% increase in annual profits four years from now in exchange a loss of no more than 10% this year, 5% next year, and 1% the year after that? It’s a written guarantee of long-term profit increases plus making betting on horse racing more competitive vs. sports betting in the process. You literally can’t lose.
Johnny: No deal.
The point of the imaginary conversation above is that I find it hard to believe anyone in “horse racing” with the ability to reduce the takeout will have the balls to do it. So while I think we, as horseplayers, should definitely keep fighting for it, I think it’s time to accept that it’s not going to happen on a meaningful scale, and now is the time to start marketing the activity of betting on horses in a way that focuses the attention elsewhere. For instance, if you are proficient as a handicapper and really study the game, there are opportunities out there for you to find a horse with a 20% chance of winning being offered at odds of 7-1, which would indicate a win probability of about 12%. If you spot those opportunities correctly, you will make a profit betting on horses. Sports betting does not offer you that opportunity. Period. Horse racing is a better bet than sports betting. That’s the story that needs to be told. Is the takeout rate hurting? Yes. But if you put in the work, you can overcome the takeout. And that is horse racing’s edge.
Just my two cents.
