On Wednesday night I alerted the editor of the DRF that I was writing a letter to the editor about the response to the previous article Matt Hegarty wrote about my entrance into the rebate world, and the concerns that had been expressed to me since. They indicated they were going to run it, and had David Mc Donough work with me to facilitate that end. I sent them the letter, but lo and behold, I woke up this morning and found that they had neglected to run it, choosing instead to go with with Hegarty\'s piece that contains the loaded terms \"vociferous objections\", \"syndicate\", \"cut off\", \"selected customers\", \"confronted\", \"concerns\", and \"incensed\".
Here is the letter that was supposed to run. I will have more information for the players I spoke to as it becomes available.
Two weeks ago Matt Hegarty wrote an article about my formation of a company to meet the rebate needs of Thoro-Graph players. The article inspired calls from nervous racetrack executives, and at the recent DRF handicapping expo in Las Vegas I was asked more questions about rebates than about speed figures. This seems like the proper forum to address those questions, and the rebate issue in general.
The process began over a year ago when I knew very little about rebates. We have developed a pretty large customer base, much of it online, and several companies approached us about steering our serious players to them. This was an attractive idea all around-- the players get a much better return and bet a lot more, which is good for the industry, and ultimately buy more product. Fourteen months and a hefty bill from my lawyer later, I\'ve learned a lot.
One company that approached me was an offshore bookmaker who wanted to set up a link on my website, but there were obvious problems that led me to reject this one out of hand. Since they were booking the money it wasn\'t going into the pools, which meant the tracks and horsemen weren\'t getting their share, which is a problem both morally and politically for me-- I have made my living in this business and worked with horsemen for a long time, and I want to support the industry. Also, bookmakers are not in business to lose money, so if my guys started beating them (and we have some pretty sharp customers) they figured to get cut-off, and possibly even stiffed. That could have led to a DRF headline with the word \"Thoro-Graph\"in it that I don\'t ever want to see.
We were also approached by a couple of outfits associated with smaller Native American tribes, and we checked these out pretty thoroughly. The people who contacted us seemed OK, and this had the advantage of being pari-mutuel, so everyone would get a share. The problem was that the tribes themselves would not execute a written contract-- try to get your money if something goes wrong, especially from a sovereign nation. Another potentially disastrous DRF headline.
I also considered trying to open a venue myself, but after exhaustive research and thorough vetting, I finally came up with the right partners. Their company is run by a former high ranking racetrack executive, and they model their approach after the casino industry--meaning, they treat big players as something special, the way the casinos do, and the racetracks don\'t. Money is not booked-- it goes into the pari-mutuel pools of the host tracks, and we have written contracts.
To me, the most interesting event of last week\'s DRF expo was the NTRA player\'s panel. Several members spoke out in favor of rebates, discussing how it was helping the game, and the estimated figure quoted for rebate handle was $1.5 billion annually. Keep in mind that\'s just for what is going through the rebate outlets into the pools-- a lot more money is going to those offshore bookmakers, and into the head-to-head markets, which don\'t pay the industry a dime.
Hopefully the industry will someday soon find a way to lower the absurdly high takeouts across the board, which I and many others have been pushing for publicly for many years. In the meantime, industry leaders need to recognize that legal rebate outfits that service bigger players are not their enemies-- they have created an enormous amount of handle that without the discounts would either go to the non-pari-mutuel vendors, or simply vanish. As Tim Smith said at the expo, players are voting with their feet. The huge (and growing) amount of rebate handle itself tells us that the big players are price sensitive, and voting with their bankrolls.
I think the powers that be will fight rebates and takeout until they are out of business. I think the only ones who really think rebates are great is CDSN and NYRA although NYRA is stifled by regulation. Youbet is completely against it from what I\'ve read. Magna, for a bunch of idiots that they are, saw the light and started this thing. Now, I don\'t know what is so wrong about rebates. Let\'s say theoritically that everyone joins a rebate shop, will it drive tracks out of business, I don\'t think so, the tracks can just raise their fees. I mean look at the insult that NYCOTB dealth to horseplayers last year when they refused to take Kee becuase the takeout was too low!!. I think unfortunately, JB is the first in line and sometimes pioneers don\'t make it on the first try but I think it is only a matter of time. In order to be successful, you must have written agreement, be under US laws and have a good customer service.
The casinos, supermarket, airlines, etc all give frequent customers a discount, why not tracks? I hope horseplayers continue to vote with their wallets and demand change or else it is not going to happen. I haven\'t played GP all year because I have to open a new account and I don\'t miss it one bit. I think I can play a track where I will get a rebate regardless of how small a track. You have to get your money\'s worth in this business or you will be bankrupt. This rebate story has just left the starting gate and still have over a mile left!!!
\"JB is the first in line and sometimes pioneers don\'t make it on the first try\"
Put down the kool-aid and back away slowly
Frank
I am reposting this because it is important, and I don\'t want it to get lost.
On Wednesday night I alerted the editor of the DRF that I was writing a letter to the editor about the response to the previous article Matt Hegarty wrote about my entrance into the rebate world, and the concerns that had been expressed to me since. They indicated they were going to run it, and had David Mc Donough work with me to facilitate that end. I sent them the letter, but lo and behold, I woke up this morning and found that they had neglected to run it, choosing instead to go with with Hegarty\'s piece that contains the loaded terms \"vociferous objections\", \"syndicate\", \"cut off\", \"selected customers\", \"confronted\", \"concerns\",and \"incensed\".
Here is the letter that was supposed to run. I will have more information for the players I spoke to as it becomes available.
Two weeks ago Matt Hegarty wrote an article about my formation of a company to meet the rebate needs of Thoro-Graph players. The article inspired calls from nervous racetrack executives, and at the recent DRF handicapping expo in Las Vegas I was asked more questions about rebates than about speed figures. This seems like the proper forum to address those questions, and the rebate issue in general.
The process began over a year ago when I knew very little about rebates. We have developed a pretty large customer base, much of it online, and several companies approached us about steering our serious players to them. This was an attractive idea all around--the players get a much better return and bet a lot more, which is good for the industry, and ultimately buy more product. Fourteen months and a hefty bill from my lawyer later, I\'ve learned a lot.
One company that approached me was an offshore bookmaker who wanted to set up a link on my website, but there were obvious
problems that led me to reject this one out of hand. Since they were booking the money it wasn\'t going into the pools, which meant the tracks and horsemen weren\'t getting their share, which is a problem both morally and politically for me-- I have made my living in this business and worked with horsemen for a long time, and I want to support the industry. Also, bookmakers are not in business to lose money, so if my guys started beating them (and we have some pretty sharp customers) they figured to get cut-off, and possibly even stiffed. That could have led to a DRF headline with the word \"Thoro-Graph\" in it that I don\'t ever want to see.
We were also approached by a couple of outfits associated with smaller Native American tribes, and we checked these out pretty thoroughly. The people who contacted us seemed OK, and this had the advantage of being pari-mutuel, so everyone would get a share. The problem was that the tribes themselves would not execute a written contract--try to get your money if something goes wrong, especially from a sovereign nation. Another potentially disastrous DRF headline.
I also considered trying to open a venue myself, but after exhaustive research and thorough vetting, I finally came up with the right partners. Their company is run by a former high ranking racetrack executive, and they model their approach after the casino industry--meaning, they treat big players as something special, the way the casinos do, and the racetracks don\'t. Money is not booked--it goes into the pari-mutuel pools of the host tracks, and we have written contracts.
To me, the most interesting event of last week\'s DRF expo was the NTRA player\'s panel. Several members spoke out in favor of rebates, discussing how it was helping the game, and the estimated figure quoted for rebate handle was $1.5 billion annually. Keep in mind that\'s just for what is going through the rebate outlets into the pools-- a lot more money is going to those offshore bookmakers, and into the head-to-head markets, which don\'t pay the industry a dime.
Hopefully the industry will someday soon find a way to lower the absurdly high takeouts across the board, which I and many others have been pushing for publicly for many years. In the meantime, industry leaders need to recognize that legal rebate outfits that service bigger players are not their enemies--they have created an enormous amount of handle that without the discounts would either go to the non-pari-mutuel vendors, or simply vanish. As Tim Smith said at the expo, players are voting with their feet. The huge (and growing) amount of rebate handle itself tells us that the big players are price sensitive, and voting with their bankrolls.
Post Edited (03-08-04 14:35)
While there is no doubt that rebates are legal, it\'s my understanding that the use of non-track account wagering sites and some non-track OTB sites to gain rebates means that upwards of 85% of the takeout of the total amount bet by rebatees does not reach the tracks(except if bet through TVG and Youbet) and consequently does not reach the horse owners,trainers,jockeys,etc. via higher purses. If this is so, while the rebatee gets a break and that\'s ok, I\'m wondering about the validity of TG\'s implication that the current MEC/TB rebate agreement benefits horse racing in general via increased handle.
If my math is correct, the host and simulcast horse tracks get just as much take out from an on-track handle of about 1/6 of a rebated handle. This would mean that rebating would need to increase a rebatee\'s handle by 6 times to keep the tracks even.
While this is an oversimplification, I think the following analogy has some value.
Think of the takeout as a tax and the horseplayers as the citizens paying the tax and the tracks as States that Tax the citizens and the horseman (and others in racing) as private parties that do business with the state.
I think it is safe to say that right now most horseplayers (citizens) feel like they pay too much in taxes (the takeout is too high). Of course horseplayers (and citizens in general) would probably complain even if the rates were lower so that is not the real problem. The real problem is that horseplayers are now frustrated enough to start doing something about it. They are looking for creative ways to reduce the effective takeout (looking for tax loopholes or tax shelters) and, in fact, an entire cottage industry is growing up to support this new market (e.g. rebate shops).
Does any of this sound familiar? Have you ever seen a similar scenario outside racing?
Asfufh asked a legitimate question and I think his assumption is that what we have in racing is basically a \"zero sum game.\" There are a bunch of die-hard horseplayers who are going to continue to play the game regardless of the rules or the takeout and that there is little or no chance of attracting new players. Under this scenario, to increase revenue, the tracks (States) simply need to maintain control and raise the rates. The die-hards will complain but they will continue to pay more. To lower the takeout makes no sense at all. It would simply lower revenue. This assumption that higher rates lead to higher tax revenue and lower rates lead to lower revenue was pretty well accepted in US policy until the early 80\'s.
TGJB also raises some good points but I think he is coming from a different set of assumptions. He is not convinced that there are as many die-hard horseplayers and that many of today\'s regulars (big players in particular) will opt for other gambling options that have lower effective tax rates such as sports betting, casino betting etc. or that they will opt out of the gambling game completely or will try to avoid the taxes either legally or illegally in various creative and ever-changing ways (e.g., off-shore rebate shops, etc.). I think he is also coming from an assumption that a lower effective tax rate may entice in new players because it would increase the perception that they actually have a chance to make a positive ROI or at least come closer to breaking even. This set of assumptions can lead to the optimistic conclusion that lower taxes will provide incentive for more people to play the game and for those playing to be less likely to avoid taxes and more likely to \"play more.\" In other words, that you can have a \"win, win\" resulting in lowering taxes (makes the horseplayers happy) while raising revenue (makes the tracks happy) and even raise enough to share with others (and make the horsemen happy).
Of course, where economic theory and politics collide is in that last point regarding how the revenue is shared and what is \"fair\" or \"equitable.\" Another complicating factor and the place where the analogy really tends to break down is that there is no strong federal government that can set a single rate and force the States to get along with one another and work together for the good of the industry, which makes progress slow and makes things messy for the horsemen and the horseplayers.
I don\'t pretend to have all the answers but I do think that the takeouts are too high (they are not competitive with other forms of gambling and entertainment) and I don\'t think it is a zero sum game. I also believe that if rates stay too high, that you cannot control the behavior of the horseplayers no matter how hard you try. People will either vote with their feet or continue to find even more creative ways to avoid paying taxes as long as they are perceived to be too high.
The long term answer has to involve some form of lower effective takeout that is passed on to horseplayers (via rebates or simply lower takeout or some combination of the two) with the rest of the take being equitably shared among tracks, horseman and the middle-men that help get the product to market (e.g., account wagering firms) so that all can continue to be successful in a sustainable way.
The bottom line is that the horseplayer is the \"customer\" and that the entire industry has to understand that and start treating the horseplayer like a customer. They have to understand what the customer wants and values and deliver that to them as effectively and efficiently as possible.
Instead, today the industry treats the horseplayer as a necessary evil. The product is overpriced (takeout is too high and not uniform). Product quality and reliability is suspect (small fields, drug use, computer race fixing, late odds drops, etc.). Product delivery is complicated and confusing (no one place where you can go to watch and wager on all tracks). I could continue the list but I will stop there.
In other words, the industry has done just about everything it could to destroy itself but has somehow survived. Why? Because Racing is a great game. If only we could say the same for the racing industry.
Chris
I thought the 6-1 ratio was close to the norm as well, until I learned that brisbet was paying a 10% rather than a 3% fee to Magna before the signal cut-off. The lower 3% fee is what brisbet pays for signals such as Tampa, which is why brisbet has been offering 7% rebates since the cut-off. Brisbet\'s handle is way up since the cut-off, & in a recent letter to customers brisbet thanked Magna for \"opening its eyes.\"
I agree with much of what Chris has to say, but like most issues in racing, rebating is complicated. Too complicated, perhaps, to address in a single letter.
From the horseplayers\' perspective, rebates are a form of much needed & long overdue price competition for their wagering dollars, & theoretically at least, it\'s hard to argue with the economic principle that lower prices should produce higher betting volume. And that certainly seems to be what has happened in NY since takeout rates were lowered at the end of 2000. Handle is up about $1 million per day, & bettors received an extra $92 million more than they would have under the old rates.
If on the other hand you put yourself in the shoes of an owner, what you\'d see over the last couple of yrs, when rebates exploded, is an increase in handle accompanied, for the 1st time, by a decrease in purses. The situation is even worse if you eliminate the bump from slots. So it\'s not surprising to find many who say that rebating actually siphons money from the industry. Mayor Rudy was recently retained by the NTRA to get to the bottom of the matter.
Based on what has been reported, for non-Magna tracks, I have to agree with asfuth. For example, if someone who usually bets at NY tracks switches to XpressBet, the NY track\'s share of the wagering dollar goes from 20% to 3%. Magna\'s role seems substantively the same in this kind of situation as an offshore rebate operation like RGS.
There is also a question of whether or not all of the additional betting volume which results from rebating is something the tracks want. Some percentage is computer-generated batch wagering, which causes a lot of the late odds drops. FG,Oak,& Tampa have removed their signal from wagering outlets which allow the practice. Calif tracks allow the practice.
The shut down occured less than a week ago & I already know that someone whose residency was in question has been contacted & questioned about his betting habits. It is even more remarkable to read that Magna has complied with the TOC\'s request for \"information.\" It depends of course on exactly what that means, but as a general proposition this is not the kind of thing someone who is being hounded by the IRS or going through a divorce, to take just two examples, wants to hear. I imagine this news was greeted even less enthusiastically by some of the Soprano-type characters I have met at tracks over the yrs. The idea of Drew Couto poring over someone\'s personal betting records is, to put it mildly, downright scary.
There are many ways to do rebating that will make it worthwhile for tracks and bring it directly to horseman. For instance, do it on Sat/Sund at the track only(everyone at the track will receive a lower takeout through a 5% rebate on all their wagers). The tracks will get more paying customers(10,000 people paying $5 to get into Santa Anita will pay a lot of bills). Do rebates for a define period and then reassess it(do it for one year, one meet). Regardless of this, there are so many people out there using ehorse and pinnacle that it\'s not funny. These are not the big players either, I am talking about guys betting $50-100/day. The tracks better wake up or more will go overseas. Personally, I could not use these overseas outfits because I am afraid I would never see my money again. I also think that Las Vegas gives rebates on the sly but that\'s another story.
Works for Walmart and will work in the conglomerate that TGJB and Co are putting together. Get enough SCALE and these racetracks better straighten up and listen to you.
Technology:1) Internet, 2)Full Card Simulcasting World-Wide, 3)Cell Phones, 4)E-Mail all add up to allow people to pool their resources and obtain the most important thing a consumer can have PURCHASING POWER.
Shop around a 50 MILLION DOLLAR HANDLE and people will listen to you. For those conglomerates that are public issue a Press Release stating that your 50 MIL handle, and a growing one, will now go from exclusively to their tracks to some another track, perhaps even one overseas. See the haircut their stock will take.
The only two things that have and should matter in racing is what do the horses need and what do the customers need.
The rest of you are working for both of us.
OPM:I\'m pretty sure that not too long ago Haw or Sportsman had a reduced takeout(10%?) for those physically present at the track(it might have been limited to Tues), but I can\'t remember reading or hearing anything about whether it increased attendance or handle.
One of the things regulators suspect is that money bet with offshore bookmakers is being laid off through rebate shops. ehorse, for example, offers a 4% rebate to those who wager $5k per week. If ehorse signed up 200 such customers, & then placed their wagers through a rebate shop, they would be eligible for a 10% rebate, & could pocket the 6% difference at no risk. It gets progressively better for an operation like ehorse, & worse for horsemen, to the extent they are able to attract larger & larger numbers of smaller bettors, who are receive smaller ehorse rebates & who would otherwise bet through the pools.
SC:Rebate operations currently account for $1.5 billion(about 10%) of annual Tbred handle, up from just $450k in 1999. As I believe I mentioned once before, even without rebates bettors were receiving about 80 cents of every dollar they put in, while owners were only receiving about 50 cents. There are a lot of non-economic reasons for horse ownership, but I don\'t think it\'s good for the game or for bettors over the long term if the possibility of earning a profit as an owner gets even worse. Eventually, we\'d end up like France, where you can go out to Lcp to watch & bet on 5 extraoridnarily expensive & well bred horses owned by 4 Sheiks & a greek shipping magnate compete for a $50k purse. One of the things that makes American racing the best in the world, imho, is that it\'s not limited to the mega-rich.
Asfuth-- clearly the horsemen (and the groups that represent them) have to protect their interests, and since my deals with them are based on percentage of revenue that has ramifications with me as well. But:
1-- rebates clearly get players to bet a LOT more than they otherwise would. If they are not available, the money won\'t be going through racetrack windows-- it will either go someplace where it is held, or disappear from the game.
2-- the bettors have been subjected for a long time to a takeout that is ridiculously high, and they (we) have interests of our own to protect as well. Everything that is happening now will reshape the game over the next few years, and there will be blood on the floor along the way. Ultimately the invisible hand will cause tracks to cut out middle men, pay higher purses, and get government (the elephant in the living room no one is talking about) to take a smaller share of a bigger pie. But it will be a process, and it will take time.
Adam Smith (and his \"invisible hand\") is probably turning in his grave right now...
Chris
\"Virtue is more to be feared than vice,
because its excesses are not subject to
the regulation of conscience.\"
—Adam Smith
SC,Competition from giants like Walmart eliminates the smaller operations in the area.
It seems to me that the same thing will happen in racing under your \"syndicate\" scenario as the \"chosen\" tracks will dominate so we will eventually be left with a few mega-racetracks, a helleva lot less racehorses,and generally less horse betting options for the individual handicapper not to mention the lost jobs and adverse impact on the environment. It may work in the retail sector but I ,for one, don\'t look forward to this kind of a situation in the American racing scene.
I hope the race tracks/horsemen take charge of this situation soon and substantially increase the fees charged to non-track/low -fee account wagering sites and otbs (obviously if these operations can give out rebates in the order of 10+% and still stay in business, they can afford much higher fees and still make a reasonable profit). The tracks in conjunction with the horsemen and external betting sites should then develop and implement a universal \"comp\" system for all individual bettors similar to what most casinos do currently. ASFUFH
Smith is turning over in his grave over the notion that the \"invisible hand\" may have an application to parimutual horseracing? I don\'t understand. Not that I\'m certain the premise is correct because the government is involved in horseracing. In regard to that fact I think Smith\'s oft cited quote has to be considered:
\"Virtue is more to be feared than vice,
because its excesses are not subject to
the regulation of conscience.\"
The free market and invisible hand may ultimately work for the economic best if they are not restrained by forces they can\'t resist. The virtue to be feared more than vice is often the government. Its the same whether you\'re talking about parimutual concerns, health care or Iraq. Just try getting goverments hand out of the pie once they are very hungry and have tasted the revenue.
By the way Smith burned his clothes:
\"About a week after I was made a Commissioner of the Customs, upon looking over the list of prohibited goods (which is hung up in every Customhouse and which is well worth your considering), and upon examining my own wearing apparel, I found, to my great astonishment, that I had scarce a stock [neck cloth], a cravat, a pair of ruffles, or a pocket handkerchief which was not prohibited to be worn or used in Great Britain. I wished to set an example and burnt them all.\"
More governmental free market at work, don\'t count on it in horseracing.
\"We live in a wheel
Where everyone steals
But when we rise its like strawberry fields\"
CtC
Post Edited (03-09-04 19:57)
As was pointed out in one of the earlier posts the issues regarding rebates are much too complex to be covered in one letter.
But, TGJB, I think it's a fundamental mistake to look at a need for lower takeouts and rebates as two sides of the same coin.
I know in the broadest sense they both are ways to put more money in the pocket of the bettor, but in reality they are two distinct issues, each with their own politics, representing two different views on how to grow they game. And inevitably, Racing, will have to make a choice between the two approaches.
Reduced takeouts seems to me the sporting method of making Racing a better game both by improving the playing field and increasing the reward for hard work. Rebates, on the other hand, might be the pari-mutuel equivalent of an athlete using steroids.
Obviously rebates will pump up handles. But at what long term cost?
Indeed, the creation of an economic system wherein rebates can thrive (especially off-track) might be the most shortsighted action of an Industry known already for its nearly perfect 20/20 shortsightedness.
Post Edited (03-10-04 16:41)