Rebate Shops

[Saddlecloth]

I will not comment on this, want to see other peoples takes, reprinted from DMTC forum by Oaklawn Park official.


I've spent the past couple of days peeking into various chat/bulletin rooms gauging the buzz regarding computer bettors. This board contains the greatest number of fans trying to understand the issue. I've enjoyed reading the posts.

Two nights ago I received an email from a poster on this board (scorequick). He asked me to offer some thoughts on the issue.

As most of you know, Oaklawn removed rebate/computer wagering shops from its pools during the 2004 season. The motivation for the decision was to ensure fairness for the racing fans, especially those supporting the game in the nation's grandstands and OTB's. It was the right thing to do.

Last week, the NTRA released the results of a study which examined the effects of rebate/computer players. Oaklawn participated in the NTRA study by providing its 2003 and 2004 wagering data. The study analyzed the dynamics of Oaklawn's wagering pools with the rebate/computer shops participating in 2003. Those dynamics were contrasted with the behavior of Oaklawn's pools after the rebate/computer shops were removed in 2004.

The conclusion, which is included in the final report, is that Oaklawn's effective takeout rate for its remaining simulcast sites went down 1.64% after removal of the rebate/computer shops.

As a result, some $3 million that would have been siphoned out of the pools by the rebate/computer shops went instead to stateside racing fans holding winning tickets.

Also...the late odds drop phenomenon disappeared at Oaklawn when the rebate/computer shops were removed.

HOW DO THE COMPUTER/REBATE SHOPS OPERATE

Some basic knowledge of the industry's economic model is required.

When Oaklawn sends its signal to California, the fans in California are betting into Oaklawn's pools, not separate pools (you already knew that).

Oaklawn's WPS (win place show) takeout is 17%. So, California wagering sites offering the Oaklawn signal take 17% of the handle off the top. The other 83% is returned to winning wagers wherever they occur in the Oaklawn network.

From this 17% California must pay Oaklawn for its signal...let's say the fee is 3% of handle.

Now California has 14% left (17% - 3%). Forgetting state and workmen's comp obligations for the sake of simplicity, this 14% is split (7% & 7%) between the California wagering site and California's horsemen (purses).

The 3% paid to Oaklawn is split between Oaklawn and the Oaklawn horsemen, building Oaklawn's purses.

As you can see...the horsemen benefit on both sides of the equation, sending and receiving. They should, owning and training thoroughbreds is an expensive business. Solid purses will bring good owners to the game. If we don't have thoroughbreds we don't have a sport.

THE REBATE SHOP

Most rebate/computer shops are secondary pari-mutuel organizations (SPMO's). The NTRA study defines SPMO's as follows:

Does not conduct live racing;

Provides rebates to bettors, up to 10% or more;

Is based primarily on telephone account wagering with a limited customer base with some customers using personal computers in their handicapping and wagering activity and being afforded special pari-mutuel access or service;

Owners and/or operators are not clearly defined;

Is out-of-country, an Indian gaming facility, or is not in the geographical mainstream of U.S. racing locations;

Has little or no U.S. regulatory oversight;

Has significant level of business contrasted by no visible marketing or advertising;

Has consistent and often substantial money settlements due from host track; and

Tax withholding policies and practices in relation to U.S. regulations are unverified.

These SPMO's have a tremendous advantage over U.S. sites. They have no obligation to local purses.

Let's revisit the economic model. Here's what happens to the same 17% takeout at an SPMO:

3% to Oaklawn (fee)
4% to the SPMO
10% rebate to the player (no purse obligation frees up this cash)

U.S. horsemen and track management were foolish to allow this model to evolve. I'll agree with Steven Crist on that point.

Big players from U.S. grandstands moved their handle to these sites. They set up accounts and wagered by phone. Tracks were unable to match the rebate offer because of the obligation to place half of the takeout into purses (where I think it belongs).

The NFL supports player salaries by selling broadcast rights to television for billions. Racing, with no such luxury, funds the sport by committing a piece of the wagering dollar to purses.

The off-shore rebate shops circumvent the purse obligation, jeopardizing the sport's foundation.

THE COMPUTER PLAYER

SPMO's offer select players direct wagering connectivity to the tote system. In the aftermath of the pick-6 scandal, that fact alone is ominous.

Direct access to the wagering network enables the computer player to electronically scan and analyze wagers placed by all other players. Just prior to the start of a race, the "linked" computers comb pools seeking underplayed wagering combinations relative to the merits of the horses. The program pays special attention to exacta combinations; it can look at all of them in a b l i n k.

When the program robotically pulls the trigger, a complex array of wagers, mostly exotics, is spread over the underplayed combinations. Essentially claiming all overlay value the pools for that race had to offer. They are taking the cream off the top.

Getting this electronic "last look" enables the computer program a consistent win of 97-cents on each dollar wagered. That's a steady loss of three cents on the dollar.

However, add the ten cent rebate and it's a seven cent winner on the dollar. Consistently!

That's how it works. It's a sure thing. If they wager $100 million in a month they will make $7 million. There's no risk. NO RISK! That's why I call it siphoning, not wagering.

The effective takeout for these computers is 3%, not 17%. That means the effective takeout on everyone else playing in the pools is greater than 17%.

The NTRA study spells this out very clearly. U.S. players are guaranteed to lose faster when participating in pools accessed by rebate/computer shops.

These robotic wagering computers scan every race...at every track...every day. You're always competing with them, unless you are wagering on Oaklawn or Tampa Bay Downs.

Many racing jurisdictions worldwide have banned computer robotic wagering. Australia is one of them. With no place left to go, all computer bettors are trying to plug into U.S. pools. The result will be more strain on purses and even smaller payouts for the U.S. grandstand player.

IS IT UNFAIR

Some say these are just smart handicappers with no real advantage. Others see it as progress. "Don't stand in the way of technology" a friend of mine in the racing business argued the other day.

Consider these analogies:

If you sit for a game of poker in a casino you'll soon discover that the house does not care which player wins the pot. The house gets a cut of every pot, regardless of winner

Pari-mutuel wagering is much the same. A cut is deducted from the pools and the balance is returned to winning tickets. The tracks care nothing about who wins the pools.

Imagine yourself at one of these poker tables. There are six of you playing when a seventh player arrives. The new player pulls a laptop computer from a bag and sets it up on the table. The laptop has a sophisticated lens that scans the cards on the table as well as the amount of chips in the pot. Everyone at the table laughs at the geek and his computer. Play continues.

The laughing soon stops as the computer player consistently wins pots. With more chips in front of him the computer player begins betting more aggressively...winning even bigger pots.

Exasperated, the players complain to the dealer that the computer player has an unfair advantage. The dealer scoffs...saying that the computer player is creating bigger pots, a portion of which goes to the house.

Now...what would you do? Would you stick around and lose, or would you get up and leave?

The critical difference between the poker table analogy and the pari-mutuel network is at the poker table you can see the computer player. In the pari-mutuel pools you can't. He's hidden.

Is that fair?

One more analogy...

A small set of investment traders quietly obtain computer access to the pipeline of trades. They view these trades just before they transact on the major exchanges.

With this unique access, the investors are able to see how all other investors are about to trade. Placing their trades based on this privileged knowledge, the investors consistently beat the market.

Is this fair? Would the SEC shut this down? Would people go to jail?

The rebate/computer wagering model is bad for racing and fundamentally unfair to 99% of the fans.

That's why we cut 'em off at Oaklawn.

Bobby Geiger

[miff]

Bobby Geiger,

All things being equal, that is the best post here or anywhere in a long time, IMO.I am fairly weLl versed and would like to ask you a couple of questions.

1.You mention the computer scans all exacta wagers and looks for overlays relative to the horses chances and then makes multiple wagers at the last few seconds, ETC.

Regarding the above, I was lead to believe that the computer just looked for situations where the player would break even or lose a small percentage of the total wager and then collect the rebate to make his profit.I\'m saying that I thought it made no difference who the horses were or what their ability was. This SCAM is a math thing not a horse/handicapping thing, isn\'t it??

2.I am receiving a rebate and I really do not see any reason why this is wrong.Except for the COMPUTER GEEKS, most of the normal rebate players are betting the money rebated right back into the pools and therefore right back into the game.


Without question, the COMPUTER  GEEKS that are skimming off the top must be stopped or else they will end up with all the money eventually and ther will be no game as we now know it.I know some of the largest rebate bettors in NEW YORK(not computer players) who WILL be approaching Barry Schwartz to stop selling the signal to anyone  allowing the COMPUTER GEEKS access or they WILL NOT play NY any longer.

I think if all players stand together against the COMPUTER GEEKS then maybe other main venues will do what OAKLAWN did.

[Saddlecloth]

Just to point, out I am not Bobby, this is copy from another site.

[TGJB]

Okay, explain to me that little part where the computer finds the overlays...

I have to say that I would have a lot more respect for the track\'s \"moral\" stance if they weren\'t charging an exhorbitant rate to play their game. You want to help the player, cut the take.

Look, I\'ve said this for a while, and I\'m a guy both betting with rebates and making money by steering our customers to a reputable rebate site-- racing should cut out the middle man. If there is one thing we should be learning from the huge handle going to rebate sites, it is that this game is price sensitive. If the tracks offered rebates themselves, they would have around another 3% (roughly what rebaters take out)of handle of the big bettors to put into purses, or wherever they wanted to. Their handwringing is hypocritical nonsense-- if you care about the bettors, give rebates or cut the take for everybody.

Electronic access is a far more complicated question, and I\'m going to hold off forming an opinion until I know a lot more about the issues involved. Without doubt, the system has to be totally protected against past posting.

[jimbo66]

Saddlecloth,

Very interesting post.  Excuse my ignorance on this topic, but I am not quite understanding this.  Who are these \"rebate\" shops?  They are foreign entities outside the US that our racetracks are agreeing to \"sell\" their signal to?  If that is the case, why isn\'t that \"fixable\" by the racetracks not selling their signal to these companies and only to other racetracks?

Now that I think about it, I may be betting in one of these \"shops\" myself, without knowing.  I make all my bets at an offshore sportsbook, which offers me a 7% rebate on all horse bets placed over the computer (no telephone operator can be used or I lose the rebate).  I was under the impression that they were just \"booking\" my bets, assuming that with the normal 16 to 24% takeout, they can offer 7% back and still make money.  Now, I wonder if they are a \"rebate shop\", something which I didn\'t know existed.

As for the computer scanning the combinations for overlays and underlays and then placing bets on behalf of these players, I can only speak for myself, but that doesn\'t bother me.  Assuming of course, these bets take place before the start of the race.  Knowing an \'overlay\' or an \'underlay\' requires the ability to handicap the race.  So, if some programmer, who is a handicapper, wants to build a program that handicaps the races and finds good prices, all the more power to him.  That is part of the game.  The computer can only function as well as the person who programmed it.  If I understand you correctly, it almost sounds like the computer looks at a horse that is 5-2 and checks to see if he is also 5-2 in the exacta and trifecta pool, if he is \'longer\' in that pool, it places exotic bets on that horse.  There are a lot of logical reasons why a 5-2 shot in the win pool, could be 5-1 in the exacta pool, or even 6-5 in the exacta pool.  Blindly doing mathematical calculations and placing bets is fine with me.  I am much more concerned about the trainer doping angles discussed on this board in the last week.  that is scary.

[littleandy]

Unbeknowst to most people, NYRA effectively cut off computer generated/batch wagering months ago when they stopped these rebate shops from betting with zero on the clock. Zero, at least in NY, means less than a minute until post. Since this wagering requires that bets be made at the last possible second, this change has eliminated these players from their pools. The dramatic decrease in NYRA handle from these shops offers further proof.

[miff]

Jimbo,

What is being talked about throughtout the racing industry regarding Computer Players has nothing to do with someone figuring a way to identify a handicapping overlay,Good luck to those brave souls.

Briefly it\'s about a very few people having access to the entire tote poolinfo at certain tracks and being able to spread a large number of wagers(very late) on a race with a guarantee of break even or a small loss.

So, if they spread say $20k on a race and collect say $19.5k they lose $500.00 to the race.Then they receive a 10% rebate from the betting shop, equaling $2,000.00. The net result is they make $1500.00 on that play.

Remember every time this happens, you, who may have had the winning exacta on that race receives LESS money because the price was knocked down by someone who made bets with  NOTHING to lose while you had everything to lose(your bet)

That is the very oversimplified version of the problem. Pastposting etc are even more profound prblems.

[miff]

Hi Little Andy,

FYI,If you read my earlier post there are some very large bettors in NY who know that the computer geeks were SUPPOSED to be shut off by NYRA, but they feel it still may be going on.They will be asking NYRA OFFICIALS to confirm the shut off to their satisfaction. Wouldn\'t you if you were betting millions per year?

[jimbo66]

Who are the rebate shops?

Can anybody name one?  JB, you said you affiliate with one, and even make money off of referrals.  What shop?

[TGJB]

Jim-- e-mail me directly, or call me at 212-741-3886.

[Saddlecloth]

I dont know if the site I use is comingled with the US pools or not, I believe they are since it is a high volume site.

[msola1]

Jimbo

A book I once looked at in the library gave the complicated, nonlinear equation that will tell you what the expected exacta payouts should be, given the size of the field and the odds of the horses.

It is not the same as calculating the horse\'s odds in the exacta pool, something we canm all do with a little bit of regular old linear math

I read some years ago about an operation in Hong Kong that did this. As soon as the computer gave them the overlays, the computer also placed their bets. Tinvolved an enormous amount of money, going into the already large pools available in betting services there.

Mike

[TGJB]

And the way they figured out the overlays was...

JB,

About 15 years ago I put together a simple  chart that converted win odds into probability of winning based on a long term study of win odds and win percentages in NY. (all odds ranges are not equally efficient relative to the take)

I also studied certain types of horses and the relationship between finishing first and second. Those relationships are also not consistent. Some categories of horses are all or nothing.  

Given those percentages, I was able create a second chart that calculated the fair exacta price combining any two horses given their win odds - including and excluding the track take.

My idea was to exploit the inefficiencies between the two pools.

If I liked horse \"A\" to win, he might be a better value with some horses in the exacta pool than in the win pool, but a better bet in the win pool than the exacta with others.

When I combined my own view of a horse\'s  value in the win pool with the exacta chart that told me whether he was a better value in the win pool or the exacta pool, I could structure my bet accordingly. I could even bet one horse in the exactas and another in the win pools.  

The task was so cumbersome I eventually abandoned it because the prices were changing fast late in the betting and was flipping throught charts like madman in the last few minutes. It made my racetrack experience a nightmare. :-)  

However, what I was trying to do in theory is pretty darn smart (at least imo :-).  

It\'s similar to an arbitrage between markets like what is done on Wall St all the time.

I suspect the computer users have successfully computerized what I was trying to do manually 15 years ago across many types of possible bets. They are exploiting small inefficiencies in the pools.



Post Edited (09-21-04 18:44)

[JimP]

TGJB: \"Their handwringing is hypocritical nonsense ...\"

Hypocritical maybe, but certainly not nonsense. Bet with computer access to the pools and a 10% rebate and you make money at the expense of the other poor schumcks in the parimutuel pool. I still play the game, because I enjoy the fun of handicapping. I would not be foolhardy enough to play against programmatic \"players\" with REAL money. For you guys who do and are truly making money and not just blowing smoke, then you have my undying admiration.