Dollars & Sense: An Unsustainable Model

Among the many wagering figures tracked by the Kentucky Horse Racing Commission are the handle and winnings for on-track wagering at the state's Thoroughbred tracks as well as the handle and winnings for its historical horse racing facilities. Unfortunately, seeing these pari-mutuel numbers side by side provides some insight into why HHR is thriving in the state while on-track betting of live racing is struggling. The take-home: On-track horseplayers are losing their shirts. Looking at KHRC fiscal years 2022 and 2023 through September (July 1, 2021-Sept. 30, 2022), on-site bettors at Thoroughbred and Standardbred tracks saw just $76,448,621 in winnings returned from $105,736,132 in wagers. That is to say the effective cost (takeout) of betting races on-track in Kentucky was 27.7 cents for each dollar wagered. On the other hand, HHR bettors wagered $8.7 billion and received $7.9 billion back in winnings. Those players paid less than a dime per wager, as 91.2% of the money they risked was returned as winnings. Yes, it's not a completely fair comparison. Racing always has featured a higher takeout, as this is the money that supplies track commissions and owners' purse money. And, bettors on HHR machines likely are taking more risks per hour than horseplayers. But with handle approaching $9 billion in pari-mutuel HHR wagering during this time period while on-track betting on live races barely surpassed $100 million, one can't help but wonder if bettors are migrating to the wagering form where they have a puncher's chance of winning. Also, this is bigger than a comparison between HHR and on-track betting on live races. In general, takeout rates in racing have increased over the years, but that spike doesn't completely account for what's going on here. After all, major horseplayers have estimated a blended takeout rate for North American racing in the 20-21% range. These on-track players are losing well more than that rate. Here's a breakout of the effective takeout rates (what players paid per dollar wagered) for on-track players at the five Kentucky Thoroughbred tracks during this period: Churchill Downs 30.3%, Ellis Park 26.2%, Keeneland 24.2%, Kentucky Downs 18.6%, and Turfway Park 25.1%. The better performance by horseplayers at Kentucky Downs can be attributed to its lower takeout rates compared with the other Kentucky tracks. Pat Cummings, executive director of the Thoroughbred Idea Foundation, which advocates for horseplayers and horse owners, believes the added losses can be attributed to on-track bettors wagering on heavily marketed higher-takeout wagers (typically plays involving multiple horses or multiple races, including jackpot-type wagers), as well as bettors' increased exposure to high-volume computer-robotic wagering teams. In recent years, those successful CRW teams are accounting for a larger and larger share of racing's pari-mutuel handle and winnings. Under the pari-mutuel model, as these CRW teams enjoy success, other players lose out on value. Cummings estimates CRW play accounts for about a third of handle on United States races and as much as 40% in some of the multi-race and multi-horse pools. And guess what—those jackpot wagers and exotic pools are where many on-track players are taking their shots. So as these successful CRW teams win, it increases the effective takeout rate for the losing players on-track. I should note here that the Kentucky numbers are readily available, but I suspect these increases in effective takeout for on-track players would be found in other racing states as well. (In the January issue of BloodHorse magazine, we will look at this issue further as well as at some efforts by the New York Racing Association to help non-CRW players.) With a few big winners on the CRW side, everyone else faces higher hurdles. It's a dynamic that makes it difficult to retain on-track bettors or attract new players in an era when there are plenty of other options for bettors. Just looking at this report, HHR counts its wagering totals in the billions, while on-track race wagering barely surpassed $100 million. With takeout rates significantly lower than racing, the legal sports betting market is thriving. Obviously, I want race wagering to generate as much as it can for tracks and purses, but these on-track wagering results in Kentucky suggest that the high takeout and favored status for CRW players is pushing potential players away and forcing longtime players out. That 25% rake the sport is enjoying today from some players becomes 0% when a player leaves the game. It doesn't seem like a sustainable long-term model if the sport wants to grow its number of bettors, and long-term, find success.