I became a racing fan, handicapper and horseplayer at a very early age, then spent my entire working life in the racing industry. I've been a racetrack executive and marketing consultant, a professional race analyst and a horse owner. I'm retired now, but still active as a regular small- stakes horseplayer.
Like many regular players, I am dismayed by the effect of CAW – Computer-Assisted Wagering – on the traditional playing experience. Large and late drops in odds and probable-payoffs often reduce the overlay betting possibilities which make regular horseplay enjoyable, while eating away at my betting bankroll at an accelerated pace. So, I play less often and wager less money. Many other traditional-type bettors clearly are following a similar path.
For the last few years, warnings have been sounded periodically by racing-industry watchdogs such as TIF, the Thoroughbred Idea Foundation. We've been alerted to the massive changes taking place in the make-up of the betting market, and the alarming downward trend in traditional wagering. Estimates vary, but it's seems likely that at some tracks the majority of wagering handle is produced by CAW groups, or soon will be.
You'd think that traditional players would be up in arms, protesting the new reality. But it seems most have just accepted that CAW is here to stay. We've gone along with the view of TIF and others that, although some limits on CAW activity would be nice – “guardrails” to ease the pain of regular players – we must realize that the use of new technology in parimutuel wagering can't be denied.
But something about that bothered me. I wondered if I (and others) really understood what was happening. So I refocused my mind, did a little math, and came to a realization that shocked me: the racing industry, as a whole, actually gets NO NEW REVENUE from CAW! Instead, the involvement of CAW facilitates a dramatic REALLOCATION of the revenue from betting. It gives certain industry sectors a sharp increase in their shares and the CAW groups their profits – all paid for with money which otherwise would be part of the winnings of regular players.
I have set out a hypothetical case, below, to demonstrate how I think this works. But first, here's my basic understanding of how computer-assisted wagering operates in the parimutuel setting:
- CAW groups use ultra-sophisticated, algorithm-based methods to determine bets which will ensure profits, over time. This isn't about “better handicapping.” It's about using high-end computer technology to find betting market inefficiencies and capitalize on them.
- For this to work, there can't be a level parimutuel playing field. Special features have to be in place exclusively for CAW players, such as:
- Knowledge of the wagering by other players, in detail and up-to- the-moment
- Arrangements with the operator to allow huge CAW bets to be made at the very end of the betting period
- Rebates from the operator, reducing the actual takeout from the CAW betting
Now here is my hypothetical case example, showing how I think parimutuel wagering with CAW participation plays out for operators, CAW players and regular players:
Let's say $1 million is wagered by regular players in various parimutuel pools at one track on one raceday. From that $1 million the operator (track) takes out about $200,000 and the remaining $800,000 goes to payouts on winning bets. But let's say CAW adds another $1 million to those same pools. The operator takes out another $200,000 for a total takeout of $400,000, and later provides rebates of at least $50,000 to the CAW players. CAW bets don't all win, of course, but clearly CAW groups wouldn't be playing if their enterprise didn't produce profits over time. For the purpose of this example, let's say the CAW groups break even on their $1 million of betting on the day. We can then calculate what happens, financially, for the participants in the wagering pools:
Betting operator: Receives takeout of $200,000 from the regular betting and another $150,000 (net of rebates) from the CAW bets. So, track revenue from wagering is increased by 75% thanks to CAW. Down the line that big $$ bump for the operator supports higher purses for horse owners and higher bloodstock values for breeders, among other things.
CAW groups: Break even on their bets, so they get back all of the money they wagered – $1 million – plus a 5% profit ($50,000) thanks to the takeout rebates.
Regular players: Since the CAW betting success drives down payoff prices, regular players collectively receive only $600,000 for their winning bets, instead of $800,000. The rest of the original $2 million of handle provides the takeout collected by the operator, the rebates paid to the CAW groups, and the payouts on winning CAW bets, as follows:
| Total handle – | $2,000,000 | |
| Allocation of handle: | ||
| Takeout, net of rebates | $350,000 | |
| CAW rebate revenue | $50,000 | |
| CAW winnings | $1,000,000 | |
| Regular player winnings | $600,000 | |
| Total allocation – | $2,000,000 |
Conclusion: Solely as a result of CAW participation in the pools there is a doubling of the takeout from the money wagered by regular players.
That extra cash – $200,000 in the example – is in effect taken from regular players' traditional share of the pools and given to the CAW groups and the betting operators.
It doesn't matter what the betting totals are, or that the profit margin for CAW may not be the 5% used in the example (apparently it's often more like 10%), or that other variations may occur in the process. As long as computer-assisted wagering is a successful enterprise, the profits earned by the CAW groups and the extra revenue received by betting operators will be paid for solely by that sorry sector of the industry comprised of regular horseplayers. NO NEW MONEY!
Obviously this “new reality” can't exist indefinitely if regular players' wagering continues to slide. Eventually there won't be enough cash generated to provide sufficient returns to the CAW groups and the operators. If new money can't be found, the system will have to be changed, or shut down.
On the agenda at the upcoming Global Symposium on Racing in Arizona is the topic “Computer-Assisted Wagering – The Good, The Bad, and The Future”. It seems to me that, for regular horseplayers in particular and the racing industry overall, The Good is non-existent, The Bad is obvious, and The Future looks bleak if computer-assisted wagering continues. Can the Symposium provide a more positive outlook that makes sense? I won't bet on it.
Eric Astrom, Maple Ridge, BC, Canada
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