Letter to the Editor: Existential Crisis. No Hyperbole

There have been several stories recently in the TDN about Computer Assisted Wagering (CAW), and many of them have contained accurate and useful information. But what those articles have failed to do is convey what CAW really is and does, why it matters, and most of all, how dire and urgent the situation they have created is. Hence this letter.

1-First, the basics. Betting handle is the lifeblood of our industry. It directly funds purses, creates all the jobs in our business, and indirectly funds the commercial bloodstock industry—no (or less) purse money to run for, and eventually yearlings will have the market value of show horses, and stud fees will follow them down.

2–The parimutuel pools are a market; horseplayers compete against each other, not the house. CAW is not just someone using a computer to handicap. Yes, there is a handicapping element, and if someone creates a good handicapping model, good for them. But the important part is this—CAW “players” are being given a massive advantage over regular horseplayers. They get electronic access and a last split-second look at the pools, which gives their computers the ability to assess the situation in a microsecond, and automatically make hundreds of targeted and incremental bets, totaling tens of thousands of dollars per “player,” right at the bell. No human can do that, or compete with it.

3–Because CAW is responsible for so much handle, and because many of the CAW “players” have banded together to negotiate, they receive gigantic rebates. So in effect, they are playing into a much lower takeout than the general public, and that, combined with the advantage they have been given, enables them to basically vacuum the pools. And since it's a market, if they're siphoning off money, someone else is losing it. More on that in a moment.

4–In our industry, we publish handle figures, not profit and loss. But remember: CAW “players” get gigantic rebates. That means the industry gets to keep much less of every dollar they bet—roughly speaking, it takes $3 of CAW handle to equal $1 bet in the backyard at Saratoga. So if overall handle stays the same, but CAW handle is replacing non-CAW handle, for purses, and for everyone else in the industry, it's like handle going down. And CAW is now responsible for about one-third of national handle.

5–The overall retail blended takeout on racing is normally about 20%. But with the CAW “players” making money as a group, it means the horseplayers who make up the other two-thirds of the pools are in effect paying the entire takeout. So for them, the takeout is up to roughly an onerous 30%. Now, horseplayers are not like the people who buy expensive yearlings. They generally work for a living, and as a group have a finite amount they can lose over the course of a year, or lifetime. So as the takeout has gone dramatically up, one of three things has to happen:

A) Horseplayers bet the same amount, and tap out faster. That reduces churn on handle, and handle overall goes down.

B) Horseplayers reduce what they bet as they lose more, to make their money last longer. Handle goes down.

C) Horseplayers stop betting or switch to legal sports betting, which has a takeout of between 5-10% (and no learning curve, since most of us grew up with these games, and there are no odds changes after you bet). Handle goes WAY down.

In other words, CAW isn't just disguising the drop in non-CAW handle, it is CAUSING it.

I know many serious, lifelong horseplayers who now only play on big days, or who have quit the game entirely.

6–So here it is; figures courtesy of Pat Cummings:

As CAW handle has gone from about eight percent of the pools to about a third over the last 20 years, non-CAW handle has nosedived. To give you an idea of how short a time period we're talking about, Smarty Jones won the Derby in 2004.

ADJUSTED FOR INFLATION, ORDINARY (NON-CAW) HANDLE IS ABOUT ONE-THIRD OF WHAT IT WAS JUST 20 YEARS AGO.

Do I have your attention now?

Almost all of that drop came before the advent of legal sports betting. And remember, the non-CAW handle is the oxygen-rich blood that nourishes everything. CAW is not just taking money out of the pockets of ordinary horseplayers; it's killing horsemen and the industry as a whole.

This is an existential crisis, without exaggeration. Since only handle figures are published, the picture has been obscured to the public, but we are not talking about a long horizon–I think major cracks will start becoming visible within the next year or so, because the downward spiral is accelerating rapidly now that there's sports betting. And as ordinary handle goes down, CAW will as well–the robots adjust their bet size to the size of the pools, so that they aren't killing their own prices. These guys aren't in our game for fun, like horseplayers are, they're here to suck money out of the pools. And when they no longer can, they will leave.

7-So, what can be done? Finally, some good news: because the industry makes so little from a dollar of CAW, eliminating a portion of their handle will not have anywhere near the same effect as eliminating the same amount of ordinary handle.

The first thing that has to happen is that the unfair advantage has to be taken away from the CAW players. Their special access to the pools has to be shut off with three minutes to post, like NYRA did with their win pool. But it can't be just cosmetic. It has to happen in all pools.

The second thing is to reduce their rebates. If you make twice as much from each dollar bet, even if CAW handle is cut in half, it's a wash. And if those two actions erode their edge to the point where they bet much less, good; that's the idea. We need to knock that third of the pools figure down by quite a bit, to salvage what's left of the non-CAW handle, and hopefully create more.

I'm using “salvage” advisedly, because we are hemorrhaging customers, and once they are gone, it is hard to get them back. Since I wrote the first draft of this letter one of those cracks has appeared. Golden Gate is closing, in an attempt to triage California racing. We need to stop the bleeding. And we need to do it right now.

Jerry Brown is the president of Thoro-Graph, Inc. 

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Agenda Set For 3rd Annual Racing & Gaming Conference At Saratoga

Pat Brown, the director of The Racing and Gaming Conference at Saratoga, knows what makes an agenda tick. He has seen his fair share of seemingly endless Power Points, glazed-over eyes and the attendees that surf the Internet in an attempt to multitask. The best way to combat the conference malaise? Just a healthy dose of fun.

“I've spent over 40 years of in and out of government, thinking about and writing about the gaming and horse racing industry,” said Brown, a former advisor to New York's Governor Mario Cuomo and an attorney that lives just south of Albany. “I want everyone to come away from this conference having learned something interesting, but most of all, I want them to have fun.”

As the director of the what will be the third installment of this hybrid conference that will be held at the Hilton in Saratoga Springs, New York from Aug. 14-16, Brown and his planning committee have put forth yet another stellar card. Once again, those in attendance will take in cutting-edge topics under the umbrella of racing and gaming with an ambitious schedule just out this week.

This year's slate runs the gambit when it comes to angles and there is something for everyone that is interested in the intersection between these two worlds. “We've got something for lawyers, thorny issues, where the little guy fits in and how technology shapes and impacts the racetrack and the casino,” said Brown.

After an opening reception at the Adelphi Hotel on Monday, Aug. 14, the conference shifts into high gear Tuesday with experts that will speak on the following topics:

  • New York Casino Expansion to New York City and Surrounding Counties: Is the Finish Line in Sight?
  • Consolidation of Gaming: Status and Implications
  • Tribal Digital Gaming: Has the Moment Finally Arrived?
  • Technology and Gaming: New Challenges, New Solutions
  • The Implications of Exclusion for Racetracks and Casinos
  • Consumer Protections and the Federalization of Gaming

Pat Brown | courtesy of Brown and Weintraub

“We want this conference to not be so New York-centric,” said Brown. “The way you do that is by thinking broadly and topics like tribal gaming, regulatory issues and legal questions like exclusion, are all applicable across state lines.”

Sandwiched within day one is a lunch lineup which includes an address by Stacie Clark Rogers of the Thoroughbred Aftercare Alliance and a keynote delivered by Joe Asher, President of IGT Sports Betting. “Joe's is coming to keep us energized, entertained because I think lunch needs to give everyone a break from the conference,” Brown said.

On day two, the conference concludes with four sessions that deal with aspects of racing and wagering, including:

  • Harness Racing: An Industry in Decline–or in Transformation?
  • Historical Horse Racing Machines: The Tail Wagging the Horse?
  • HISA–Legal Limbo and Regulatory Reluctance
  • Racing's Changing Customer Base, CRWs and the Future of Betting

Each of these hot-button issues draw from an arc of past precedent and are extremely significant to the future of the horse racing industry. “Not everything is about Thoroughbreds,” said Brown, who has also owned shares in racehorses. “We want to expand the vision to harness racing because it has much to teach us about statutory issues concerning aspects like the minimum number of race days.”

Brown knows that a panel concerning HISA is important, but he wanted to find a way to zero in on something specific. How state regulators are handling the current situation seemed appropriate. He also understands that conference attendees will be particularly keen to hear about the impact of Historical Horse Racing Machines and the power behind Computerized Robotic Wagering groups. “I have no doubt that those sessions will generate some interesting questions and debate, especially when everyone is talking about the impact on track handle,” said Brown.

Wrapping up the conference, some 50 attendees who purchase tickets will have the opportunity to take in the Saratoga meet along The Spa Veranda. Pat Brown's idea of fun, indeed.

Click here for more information concerning registration and hotel information for The Racing & Gaming Conference at Saratoga.

 

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TIF Issues Alarming Report on Computer Assisted Wagering in CA

Nine of the 11 largest betting pools have shown declines from all customers except computer-assisted wagering groups over the past four years, while the handle of the largest CAW groups grew dramatically, according to an extensive study of data released Monday by the Thoroughbred Idea Foundation (TIF).

“The Thoroughbred Idea Foundation's analysis of data from Del Mar between 2018 and 2022 showed on an inflation-adjusted basis, per-race (or per-opportunity basis for certain bet types) CAW betting, from what is believed to be 17 accounts, has grown tremendously in the last five years-up 46% in the superfecta pool, 49% in trifectas, 78% in pick fives, 128% in the show pool and a staggering 403% in the pick six pool,” reads the report, concluding, “The trend for all other customers is disturbing.”

This trend is problematic; the report concludes that major problems is that the increases in CAW betting, due to rebates, does not make up for the handle decline from other sources. That has a deleterious effect on purses, whose soul source of funding in California is through wagering.

The report, “Sharks & Minnows–Managing the Growing Imbalance in Racing Wagering Markets,” is available on the TIF website, racingthinktank.com.

CAW bettors receive rebates on the takeout because of the large volumes they bet, but they quote Del Mar president Josh Rubenstein as saying that those rebates will be limited at the Del Mar summer meet–at least in the win pool.

“We get that late odds fluctuation is frustrating to players,” Rubinstein said, referring to the fact that CAW players place their bets based on their perceived value in the odds close to post time, which creates major odds shifts–often after the horses have left the gate.

“Beginning with our upcoming summer meet, [we] will be implementing new protocols for CAW players that are designed to limit participation in the win pools at two minutes to post. Based on what we've monitored and analyzed from other tracks, we believe these protocols will reduce late odds changes.” TIF reported that the largest rebates will be given to bets made with more than three minutes to post, a smaller amount at two minutes, and the smallest rebate at under two minutes. Non-rebated customers pay 15.43%, the report says.

“Limiting CAW guardrails to merely a rebate change in the win pool, while potentially helpful in reducing some late odds changes, amounts to little more than window dressing for mainstream customers,” TIF concludes. “CAW betting in Del Mar's exotic pari-mutuel pools, particularly the trifecta, superfecta, pick three, four, five and six pools has been substantial. Play from Elite (Turf Club, a top CAW) and RGS (Racing and Gaming Services, another) customers exceeded 32% of total handle in each of those bet types last year and was 38% of pick five handle.

“CHRB data does not delineate how much is staked on the early pick five, with its friendly 14% takeout to mainstream bettors, and how much is on the high takeout late pick five, with a 23.68% takeout rate. It is reasonable to expect the percentage of CAW play reflects their enormous pricing advantage over the public on the late pick five. Total handle figures do not tell the most accurate story. In nearly every pool offered by Del Mar, all non-Elite and RGS handle is declining.”

To read the full report, click here.

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NYRA Looks Out for Its Customer; Good for Them

The Week in Review by Bill Finley

It's not often in this sport that John Q. Horseplayer gets a break, but that's exactly what happened last week when it was revealed that NYRA was no longer accepting bets from the so-called computer-assisted wagering (CAW) players on its Empire Six wager. The Empire Six wager joined the Cross Country Pick 5 and the late Pick 5 as NYRA wagers that are no longer available to the CAW players.

The computer players use algorithms that predict the probability of a particular outcome. If their programs tell them that a horse has a 50-50 chance of winning and is 3-1 they will bet accordingly. They use the same methods for most pools and bet huge amounts of money. Because they receive rebates in the neighborhood of 10%, they don't even have to show a profit on their bets, just as long as their rebates are bigger than their losses.

The number of bettors out there using these methods is minimal, no more than six or seven groups. But they bet so much money that they can severely tilt the pools and drive down prices by significant numbers. The Thoroughbred Idea Foundation estimates that CAW play accounts for as much as 35% of all monies wagered on U.S. racing. That would mean their annual handle is about $3.5 billion.

Not that they are doing anything wrong or breaking any rules. These are very smart and innovative people who are willing to risk huge sums of money and have designed computer programs that put them several steps ahead of the average player. A case can be made that they deserve every last nickel they have made betting on racing, not just in the U.S. but around the globe.

CAW players are, for obvious reasons, coveted by most American tracks. Tracks make money off of their percentage of the betting handle. Taking a micro view of how the business of racing works, why would any track turn away customers that might be betting tens of millions of dollars every year on their product?

If only it were that simple.

This is pari-mutuel wagering, gambling's version of survival of the fittest. The successful bettors are taking advantage of the unsuccessful ones. It's their money that they are winning, not the house's money. With the CAW phenomenon, which appears to be growing all the time, betting on the horses has turned into a matter of the whales vs. minnows. The whales have been gobbling up the minnows and after a while all the minnows will be gone.

It's already happening. The CAW players are pumping billions into the pools across the country, which is a fairly recent phenomenon, yet handle has been stagnant over recent years when it comes to real numbers and has declined sharply when adjusting for inflation. That can only mean that a lot of those who might bet $20 on a race, $200 on a card and play the races once or twice a week have been driven out of the game. Horseplayers only have so much money to spend on the sport and once you tap them out they are going to move on.

The regular players are getting particularly hurt in the jackpot wagers. The pools build up on their losing dollars and are too often scooped up by the CAW players, sometimes on a mandatory payout date.

NYRA took a look at this and, obviously, had some concerns.

“We are trying to level the playing field with these particular multi-race wagers so it's not tilted towards those folks with distinct advantages, meaning complicated algorithmic trading tools and an extremely high volume,” NYRA spokesman Pat McKenna told Steve Byk on his “At the Races” radio show.

McKenna noted that NYRA can operate differently from other tracks because it is a not-for-profit and doesn't always have to adhere to the bottom line. It would be far more difficult for a Churchill Downs track or a Stronach Group track to turn away the CAW money. But even NYRA hasn't gone so far as to ban the CAW players all together. They are still welcome in all other pools and they are the reason why so many horses go into the gate at 4-1 and drop to 8-5 during the running of the race, which is a terrible look for the sport. CAW wagers go directly into the pools and can be played at the very last second.

The status quo is not sustainable. Every day that this persists, another casual horseplayer gives up on the game. Racing cannot do without these everyday players. After a while, you're going to have nothing left but whales vs. whales.

But good luck trying to get a for-profit track to turn away bettors willing to wager millions on their product. Probably the best anyone can hope for would be for NYRA to extend the exclusion into other pools and for other non-profit tracks like Del Mar and Keeneland to also experiment by barring CAW players from some pools.

This is a serious problem for the sport and it's not going away. At least NYRA is trying to make a bad situation better.

Dream Shake Impresses

There were expectations that a star would emerge from Sunday's fifth race at Santa Anita, a maiden special weight going 6 1/2 furlongs. It happened, but just not with the horse everyone was expecting to win.

Sent off at 20-1, 'TDN Rising Star' Dream Shake (Twirling Candy) turned in what might have been the most impressive 3-year-old debut so far this year. Trained by Peter Eurton and ridden by Joel Rosario, he kicked into high gear in the stretch and won going away, by 4 3/4 lengths.

Eurton admitted that he never envisioned such a performance.

“He went way beyond my expectations,” he said. “I had never really challenged him whatsoever. He was an unknown. For him to have closed and ran fourth with a nice finish and a nice gallop-out would have been satisfying, especially against the field of horse we were facing. There were a lot of horses in there that people thought highly of.”

All indications are that the horse will be even better when stretching out.

“He acts like, to me, a two-turn horse,” Eurton said. “He's not ultra quick but neither is he slow. Once he gets going, he covers quite a bit of ground. Going two turns is, hopefully, in the cards for his next race.”

Eurton said he has not picked out the next start for Dream Shake but said a stakes race is a possibility.

The same race included a rare bad showing from the Bob Baffert barn. He entered two highly regarded first time starters in Bezos (Empire Maker), the 3-5 favorite, and Tivoli Twirl (Twirling Candy) only to have them both get beaten by 15-plus lengths. That was bad news for the people who foolishly bet on Bezos in the Derby Future wager before he had even had a start, sending him off at 26-1. The Baffert horses deserve a second shot, but it seems highly unlikely now that either one will make the GI Kentucky Derby.

The Katie Davis Saga

Earlier this week, we wrote about Katie Davis's unhappiness over the New York Gaming Commission's coupled entries rule.

The real point of the story is that she is being penalized by what is quite possibly the silliest, most out-of-touch rule on the books over at the Gaming Commission. There's no valid reason why her mounts must run as an entry with husband Trevor McCarthy's mounts when the two are in the same race. Protecting the betting public is one thing, but it's completely unnecessary in this situation.

This is hurting Davis. It is hurting McCarthy. And it's cutting into NYRA's handle. It's well past the point where the Gaming Commission should have revisited the rule and taken it off the books.

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