Computer Assisted Wagering | Horse Racing Free Tips

Letter To The Editor: Craig Bernick

No business can change what it does not measure. Racing's public measurement of support, via wagering, hides serious issues.

Recent stories have continued to cite declines in total handle, wondering just what is at play. How that handle has been derived has changed dramatically, but that's not reflected in the overall numbers.

Over the last century, U.S. racetracks have reported total handle on their races and, for most of that time, it was one metric that accurately depicted the health of the business. But in our modern era of simulcasting, rebating and high-frequency betting from professionals, often called computer-assisted or robotic wagering (CAW/CRW), total handle figures actually deceive industry stakeholders more than anything.

Just over $12 billion was bet in 2022, which is roughly the same as in 2000. Adjusted for inflation, total wagering is down nearly 50% in the last 20 years. To compound the issue, research conducted by the Thoroughbred Idea Foundation (TIF) estimates that roughly $4 billion of total handle from 2022, around one-third of betting, was from the CAWs/CRWs. Others think the figure is probably higher.

Racing industry stakeholders should know how much is being wagered, through which channels, how much of those wagers are going towards purses and how that has changed and continues to change. But racetrack operators and executives in the betting space seem to have little interest in publicly discussing how their CAW/CRW business is thriving while their mainstream business appears to be floundering. That lack of transparency wasn't always the case.

Big Changes Over 20 Years

In 2004, an NTRA-commissioned study showed the burgeoning CAW/CRW space represented about 7-8% of total betting. Now, it seems headed towards 40%. This does not have to be the problem it has become. On its own, betting from CAW/CRW groups represents a modern, tech-based, intelligent and efficient form of betting. It should be something we can embrace and improves the overall business.

NASDAQ estimates that high frequency trading now represents half of all stock trading. But trading and investing from mainstream investors has never been cheaper or more accessible. Racing has not evolved similarly.

Racing's costs–through takeout–have grown for mainstream customers while rebates for high-frequency bettors are believed to be higher than ever. The amount the public actually loses, “effective takeout” also seems greater than ever. TIF research, led by Pat Cummings, has uncovered public data which shows mainstream ADW customers are losing far more than the traditional blended takeout rate at tracks in Florida. A figure that should be approximately 20% is often closer to 30%, and it typically gets worse on mandatory payout days.

While racing should be able to embrace a future with more tech-enabled betting, it cannot do so at the expense of mainstream customers. All of the evolution has focused on CAW/CRW bettors, making it easier to bet and at lower price points, while mainstream customers are still paying full-freight on a product that has not evolved for them…and they have fled the sport in droves. Total handle figures hide that shift. The higher the takeout, the more room there is to rebate the sport's biggest players. And they have responded! The segment that has actually grown is the segment with the lowest takeout!

Using inflation-adjusted figures from that NTRA study, published in 2004, CAW/CRW betting has likely tripled in the last 20 years. That means mainstream betting is probably down about two-thirds since then. This is an atrocious trajectory from racing's largest customer base–rank-and-file horseplayers–and has occurred during a period where racing had a veritable monopoly on legal, regulated betting via the Internet.

Now racing's inferior, expensive product for mainstream bettors has to compete with legal sports betting. Good luck.

Great Purses Should Not Buy Our Ignorance

Owners and breeders have enjoyed purse supplements through additional gaming revenue for over two decades now. Combined with poor reporting of actual wagering trends, these supplements have also succeeded in buying our general ignorance of the core product–betting on racing. That's incredibly problematic in the long term.

Horseplayers are some of our sport's greatest advocates, and many of our biggest owners were first introduced to racing as $2 bettors. Not only do we risk losing a generation of future owners if our sport is no longer relevant to mainstream bettors, but we are also squandering the business acumen of leading owners on industry boards by failing to give them an accurate picture of how wagering on the sport has evolved.

More than ever before, racetrack operators are owned, or controlled, by gaming companies. Combined with racing stakeholders' ambivalence towards wagering, gaming corporation ownership often does not seem to rate daily racing as a long-term priority. For many of them, owning and operating racetracks has been a not-so-subtle trojan horse for gaming machines.

Particularly in jurisdictions with heavily-supplemented purses, owners should be advocates for reduced takeout and a healthier evolution of the wagering product for all customers. This will drive future participation. It has gotten easy to ignore how the betting business has evolved when tracks run maiden races for over $100,000, when auction prices climb and the business of buying and selling horses is so lucrative. It defies logic that purses have grown considerably thanks to purse supplements but yet takeout remains high for our mainstream customers.

Industry stakeholders–specifically, owners and breeders–must be more attentive to the alarming trajectory of the wagering business, demanding both more transparent reporting and a product that can grow all customer bases–not just the high frequency bettors at the expense of rank-and-file horseplayers.

I'm all for technology. I'm not against CAW/CRW play. I want all customer segments to grow. I want a bigger pie for everyone. I'm FOR horse racing. We all enjoy bigger purses, but the realities of our core wagering business, which sustains the sport and keeps it in the public consciousness, is really alarming. Most owners and breeders don't see it because it has been, relatively, hidden behind antiquated methods of reporting handle.

I encourage owners, breeders' and horsemen's organizations to demand far greater transparency–both of operators and regulators–as it relates to racing's wagering business. We need to be stewards of our sport and not merely accept elevated purses while ignoring the economic fundamentals that impact our largest base of customers.

Craig Bernick is President and Chief Executive Officer of Glen Hill Farm, a breeding and racing operation based in Ocala, Florida. He founded the Thoroughbred Idea Foundation.

The post Letter To The Editor: Craig Bernick appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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The Week in Review: Handle Falls Sharply Again in February… What’s Going On?

Figures released last week by Equibase showed that U.S. handle declined by 5.21% in February. This comes after handle declined by 7.19% in January. For the year, that's a drop off of 6.22% and, if those numbers hold up throughout the year, total handle will be off by $750 million and the year-over-year percentage decline will be the worst the sport has suffered since 2010.

And it's not just that racing has gotten off to a slow, reversible start this year when it comes to wagering. Whatever is going on, it started in October. Handle was up 2.68% in September and up 1.78% through the third quarter of 2022. Then the numbers took off in another direction and they haven't stopped falling since. Handle was off 4.93% in October, 4.47% in November and 7.52% in December.

Taking a look at the usual factors that affect handle doesn't yield any obvious answers. The average field size so far this year has been 7.66 horses per race, almost identical to the 2022 number, which was 7.67. The total number of races run has actually gone up, from 4,345 to 4,508. But the average amount wagered per racing day is off 8.35%.

This is a mystery not easily solved, but the best guess is that it has something to do with the amount being bet by the Computer Assisted Wagering (CAW) players who received huge rebates from betting outlets like Elite Turf Club, which caters to the biggest bettors in the world. Had something happened to impact the amount they wager that would explain the recent declines?

Maury Wolff, who was a professional horseplayer before retiring and studies betting trends, speculated that some tracks may have raised the host fees they charge Elite and other ADWs. The signal fee is the percentage of every dollar of handle that an ADW or simulcast outlet must pay the host track for the right to wager on that track's races. If host fees go up, the rebates the ADW can offer its players will likely have to drop. A smaller rebate would lead to a CAW player betting less. Information on how much is bet at places like Elite and how much they pay in host fees is a carefully guarded secret.

“There is a possible explanation, but you'll never get to the bottom of it,” Wolff said. “What are racetracks doing when it comes to signal fees? An unreal amount of the total amount bet is driven by Elite and if there have been changes to signal fees, that would reduce handle at Elite. Have signal fees gone up to the shops, and when you are talking about the shops you are talking about Elite? I would be very suspicious of that. They are so much the driver now. Anything that affects them is going to be an earthquake to the business. That strikes me as a possibility.”

But Wolff admitted that his theory amounts to only an educated guess.

“But these are suspicions and suspicions are not facts,” he said.

What's the answer? We're not sure. Neither were a handful of other experts I consulted. But this is something to keep an eye on. One of the good news stories in racing over the last few years is that handle has more than held its own and done so despite the advent of legalized sports betting outside of Nevada. Handle was up by 11.8% in 2021 and, despite the decline over the last three months, down less than 1% in 2022. It looks like that's not going to be the case in 2023, which is off to an inauspicious start.

Why You Should Bet on Hawthorne

It's not easy being Hawthorne Race Course. Though a casino is on its way, as of now, they get no additional funding from slots, etc., and offer purses that are far lower than those found at the top-tier tracks. Because they are obligated to run a harness meet, Hawthorne can offer only a 68-day Thoroughbred meet that ends Sept. 3. Illinois racing misses Arlington Park.

But you can't say that Hawthorne isn't trying. Hoping to attract more business at the current meet, which began Mar. 5, the takeout on win, place and show bets has been slashed to 12%. When it comes to straight wagers, there's no better deal in the sport.

“You have to be aggressive with takeout sometimes,” said Hawthorne Racing Analyst Jim Miller. “Minor drops are always welcome, but we wanted to be really aggressive. Our takeout in the past on these wagers was 17%, so to drop five percentage points to 12% is very significant. We wanted to make a splash and we want to put out a product that people will want to bet on. We want people to focus on our races. We know handle will have to increase to cover what we are losing in commissions with the lower takeout, but in first couple of days of racing we have seen that handle has increased and we are hopeful we will have a very good year.”

Hawthorne is also thinking out of the box when it comes to its racing schedule. They will not race on Saturdays in March, April or May, going with a two-day week that includes racing only on Thursdays and Sundays.

“What we're doing is smart,” Miller said. “Here's a great example. Normally, our opening day would have been last Saturday. That happened to be the same day that you had three major racetracks with Derby preps and three or four other stakes on the card. These are great circuits that people want to watch. You want to see what's going on at Aqueduct, Gulfstream, Santa Anita. We knew that if we threw our card out on that day, we wouldn't handle anymore than $600,000. By shifting that card to Thursday, we handled $1.2 million and that's because there's not as much competition and there is more exposure. We want to put our product out there where the gamblers can see it and see all that we have to offer and see that we are offering a 12% takeout on win, place and show wagers.”

For good reason, horseplayers love to complain about how high the takeout is in racing. The best way to fight back is to support tracks like Hawthorne when they go out of their way to offer the customer a better deal.

Tapit Trice Did Just Fine in the Tampa Bay Derby

Perhaps you were expecting Tapit Trice (Tapit) to win the GII Tampa Bay Derby in a cakewalk. The expectations were high for the grey 3-year-old and they should have been. By Tapit, trained by Todd Pletcher and a $1.3-million yearling purchase at Keeneland September, he forced his way into the conversation for the GI Kentucky Derby with an impressive eight-length win in an allowance race at Gulfstream. He was sent off at 1-2 in the Tampa Bay Derby for a reason, because he looked much better than everyone else on paper.

But nothing came easily for Tapit Trice in his two-length win. He was 11th of 12 down the backstretch and looked beaten when he was still ninth on the far turn and was being hard ridden by Luis Saez. But he kept grinding away and managed to draw clear in the final sixteenth. His Beyer figure, an 88, was nothing to get excited about.

Was his Tampa Bay Derby performance good enough to win the Derby? No. But that doesn't mean he can't win the Derby. At Tampa, he ran like a horse who is still figuring things out. There's one more race to go, the GI Toyota Blue Grass S., and eight weeks to go before he'll get into the starting gate for the Derby for the Hall of Famer Pletcher. Look for a better, more focused horse next time. He should be fine.

The weekend also included a big win by GI Kentucky Oaks winner Secret Oath (Arrogate) in the GII Azeri S. at Oaklawn. Beating a quality filly in Clairiere (Curlin) by 2 3/4 lengths, she couldn't have looked better. It was her first win since the Oaks.

Before the race, trainer Wayne Lukas said his goal for the year was to win an Eclipse Award with Secret Oath. With Nest (Curlin), last year's 3-year-old filly champion, back for another year, that won't be easy. But Secret Oath could not have gotten the year off to a better start.

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The Odds They Are A Changin’ … At The Last Minute

Dramatic shifts in the win odds of horses just before the close of betting have become an annoying way of life for horseplayers in most major racing jurisdictions in North America. In most – but not all – of those cases, last-minute bets by computer-assisted robotic wagering groups affiliated with licensed off-shore rebate shops are responsible.

The wagering groups employ computer programs that compare win probabilities with current odds, then dump wagers at the last second on those horses whose odds offer perceived value. Similar wagers take place in exotic pools by these computer players.

The bets can cause wild swings in the odds, especially when one or more of those computer wagering teams (there may be a dozen or more of them currently active) land on the same horse or horses. That can be especially annoying if you've bet on a horse at 9-2 while he's in the gate and who then crosses the finish in front at odds of 9-5. Because these computer assisted groups don't always win, sometimes the odds on a winner have gone up at the last minute.

These groups are betting significant amounts of money, as much as one-third of the total pari-mutuel wagering pools.

Computer players don't need to have a positive return on investment to make a profit – an advantage they have over everyday players because of the rebates they receive from off-shore (and some U.S.-based) advance deposit wagering companies. For example, if an on-track player gets a $950,000 return on $1 million in wagers, he or she loses $50,000. A rebate player getting a $950,000 return on $1 million in wagers will break even after a 5% rebate. Most computer players get a larger rebate than that, depending on the jurisdiction and wager type. So even if they aren't winning, they are coming out ahead.

One of the most recent examples of how these computer assisted wagering groups affect the odds came in last Saturday's Grade 1 Ricoh Woodbine Mile, a race won by Town Cruise, a horse with just one previous stakes appearance in 13 starts but with a big advantage: he was the lone speed.

Town Cruise was 23-1 with just over one minute before the start of the race. When betting closed, he was 8-1 and paid $19.30 for a $2 wager, far short of what many backers thought they would get.

Sanny Lee, senior manager of wagering operations for Woodbine, confirmed that a significant percentage of wagers on the race came in during the final 78 seconds before the start of the Woodbine Mile.

In an email to the Paulick Report in response to a question about the late odds shift of Town Cruise, Lee wrote: “We have reviewed all bets placed in the Win pool for Race 10 (Woodbine Mile) from this past Saturday, and we can confirm that in the final 1 minute and 18 sec of betting, the amount bet in the win pool increased by $128,482.26 making up 20% of the total pool for the race ($607,623.89) and bets were placed by most wagering outlets across the network during this time.

“When looking at the odds progression, we see that at 1 min and 18 sec before the race start, horse #1 (Town Cruise) was 23-1, horse #2 (Olympic Runner) was at 16-1, horse #8 (Avie's Flatter) was 31-1 and the favourite #5 (Set Piece) was 6-5. At the start of the race, the final odds changed on these 4 horses to #1 at 8-1, #2 at 9-1, #8 at 17-1 and the favourite #5 increased in odds to 8-5. It appears that compared to prior betting patterns, a relatively significant amount of bets were placed on these 3 horses compared to the other horses, just before the race started.”

The Paulick Report also asked Lee if Woodbine accepted wagers from computer-assisted wagering groups and whether they were responsible for the late odds changes in the Woodbine Mile.

“We can also confirm that we do allow CAW outlets to wager into our pools, and that about half of the $128,482.26 was wagered by CAW in the final 1 min and 18 sec of betting,” Lee wrote.

The New York Racing Association in August said it was restricting computer wagering groups' access to the win pools by cutting them off at three minutes to post. That has reduced big odds swings at the last minute. No other racing associations have announced similar moves.

Lee added that the Paulick Report inquiry and the Woodbine response would be forwarded to the Canadian Pari-Mutuel Agency for review.

Not all late odds changes are the result of computer-assisted wagering groups.

During the summer meet at Del Mar, there were a number of significant late odds changes presumably driven by the computer assisted wagering groups. But in the final race of the meet, there was a curious change in the odds that didn't make a lot of sense.

Algeria, the No. 4 horse was favored at around 2-1 for much of the wagering, then plunged to 2-5 just as horses were loading. He then went back up to 2-1 almost as quickly. The winner of the race, Cane Creek Road, went from 16-1 to 7-1 at the last minute and won by a nose, paying $16.

Paulick Report asked Mike Marten, public information officer for the California Horse Racing Board, about the unusual wagering on that Sept. 6 race.

Here is Marten's written response: “We determined that a known large bettor was on track closing day and made those transactions. The teller recalls the bettor asking for $140,000 to win on the 9. The teller proceeded to punch out tickets in $10,000 increments. Each transaction took about one second. While the teller was issuing the tickets, the bettor checked his bankroll and determined that he had less than $140,000 on him, so he asked the teller to stop and asked the teller to cancel some of the tickets, which the teller did. The detailed transaction report shows that 11 tickets were issued for a total of $110,000 and that five of those tickets were canceled, leaving the customer with $60,000 to win on the 9. The entire process, from the first $10,000 wager to the last cancelation, took a total of 18 seconds, indicating there was no attempt to manipulate the odds/pool. The odds cycle report shows the 9 was under 2-1 for less than one minute.”

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Marten said the CHRB has no rules that pertain directly to cancellations or pool manipulation, adding that the regulatory board does have the authority to deal with such situations.

“More importantly, the racetracks and ADWS are fully cooperative in such matters,” Marten wrote. “This is the third incident I've dealt with involving cancelations. One previous one, like this one, involved an on-track bettor who was known to the teller. We determined on that occasion that there was no attempt to manipulate pools. The third instance involved a quirky ADW customer, again not perceived to be manipulative, just strange. The ADW company spoke with him and that behavior stopped.”

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Letter to the Editor: Paul Berube

Bill Finley's report (Week In Review) in the Feb. 9 edition of TDN on NYRA's action to restrict wagering on its Pick 5 and Pick 6 wagers by computer-assisted wagering (CAW) players caught my attention, as does any article written on this form of wagering, which I call computer robotic wagering or bots for short.

My experience with the bots and their very smart and well- capitalized owner managers goes back 20 years or so. Then, as now, my opinion on wagering by the bots is that over the long haul, it is destructive to the pari-mutuel business. Bill makes the good points that the bots are pumping millions upon millions into race track pools and that this handle is coveted by tracks. Left unsaid, however, is the very real fact that wagering done via bots is totally reactive to pool money wagered by all other players, whether you call them normal, regulars, casual fans, squares or dumb money.

When the mathematical formulas used by the bots see an imbalance or value in the pools made by other players, this is when the bots craft and place bets to capture the perceived value. Naturally, the most effective time for these types of wagers to be made is as late as possible before pools close and this is why, on a daily basis, straight wagering odds and probable payoffs frequently drop sharply in the last wagering cycle. It cannot be overstated that the daily action of the bots is totally dependent on the other money coming from all other players. If these players wager less for whatever reason, the bots will also reduce proportionately . The life blood of the bots is other peoples' money and the only growth in bots wagering comes from this money.

Earlier I labeled bots wagering as destructive to pari-mutuel wagering. When the bots win their wagers, the normal or regular players experience reduced payoffs which over time means less money in their pockets and less money to churn. When bots win, that normal churn factor is lost, because again, the bots only wager in proportion to the “other” money in the pools. When they hit in the big Pick 5/6 pools, their winnings or profits likely go into lifestyle purchases or other investments and thus lost for good insofar as pari-mutuel betting.

In the short term, the liquidity provided by bots wagering is enticing to race tracks, but in the long term–and racing today is squarely in the long term–the smaller payouts to other bettors, the tremendous money shift or negative settlements from host tracks and off-track wagering venues to the locations that host the bots means that an untold amount of churn has been and continues to be lost. I would offer that this is a major reason why annual pari-mutuel handle totals in the U.S. have not seen any real growth over these many years.

Finley also referred to the payment of rebates to the computer teams or players. The de facto increase in takeout to all other bettors and inherent unfairness to them is a whole other story that is worthy of further analysis.

So where does racing as a whole go from here? For sure it was easier to accept bots wagering into our pools than it will ever be to effectively control or eliminate it. But at some point in the future, racing operators will be forced to confront this reality. For racing to expend effort to create new fans and bettors is indeed a worthy venture especially for the bots who always need fresh money in their business model.

Paul W. Berube, Retired President , Thoroughbred Racing Protective Bureau

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