Is Racing's Funding Method Obsolete?

Although I fully understand that the industry has a bottomless appetite for funding I cannot help but feel that Tote takeouts must play a not inconsequential role in driving more sophisticated punters, in particular, into other less punitive forms of punting.

To illustrate my point I am going to take clanners through a very simple exercise :

Let us assume that I am going to spend an afternoon punting horses from home on the Tote only via my own IT. I am going to restrict myself to one R1000 Win Bet per race on a 9 race card. Although I have made a couple of (unsuccessful) attempts to find out precisely what the current Tote takeout is on a win bet there seems to be uncertainty as to whether it is 15% or 18% or ( God forbid! ) more. (How they manage to get away with this non disclosure in the modern era beats me ). For the sake of this exercise I am going to cut them some slack and assume 15%.

This means that I will contribute at least R150 x 9 = R 1,350 for the 'service' of punting irrespective as to whether I win or lose. Alternatively I will have contributed R1,350 towards 'putting on the show'. If I do this 4 times a month then my racing 'tax' is R5,400 PLUS the cost of maintaining my own facilities in order to punt. A lot more if I subscribe to exotic bets where the takeout is up to 25%.

This certainly exceeds fees and rates levied by most 'financial service providers' by a country mile and puts a fairly average level of entertainment up there with front row tickets for a genuine superstar entertainer.

Let's not forget that you might, in fact, 'do' the whole R 9,000 if you fail to find a winner although losing your money is a risk you should understand before getting involved. But being charged quite such a 'fee' for playing has been enough to send me straight into the arms of sports betting where I bet 10x bigger than I ever did on horses! Do the math.

Perhaps if racing were unable to gouge punters at quite this level they might make more of an effort to establish alternative funding methods.

In my humble opinion there is a pressing need for a complete revamp of the funding model if they wish to grow the sport rather than continue raping the ever decreasing pool of local survivors.

Garrick, the funding method is correct and still relevant but it is the decline in customer numbers that is causing the problem.

Theoretically a marginal percentage of the pools are all that is required to fund the sport outside of sponsors contributions and nomination fees and the like.

The betting operator is currently adding to the funding needs by subsidising local racing from other operations which makes any reduction in take out unthinkable at this point.

This is why any strategy that does not include meaningful customer growth (not just turnover) will run into ever increasing problems over time. Growing customer numbers aggressively will ensure not only turnover gains but will add to funding through growing sponsorships and also provide additional media exposure which are essential to maintain and accelerate this constantly required momentum.

Us as punters will benefit from customer growth as it will ultimately allow a reduction in take out percentages once growth becomes sustainable and perpetual.

Your example highlights the current problem as the present model is entirely dependent on per capita increases in wagering and churn windfalls. You mention the example of betting a R1000 per race and all the costs associated with it. In another example I decide to only utilise a stake of R500 for the day but I end up winning R5000 and betting an additional R2500 which wasn't planned but now gives the operator take out on an extra R2500, thus R3000 in total which illustrates the value of churn.

The current model relies heavily on this type of revenue boosts from re-investment but creates an extremely dangerous scenario when you have a rapidly ageing and declining customer base.

When you lose a customer for whatever reason, especially a high roller or regular contributor the benefits of churn is suddenly reversed and becomes an exponential loss in turnover and revenue.

Clearly a shaky model that offers increasing value in a growing market but our current market realities is very different.

Operators have to grow the customer base or face ever growing racing funding shortfalls and pressures. It is just as important for us as punters as we can only expect an improved take out possibility in a sustained growing scenario.

what % do bingo halls payout? i know one arm bandits are regulated to the hilt these days 97% payout ( if played properly)

LSU - I cannot entirely agree with your opening statement and will use actual history to make my point:

When I started racing deductions off winning bookmaker bets were 7,5%. This deduction - driven by local government demand and a captive betting public - rose steadily until it reached tipping point in the early 1990's at 12%.

At this point it became unpalatable to punters when their supposed 'win' of, say, R100 turned into R88 after deductions.

In short order a MASSIVE 'bucket shop' industry sprang up and 'official' bookmaker betting turnovers contracted.

A reduced deduction of 6% was brokered in the mid 1990's and pretty much 100% of bookmaker turnovers went back 'into the book' - resulting in a huge uptick in revenues collected compared to the % under the 12% system.

If you don't believe me then I can tell you this : I was clerking for a bookmaker at the time and, on instruction, used to record half of the bet in the book and half on the side. Most large bets were not recorded in the book.

The prospect of 'profit' or alternatively 'windfall' - whether factual or illusory - is what drives punters.

Comparatively the Tote has, on average, appeared to INCREASE takeout over the years. Most of the 'new' bets have extortionate percentages with, I understand, the Soccer pools being the extreme at 33%(?).

One of the issues which the Tote could start off by addressing is the thorny issue of place bets. It is absolutely unacceptable that a winning bet can yield a R1 payout after a punter has navigated the risk of a horse even finishing in the places. It would be more ethical not to offer place bets in these instances or void them & refund once the R1 threshold is reached. Yet racing sees nothing damaging in an effective payout of Nil on a 'winning' bet - preferring to point to better payouts on competing runners; another hoary old theory which is not necessarily true!

I fully endorse the idea of racing being a 'mind game' with all its attendant risk. But let's not call it a 'mind game' when the reality plays out more akin to a lottery. The 'new blood' which the industry so desperately seeks will never be attracted once exposed to these idiosyncrasies.

Garrick, I get your point and am not trying to defend the percentage deducted as your place example perfectly illustrates the scale of the problem.

Your headline questions if the funding method is obsolete. I am suggesting that the method (take out as a means of funding) is correct and should be continued but clearly the percentages need adjustment to offer value to players.

You are absolutely correct that percentages were lower historically but at that stage local racing was operating at a profit which is not the case at present. It is a marginal business at best which does not bode well for the future of certain product pools as players will stop playing if there is no value to be had on certain bet types.

As far as attracting new players are concerned you make a further valid point about the pools not acting as an incentive to get involved. It is for this reason that racing needs to look at new product types that will offer value even if take out is still high as it is unlikely that this would change whilst racing is not turning a profit. The growth in soccer pools despite a mind boggling take out percentage can attest to this.

As players we have to decide where the value lies and which products we are happy to support. It is very clear that racing does not require a different funding strategy but a different marketing strategy to ensure customer and pool growth.

It is only through economies of increased scale that smaller take out could be considered by the operator as right now they are struggling with local racing even at these very high percentages.

If you wanted to start a new sport and you were counting on the punter's building the stadiums ,funding the cost of events and putting up all the prize money ,many would say you should be certified!
That is, however, the model of the "sport" of horseracing and yet it has somehow survived to date, due ,I would suggest ,to the years of legislation which made it the only gamble in town,but was the basic model not always doomed to fail when subject to competition?
Yes, the "inevitable" can be delayed, by increased betting revenue ,as suggested by LSU,but with the relative fractions of "overround" in competing forms of betting, I have to agree with Garrick...........some innovative lateral thinking is needed for racing to ultimately succeed!

Good points Rob.

How many active players do you think makes use of the tote on a regular basis for lets say weekend events when the majority tends to play?

Scary fact is that even the operator cannot tell you how many active players they have.

Whatever the number, what would it be worth to them if they could double or treble that?

This is very achievable with a better value offering especially coming off what is a very small base.

Reduce the % takeout and you will see the revenue increase. It just needs a clever guy with big balls to calclate how much to reduce. Roulette, according to my observation is the only "cheap" casino gamble at nearly 3%. Havent studied the other "numbers" so cant comment. i think 15% is competitive with most other types of casino gambles - and if a bookie's margin is say 10% then add in 6% for tax you are already at 16%.