Risk of ruin

The most insulting aspect of California raising its takeout 2% on two-horse wagers and 3% on three (or more)-horse wagers was not the increase itself but the reaction of industry stakeholders trying to justify it.

At least when New York State increased takeout on three (or more)-horse wagers from a ridiculous 25% to an unconscionable 26% the New York Racing Association fought it and even got a one-year reprieve on the increase.

The reaction of Santa Anita President George Haines was remarkably different.

"Maybe the top point-one percent of the handicapping world has that in their equation--what the takeout is--but for the most part, people are looking at handicapping winners," Haines told Daily Racing Form ahead of the track's winter-spring meeting that began December 26.

I've read comments from other racing observers along those lines with "You have to pick winners for takeout to matter" the prevailing theme when trying to argue that takeout doesn't matter.

Haines suggests that only one in 1,000 horseplayers care about takeout (i.e. .1%), and while I think a few more gamblers than that pay attention to it, I would agree that not enough do.

That said, the biggest error in Haines' assessment is not how bettors perceive takeout but how it affects tracks.

This spreadsheet illustrates how takeout can affect a bankroll and handle. The two left columns represent the exacta takeout before (far left) and after (second column) the increase. The other three columns show other percentages ranging from 15%-30%.

These models assume that the bettor loses exactly the takeout each time and does not reload his bankroll. I also assume that the bettor stops participating after having his bankroll reduced to 10% its original value.

The interesting thing to me about this model is not that handle declines 14% with the 3% takeout increase but that our mythical bettor stops wagering following 10 iterations versus 12. If you look at that as racing dates, that's two fewer days you'll have someone at the track having an economic impact beyond wagering (concessions, programs, good will, etc.).

One of racing's biggest obstacles is that many of its players do not practice proper bankroll management. Even the world's brightest handicapper risks ruin if s/he does not properly manage his/her bet sizes.

To wit, which game involving a coin would you rather play?

1. You must bet 100% of your bankroll on each flip for a minimum of ten flips. When you guess heads or tails correctly you win 2-to-1; if you are incorrect you lose.
2. You must bet at least 10% of your bankroll on each flip for a minimum of ten flips. When you guess heads or tails correctly you win 9-to-10; if you are incorrect you lose

Obviously the best situation for any gambler is to have an edge while wagering an amount that allows for statistical uncertainty. No gambler should ever put 100% of his stake on one outcome, but that happens at gambling venues across the country daily, and racing's high takeout has a bigger effect on poor bankroll management than casino gaming does.

And to me that's why the California situation is so hard to handle even in the face of higher takeout in other jurisdictions (e.g. NYRA 26%, Fair Grounds 25%, etc.). To have a racetrack leader or industry regulator put public relations spin on something that is so obviously bad for the core product of racing has me more concerned for the future of this sport than anything I have ever encountered.