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Friday, April 11, 2014

Does Churchill Downs really need to increase takeout?

It was announced on April 10, 2014 that Churchill Downs race track will be increasing their takeout on both straight and exotic horse racing wagers.  They have said that it is to maintain the track's purses and their Stakes schedule.

Takeout from straight wagers (win, place and show) will increase from 16% to 17.5% while takeout from exotic wagers (Exacta, Pick 3, etc.) will increase from 19% to 22%.  The percentile increase is small, but the percentage rate is quite noticeable:

Straight wager takeout will have an increase of 9.38%

Exotic wager takeout will have an increase of 15.79%

For those that are unfamiliar with takeout, it is the amount of money that is held by the track to pay for purse money, taxes and running the actual race track property.  The rest is distributed back to those that placed winning wagers.  Basically, this higher takeout rate will lessen the winnings made by horseplayers. 

Churchill Downs race track is owned by Churchill Downs Inc. (CDI) which owns five horse race tracks of which three have slot machines, three casinos, a tote company and an online horse racing wagering company.  Earlier this year, they reported record net earnings for 2013 of $779.3 million and Kevin Flanery, president of Churchill Downs race track, said "Since 2005 we have invested over $160 million in improving our fans' experience."  Some of that investment went into a $12 million video board at Churchill Downs that will be opening this year. 

The cost for that video board is interesting as the video board at one of CDI's race tracks, Fair Grounds, has been broken for the past few years.  In an excellent article by reporter Katherine Terrell that discusses a meeting between CDI and the Louisiana Horsemen's Benevolent & Protective Association, a representative for CDI says it would cost around $200,000 to repair.  That representative also said: "Ninety-five percent of the money that is wagered on Fair Grounds races happens somewhere else,  Only five percent of the handle (amount wagered) that's generated at Fair Grounds happens on-track. Of that small amount, maybe 10 percent of those people are standing on the apron looking at that board. Everyone one else is inside ... looking at one of our 700 TVs."

From that quote, the CDI representative is suggesting that on-track fans are not important and not many attend anyway.  Well, a broken video board may be one of the reasons!  Also, Fair Grounds handle was down 12% for their 2013-2014 meet which also included two purse cuts.  Telling your fanbase that a new video board is not needed because no one goes to that track anyway while you build a $12 million one at another facility is certainly not going to go over well.  While facility upgrades are nice and are indeed necessary it is not fair for the customer especially when record earnings are reported.  

Back to the takeout increase, many if not all studies involving lowering the takeout show that handle goes up.  Even the California Lottery lowered their takeout on lottery scratchers and more tickets were sold.  With record earnings reported and a conglomerate of 10 businesses owned, it seems CDI should not have to raise their takeout at Churchill Downs.  They have basically soured horseplayers before the meet even starts.

Until race tracks understand the importance of churn by not increasing takeout and by promoting outstanding customer relations, their business will continue to decline.  Social media has made this awareness of takeout rates a sensitive subject and one that can help decide whether a horseplayer wants to wager at one race track or another.  By leaving the takeout rate at its current rate or even a 1/2% decrease would have put a neutral/positive spin on the upcoming Churchill Downs meet.  Now, it has some horseplayers calling for a boycott of wagering at Churchill Downs and a likely downward spiral to continue.

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