Since the late 1800s, all North American racing jurisdictions have played under the pari-mutuel wagering system in which all bets go into a particular pool and all players bet against other bettors, not against the track. Winners share the money from the pool collected on each type of bet. More money in the pool means bigger payouts.

But, before money is paid out to bettors, the takeout (also sometimes known as the take or commission) is withdrawn from the pool. This is a specified percentage a racetrack retains from the various betting pools to fund purses, track operating costs, breeders incentives, other interests and, naturally, the government also receives a cut. The racetrack essentially acts as a facilitator between the bettors wagering against each other and the after-tax takeout could, more or less, be considered its commission.

The amount taken out depends on the type of betting pool from which the money is deducted. For example, the amount withdrawn from straight wagers (win, place or show) generally averages between 18 and 20%; therefore 80% of the winning wagers, known as the handle, is returned to the customer. Meanwhile, the takeout for other types of wagers (exotics, including daily doubles, exactors, triactors and pick 4’s) is higher – usually between 20 and 25% more – meaning less payout.

The racing industry needs the takeout in order to exist. Some call it the price for the privilege of betting. But it’s an extremely sensitive issue and a constant source of heated debate and disagreement among horseplayers, horsemen and track operators.

Because a higher takeout means less money is available to be split among the winners, devoted players feel high takeout rates are counterproductive, only serving to drive them away from the game. “Lower takeout, increase handle” could be their mantra. Many experts say high takeout rates also reduce the chances of dedicated bettors introducing the sport to a fresh audience of friends and family, thereby limiting opportunities to attract desperately needed new fans.

Both gambling aficionados and less experienced players alike are more likely to be drawn to the plentitude of other forms of gambling readily available today – poker, video lottery terminals, lotteries, slots and casinos, for instance – where takeout is considerably lower (a 5 to 10% takeout), offering ostensibly better value for their betting dollars.

As Bennett Liebman, executive director at Albany Law School and member of the New York Racing Association board of directors, wrote in his June 2010 New York Times blog, “…horse racing, which was almost the entire gambling market 40 years ago, is now a tiny part of the overall gambling market.”

Liebman goes on to say takeout wasn’t an issue when racing was “the only game in town, but how with a 20% overall takeout does it compete with slots and many table games (skill games such as blackjack and poker) which give you an even better chance at winning.”

Most North American tracks are at least debating lowering takeout, although California seems to be moving in the opposite direction, so far with questionable results. (See sidebar). And, in today’s simulcast wagering marketplace, where racing is on offer 24/7 through telephone, internet, advance account wagering, etc., takeouts, no matter what the amount, are hitting keen bettors hard as they’re able to bet more … and more often.

Canadian Thoroughbred examines where betting dollars go at two of Canada’s racetracks.

Woodbine Racetrack – Toronto, ON

Woodbine Entertainment Group (WEG) – formerly the Ontario Jockey Club – is a not-for-profit corporation that operates the world-renowned Woodbine Racetrack, which offers Standardbred and Thoroughbred racing, as well as Mohawk Racetrack in Campbellville, ON.

Woodbine Takeout Rates

The following is a breakdown of how each dollar wagered in the win, place & show pool is distributed.

0.8% Federal levy – Funded through the collection of this levy, the Canadian Pari-Mutuel Agency (CPMA), within Agricultureand Agri-Food Canada, regulates and supervises pari-mutuel betting on horse racing in the country.

0.5% Provincial tax – Established by the Ontario Racing Commission (ORC), the agency that governs and regulates racing in Ontario, in 1996 as part of a plan to revitalize the racing industry.

2% Horse Improvement Program (HIP) levy – managed and administered by the ORC. This Ontario provincial levy contributes to purses, owner and breeder incentives as well as equine research.

13.65% Associations and purses – This percentage is split 50/50 between the track and the purse pool. The track is required to pay further ORC fees/taxes on their portion, which is used for their operation and other related racing programs, as well as to pay operational expenses and capital improvements.

83.05% Payout – Amount paid out to customers for their winning tickets and is the remaining amount of the wagering after the takeout of 16.95%.

Woodbine’s triactor wager has typically had the highest takeout in Ontario because it includes the 4% HIP levy, which is 2% higher than the other pools. Players feel they shouldn’t be penalized with the higher takeout on a program from which they don’t directly benefit. Others point out that the takeout goes to support the industry from which they are earning gambling dollars.

(Note: WEG recently lowered its triactor takeouts for its 2011 meets to 25% – a 2% reduction. This is a further reduction from 2010 to 27% from 28.3%.)

“WEG’s takeout reductions,” says Sean Pinsonneault, executive vice president and chief operating officer, “have been a conscious approach to remove some of the impact of the HIP funding requirement from the pari-mutuel wagers, making WEG takeouts more competitive in the marketplace and creating more value for our customers.”

The eventual removal of the HIP levy has been a prime matter of interest for WEG. In an agreement with the Ontario Lottery and Gaming Corporation, WEG is entitled to 20% of the net Woodbine and Mohawk slot-machine revenue, which is shared 50/50 between WEG and purses. WEG feels the slot-generated revenue should fund the program so the levy coming off the top of the betting pools can be eliminated and returned to the customers.

Hastings Racecourse – Vancouver, BC

The largest track in B.C., Hastings is owned by the City of Vancouver and leased to operator the Great Canadian Gaming Corp. (GCGC). Hastings is run under a business and financial model that’s unique among many North American race jurisdictions. The B.C. Horse Racing Industry Management Committee, which was established in late 2009 to help salvage the declining racing industry, has complete responsibility for governing, managing and administering all the Thoroughbred and Standardbred tracks in the province.

Hastings Takeout Rates

Great Canadian Gaming Corp. declined to provide Canadian Thoroughbred with a breakdown of their takeout. They did, however, offer the following information.

“[The B.C.H.R.I.M.C] handle all the revenue then break it down by racetrack and by breed on who gets what allocation,” says Raj Mutti, Hastings general manager. “So, it’s completely different than how other tracks run in Canada and throughout North America. It’s a completely new model.”

The committee operates under the Gaming Policy and Enforcement Branch (GPEB) of the Ministry of Public Safety and Solicitor General. Racing revenue and government grants are consolidated into an industry revenue fund controlled by the committee, which manages, breeder’s bonuses, racetrack facilities operations as well as human resource requirements, Teletheatre BC, marketing and business operations and equine retirement. Industry sectors/participants also receive financial allocations from the fund for business operations and account to the committee.

It was announced in April that the newly-formed B.C. Thoroughbred Owners and Breeders Association will now manage Hastings’ Thoroughbred purses.

Starting this year, the BC racing industry will receive an annual fixed grant from the province of $10 million to replace slot revenue from Hastings and Fraser Downs (a GCGC Standardbred track) that did not come through as expected in 2010. The intention of the grant is to provide the industry with stable support. This increase has meant the amount available for industry use increased from $44.88 million in 2010 to $48.05 million in 2011 divided as follows:

$800,000 goes to a newly established marketing initiative under the direction of the BC Lottery Corporation to attract new or former customers to the industry. The remainder is distributed to purse pools:

$17.16 million is allocated to Great Canadian Gaming Corp.

$10.26 million Thoroughbred sector (an increase of 23% over 2010)

$6.83 million Standardbred sector

$13 million Teletheatre BC

As part of the committee’s commitment to maintain total industry handle at $183 million in 2011, it seeks to increase the B.C. market share of the total handle and increase live wagering as well as increasing interest in simulcast wagering on BC races. Part of the plan is to, according to the group’s 2011 marketing plan highlights, “make B.C. takeouts among the most attractive in North America” using Hastings as a test market.

Hastings lowered its takeout for its spring/summer meet, from 17.3% to 15% for win, place and show bets for its 2011 meet, which opened April 16. Also lowered to 15% are takeout on pick-4 (from 22.3% – a 36% decrease) and new pick-5 wagers. This means Hastings offers some of the lowest takeout rates in North America. Plus, overnight purses are up 19% and 23% for stakes thanks to the provincial boost.

Simulcast South of the Border

In the late 1970s, simulcast wagering – or the live satellite broadcasting of races from one track to another track or location – was introduced in the United States. These days, general estimates say 80% of a track’s handle is derived from simulcast and now, ever increasingly, advance wagering via internet, telephone or interactive television. But what happens to Canadian betting dollars wagered on U.S. races? And how does the takeout distribution differ?

Dan Silver is the spokesman for the New York Racing Association, a not-for-profit that operates Belmont Park, Aqueduct and Saratoga racetracks. He explains where the money goes when a wager is made on a race simulcast from an NYRA track. “If a bet is placed in Canada on a NYRA race, NYRA gets a host fee and a certain percent goes to our purses, but the rest of the breakdown is determined by the track that takes the wager,” explains Dan Silver, NYRA spokesman.

From wagers placed out-of-state on exported simulcasts, the money bet by each satellite “guest” track in a particular mutuel pool is co-mingled with that from the host site. This is called common-pool wagering and it allows for larger pools and potentially greater payoffs. Silver uses the example of an average 20% takeout. “Let’s say we want people at Woodbine to bet on our race,” says Silver. “We sign a contract with Woodbine saying, ‘OK you’re going to show our races and people there can bet on our races and for that we’re going to get 5%.’ That’s all we get and that’s chopped up between NYRA and the purses. The remaining 15% is broken down by Woodbine.”

Silver says the host track negotiates individual host fees with all the guest tracks or networks. “If Woodbine wasn’t taking the races at Saratoga, their fans would probably be upset, so we have some leverage there, whereas some other tracks might not have as much leverage.”

NYRA, like more and more tracks, now calculates its pari-mutuel pools using the net-pool pricing (NPP) method. Established around 1995, NPP allows for calculation of payoffs when the guest and host racetracks have different mandated takeout rates. According to NYRA, NPP “permits countries such as Canada, England and others to commingle wagers into New York pools despite different legal deductions, takeouts, breakage and currency.”

California Takeout Troubles

You can’t look at the US scene without touching on recent events in California. Taking effect one week into the famed California track’s Santa Anita’s winter/ spring meet – December 26, 2010 to April 17, 2011 – was a controversial legislated increase in takeout for exotic bets. Exacta and daily double takeout now sits at 22.68%, a 2% increase over last year and the highest of all North American tracks. Takeout for trifecta and superfecta wagers is 23.68% (3% above last year). To compare, the iconic Churchill Downs in Louisville, Kentucky, has some of the lowest takeout rates in the United States: 16% for straight bets and 19% for exotics.

The California Horse Racing Board (CHRB) approved the Santa Anita takeout increase, which received state senate approval in August. The CHRB stated the added takeout, which was mandated to go only toward purses not to the California tracks, would increase purses by up to 30% and generate $30 million per year. (A legislative analysis actually put the figure at $70 million per year.) It was thought that the move would provide incentive for owners who had moved to other states for more lucrative purses to return to California.

As a result, the 1,500-member-strong Horseplayers Association of North America (HANA) called for a nationwide boycott of betting on California Thoroughbred racing in January, saying the ban will result in less wagering and decreased handles. HANA hopes the boycott will force the CHRB to repeal the increase. Because of the increase, however, handles at Santa Anita at its winter/spring meet were down about 20% according to HANA, though the track itself only put the all-sources handle at down 9%.

Roger Way, CHRB California representative told Thoroughbred Times in January that the boycott could take “some of the credit” for dismal earlymeet handles, but other reasons for the drop have been cited, including the December closure of New York City Off-Track Betting Corp., which resulted in fewer wagers from that state; cancellation of race dates due to a lack of horses; and a track surface change from synthetic to a traditional sandclay track. Purses did increase, however, by about 5%.

In the face of the increased takeout situation, simulcast contracts had to be renegotiated so out-of-state revenue wouldn’t go to the guest sites instead of to California purses – the mandated target for the additional earnings. While Santa Anita faces controversy over increased takeout, 4,000 km north, the head of NYRA last summer called for lowered takeout rates. CEO Charles Hayward told a CNBC morning program that lowering of track takeout is needed to compete with other forms of gaming that are proliferating in the US. “It sounds a little counter-intuitive, but the more money we put back into the people’s hands, the more money they will bet back in, so a reduction in takeout would actually be more beneficial for us.”