Wagering Minimums and Impact on Payouts: A look at the Emerald Downs Pick 4

Lower wagering thresholds are very helpful for taxation purposes but there is sometimes a concern that by lowering the bet amount the payouts will suffer.  If more people hit the wager then, in turn, the amount returned would be less.  Of course, the goal of the track differs slight to that of the players.  The track seeks higher handle and handle churn; more people cashing winning tickets increases the chances that those same people will re-invest those funds in additional races.  Players, on the other hand, want the biggest bang for their buck.

The practice of reducing minimums for exotic wagers has swept over the industry the past five years.  Whether its $0.10 Superfectas or $0.50 Tris, Pick 3s and Pick 4s, tracks have begun to offer many exotic wagers for a mere fraction of what those bets used to cost. 

Last summer, my home track of Emerald Downs reduced the minimum amount of their early and late Pick 4s from $1.00 to $0.50.  The change took place at the start of September and continued for the final month of the 2010 meet.   I decided to take a look at the Emerald Downs Pick 4 payouts by comparing the month prior to the change (August) with the payouts after the change (September) in order to determine the difference, if any.

Methodology

An initial caveat to this whole discussion is the fact we are only looking at two months worth of numbers...hardly a robust sample size.  Additionally, simply looking at "average" payouts won't tell the whole story since the payout of an individual Pick 4 varies according to the nature of the horses that win each leg.  A week of extremely low priced horses winning races will invariably generate lower paying Pick 4s, and vice versa.  In order to provide just a bit of a better measuring stick, I compared the Pick 4 payouts to the win parlay for the same sequence.

I took all of the early and late Pick 4s at Emerald Downs from August and September and entered the payout information into a worksheet.  The payout data for the $0.50 Pick 4s was normalized to $1 payouts and then all of the payouts were compared against the parlay for the same sequence of races.  I then calculated the percentage difference between the parlay payout and the Pick 4 payout.  The tables below summarize the average payouts for the early and late Pick 4s, the parlay and a comparison to the parlay.

A couple of notes about the summaries: 

-The $1 data does not include the late Pick 4 from August 28^th or the early Pick 4 on August 8^th, both of which only paid to 3-of-4.  Since there were essentially no "winning" payouts for those two Pick 4s, a comparison to the parlay would be skewed.

-The late Pick 4 on August 12^th paid $11,044.60 on a single ticket, an amount considerably less than the $27k parlay because the winning payout was limited to the pool.  I left the 11k in the summary but provided an additional summary of the averages without the outlier for comparison.

-The "% Diff." column describes how much better (or worse) the parlay payout is to the Pick 4 payout.  A negative number indicates the Pick 4 paid better while a positive indicates more value in the parlay.

Table 1. Emerald Downs Early Pick 4

Table 2. Emerald Downs Late Pick 4

Looking first at the data from the early Pick 4, we see both the $0.50 and $1.00 paid better than the parlay amount, indicating better wagering value.  The $0.50 Pick 4, despite the lower minimum threshold, held value well against the parlay (+19%) and was only 7% less than the value of the $1.00 minimum.  Overall, the early Pick 4s paid about 23% better than the parlay.

The late Pick 4 numbers differ fairly dramatically from the early Pick 4, whether you include the 11k payout or not.  With the 11k payout included, the $0.50 paid about 11% better than the parlay, while the $1.00 paid about 45% worse.  Of course, that $1 number is heavily skewed by one large payout.  If we look at the $1 late Pick 4s without the 11k outlier, the parlay exceeded the Pick 4 by a little over 6%; a bit of a more reasonable difference.

Since we're looking at such a small sample size it's difficult to really know if there will be a significant payout difference one way or another.  At the same time, it's encouraging to see the reduction in the wagering threshold did not appear to dramatically reduce payouts.  At a minimum, it appears to be a wash. 

Since the 2011 meet will feature the $0.50 Pick 4 for the entire season we should be able to better assess the impact of lower minimums as compared to 2010 and 2009. 

Pools

One other aspect of reduced minimums that comes up often is the impact on pools and whether lower minimums reduce the total amount bet on the wager.  Probably the best way to analyze pool impact would be to compare the before and after pools for the specific wagers, as well as the other pools and total handle.  I didn't have time (or the patience) to hard key the pool data for all wagers during the two months period, but I did do a quick summary of the early and late Pick 4 pools during that time frame.

Early $0.50 Pick 4: $7,702.71
Early $1.00 Pick 4: $7,921.41

Late $0.50 Pick 4: $15,483.92
Late $1.00 Pick 4: $16,229.06

After the reduction in the minimum wager amount the Emerald Downs Pick 4 pools did take a bit of a decline.  However, the $1 pools include Longacres Mile day, the biggest betting day of the year at Emerald and a day that saw an early Pick 4 pool of $14,664 and a late pool of $52,036.  Considering the size of the pools on that day, the difference really is not too bad.  In fact, if you eliminate Longacres Mile day from the data, the average pool size was larger with the reduced minimums than with $1.00. 

The average pool comparison without Longacres Mile day is summarized below:

Early $0.50 Pick 4: $7,702.71
Early $1.00 Pick 4: $7,500.00

Late $0.50 Pick 4: $15,483.92
Late $1.00 Pick 4: $13,991.13