Handle, Inflation and the $2 Win Bet

Daily Racing Form foreign correspondent Alan Shuback recently posted a story on DRF.com in which he discusses handle and the factors that have led the decrease in dollars taken in by the New York Racing Association and other tracks around the country (link: The Tyranny of the Wagering Menu).

I want to focus on one particular quote from that piece:

"In 1960, the total handle at the four tracks that were then under the auspices of the New York Racing Association (NYRA) ... was $531,528,210. ...

In 2009, total NYRA handle at Aqueduct, Belmont and Saratoga was $3,027,810,064. ...

That looks good at first sight. In fact, it looks terrific. ...

But wait a minute! According to the Dollar Times Inflation Calculator, the dollar in 1960 had the same buying power as $7.15 in 2009. At that rate, the 2009 equivalent of NYRA's 1960 $2,427,069 average [daily] handle is $17,353,542."

Shuback concludes that New York is actually doing less in handle than they were in 1960, which when based on inflation is true - the purchasing power of the dollars that the track is brining in today is less than what it was in 1960 and, therefore, handle has been growing (or not growing) at a smaller rate than their expenses.  (Shuback's piece goes on the discuss the proliferation of exotic bets into the wagering menu and the potential impact on handle.  It's a great piece that I highly recommend.)

A dollar in 1960 is certainly worth less than a dollar in 2010 if we're talking about the ability to buy things such as milk, clothes, gas, homes, whatever it may be.  But when we are talking about the purchasing power of the dollar at the track, I believe the issue becomes more complicated and problematic.

In 1960 you could walk into a race track and place a $2 win bet.  In 2010, you can walk into a race track and place a $2 win bet.  The minimum bet at the track has remained constant even though the value of the dollar has diminished.  While competition from other forms of gambling (casinos, on-line play, etc,), the pari-mutuel tax, and a shift from on-track to off-track betting has certainly contributed to horse racing's problems, a bigger issue might be that the industry itself is still charging 1960 prices for a 2010 product.  

Check out the links to the following two charts - one from Churchill Downs in April of 1960 and the other from Beulah Park in May of 1930.  (Note: I obtained the chart information from the Keeneland DRF Archive, a fantastic resource to find old past performances and results charts.)

Churchill Downs: Results - April 30th, 1960
Beulah Park: Results - May 10th, 1930

Notice that the pari-mutuel payouts are to $2 in both 1960 and 1930.  According to an Inflation Calculator, making a $2 win bet in 1930 is the equivalent of making a $25 win bet today.  (Even if the minimum win bet was $0.25 in 1930 that would be the equivalent of a $3 win bet today.)  See the problem?

Tracks complaining that handle isn't growing sufficiently to cover expenses when they still offer a $2 minimum win bet would be like a movie theater in 2010 still charging $0.25 a flick and then crying that they are all going to the poor house.  Of course they'd lose money because the cost of making and showing a movie is much greater than it was in 1960.

Look at Las Vegas - whenever I'm down there it has become a struggle to find a craps table that will take $10 minimum bets (unless you want to pony up at the always classy Casino Royal...but even they have gone from $1 minimums to $3.  At least their drinks are good and cheap.).  Nickel slot machines? Yeah, you can find a few, but they are lost in the maze of 0.25 and $1 minimums.  If I sit at the sports bar at The Bellagio and play vid poker I got to play at least 4 coins in order to get a free drink as opposed to ten years ago when the minimum would do.  I don't have a problem with that because I really don't want to play nickel or dime slots and the increases in the minimums for play and drinks makes a lot of sense: things cost more today.

Las Vegas doesn't charge 1960's prices in order to gamble, why do racetracks?*

Had tracks priced their product accordingly, making subtle shifts over the last fifty years (okay, eighty years), the minimum cost of a win bet would be $10, at minimum.  The problem is, obviously, that if a track were to make an adjustment to the minimum win bet right now they'd probably lose a ton of business because the change could be so dramatic.  The industry has gone so long underpricing their product that they've essentially missed the bus.

When we read about all the financial problems that beset the racing industry today and how tracks are finding it difficult to cover expenses, just remember that the track is one of the few places in America you can go and spend money like it's 1960...or 1930.

*Exotic bets are a different animal and probably wouldn't need as much of a tweaking but the problem still exists in terms of the value the track is bringing back.  Making Pick 3s or 4s a $5 or $10 bet would kill those pools due to the multiple nature of the bet, but reducing the minimums to $0.50 probably doesn't help matters.  I love the idea of $0.50 tris Pick 3s and $0.10 supers but you have to wonder whether that helps or hurts total handle, as opposed to just shifting handle from one pool to another.