The parimutuel betting system in the US certainly isn't helping the Sport of Kings grow

While horse racing awareness and interest piques during the Triple Crown races and at the Breeders Cup, the industry struggles for attention and interest the rest of the year. The reasons for this are well documented and revolve around issues like animal welfare concerns, including illegal drug use by some unscrupulous trainers; poor track surfaces and maintenance that often leads to horse breakdowns; a large decrease in breeding leading to very small fields; lack of family activities at racetracks; and the growth of legal casinos and sports betting both in person and online that is driving gamblers to spend their disposable income elsewhere. But a major reason that sports bettors and even established horseplayers mention for why they are turning away from horse racing and focusing on sports betting is that the traditional parimutuel system for horse betting is just not appealing due to uncertainty over final odds and the high takeout on every bet.

U.S. Horse Racing History

The first horse race in the United States took place in 1665 at a track in Long Island, New York where jockeys competed for tobacco, alcohol, cash and to help settle debts. Naturally legal betting on the races was not permitted at that time due to the puritan movement, although it did occur. By the 1700s horse racing was more popular and included both thoroughbred racing (usually in sprint type races) and later standardbred racing taking place on dirt tracks run by various jockey and riding clubs. Again, while betting likely took place it probably would have been bets between friends or with illegal bookies.

Betting on horse racing really only became available and accepted in the 1800s, but it wasn’t until the 1900s that it really took off with the advent of parimutuel wagering. The first legal parimutuel horse bet was placed in 1927 at Arlington Park in Chicago and later expanded to other tracks. The parimutuel system is said to have first been developed in France in 1867, but the complexity of odds calculations and the intricacies of horse racing made the existing system unfeasible for taking horse bets. It was only when totalizator was invented which allowed patrons to view odds on a tote board and place bets through tellers using tote machines that horse racing became a huge sport. This was particularly true since all other forms of gambling were illegal everywhere except Nevada, which legalized casino gambling in 1931.

Despite its popularity there has always been some disenfranchisement with parimutuel betting because the final odds are never known until the race starts. With fixed odds wagering, the odds you are given by a bookmaker is what you get. If the bookmaker is offering you 3-1 odds on a horse winning and the horse wins you will net a 3x profit. With parimutuel wagering, all money is collected over the time once the race opens for betting and the final odds are only calculated and displayed after all bets are accepted and the takeout is applied.

So, if a person places a bet with 7 minutes to post time and the horse is 5-1 odds at the time the bet is placed, but when betting closes, he is only 2-1 odds the better will only get the 2 to 1 payout. Obviously larger A tracks like Belmont or Santa Anita that have high volume will have less fluctuation than a B track like Mountaineer Park, but it is always frustrating to get lower odds then expected. The industry would say the solution to getting more accurate odds is to bet closer to post time, but often times, especially when the lineups to place bets are long or the online betting system is busy due to volume, there is a chance of getting shut out. And a more recent issue that affects odds is offtrack betting. Interstate betting usually doesn’t get factored into the odds until the end, so the odds at a small track in say Pennsylvania could dramatically drop if the bets placed on the race from New York and the bets from California are only added after the race started.

The Last 50 years

Until the late 1970s, horse racing was the only real legal form of gambling outside of Nevada in most states, so there was no real competition for the gambling buck. In 1977 Atlantic City legalized casinos and by the 1990s most states started legalizing slots, lotteries and other forms of casino gambling via Indian casinos after the passing of the IGRA in 1988, and more recently through agreements with race tracks to create racinos that help prop up race track revenue and government coffers. And since the late 1990s many states started offering large commercial resort casinos to attract tourism.

This huge surge in gambling started taking away some revenue from the racetracks but without question the biggest event that absolutely was a game changer for parimutuel horse racing was the repeal of PASPA by the Supreme Court in 2017. Many bettors were placing bets offshore for almost two decades prior, not to mention betting with illegal bookies has occurred for almost a century, but most Americans sat on the sidelines and only started betting on sports when it became unequivocally legal. Sportsbooks like FanDuel, DraftKings, MGM and Caesars began taking large bets daily and states like Louisiana and Mississippi that are notoriously conservative began legalizing sports betting too. With this new way to spend their disposable income it appears that a lot of horse players have started turning away from horse racing and some site the high takeout on parimutuel wagering as the main reason. Several horse racing websites even acknowledged it, saying that the rise of sports betting could be the death of horse racing as bettors look for better and guaranteed payouts.

Around the Globe

While this is new to the U.S. it has been an issue in the UK for over 60 years. When the country legalized sports betting and bookmaking in 1961 they knew that bettors would not accept a parimutuel system. So, Britain and other parts of Europe and Australia allowed bookmakers to offer bets on horse racing along with sports. There was still a place for parimutuel wagering, usually offered by the Tote, but sportsbooks still had the chance to offer fixed odds wagering and it has always been the preferred method for betting on horses in the rest of the world. A bettor knows that if they bet a horse at 10 to1 they will be paid 10 to 1 odds even if the horse goes off at 4 to 1 through the bookmaker at post time. Tote betting is generally preferred  for exotics and jackpot type bets like the Scoop 6 or Tote Jackpot where picking several winners could land a lucky bettor thousands of pounds if enough longshots win.

With fixed odds the takeout is more complicated and more importantly would be easily noticed by the bettors. The UK has solved that issue by requiring a part of the winnings on fixed odds bets offered by bookmakers  be given to the track. Prior to 2017 bookmakers had to pay a horse racing betting levy of 10% on every bet that was returned to the industry for operations, but in 2017 the rules were changed slightly so that bookmakers pay 10% only on profits for sums over £500,000. So, if a bookmaker makes £5 million from horse racing over the year, then they must pay £450,000 to the racing authorities who divvy it out to the tracks and horsemen based on an agreement they came up with. Even with that levy there is more than enough money for the books to still be profitable using regular sports betting odds.  In fact many bookmakers are so confident in their handicapping techniques for horse racing that they have a best odds guarantee, meaning that if a bettor wagers on a horse at 5 to 1 and it goes off at 10 to 1 at the sportsbook then the book will honor the higher odds and pay the 10 to 1 odds, even though the bet was placed at 5 to 1.

town, but after the repeal of PASPA, horse bettors came to realize that companies like FanDuel were only taking about 5% to 7% on any sports bets and they were winning far more betting on sports like football or baseball than they were ever winning at the track. Every bettor understands the concept of vigorish, but it doesn’t take rocket science or advanced mathematics to see that a bet at MGM for The Masters has far better odds than a bet on a horse race with 1/4 the number of participants. And in sports bets the person can wager on head-to-head matchups with a hold as low as 5%, an option that isn’t available with parimutuel wagering.

To overcome this, some tracks decided to offer fixed odds wagering to win a horse race and also offered head-to-head matchups. The topic has also been brought up regularly at gambling conferences and has been deemed the savior of horse racing . . . if it ever takes off. The problem is that the tracks in the U.S. are already offering this, but are not treating it like sports betting. Several years back Churchill Downs offered head-to-head odds for the Kentucky Derby and they showed the odds on national television for a matchup between the favorites with the first horse at 4/5 odds and the second horse at 3/5 odds resulting in a hold of almost 14%. And for a race this last Tuesday I did a calculation of the hold at monmouthparkbets.com for a race at Philadelphia Park and when the fixed odds for all horses were entered the hold was 120%, almost identical to the parimutuel takeout and in fact a bit higher. In better words the track was offering the same hold for fixed odds as it was for parimutuel wagering and even adding a bit more to ensure that they get the same takeout. So, they aren’t really offering true sports bets but are disguising the high takeout from parimutuel wagering in a different way. If that’s their solution to the problem of high takeout it will go nowhere.

I looked on Oddschecker.com for the odds that were offered in the UK for the same race at Philadelphia Park at various sportsbooks and the holds ranged from 108% to 112% with the average hold of about 109% which is a normal take for an event with 8-10 entrants. So again, in the UK bookmakers are treating a horse bet like any other sport they offer. It reminded me of the sports lottery in Canada called Proline, where a pick ‘em baseball game had odds of 1.7 on each side or a 15% hold. But you needed to parlay at least 3 games so the payback after the 15% hold was multiplied 3 times resulted in a maximum payback of 60%, i.e. the same as playing the lottery. Bettors in Canada laughed it off and said they would continue to bet offshore where they could get fair odds.

Is the answer to do like the UK and have true fixed odds wagering from sportsbooks with a levy taken for the horse racing industry? Maybe or maybe not. But as it stands sports bettors will continue to turn away from horse racing  until the industry comes up with a method to lower hold and make horse bets worthwhile for them.

Kentucky Derby 151 Prediction

As mentioned, this Saturday is the Kentucky Derby and fans will be tuning into the race in great numbers as they do each year. As a horse racing lover here are my picks for the Kentucky Derby:

Winner: Sandman – 6/1 odds in the morning line. The horse has been improving each race and was incredibly impressive in the Arkansas Derby, a race that has proven to be a great predictor of Derby success. He rated well in that race and swept around horses at the end, a method that usually wins the Derby. The 17 post is actually a good post position at Churchill Downs and with his running style it will insure he won’t get boxed in.

Place prediction: Sovereignty – 5/1 odds on the morning line. Like Sandman he has been improving, has the running style and dosage index to win the race and being right outside of Sandman he will be able to watch his biggest nemesis before deciding when to make his move. He also romped in his only race at Churchill Downs.

Show prediction: Journalism – 3/1 morning line favorite. It’s hard to ignore a horse that has won four straight races, including the Santa Anita Derby, and his times have been the best in the field. But California horses have struggled of late in races in the East, plus the track may be muddy which could hurt his chances. He should be close at the end, but I don’t see him winning.

Longshot chance and the horse to complete the superfecta: Luxor Café – 15/1 odds on the morning line. Japanese horses have gotten a lot of notice since they dominated at the Breeders Cup 2 years ago, and no one will forget Forever Young’s performance in last year’s Derby, a race the horse probably should have won. It would be no surprise to see this horse pull off the upset, particularly if the track is muddy.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!