HORSE RACING : Taxing the Bettors, Taxing the System

During my stay in Australia this winter, I paid a visit to Gosford Racecourse, a provincial track with a modest grandstand and a modest quality of competition. When I told a local journalist that I loved the charm and rusticity of places like this, he said, “It’s not as rustic as you might think,” and led me to an unmarked white door on the ground floor.

We entered a private room for the track’s big bettors. There were about 15 of them, mostly men in their 30s, each with a personal ticket seller. Each had a portable computer in front of him. The journalist gestured toward one young man, identified him and said: “Today he’ll probably bet about $150,000 through the tote, and he’ll run outside to make a $10,000 bet with a bookmaker now and then. Of course, this is just a minor day of racing. On a Saturday in Sydney his total turnover might be as much as $500,000.”

Of all the aspects of Australian racing, none was so stunning to me as the sheer magnitude of the wagering. But if I had traveled to Japan, Hong Kong, England or many other countries, I would have had a similar reaction, because the level of betting in America -- even at seemingly successful tracks -- is paltry in comparison.

In 1990 the total wagering at Laurel and Pimlico was $435 million, a record sum that makes Maryland the envy of its neighbors in the mid-Atlantic region. Yet in the same year, the Australian state of Victoria, which has a population slightly less than that of Maryland, generated $1.4 billion in parimutuel wagering. (And this total doesn’t include the hundreds of millions of dollars wagered with legal bookmakers.)

Whenever U.S. racetrack executives get together at industry conclaves, they talk endlessly about the need to broaden the sport’s popularity and attract new fans. But perhaps their real problem is that their horseplayers don’t bet enough. If crowds at American tracks wagered more than $400 per capita, as they do in Japan, instead of $162 per capita, the sport could boom without a single new customer.

Why do American racegoers bet so little? The reason is certainly not a lack of gambling fever or a lack of high-rollers. The casinos of Atlantic City and Las Vegas are filled with players who routinely bet thousands. And the country is filled with people who regularly make large wagers on sporting events. The magazine Gaming and Wagering Business estimates that $25 billion a year is bet illegally on sports -- compared with the $9.2 billion bet legally on horses in 1990. There are plenty of people who are ardent, enthusiastic horseplayers, yet might bet $300 on a Sunday afternoon at Laurel while they are rooting for $1,000 in pro-football bets.

The explanation for this phenomenon is that even gamblers are reasonably rational about the economic decisions they make, and they know that horse racing is usually a bad gamble. Tracks typically take from 17 to 25 percent of every dollar wagered, and those in Pennsylvania have blazed new trails by grabbing an exorbitant 30 percent from trifecta wagers.

Even for the most astute professionals it is tough to beat such odds. That high-rolling gambler I saw in the private room at Gosford was playing mostly trifectas, battling a 16 percent takeout, trying to grind out a small percentage profit. Raise that tax to 25 percent and he wouldn’t be in action. So it is no wonder that big gamblers in America prefer to call their bookie and bet on a sports event, where there is only a 4.5 percent disadvantage against them. If horse racing is ever going to attract big players, it will have to reduce takeout to more reasonable levels.

But even if a gambler is willing to fight these tough percentages, he will find it hard to make a large bet. On a Saturday at Pimlico, the win pool for a feature race may be only $60,000 or so, and a handicapper with a strong opinion couldn’t make a $2,000 bet without significantly hurting his own odds. There are plenty of bettors prepared to risk large sums when the right opportunity arises; when the double-triple jackpot in Maryland grows to enticing levels, bettors materialize who are willing to make five-figure investments each day. But on ordinary days there are no wagering pools large enough to attract the big players.

It takes large betting pools to beget larger betting pools. And the way to build the size of pools is obvious: off-track betting. Yet not a single state in America has fully exploited off-track betting in the way many other countries have. In Australia there is a wagering outlet, called a TAB, in virtually every neighborhood of every city, and these TABs build the pools that enable the pros to wager on such a serious level.

One facet of the Australian wagering system could easily be copied here: the Pub TAB. Most barrooms are equipped with a single ticket-selling machine, and a television tuned to a cable channel that continuously shows horse, dog and harness races from all parts of the country. This is a relatively low-overhead way of creating an off-track betting system; it creates widespread interest in the sport while generating large amounts of wagering.

While America has lagged in the development of OTB, some tracks have also begun to experiment with interstate wagering, or “commingled pools,” as the industry calls them. If customers at smaller tracks are permitted to wager into the large pools at the California and New York tracks, their bets wouldn’t have to be limited by the size of the pool at their home track.

With interstate betting, increased off-track betting, takeout reduction and other innovations, the thoroughbred industry might start to realize some of its economic potential. But until these changes come, horse betting in America will continue to lag far behind the rest of the world.