A Solution to Minus Pools

May 28, 2017

By: William G. Gotimer, Jr.

Recently, the New York Racing Association announced that there would be no Pick 4 guarantee on a particular Belmont race card that was short on entries to begin with and then further reduced by multiple scratches when the races were moved off the turf due to inclement weather. The “guaranteed pool” promotion is a relatively new marketing measure meant to assure bettors that a particular bet will have a sufficiently large pool to provide true value as a betting proposition. It is a confidence boosting proposal that seeks to attract bettors to an otherwise uncertain pool.  What it also does is place the racetracks capital at risk as the track is required to make up the shortfall if the guaranteed betting handle is not met. It is one of the few instances where a racetrack can lose money by providing a certain betting proposition to its customers.

Of course, this is not completely new and is at least tangentially related to that curiosity of pari-mutuel law – the minus pool.

A minus pool occurs where there are so many winners that the racetrack handling the bet cannot take its share of the handle or takeout and pay the required winnings owed to the winning bettors. Simply put – there are not enough losers in a particular pool and the racetrack must fund the difference from its general coffers. This anomaly comes about from the pari-mutuel law in each jurisdiction that requires a minimum payout on any bet – which is generally five cents on the dollar and in a small number of jurisdiction ten cents on the dollar. This equates to a minimum payout on the traditional $2 bet of $2.10 or $2.20.

There are, in fact, a surprisingly large number of instances where bettors find the prospect of such 5% returns on a proposition so attractive that their large bets cause minus pools that cause a racetrack to pay them partially from its own pocket. While this is most notable in the “Show” pools, it can and does occur in both the Win and Place pools at times. (This author is unaware of anytime a minus pool has occurred in an exotic wagering pool but it may have occurred and certainly can occur under the right circumstance.)

Not surprisingly, the racetracks are loathe to accept these unplanned for losses and chafe at the requirement to actually place their money at risk. Their business is taking bets, not making them. This leads to racetracks sometimes cancelling a wagering pool altogether and not taking the type of bet where a minus pool is expected. Setting aside the idea (and reality) that accepting bets in a minus pool may actually benefit the racetracks in the long run, the prospect of taking a hit at the windows causes racetrack management to handicap the outcome of a particular race and for obvious reasons this is ALWAYS a bad idea as it cuts against the required impartiality a racetrack must exhibit to the outcome of the races it conducts.

Cancelling a wager also has the undesirable side effect of angering bettors and even those not inclined to wager in the pool accuse racetrack management of being “chicken” or anti-gambler. Even taking the minus pool wager is no bargain for racetrack management in that it attracts ‘bridge jumpers’, a term for bettors who wager so much seeking the minimum return that a loss would cause the bettor to contemplate suicide. For a business that has spent the better part of eight decades trying to shed its reputation as a sinful vice – any mention of gambling and personal devastation in the same sentence is undesirable.

In this article, I now propose a solution:

I am mindful that this solution will require legislative changes and may take time to implement but I can identify no other negatives to the proposed approach and believe racetracks and regulators alike would be in favor of it.

Discussion

To begin, we must acknowledge that the minimum required payout discussed above has become an anachronism that was borne out of technological limitations that existed in the 1930s and 1940s when pari-mutuel wagering was first introduced in the United States. It was a far different world where pari-mutuel machines dispensed tickets that acted as “bearer paper” evidencing a particular bet. The tickets, made of cardboard, acted like receipts and were honored by the bet taker if the bet was successful, they acted like confetti or litter if the bet did not. There was little identifying information on the ticket other than the machine number from which it emanated. This anonymity was actually a departure from prior practice where bookmakers did in fact identify their customers and were well aware of each bet made.

Because of the existing technological limitations, the system required strict rules and greatly reduced the flexibility from what bookmakers afforded their customers. Bookmakers did, and still do, offer an array of betting options that were not available under the technological capability of the 1930s. While I won’t go into the details in this article (please ask if you want to know) the bets offered by bookmakers prior to the introduction of pari-mutuel wagering included “parlays”, “if” bets and “reverses”.  Each was well understood by both bookmaker and bettor and each served a purpose.  While the pari-mutuel system itself was in fact a mathematical wonder of the time – calculating and recalculating multiple pools every thirty seconds – it simply could not provide this flexibility since computing power was limited. The point here is that technological limitation, not sound theory, lead to some of the rules still in place today and that includes the minimum payout rules that lead to the minus pool quandary.

Solution

Today’s technology permits an almost limitless ability to calculate and recalculate each and every possible outcome and therein lies the solution to the minus pool issue. Pari-mutuel regulations should permit the racetracks and other bet takers to issue a “provisional bet” or an “if” bet in prior parlance, based on a race where a minus pool is expected or actually occurring. The bet would be accepted and valid only upon the ascertainment of a certain betting handle that would support both the minimum payout and the takeout required by law. The ticket itself would state “wager only valid and in place provided at least $XXXXX wagered into this pool, otherwise bet becomes null and void and fully refundable”. The proviso on the ticket or receipt is self-explanatory. This is only a matter of mathematics and the pool required for each wager could be simultaneously calculated as the bets were taken. Whether the bet was valid could be easily verified after the race by seeing whether the required total pool was reached.

Impact

While there could be variations where on-track wagers or small wagers would be given priority, the concept of establishing a “waiting list’ for bets that could cause a minus pool is valid and helps the sport in a number of ways.

  • It eliminates minus pools and all that goes with it;
  • It reduces the incentive to make outlandish bets at short odds which does not help the sport reputationally; and
  • It permits the racetracks to maximize handle by offering the full array of wagering options without risk.

The negatives I can identify are mostly in the uncertainty to the bettor of whether or not the wager is ‘live” while the race is being run, but in this instance, disclosure cures all. The bet being provisionally taken could be identified at issue and the bettor given the option to pass. Similarly, pool totals are made public, updated continually both on track and off and easily verifiable after the fact. A cancelled bet would simply be the electronic equivalent of being “shut out” a concept with which every bettor is familiar.

The effort to implement this is minimal. I am not a computer programmer but more complicated algorithms are used each and every day for such mundane things as ordering a cab, ordering a meal and the direction of advertising towards consumers. The programming changes to the pari-mutuel systems would no doubt be easy to develop and implement in comparison.  Implementing this proposal would eliminate a troublesome re-occurring nuisance that benefits no one and in an industry that generally finds each new approach contentious might actually find universal acceptance.

@AmWager @jonathanstettin @GulfstreamPark And starts off the day with a winner.

Ian Meyers @ihmeyers View testimonials

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Comments

  1. Ian Meyers May 29, 2017 at 12:36 am

    Bill,

    Great article, but what you leave out is that the bet-taker is responsible for paying a minus pool wager. In this day and age, where 90% of all handle is made off-track (either at a simulcast site or an ADW) it is those “guest sites” that must make up the difference between what the minus pool wager WOULD have paid, and the relevant state minimum. In some instances where the pool is extremely tilted in favor of a single betting interest, the guest site loses as much as 40% on a wager. Yes, if a patron makes a $1000 show bet, the guest site might lose as much as $400 in taking it. These extreme cases are obviously much more likely to happen at tracks that pay the $2.20 minimum (CT, MNR, ARP & PRM). I have heard talking heads at one of those 4 even ENCOURAGE the practice ‘folks, there’s a lot of show action at xxx tonight so you might want to join in as the favorite looks unbeatable for third.’ That practice is EGREGIOUS to me. That talking head doesn’t care because his track isn’t on the hook for the loss on wagers placed off-track but still receives there 7% cut (host fee) on the bet.

    My solution is that the bet should pay whatever the bet would pay. If that means you get back $1.50 on a $2 show wager, so be it. Minus pool betting would cease within weeks of that happening

    1. Jonathan Stettin May 29, 2017 at 9:36 am

      Excellent point Ian. JS

  2. Anita May 29, 2017 at 11:16 am

    Very interesting Bill. Thank you for your insight.

  3. William G. Gotimer, Jr. May 29, 2017 at 11:45 am

    Thank you for the interesting feedback. You being an extra level of detail to the discussion that I did not. While I agree with the efficacy of the free market approach you espouse I think it would be practically difficult for regulators to approve a “winning bet”‘that results in an actual loss for the bettor. As a regulated “vice” racing must satisfy a number of constituencies including consumer protection.

  4. Parker balfour Jun 1, 2017 at 12:40 pm

    Gulfstream park and now other jumping in on pick 6 scam do the math folks carry over is a carry over of your money the track loves this depending on host track say 19% as a figure on most tracks . Now since it doesn’t get hit and grows to say 500.000.00 add 30% to growing pool everyday it’s not won by one ticket 30% is the payout on multiple 6/6 tickets track loves this and why not interest on interest 19% daily and up to 26% daily the track is making money while creating buzz more handle Golden Gate was hit last week over a million the track took out well you do the math. I play them myself so I’am a fool too odds are not in your favour a win , place parlay would net you more speaking from Canada so I don’t pay your Uncle Sam but they sting me other ways like 2 dollars at santia Anita of no 50 cent play at laurel park one dollar min. Other tracks WEG gets you to play more then min 20 cent tickets Gulfstream is ok Frank Stronach not so much. Just saying some facts about playing pick 6 in Canada or USA . The more you bet the more you get lol….
    Hit Woodbine pick 6 11 grand spend 12 bucks not bragging just got lucky and breeding,class,speed ratings.

  5. Phil Vacca Jun 3, 2018 at 8:01 pm

    How about the times when the horse should pay 2.59 and they only give you 2.40? That “breakage” goes to the state and to the track, 50/50 split. That happens every race…not to that extreme, but there is breakage in every pool.

    So, once in a while they take a hit, and they get into a big tizzy. They don’t tell you that they use it as a cost of doing business, comes off the bottom line when the file their taxes.

    My solution would be pay off the exact payoff on the horse..3.37, 45.69, and so fourth. Their argument 85 years ago was the people didn’t want to deal in cents…but the tracks were happy to keep it.

    For the .10 superfectas, with todays technology the payoffs end in the odd cents. Plus if your betting hundreds today, that extra 5 or 6 cents the tracks keep would be an extra $2.50-3.00 in my pocket.

    The State dictates what the minimum payoff will be…they have skin in the game and they know the big horses don’t always finish in the top 3. (Arrogate? over two million four hundred thousand WPS, not including the exotics)

    1. Jonathan Stettin Jun 4, 2018 at 10:33 am

      Good point.

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