To Rebate or Not To Rebate?

- Bill Finley’s recent ESPN.com column on rebate shops has been reproduced in at least one major racing trade and discussed in chat rooms. In it, Finley lays out the case that rebate shops are not only good for racing, but, in his words:

A pretty good argument can be made that the creation of the so-called rebate shops have been just about the best thing that has ever happened to horse racing. They have created hundreds of millions in betting handle that otherwise never would have existed and have actually given some high rollers a legitimate chance of beating a game that had been virtually unbeatable.

It's a simple formula. Because the rebate shops may typically collect 15 percent or more from a bet as their portion of the takeout they can afford to give a customer some 10 percent of his action back in the form of a rebate and still be guaranteed a nice profit. Customers who may have lost 4 or 5 percent of the amount they bet are now winning 4 or 5 percent and therefore betting far more than they did in the pre-rebate days. Everyone comes out a winner.

He goes on to say that NYRA is causing itself harm by cutting off rebate shops that are not themselves guilty of anything connected to the ongoing scandal other than not knowing nor caring who its customers are. All in all Finley makes a convincing case.

Until, perhaps, you read the piece that was posted on Del Mar’s site last summer by Oaklawn’s mutual manager Bobby Geiger, reprinted recently on the Derby List, and discovered by me on the Albany Law School Racing and Gaming Page. It’s worth a read. Oaklawn cut off the rebate shops in 2004, and Geiger explains how the cutoff benefited fans at their simulcast sites by reducing the effective takeout rate there and returning an extra $3 million to the fans there (though he doesn’t explain how), and seemed to eliminate late odds drops. Oaklawn itself must have lost handle, but Geiger seems to be taking the what’s good for the industry stand here and doesn’t acknowledge that. But here is.......and now I feel like a real, big-league blogger......the money quote:

SPMO's [Secondary Pari-Mutual Organizations] offer select players direct wagering connectivity to the tote system. In the aftermath of the pick-6 scandal, that fact alone is ominous.

Direct access to the wagering network enables the computer player to electronically scan and analyze wagers placed by all other players. Just prior to the start of a race, the "linked" computers comb pools seeking underplayed wagering combinations relative to the merits of the horses. The program pays special attention to exacta combinations; it can look at all of them in a b l i n k.

When the program robotically pulls the trigger, a complex array of wagers, mostly exotics, is spread over the underplayed combinations. Essentially claiming all overlay value the pools for that race had to offer. They are taking the cream off the top.

Getting this electronic "last look" enables the computer program a consistent win of 97-cents on each dollar wagered. That's a steady loss of three cents on the dollar.

However, add the ten cent rebate and it's a seven cent winner on the dollar. Consistently!

He goes on to say that these bettors are enjoying a guaranteed, no-risk 7% ROI at the expense of the rest of us. If what he said about these computer programs are true, then this is deeply disturbing indeed. Read the analogies he makes at the end of his piece, link here. It almost makes me not want to bet the 9th at Mountaineer coming up on TVG.