STUPIDMONEY_HorseRace

Where Does the Money Go When You Bet at the Racetrack?

Following the money in the only form of sports gambling that’s (currently) legal

Legalized sports gambling: It’s coming to a place near you. After the Supreme Court struck down the Professional and Amateur Sports Protection Act in 2018, it’s all but inevitable that many states will soon legalize sports betting. So, no more flying to Vegas to bet (legally) on sports! No more living in fear of your bookie!

To get an idea of what all this might look like when it happens, let’s look at the most prominent current example: The race track. Alongside Mike Ernst, chief financial officer for the Del Mar Thoroughbred Club, which runs one of the country’s most successful horse-racing tracks, we’re going to see what sort of rules these places are saddled with.

How does racetrack betting actually work?

First of all, it’s not like a casino, where you’re playing against the house. The wagering scheme is what’s known as pari-mutuel wagering: Ernst says to think of it like a Super Bowl pool, where all the money goes into a pot, and all the racetrack is doing is dividing up the pot. The horse owners, the track and the state each get a small cut, too (more on that in a bit).

So when I bet 10 bucks at the track, where does it go?

Say you’re betting at a track in California, where Del Mar is. When you walk up to a kiosk or a counter at the track and place your bet, the money goes into a massive pool. There are two major companies that process bets; Del Mar uses a European company called Betfair, which handles a lot of online gaming, and whose technology is pretty much as sophisticated as a bank’s. From there, it’s processed electronically. At the same time, people throughout the state, the country, and realistically, the Western Hemisphere, are also placing bets on your same race. All of that money goes into a centralized data system that closes just prior to the race.

How much money is bet elsewhere?

A lot! Last year at Del Mar, $650 million was wagered — only 11 percent of that was bet on site. About 39 percent was bet from elsewhere in California, and 50 percent came from outside the state.

How is the cash split after a race?

The odds are predetermined for each race. Say the favorite wins a big race: Based on the number of tickets sold, the racetrack is probably paying out 180,000 winners or more, and those winners are only winning a few dollars for betting on the favorite. But if a long-shot wins, the track is only paying out a few people — and yes, they’re getting a much bigger piece of the pool.

Example?

Okay, say a million dollars is wagered on a particular race. Ernst explains that, according to California law, the racetrack is required to keep 15.43 percent of that, or $154,300, while $845,700 is paid out to winning bettors. Then, of that $154,300, about 45 percent goes to the horse owners who finish in the money (first place gets 60 percent; second place gets 20 percent; third place gets 12 percent; fourth place gets six percent; and fifth place gets two percent). Then around 45 percent goes to the racetrack for operating expenses — what’s known as the takeout.

But of the takeout, the racetrack will also pay what are known as “satellite locations,” which are legalized horse-racing betting venues (usually bars or restaurants, patronized by grizzled, cigar-chomping men who pore over the Daily Racing Form) that broadcast the race, either elsewhere in the state, the country or the world. Finally, the state gets the remaining ten percent or so.

How much do the horse’s jockey and trainer get?

The way it generally works, Ernst says, is the owner keeps 80 percent of their share of the winnings, and the jockey and trainer each get 10 percent. The horse, sadly, gets stiffed.

And about that tax money — where does it go?

You mean the $20 million that was paid to the state of California just from Del Mar’s track in 2018? Ernst says much of it goes toward funding the sport’s regulator, the California Horse Racing Board. That agency makes sure betting is fair, inspects tracks, tests for drug use and handles other regulations.

By the way, a small chunk of that $20 million was from sales tax on things sold at the track, Ernst says, and that money goes into the state’s general fund. But some money also goes to the municipalities where wagers are made. So if somebody’s wagering at one of those satellite betting locations in, say, Ventura, then the city of Ventura gets a small cut.

What about online betting?

Ernst says there are four major companies licensed in the state where you can bet legally online, from your phone or wherever. “Internet wagering has really been the biggest source of wagering growth for us, and that represents, right now, about 17 percent of our total wagers,” he says.

Do winning horse owners drive home with one of those oversize checks, or what?

Actually, no — they don’t get paid for 72 hours. In the meantime, the prize money goes into the track’s Paymaster’s Office, which is kind of like an in-house bank (horse owners have individual accounts there). Then, under state law, after the race is run, the winning horse goes to a receiving barn that’s staffed by a state horse-racing official. They draw a blood sample, which is then flown to the University of California, Davis for drug testing. After the racetrack gets the results (and the horse is found to be clean), they’ll deposit the money into the owner’s account. About this aspect of horse betting, Ernst says, “I used to be a CFO of a bank. It’s a hell of a lot more fun than banking, but it’s very similar to it.”

So would legalized betting on other sports be similar to all of this?

Ernst thinks so — at least in California, in the sense that, like horse racing, you’re not going to be betting against the house. “The money’s going to go into a pool and the odds are going to be paid out based on who takes the Patriots versus who takes the Rams, for example. Then there will be a certain amount withheld that will go to the state of California.” And if the state is going to legalize it, as with horse racing, they’re going to take their piece of the pie; the operators are going to get a piece as well.

Is horse racing going to go under when people can bet on football or basketball legally instead?

Racetracks are seeing it as an opportunity, actually. “It’s a system that’s been around for a lot of years, and there are tracks that are going away and there are tracks that are surviving,” Ernst says. “The tracks that are surviving are the ones like Del Mar that try to innovate and grow their fan base.” In other words, the successful racetracks make horse-racing a spectacle and a special day out: It’s why the ladies come out with the huge hats, and the guys are suited up in seersucker. “If you look at the Kentucky Derby,” Ernst says, “it’s a little bit about horse racing but an awful lot about the whole experience.”

The annual racing calendar already includes beer festivals and concerts after the races, and race tracks are betting (no pun intended) that sports gambling — when it’s legalized — will fit nicely into all of this. Essentially then, race tracks might actually become one of the main places to bet not just on the ponies, but on the players, too.