Oct 31, 2008
How the "take" really works
By: Ray Taulbot
Some people are convinced that the mutuel percentage constitutes an insurmountable barrier to the racing fan's financial success at turf speculation. They talk of the deadly, unbeatable percentage as the one obstable the player can never overcome. But it requires only an elementary calculation to reveal the fact that a given deduction can never affect the total from which it is subtracted to an amount over and above its own percentage of the total from which it is taken.
We suspect that an idea to the contrary has a risen as a result of considering the effect of the mutuel percentage upon the betting public as a whole, rather than a study of its effect on the individual player. Naturally, the betting public as a whole must always lose with the mutuel method of wagering. But this major unit (the betting public) is composed of numerous smaller units (the individual bettors), any one ofwhich may either win or lose without affecting the inevitable result experienced by the major unit.
To put it another way, while the racing crowd as a whole must always depart from the racetrack with less money in its collective pocket than when itarrived, it does not mean that each of its component parts must suffer a similar fate. You must recognize this before understanding the actual effect of the mutuel percentage uponthe individual's chance for financial success. Therefore, it is desirable for every racing fan to understand the fundamental principle upon which the mutuel method of wagering is based.
The mutuel method incorporates a plan where by the bettors at anygive racetrack actually wager among themselves, rather than with some central bookmaking agency. No bookmaker or bookmaking system of any kind is involved; and the RacingAssociation that owns and operates the racetrack does not back or book the player's wagers. The mutuel department acts in the capacity of a stakeholder charing a fee or commission for its services. It is this fee or commission that constitutes what we call the mutuel percentage or "track take." It becomes clear that the modusoperandi merely involves the paying off of one group of players with the money lost byanother group-less, of course, the mutuel "take."
With this basic principle in mind, we may now set forth an example of mutuel operation reduced to its simplest form, and follow each step in theperformance through to its proper conclusion. In this manner, it will be impossible togain a clear insight into the actual effect of the "take" upon the individual player's wagering activities.
The least complex example is one which will demonstrate thecomplete operation through the running of a race in which only two horses have beenentered, and upon which only two wagers have been placed. Since the place and show payoffsare figured in much the same way as the win payoff, we need to consider only straight betting to accomplish our present purpose.
Our problem is as follows: Horse A is entered to race against Horse B. You and I are the only players who place a wager on this race. You back Horse A with a $10 wager to win. I back Horse B the same way. Now there's $20 in the win pool. Let's assume the mutuel percentage at our track is 15 percent. Therefore, the first stepis to deduct 15 percent from the total amount of money wagered. This amounts to $3, which leaves only $17 in the win pool. There is no other calculation until after the result of the race is known. So with $17 in the pool, the horses go to the post, and Horse A returns the winner.
Now the second mutuel step takes place. The name of the winner is flashed to the calculators in the mutuel department, which determines the amount of money that was wagered upon the winner. In our example, $10 was wagered upon Horse A. Thisamount is deducted from the pool and set aside so that it may be returned to the winning bettors. This substraction leaves a balance of only $7 in the pool.
All mutuel calculations are based upon two-dollar wageringunits. The next step, therefore, entails figuring the number of two-dollar units wageredupon the winner. This is done by dividing the total amount wagered upon the winning animalby two. You wagered $10 upon Horse A, so this amount is divided by two, resulting infive-that is, five $2 wagering units.
The next step is to discover the earnings of each $2 unit. Thisis done by dividing the remaining money in the pool by the number of $2 units wagered uponthe winner. The $7 in our pool is divided by five, which results in the figures one, four,zero, or $1.40. This amount represents the net earnings of each $2 unit. This profit is added to the original $2 wagered, and the payoff becomes $3.40.
You are holding five winning units, each of which is valued at $3.40, so when you cash your winning $10 ticket, you will receive five times $3.40, or $17. If there had been no mutuel percentage of breakage you would have received the entire$10 that I lost. As things are, however, the percentage has cost you exactly $3.Your profit would have been $10, instead of $7, without the "take."
We now know who pays the mutuel percentage and breakage. It is the winner. I lost my entire $10 because I backed the wrong horse. The "track take" was in no way responsible. Poor judgment alone is the factor which influencedthe result, making it evident that the player must win before he can lose anything to breakage. For this reason, when a person states that the "track take" is thefactor which dooms the player to financial failure, he is saying that backing winning choices is responsible for the speculator's downfall. Such a statement is pure nonsense.
We"re not trying to ignore the real effect of the "track take" upon the player's possible success. There is an effect, and it is important. But it certainly doesn"t constitute the primary factor responsible for the average racing fan's failure at turf speculation. A brief example will disclose exactly how the "take" injures the player.
Let's assume a man sets out to the races with a working capitalof $500. He initially encounters good fortune, earning a net profit of $100. He now has $600, but what would he have if the "take" hadn"t been working against him? Ifhe were at a track where the mutuel percentage was 15 percent, $30 would have been deducted from his winnings. An unknown sum of breakage would also have been deducted, but let's assume it amounted to another $5. Without "take," the player would have profited to the extend of $135 so far. The take has deprived him of about $35.
Now let"s assume our player encounters a run of losinginvestments, which reduces his holdings to a mere $200. He becomes discouraged and swearsoff playing the horses. What part of his loss is attributable to "track take?"Let"s see. At the peak of his winning period, he had $600. He then lost $400 before deciding to quit. We"ve already seen that he lost about $35 through the "take." Therefore, poor handicapping judgment set him back $400, while the "take" deprived him of $35.
The subject can be summed up as follows: the winner bears thecost of the mutuel percentage and breakage, while the loser remains unaffected by this tax. Hence, before it is possible to lose through the "track take," the playe rmust first win. Therefore, the only effect of the mutuel tax is to reduce the player's profits during his winning periods of wagering.
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