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Mar 12, 2004

How the "take" really works

By: Ray Taulbot

Some people are convinced that the mutuel percentage constitutesan 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 andabove its own percentage of the total from which it is taken.

We suspect that an idea to the contrary has arisen 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 it arrived, 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

 upon the individual"s chance for financial success. Therefore, it is desirable for every racingfan to understand the fundamental principle upon which the mutuel method of wagering isbased.

The mutuel method incorporates a plan whereby 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 Racing Association that owns and operates the racetrack does not back or book

 the player"swagers. 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 modus operandi merely involves the paying off of one group of players with

 the money lost by another group-less, of course, the mutuel "take."

With this basic principle in mind, we may now set forth anexample of mutuel operation reduced to its simplest

form, and follow each step in the performance 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 the complete operation through the running of a race

 in which only two horses have been entered, 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 againstHorse B. You and I are the only players who place

 a wager on this race. You back Horse Awith 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 step is 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 winneris 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. This amount 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 wagering units. The next step, therefore, entails figuring the

 number of two-dollar units wagered upon the winner. This is done by dividing the total amount wagered upon

the winning animal by two. You wagered $10 upon Horse A, so this amount is divided by two, resulting in five-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 upon the 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 isthe 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

 influenced the 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 the factor which dooms the player to financial

failure, he is saying that backing winningchoices 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 capital of $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, butlet"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 losing investments, which reduces his holdings to a mere

$200. He becomes discouraged and swear soff 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 the cost 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 player must 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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