Horse Manure – Sometimes Useful But Not When You Tread In It
Written By Bruce Teague Monday 27th February 2012
How do big punters make money? One answer, according to Zeljko Ranogajec in submissions to the Federal Magistrates Court, is to convince betting houses to reduce their chop and pay him back more money than he gave them in the first place. Ranogajec, reputedly the world’s biggest punter, has already been banned in some US jurisdictions for this sort of tactic. Back in Australia, he is now taking action against one of his middlemen for allegedly diverting earnings.
This is a big variation on the old adage that an amateur goes to the races with $100, hoping to come back with $1,000, while a professional goes in with $1,000, expecting to come out with $1,100.
Ranogajec, on the other hand, pretty well knows he will come out with that $1,100 anyway. He can do that even if he loses a little on the run because the tote will rebate him more than he loses. The tote values his huge volume of business and reasons a big discount is worthwhile.
No longer in Tasmania, it seems, where Ranogajec has put up much of the funding to build Hobart’s exotic $180 million museum and art gallery. New Tastote owner Dick McIlwain of Tatts claims the way to the local company making better profits – it cleared only a tiny $1.5m last year – is to cancel the favoured treatment and rely instead on more lucrative customers. Like you and me, perhaps.
Yet such discounts are accepted as routine around Australia and no doubt overseas as well. The only question is how much. Casinos do it every day for high rollers. Betfair advertises it (a 5% fee for small players, less for big investors). Your friendly bookie may well give you a shade of odds if you are a regular customer. The railways or the buses will give you a discount if you buy a weekly ticket rather than seven individual ones.
So discounting is hardly illegal. But the remaining questions are ...
- Is it ethical?
- Is it good for business?
- Does it harm other customers?
- Is it beneficial to the industry as a whole?
The ethical question is hardly a goer. The practice is widely accepted wherever you go. It becomes relevant only when a sharp practice is designed to circumvent rules and regulations. Generally, that is not the case here (although some may argue the toss on that). Government rules mandate only maximum deductions, not minimum ones.
Whether it helps the betting house is in the eye of the beholder. If the manager sees it improving his bottom line then he is going to do it. Whether he does it well or not is another matter – see the Tastote example above.
Nominally, any effect on other customers is negligible. Each transaction should be evaluated in its own right, whether the bet is $10 or $10 million. Still, the Tasmanian example gives rise to a query about the effect of company profits on how the small punter is treated. Like an airline skimping on maintenance, he may well miss out if the company lacks sufficient resources to improve his return or the level of service he gets. But, all told, it’s a pretty skinny argument. And today’s customer is starting to see a little more competition for his business anyway. If he does not get what he wants, he will go elsewhere (which is not a small problem today as the proportion of serious tote punters declines and that of uneducated gamblers rises).
Industry benefits are harder to assess, not least because there are many overlapping factors involved. It really depends on what the industry’s objectives are and how it best sees them achieved. Currently, maximising turnover is at the top of the list, regardless of the quality of the product or the profits that ensue. Next after that – in greyhounds at least – is maximising the opportunities for low quality dogs and their trainers.
Hence the rise and rise of meeting numbers on SKY1 and SKY2. Any old meetings will do. These were not prompted by demand from extra horses and dogs. In fact, foaling and whelping numbers are flat or declining. No, TABs and racing administrators simply wanted more turnover, full stop.
If that policy succeeds in the long run it must surely be the first business ever to profit by reducing the quality of the product. Somewhere in the annals of company case histories you will find a story about a prestigious paper manufacturer which cut the quality of its toilet paper in order to gain bulk sales to heavy users such as hotels and public institutions. It worked for a while but eventually the company found many of its customers no longer valued the brand, downgraded it, and shifted to a competitor. Hotels did not do much better anyway. Customers who once used three leaves started grabbing five or six at a time, thereby costing the hotel just as much.
A remaining effect comes from the very structure of tote betting itself. By any definition, the average deduction of 17% or so is huge in any gambling context. Rare is the customer who can overcome such a handicap. It is therefore no wonder that those in the know – ie professional punters – will insist on a smaller take-out or else they will not take part. It is simple arithmetic. If you want that business you will have to offer a discount.
The other side of that coin is that tote companies, partly because of their near-monopoly positions, are therefore charging more than would be necessary in a truly competitive world (which is precisely why the NT bookmakers invaded the holy turf). Previously, benefits which might have gone to punters were instead pocketed by tote staff and shareholders. Or perhaps to professional punters, which is where we came in, but that is another tenuous argument.
Yet the totes still charge like a wounded bull for everyday users, mainly because they have a monopoly in retail locations, and because many of those users have not the faintest idea what they are paying for the service. Note that the NSW government (maybe others) requires poker machines licensees to display a brochure detailing what the chances of success are and how much is taken out of each bet. No such information is readily available to wagering customers.
In other words, it is not so much the level of demand which sets the price as it is the buyer’s appreciation of the value or convenience of the product. Anyway, who are we to tell the mug gambler that he is paying too much? He may not think so.
Consequently, there is a large disconnect between the professional getting his discounts and the mug purchasing a bet on the run. Yet both are acting more or less rationally in today’s circumstances.
The final question is therefore whether the industry would be better off under different conditions.
Almost certainly, yes, but not only as a matter of discounts and the like. The real problem is that the flat or negative wagering growth – in real and absolute terms - in most racing sectors is a function of the drop in serious punters – the week to week regulars who may not bet big but are reliable in their habits. In turn, responsibility for that drop has to be assigned to both TABs (and SKY) and racing managements.
Whether professional business is up or down is hard for an outsider to gauge. Ditto for bookmakers’ betbacks. Still, the arrival of NT bookies suggests the latter effect will be significant while Ranogajec and his cohorts appear very active. On the other hand, on several measures, mug gambling is rising. If the total is unchanged then it has to be moving it into space once occupied by the regulars.
No business can afford to ignore a loss of regular customers, yet that has been going on in racing for two decades now. That’s one reason that racing’s share of the gambling market has dropped from 50% to 10%.
Controlling Ranogajec is therefore a matter for the mob selling him a service. More fool them if they give it away below cost. But, outside the professional punter area, TABs which want to prosper in the long run will have to think about shaving their cut.