Update on CAW in California: Rate Hikes and One Dominant Player
Yesterday at 03:11 PM
Amid the embattled economics of horse racing, more and more attention has been placed upon Computer Assisted Wagering (CAW) players. One such focus has surrounded whether these behemoths of the betting pools are contributing their fair share back to the sport. That's the case certainly in California.
Last year, the California Horse Racing Board (CHRB) became the first regulator of a major racing jurisdiction to really dig down into the issue during a public hearing–one that later led to a published Q&A.
The scrutiny that California has received hasn't always sat well with some industry leaders, who say they feel unfairly victimized due to CAW data published by the state unavailable in other jurisdictions–a valid point that paints a damning picture of the way key CAW data (from an industry standpoint) is shielded from view almost universally around the country.
On the flip side, a strong argument can be made that because California doesn't enjoy the same purse subsidies enjoyed elsewhere, how it manages its wagering monies–and it's CAW play in particular–is that much more important if horse racing is to stand a chance at economic sustainability in the Golden State. There's way less wriggle room, in other words, to get the formula wrong.
Has the scrutiny California received over the past year or so led to actionable change? Yes and no.
At Santa Anita, the impacts from a set of rate hikes among CAW players–which includes a slight drop in CAW play–has been met with approval in various quarters, while at Del Mar, a titan of the CAW world still wields a seemingly lop-sided influence on the pools.
Marshall Gramm, a professor of economics at Rhodes College in Memphis, Tennessee, and a professional gambler, said the outsized impact at Del Mar from one Elite Turf Club player (who wagers under the moniker Elite 17) is fiscally risky. “For one player to be so powerful, I think it's a huge concern,” he said.
Primer
First, however, here's a CAW primer.
The debate around CAW players typically surrounds the major edge they wield over regular gamblers thanks to their use of sophisticated technologies that allow them to precisely read the markets and to place massive wagers across nearly all polls in the final seconds of betting, as well as the attractive rates and rebates offered to them which are unavailable to the average punter.
When “rates” are mentioned, what is meant are “host fees.” This is a charge wagering outlets pay to track operators for the contractual right to import a simulcast signal. A wagering outlet could be another racetrack, an ADW platform (like FanDuel), or a CAW platform (like Elite Turf Club).
Experts say that CAW host fees for the premium tracks typically vary between 6% and 8%. After breeders' premiums and other minor deductions have been removed, host fees are roughly split 50/50 between the track and the purse account in California.
Rates, therefore, are vitally important for industry stakeholders to know.
The amount CAW players are “rebated” can be broadly calculated with this simple equation:
Rebate = Takeout minus host fee (plus any other associated minor fees). The smaller the host fee and the larger the takeout, then the bigger the rebate.
Last year, the TDN revealed how in 2023, Elite 17–one of more than a dozen individual Elite Turf Club players–enjoyed a noticeably more favorable rate than those other players that year.
Owned by The Stronach Group (TSG) and the New York Racing Association (NYRA), Elite Turf Club is a CAW wagering platform that makes up a significant portion of Del Mar's handle. But the favorable rate that Elite 17 enjoyed gave the betting breakdown of Elite Turf Club's ledgers that year a lop-sided look.
Indeed, Elite 17's play constituted nearly 47% of Elite Turf Club's total handle on Del Mar in 2023, according to data obtained by TDN. This was no small amount of money–Elite 17 wagered some $53 million on the track alone that year.
Elite 17's predominance wasn't always so pronounced. As recently as 2021, Elite 17's play had constituted just over 36% of Elite Turf Club's total handle on Del Mar.
That year, two players–Elite 17 and Elite 2–reportedly received similarly favorable deals. By the time 2023 rolled around, Elite 2 reportedly declined that deal, which would have necessitated making a “substantial seven-figure up-front payment.”
The Thoroughbred Owners of California (TOC), which has the final say over such deals, was critical of the way Del Mar–along with other tracks–had for years offered special rates to some of the sport's biggest CAW players, who are often called the “whales” of the betting pools.
“With the benefit of hindsight, it has been the wrong deal for over 10 years and this is why we need a market correction,” wrote the organization's president and CEO, Bill Nader, who only joined the organization in late 2022.
Last year, however, little had changed, with Elite 17 still wielding the same lop-sided impact on CAW wagering.
According to 2024 data obtained by the TDN, the amount Elite 17 wagered constituted 46% of the overall handle that Elite Turf Club players placed on Del Mar's product–what amounted to $63.4 million of a total $138.1 million (including Breeders' Cup play in the fall).
Nader said the rate that Elite 17 paid last year had increased slightly from 2023–in line with a slight rate hike for all CAW players at the track–but that it still remained lower than rates for the other Elite Turf Club players.
Is this a healthy dynamic?
Handle at the track's flagship summer meet dropped off noticeably last year from the year prior, which the track said was due in part to new restrictions on CAW play.
But could the special deal that Elite 17 continued to get also be depressing overall wagering on the track's product among price-sensitive gamblers?
Indeed, Elite 2's wagering at Del Mar dropped off by over $32 million between 2021 (when this player reportedly received a favorable rate) and 2023 (when they didn't).
Track management did not answer directly.
“Del Mar will continue to work with industry stakeholders to maximize handle from all segments of the parimutuel market and help to generate important purse funding that is crucial for California racing due to the lack of supplemental purse funding sources available in other states,” the Del Mar Thoroughbred Club wrote in response to a string of questions sent to the club's president, Josh Rubinstein.
“We implemented measures in the last year to reduce late odds fluctuations that were a source of frustration for some players and we plan to continue those efforts,” the DMTC added.
Nader said the question was tough to answer definitively. “I'm not sure I can really answer that,” he replied.
Gramm, however, contends that Elite 17's predominance at Del Mar is likely to have a negative impact on wagering among both CAW players and the retail side.
“I think in some ways it's even worse to have one monolith team,” said Gramm, who said he uses computer technologies to aid his betting (as many retail players do), but does not wager though a CAW platform.
“The regular players are struggling as it is. But if you've one team with a separate deal and they're crushing other CAW players as well, I don't think it's a good thing. Not a good thing at all,” he said. Especially when factoring in the rate at which some of these teams are winning.
According to wagering reports reviewed by the TDN, some Elite Turf Club players can win at an average rate in excess of 105% in some pools, even before their rebate is factored in. At this rate, the profit margin would be much better than many investment accounts.
In effect, this suggests the effective takeout rate for non-CAW players can be greater than the published rate, reducing the average gambler's opportunity to churn more bets.
Santa Anita
The landscape appears slightly different at Santa Anita, where all CAW players saw their rates hiked uniformly before the start of the current meet on Dec. 26, said Nader.
At the SoCal track, it's now pretty much a “level playing field” for all CAW players, said Nader. “Return to purses has increased considerably,” he said, estimating that increase to around $1 million annually from the CAW rate hike.
How has this played out in numbers?
Compared to the same first-quarter period in 2023, there have been 4 extra cards this current meet and 67 additional races run (amounting to a nearly 18% increase in races). This includes 70 new races restricted for the northern California inventory.
According to the TOC:
- Total Handle is up 12.4%
- California ADW and Brick and Mortar is up 15.8%
- Out of State ADW and Brick and Mortar is up 16.3%
- CAW is down 1%
Average handle on a NorCal restricted race is $643,573, while average handle on a non-restricted race is $836,217.
While overall handle has been impacted by cancellations brought on by the wildfires, Nader sees the rate hike–which he said precipitated the slight decrease in CAW play–as having an overall healthy effect on wagering at Santa Anita.
“It is refreshing to see the growth from ADW and brick and mortar handle in California and across the country,” Nader added.
Scott Daruty, president of TSG's Monarch Content Management and Elite Turf Club, has a dual reading of the numbers.
“If you want to raise pricing because you want to bring the percentage of the pool down, then I think this was the exact right move,” said Daruty.
This is no moot point.
If CAW players become too big a percentage of the pools, their impacts are magnified and they essentially “cannibalize” the markets.
In the past, Nader has pinned this tipping point at about 25% of the betting pools. Industry reform advocate Pat Cummings's June 2023 report found that back then, CAW play in California often surpassed that benchmark. In some jurisdictions, they make up over 40% of the pools.
According to Daruty (who spoke before last weekend's numbers were in), CAW play has made up around $19.9% of the overall handle during the current Santa Anita meet.
However, Daruty said he also believes the rate hike was unnecessary. Even without it, he said, there would have been an increase in both retail play and CAW play anyway by virtue of the improved product at Santa Anita this meet.
Indeed, average field size has jumped this year from last by nearly 8%: 7.5 this year versus 6.96 in 2024.
“If you're trying to make more money, which is a valid goal–we're in a struggling industry–then raising the price I think is the wrong approach,” he said.
Gramm sides with the TOC, in that he sees the numbers out of the current Santa Anita meet as justification for the rate hike.
“The market response makes sense,” he said. “If the CAWs are charged more, their handle's going to be down. And if they're a smaller part of the pool–even if you don't necessarily know it–more money's going back to ordinary players, who may be incentivized to bet more.”
At the same time, Gramm said more needs to be done to narrow the gap between retail players and the professional teams.
Though incremental steps have been taken to curb last minute odds changes in California, more needs to be done to better stop that in all the pools, Gramm said. Perhaps even more importantly, lowered takeout is a tactic that would help all gamblers, but retail players especially, who should be the core focus of track operators, he added.
“North of 20% [blended takeout] for recreational players is still too high in the environment we're living in now, where there are tremendous other betting opportunities,” said Gramm.
“We're just in a more competitive landscape,” he added. “And so, I think we need to price our recreational players a little more competitively, and I do think they'll respond very favorably to that.”
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