Handbook of Sports and Lottery Markets

Donald B. Hausch, W.T. Ziemba

• Publisher: North Holland
• Year: 2011
• Print ISBN: 9780444507440
• eBook ISBN: 9780080559957
• Topic: Business
• Subtopic: Finance
• Index: Business

Its basic empirical research and investigation of pure theories of investment in the sports and lottery markets make this volume a winner. These markets are simpler to study than traditional financial markets, and their expected values and outcomes are uncomplicated. By means of new overviews of scholarship on the industry side of racetrack and other betting markets to betting exchanges and market efficiencies, contributors consider a variety of sports in countries around the world. The result is not only superior information about market forecasting, but macro- and micro-analyses that are relevant to other markets. - Easily studied sports markets reveal features relevant for more complex traditional financial markets - Significant coverage of sports from racing to jai alai - New studies of betting exchanges and Internet wagering markets

Part I

Industry Studies

Chapter 1

Pari-Mutuel Horse Race Wagering—Competition from Within and Outside the Industry

Richard Thalheimer President, Thalheimer Research Associates, Lexington, KY, USA.

Mukhtar M. Ali Emeritus Professor of Economics, Department of Economics, University of Kentucky, Lexington, KY, USA.

1. Introduction 4

2. Competition from Casino Gaming 5

3. Competition from State Lotteries 7

4. Competition from Professional Sports 8

5. Competition from Live Racing 8

6. Competition from Simulcast Wagering 11

7. Summary and Conclusions 13

Reference 14

Abstract

From 1960 through 2002, real dollar wagering on pari-mutuel horse racing (handle) in North America peaked in 1977, declining 44% through the end of the period. A number of factors have been identified as contributing to this decline in handle. Most significant among these are increased competition from casino and state lottery gaming venues. The presence of casino gaming in a racetrack’s market area has been found to reduce pari-mutuel handle by 31–39%. Competition from casino gaming within the pari-mutuel industry takes the form of the integration of slot machines at a pari-mutuel racing facility (racino). Slot machines and video lottery terminals (VLT’s), when placed under the auspices of a state lottery, have been estimated to reduce the pari-mutuel handle at a racino from 24% to 39%, varying with the number of machines. State lotteries have resulted in estimated pari-mutuel handle reductions ranging from 10% to 36%. The presence of professional sports in a racetrack’s market area has also been found to reduce pari-mutuel wagering, although to a lesser extent than competition from casino gaming or a state lottery. Finally, within-industry competition from other pari-mutuel wagering venues has had a negative effect on pari-mutuel wagering.

JEL Classifications: L83

Keywords

pari-mutuel horse race wagering

pari-mutuel wagering

horse race wagering

casino

racing

lottery

1 INTRODUCTION

From 1960 through 2002, real dollar wagering (handle) on horse racing in North America peaked in 1977 before declining 44% through the end of the period.¹ A number of factors have been identified as contributing to the decline in pari-mutuel handle. Among the major causes of this decline are increased levels of competition from gaming venues such as casinos and state lotteries. There has been tremendous growth in the gaming industry over the past several decades. Non-pari-mutuel real dollar gaming handle (casino-type gaming, lottery gaming, and charitable gaming) increased 355% from 1982 through 2002.² Competition from professional sports has also contributed to the decline in pari-mutuel handle. Finally, competition from other pari-mutuel racetracks has been found to have a negative impact on individual racetrack handle. This study is an attempt to summarize the findings on how competition both within and outside the industry have affected horse race wagering. A comprehensive review of the literature is made to ascertain the effects of such competition.

The chapter is organized as follows. Section 2 reports results of studies that examined the effect of competition from casino gaming on the demand for pari-mutuel wagering. Section 3 reports the results of studies that examined the effect of competition from state lotteries on the demand for pari-mutuel wagering. Section 4 reports the results of studies that examined the effect of competition from professional sporting events on the demand for pari-mutuel wagering. Section 5 reports the results of studies that examined the effects of live race competition from other racetracks on the demand for wagering at a subject racetrack. Section 6 reports the results of studies that examined the effect of competition from simulcast wagering on the demand for wagering at a subject racetrack. Section 7 presents the summary and conclusions of the chapter.

2 COMPETITION FROM CASINO GAMING

Casino gaming has been found to be a strong substitute for pari-mutuel horse race wagering. Ali and Thalheimer (1997) examined the demand for pari-mutuel horse race wagering in the presence of casino gaming. Two demand functions were estimated, one each for thoroughbred and harness horse racetracks in New Jersey over the period of 1960–1988. Casino gaming was introduced during the study period in Atlantic City, New Jersey in 1978. Initially, there was one casino, increasing to 12 by 1988, the end of the sample period. It was estimated that the presence of 12 casino gaming facilities in Atlantic City had a significant and negative impact on the demand for wagering and resulted in a 32% decrease in live and total (live plus intrastate simulcast) pari-mutuel horse race wagering at the New Jersey thoroughbred and harness racetracks.

Another estimate of the relationship between casino gaming and pari-mutuel horse race wagering is given in Thalheimer and Ali (1995a). Separate straight and exotic pari-mutuel wagering demand equations were estimated for two New Jersey thoroughbred racetracks, Atlantic City Race Course and Monmouth Park Racetrack, over the 1960–1990 sample period.³ For each racetrack, the impact of casino gaming was found to be significant and negative. Casino gaming was estimated to have reduced wagering at Atlantic City Race Course and Monmouth Park Racetrack by 31% and 39%, respectively.⁴

Thalheimer (1998) examined the relationship of casino gaming and pari-mutuel horse race wagering when both are located at the same racetrack (racino). The location was Mountaineer Racetrack and Resort, a pari-mutuel racetrack in West Virginia. This was the first racetrack in the United States to offer casino gaming on a significant scale to its patrons. In June 1990, a limited number of electronic gaming devices under the auspices of the State Lottery, referred to as video lottery terminals (VLT’s), were made available, on an experimental basis, to customers of the racetrack. VLT’s are a form of slot machine and are perceived as such by the...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright page
• Dedication
• List of Contributors
• Preface
• Introduction to the Series
• Part I: Industry Studies
• Part II: Utility, Probability, and Pace Estimation
• Part III: Favorite-Longshot Bias in the Win Market
• Part IV: Weak Market Efficiency
• Part V: Semi-Strong Form Efficiency
• Part VI: Prediction Markets
• Part VII: Soccer
• Part VIII: Lotteries
• Subject Index
• Author Index