Transportation costs and product demand: wagering on parimutuel horse racing

Abstract

Parimutuel horse-race wagering is in many respects like any other economic good but it differs in one important way from a vast majority of them. Given the present market arrangement, this good cannot be transported to the consumer; instead the consumer must travel to the production site where the good is consumed as it is produced. Thus, transportation costs must play a crucial role in the demand decision for horse-race wagering. The consumers incur not only out-of-pocket expenses for travelling but also the cost of the time required to travel to and to consume the product. Moreover, consumers incur differential costs in obtaining the same product because of their locational differences. Wagering demands are theorized to be the consequence of the choice of utility maximizing consumers which incorporates this special characteristic of the product. Models for parimutuel horse-race wagering are then estimated both for thoroughbred and for harness horse racing in the state of New Jersey. It is found that both harness and thoroughbred horse-race wagering are sensitive to travelling costs and both can be increased by reducing the costs per visit to wagering sites. These costs can be lowered by reducing the travelling distance of the consumers to the wagering sites. This can be achieved by increasing the number of racing days or by simply reallocating a given number of racing days among different locations. It can also be achieved by increasing the number of wagering sites and locating them strategically. It is interesting to see that travelling distance declines non-linearly as the number of racing days and/or the number of sites is increased and the decline is insignificant as the number of racing days and/or the number of sites is increased beyond a saturation point. The unique construction of travelling costs allows investigation of wagering impacts of an introduction of a new wagering site or an elimination of an existing one.

The demand for casino gaming

“…price of wagering (win percent) number of tables games at the facility location of market area customers relative to the facility presence of government restrictions on betting limits and on boarding time limits location of the facility's market area customers relative to competing riverboats with betting limit restrictions Following earlier studies on parimutuel wagering demand (Gruen, 1976;Morgan and Vasche, 1979, 1982Suits, 1979;Thalheimer and Ali, 1992, 1995a, 1995bAli and Thalheimer, 1997), win percent (equivalent to takeout rate for parimutuel operations), the amount withheld from handle for revenue to the riverboat (racino), served as the price of wagering.…”

“…The finding of elastic demand for wagering at relatively high win percentage has also been found in studies of demand for parimutuel horse race wagering. Among these studies are Ali and Thalheimer (1997), Gruen (1976), Vasche (1979, 1982), Suits (1979), and Thalheimer and Ali (1995aAli ( , 1995b. In these studies, takeout rate elasticities varied from À1.3 to À3.1.…”

Market Cannibalization Within and Between Gambling Industries: A Systematic Review

“…We found seven studies that dealt directly with the issue of casinos cannibalizing horse racing and one study that dealt with the impacts of introducing casino games at the race tracks to create racinos (race tracks with casino games), four of which found substitution (Ali & Thalheimer, 1997;Ray, 2001;Thalheimer, 2012;Walker & Jackson, 2008). Evidence from New Jersey (Ali & Thalheimer, 1997) estimated that the level of cannibalization is about 32%, and a study on racinos (Thalheimer, 2012) estimated that pari-mutuel wagering fell by 16% after the introduction of casino table games at the venue.…”

“…Evidence from New Jersey (Ali & Thalheimer, 1997) estimated that the level of cannibalization is about 32%, and a study on racinos (Thalheimer, 2012) estimated that pari-mutuel wagering fell by 16% after the introduction of casino table games at the venue. Two studies found no impact (Prybylski, Felsenstein, Freeman, & Littlepage, 1998;Siegel & Anders, 2001), but the study by Prybylski et al (1998) concluded that there was no impact because the pari-mutuel industry financially benefits from riverboat casinos, not because casinos would not substitute for parimutuel markets.…”

Video Gambling Adoption and Tax Revenues: Evidence from Illinois

“…Embedded in these rationales and in line with the existing literature, several studies also suggest that the social, demographic, geographic, and religious characteristics of a jurisdiction may also serve as potential predictors of adoption and, in particular, the amount of revenues, to the extent that they reflect demand or preferences for gambling (Ali and Thalheimer ; Clotfelter and Cook ; Filer, Moak, and Uze ; Martin and Yandle ; Mikesell ; Philander and Abarbanel ; Richard ; Thalheimer ; von Herrmann ). In what follows, we present our empirical model and discuss in greater detail the theoretical underpinnings of each of these factors as they relate to gambling adoption and revenues.…”