Time to Unbridle U.S. Thoroughbred Racetracks? Lessons from Australian Bookies

We consider a policy reform that would relax price controls in American pari-mutuel wagering on horse racing by examining bookie behavior in Australia’s fixed-odds gambling sector. Descriptive regressions indicate that bookmaker takeouts (the effective prices of races) vary substantially and systematically with race characteristics, though in sometimes counterintuitive ways. Estimates of an explicitly reduced form model of bookie takeout, however, can qualitatively match both intuition and prior findings in the literature. Counterfactuals that use these estimates suggest that regulatory reform that permits racecourses to alter takeout across races would increase variable profit by about 5 %. Copyright Springer Science+Business Media New York 2014