The math, as I understand it, is based on the economic principle of pursuing an optimal pricing strategy, i.e., the idea that in the right circumstances reducing price can result in higher profits due to increased sales, assuming reasonably high fixed costs & a reasonably low marginal cost to produce, let's say, each additional widget. Thus, the rebate shops argue, much of their volume is due to & would not exist if they weren't offering a 10% price reduction. In addition, assuming a 3-5% signal price & a universal 10% blended takeout rate, the remaining 5-7%, the rebate shops' current profit margin, would have to cover both the rebate & the rebate shop's technology, facility & labor costs. Using an assumed 10% takeout rate, depending on the new rebate percentage & the reduction in volume because it is lowered, the rebate shops' net profit might then be too low to justify the investment required to start & operate the shop in the 1st place. In other words, given the risks involved it would no longer make sense to invest capital in a rebate shop because the return would be too close to the return available without taking any risk.

I understand the argument that rebate shops are not adequately compensating those that put on the show, as evidenced in recent yrs by the very minimal increases in purses compared to increases in handle, but I also think that the shops have introduced much needed price competition for a product which has been way overpriced for a very long time. Oddly enough, Magna's actions may have had, to a lesser degree, the same effect. At present,for the 1st time, brisbet & winticket are offering straight 7% first dollar rebate specials on designated tracks, & one acct wagering service is offering a 25% sign up bonus. CD is taking concrete steps to buy FG, in order to compete with Magna during the winter, & it is not unreasonable to assume that countermeasures by other competitors are in the offing. All potentially good developments if you believe, as I do, that competition, & especially price competition, are good for the consumer, & things to keep in mind when dealing with some of the short term chaos this competition is causing.