Archive for the ‘Wagering’ Category

By Ray Paulick
Betting on American Thoroughbred racing continued its downward slide in May, dropping 8.26%, from $1.5 million in 2008 to just under $1.4 billion in 2009. There were 31 fewer U.S. racing days this May compared with May 2008, a number that is expected to fall even farther as tracks like Hollywood Park and Churchill Downs reduce from five days a week to four.

Purses also fell again in May, dropping by 6.73%.

There were 10 weekend days plus the Memorial Day holiday in May of 2009, compared with nine weekend days and Memorial day in 2008. Handle is higher on weekends and holidays than on normal weekdays.

Year-to-date figures are down 9.22% in handle, and 5.54% in purses despite a less than 1% drop in total racing days. With more wagering dollars continuing to shift from on-track to off-track or account wagering, a smaller percentage of each dollar bet goes toward purses. Subsidies from casino wagering and slot machines at tracks (racinos) have kept purses from falling at the same rate as the decline in handle.

The U.S. racing industry is almost certain to suffer year-end wagering declines for the fifth time in the last six years. At the current rate of decline, year-end handle will be just under $12.5 billion, the lowest total since 1996. (Click here to see the historical trend.)

Statistics are from Equibase.

 

* Includes worldwide commingled wagering on U.S. races.

Copyright © 2009, The Paulick Report

Savvy businesses recognize value. Advertise in the Paulick Report.

Support the Paulick Report. Make a donation today.

Sign up for our Email Flashes to get the latest news, analysis and commentary from Ray Paulick

By Ray Paulick
For the second time in five days, wagering on a horse race at an American racetrack was allowed to continue until after the contest had been run. The latest incident, which involved Wednesday night’s second race at Penn National in Pennsylvania, came on the heels of a tote system failure at Hollywood Park on Saturday.

The Penn National tote failure was similar to the Hollywood Park problem in that a stop-betting signal was not communicated when the race began. United Tote, which has the contract at the Penn National Gaming racetracks, experienced a system-wide failure, allowing on-track and simulcast wagers to continue during and after  the running of the race. The Hollywood Park stop-betting signal from Scientific Games Racing tote equipment was not received by 33 simulcast sites.

John Pricci first wrote about the Penn National problem at Horse Race Insider.

United Tote personnel informed track officials about a communications router failure just as the second race was beginning, Chris McErlean, vice president of racing for Penn National, told the Paulick Report. “The stop betting command which is initiated here did not go out on track or anywhere in the network,” McErlean said. “The pools remained open and were opened well past the finish of the race.”

It was apparent wagers were made after the start of the race, but because United Tote cannot see details on every wager made, track officials were unable to segregate the late bets from those made before the race began, McErlean added. “We discussed with them the various scenarios and the best thing we could do was call the race a no-contest,” he said. “We took the position that the pools had been compromised, and based on the information we had at the time we took the most conservative path and made what we thought was the right decision.”

In Hollywood Park’s past-posting incident on Saturday, all  wagers from the 33 sites where the stop-betting signal was not received were thrown out of the pari-mutuel pools and the money refunded to bettors who retained their tickets.

A total of $164,000 was wagered on the race, which McErlean said may have been a little higher than normal but not exceedingly so. All wagers were refunded, though horseplayers were kept in the dark for some time as to why the race was not declared official. Those who had losing bets may have discarded their tickets before the  race was declared "no contest."

McErlean admitted that the decision was not communicated as well as it should have been across the wagering network. “I will say in terms of communication there was confusion,” he said. “The race was never made official. From a display point of view, the television monitors may have displayed official without tote prices. That was obviously not.”

The Pennsylania Horse Racing Commission and Thoroughbred Racing Protective Bureau were notified of the problems, McErlean said.

To his knowledge, this was the first time since McErlean joined Penn National Gaming in December 2006 that any of the company’s six tracks have experienced this type of problem. “It appears to be either networking or equipment failure involving a communications router ,” McErlean said. “The issue that has to be discussed and talked about is where is the potential safety valve if one system fails or one part fails. What is the backup or Plan B?”

Good question, and one racing regulators must demand from the tote companies that are jeopardizing the integrity of the wagering systems that are the foundation of this game. 

Be sure to vote in today’s Daily Paulick Poll asking whether you have confidence in the security of the U.S. pari-mutuel wagering systems.

Copyright © 2009, The Paulick Report

Support the Paulick Report. Make a donation today.

Visit the Paulick Report for all the latest news throughout the racing world.

Sign up for our Email Flashes to get the latest news, analysis and commentary from Ray Paulick

By Ray Paulick
Betting windows at 33 simulcast sites remained open on Saturday’s Los Angeles Handicap at Hollywood Park until after the Grade 3 stakes race had been run because they did not receive a stop betting signal from the Scientific Games tote system that contracts with California racetracks to handle pari-mutuel wagering.

According to Eual Wyatt Jr., the Inglewood, Calif., track’s general manager, all of the money wagered at those sites – properly or improperly—was “thrown out of the pools” and refunded. Wyatt did not know the amount. He said the 33 simulcast sites all went through a single betting hub. (Click here to view the sites affected and the amount wagered at those sites.) 

The incident is under investigation by the California Horse Racing Board.

The past-post wagering was first reported by Mike Maloney, a Lexington, Ky.-based professional horseplayer and industry watchdog on betting issues, in an article posted on the Horseplayers Association of North America web site. Maloney, a frequent speaker at industry gatherings on the issue of integrity of totalizator systems, was recently named vice president of HANA.

Terry McWilliams, a West Coast representative for Scientific Games Racing (formerly Autotote), would not comment on Saturday’s betting irregularities, saying, “I am not authorized to speak on behalf of the company. “ McWilliams referred the Paulick Report to a corporate spokesperson who did not immediately return a phone call. Scientific Games Racing president Brooks Pierce also could not be reached for comment.

Here is one explanation of the incident provided to Hollywood Park officials by George Brannen, Western Regional Director of Scientific Games Racing, in an email provided by the California Horse Racing Board to the Paulick Report. “At stop betting of race 9 for Hollywood Park we were not receiving pools from a group of 33 imports,” Brennan wrote. “All of these import processes were running on the Slave system. We had 7 other systems in the room wagering on Hollywood and of those 4 were on the Slave system and did not get the stop betting message from the California tote. The other 3 systems imports that were on the Master system did get the stop betting and shipped pools final on time. Because of this we were pretty sure that a stop betting message was not sent to any of the 33 imports and made the decision to clear and close those 33 sites. We then stopped the Slave system, promoted the Clone to become Slave, restarted all the Golden Gate imports that were also hung on the old Slave so that Golden Gate would not be delayed. A more detailed report will follow.”

“This is my first recollection of this (type of wagering irregularity),” Wyatt said. “The good thing is whatever mechanical error occurred, it was discovered and those bets didn’t count.”

At least that’s what Scientific Games apparently is telling Hollywood Park officials. This isn’t the first irregularity in California regarding the tote company, which in 2008 agreed to a settlement with the California Horse Racing Board over software errors related to “quick pick” wagers. Scientific Games knew of the software flaws for months, yet failed to notify the tracks or CHRB. It wasn’t until a horseplayer discovered the flaws while making “quick pick” superfecta wagers on the 2008 Kentucky Derby that the software problem was made public.

Other Scientific Games tote problems have been reported in other states, including a Philadelphia Park past posting incident last June 28 when wagering sites in Florida did not receive a stop-betting signal from a Scientific Games hub. Maloney reported a past-posting incident on a race originating at Fair Grounds in New Orleans, which also used Scientific Games. The most infamous Scientific Games/Autotote incident, however, involved the 2002 Breeders’ Cup Pick Six scandal when company employees hacked into the system to make Pick Six wagers long after the betting cutoff and took home the entire pool.

Kirk Breed, executive director of the California Horse Racing Board, has ordered an investigation by his agency into the latest Scientific Games mistake. “I have read Scientific Games’ explanation and did not understand what it said,” said Breed. “It is their fault. They basically said it’s a malfunction, and I accept that as their malfunction, so they are taking responsibility. They’re the ones that are going to be charged with responding to whoever lost money or was left out.”

Is Breed satisfied that the past-post wagers on the Los Angeles Handicap were excluded from the pools? “I don’t know. I’m not satisfied with anything at this stage,” he said. “All I have is an explanation from Scientific Games sent to Eual at Hollywood Park and which he sent it to me immediately. He and I talked yesterday. Frankly, I do not understand what they are talking about.

“It’s like the quick-pick," Breed added. “It had been going on for nine months and they didn’t do anything about it and didn’t tell us about it. This is why we are trying to get some real-time monitoring in this state so we can have an independent source looking at our wagering, rather than depending on Scientific Games.”

Copyright © 2009, The Paulick Report

Support the Paulick Report. Make a donation today.

Visit the Paulick Report for all the latest news throughout the racing world.

Sign up for our Email Flashes to get the latest news, analysis and commentary from Ray Paulick

 

 

By Ray Paulick
Will a bet-processing tote division be the newest sibling in the Jockey Club’s family of companies? That’s the word I’m hearing from a variety of sources within the industry who say the not-for-profit breed registry is itching to get into the tote business with a new, for-profit subsidiary along the lines of Equibase, the horse industry’s official database for racing information that the Jockey Club owns in partnership with the Thoroughbred Racing Associations of North America.

Alan Marzelli, the Jockey Club’s president and chief operating officer, declined to comment when asked by the Paulick Report about the company’s possible entry into the tote business.

It makes perfect sense for the Jockey Club to take over yet another segment of the Thoroughbred industry, though it would be a move that is not universally supported. Would its entry into the tote business be a case of merely doing what’s right for the industry, or an opportunity for empire building by the Jockey Club, which already has six for-profit divisions? Those divisions are Jockey Club Information Systems (a data provider to industry publications, sale companies, and others); equineline.com (which sells breeding and racing statistical reports); Equibase (which sells past performance information to Daily Racing Form and for programs sold at racetracks and provides some free information to the public); TrackMaster (which sells customized handicapping information); InCompass (which bills itself as a technology solutions company for the industry and is involved in such areas as racetrack paymaster accounts); and TJC Technology Services (which provides technological infrastructure and support for the various Jockey Club companies).

These Jockey Club companies are all inter-related. For example, Jockey Club Information Services and equineline.com require pedigree information, which is provided by the Jockey Club’s registration department. Racing results from Equibase are fed into TJCIS, equineline, and Trackmaster products for consumers and into software applications in racetracks. A bet processing or tote company and an account wagering division currently are missing pieces in a Jockey Club strategy to cover as many of the industry’s bases as possible. The various companies must pay for the data, but the money essentially shifts from one pocket to another.

Let’s look a little more closely at the state of the tote industry. The three existing companies – Scientific Games Racing (Autotote), AmTote and United Tote – each has roughly one-third of the North American market. All have been struggling for years, in part because racetracks have played one company against another in contract negotiations and have marginalized their business. As a result, they have not made the kind of profits that lead to substantial investment in research and development, and the end product has been one that is technologically inferior and suspect in its ability to maintain absolute integrity in wagering pools.

All three companies are for sale. AmTote, which Magna Entertainment acquired for $17.4 million in a two-phased purchase agreement in 2003 and 2006, is part of that company’s bankruptcy filing. Last month, Scientific Games, a company that makes most of its money in lotteries, hired a financial consultant to look into selling its pari-mutuel division, formerly known as Autotote. Youbet.com, an account wagering company that has not been profitable, paid $49 million for United Tote in 2005 (at least two times higher than the appraised value of some industry insiders). One year ago, Youbet.com officials said they were hoping to find a buyer for United Tote.

At this stage, a purchase by the Jockey Club of United Tote seems the most likely, and sources say a deal could be announced in the coming weeks. The company has contracts with the New York Racing Association, which walks in lockstep with the Jockey Club. United Tote also serves Keeneland, whose president, Nick Nicholson, was instrumental in the development of the “family of companies” strategy when he worked as executive director of the Jockey Club. United Tote has contracts with the other Kentucky racetracks, including Churchill Downs, which employs AmTote at the other racetracks it owns.

All of the uncertainty involving the three leading tote companies comes at a time when the integrity of the Thoroughbred industry’s pari-mutuel wagering systems is being questioned by racing commissions, track operators, and, perhaps most importantly, horseplayers. Autotote, in particular, has been at the center of several controversies, including the 2002 Breeders’ Cup pick six scandal when three of the company’s employees had the only winning ticket and were in line for a $3-million payout. It was discovered they hacked into the system and processed their pick six tickets after the first four races had been run.

Racing executives familiar with the tote business suggest that United Tote may have the best tote machines, while the back end or software infrastructure for AmTote is the most advanced. Scientific Games is viewed as the laggard of the three companies, from a technology standpoint.

SHADES OF EQUIBASE?
This all sounds a bit similar to when Equibase was created in 1990. The Daily Racing Form had been owned by Walter Annenberg’s Triangle Publications for well over a half-century when he sold it to Rupert Murdoch’s News America Corp. in 1988, ending what had been a very cozy relationship between the Form and the racing industry. Whether this upstart Aussie (whose publishing empire includes the New York Post, Fox and other major media outlets) upset Jockey Club pooh-bahs like chairman Ogden Mills (Dinny) Phipps or they were worried about price-gouging or additional changes in the Form’s ownership will probably never be known. But under the banner of the racing industry collecting and owning its own data (versus a private company like Daily Racing Form doing it), Equibase was established in the imposing shadow of the Jockey Club.

At the time, there were pronouncements that the industry needed to provide more information to fans. Alan Marzelli, then the chief financial officer of the Jockey Club, said the “promotion and betterment of racing is behind the decision” to start Equibase. David Haydon, a longtime Jockey Club employee and the first Equibase president, took it one step further, saying the new company would “address racing’s need for fan base expansion.” Jockey Club chairman Phipps himself said, “Everyone in the industry realizes we have to make a day at the races more enjoyable and less intimidating for the general public.”

Equibase has succeeded as a business. Now, instead of competing with the Daily Racing Form, which eventually closed its track and field data collection operations, the Form is its biggest customer, purchasing past performance information to provide in its daily newspaper and for its online products. Most racetrack programs now include past performances – at a fee to consumers.

But where exactly has Equibase succeeded in expanding the fan base or making the races less intimidating?

Other sports, from Major League Baseball to the National Football League, National Basketball Association, and the PGA Tour, provide extensive data at absolutely no cost to the fans. This information is used by fans to make watching the sports action that much more enjoyable, and allows them to be more informed, whether it’s for their own general knowledge or to participate in the fantasy leagues that have become so popular, especially with young people.

Racing, or more specifically Equibase, insists on charging its fans for some of the most basic data. Lifetime past performances of a single horse cost a consumer $8; lifetime stats on a jockey or trainer cost $7 on Equibase’s sister site, equineline.com. If you want career statistics for a baseball player, just go to Google and type “Barry Bonds stats” and you’ll have a plethora of choices for free.

If you want to look at a simple race chart that’s more than a few days old, Equibase charges you $1.50. You want the box score of an NBA game from last month? Go to NBA.com, and click on scores. They’ll provide you with more stats on the game than you could possibly ever want – at no charge.

“It is symptomatic of our industry being a step behind,” said one racing executive who has grown wary of Equibase’s profit-driven motive and thinks the company has strayed from its original mission. “It’s short-term thinking. If our objective in racing is for the horseplayers to win, we should do everything we can to help him, and increase the churn. That’s where the revenue for our business should come from, not from the statistics the horseplayer needs.”

Hank Zeitlen, the current president of Equibase, said fans can get deals for free past performances from some of the account-wagering companies (which, of course, have to pay Equibase to buy the data) and there is often past performances for “feature races of the week” that Equibase makes available at no charge.

 “If you look back to 1990 and see what information was available and how it was made available, we’ve accomplished a lot,” said Zeitlen, who added that it’s unfair to compare racing with other sports. “The economic models of other sports are different than ours,” he said. “Each of those leagues has revenue coming from television. We don’t have that. And Equibase is not a handle-driven business.”

Zeitlen overlooked the fact that the tracks in the TRA that own two-thirds of Equibase (the Jockey Club owns one-third) are handle driven businesses.

JOCKEY CLUB’S THIRST FOR PROFITS
Perhaps it’s this thirst for profits that makes more than a few people wary that the Jockey Club may be getting into the tote business. There are some in that industry who say the Jockey Club, despite its claims, is not a very savvy technology company, and that its entry into the business would not be a giant leap forward – particularly if they wind up with a monopoly. Others believe the Jockey Club should focus on its core business, registering foals, and let private enterprise take care of other segments of the industry.

It was 10 years ago that Tim Smith, then commissioner of the National Thoroughbred Racing Associations, tried to forge a deal between the North American racing industry and IBM Global Services, which promised to modernize the tote system. An IBM executive told the Jockey Club Round Table in 1999 that he had never seen an industry so far behind in technology. The IBM proposal was blown up by some tracks who didn’t see the need for change or improvements in the industry’s tote and simulcasting technology.

Ten years later, we’re even farther behind. It’s clear something must be done to guarantee that the process of handling wagers is improved. If not, the industry will continue to lose the confidence of horseplayers, many of whom are convinced that past-posting of bets and tampering within wagering pools is all too common.

Is the industry ready for the Jockey Club’s family of for-profit companies to grow? Do we really have a choice?

Copyright © 2009, The Paulick Report

Support the Paulick Report. Click here to make a donation today.

Sign up for our Email flashes to get the latest news, analysis and commentary from Ray Paulick

Visit the Paulick Report for all the latest news throughout the racing world.

By Ray Paulick
Is anyone really surprised to see Churchill Downs Inc. involved in yet another dispute with horsemen’s organizations over contractual terms for account wagering or advance deposit wagering? The incident in California involving TrackNet Media, the company CDI owns in partnership with Magna Entertainment, is the latest in a series of contractual and legal disputes between the Louisville, Ky.-based company and horsemen’s organizations in several states. 

The common thread in all of the disagreements is an effort by Churchill Downs to squeeze as high a percentage as possible for its TwinSpires ADW platform. In so doing, purses and state breeding programs, and in some cases racetracks, will get a smaller slice from account wagering dollars.

The formation with Magna of TrackNet Media in 2007, along with the subsequent launch of TwinSpires and the purchase of the AmericaTAB account wagering company, Bloodstock Research Information Services and an interest in the Horse Racing TV cable network, has made Churchill Downs a major player in the ADW world. The company can offer content (through its racetracks), wagering services (TwinSpires, which absorbed many of the AmericaTAB customers), television distribution (HRTV) and past performance information used by horseplayers (Bloodstock Research). 

CDI is also rumored to be the leading candidate to buy TVG, the largest ADW company in terms of customers and pari-mutuel handle, and with much greater distribution on cable and satellite television than HRTV. TVG is believed to be getting a larger share of account wagering revenue than any of the other ADW companies, at least in California, in part because of their investment in programming and distribution. If CDI ends up owning TVG and keeping its customers, it will be the leading ADW company in the U.S. It also may put an end to a lawsuit filed by TVG’s owners against HRTV for alleged infringement of company patents.

TrackNet Media negotiates ADW contracts with racetracks, including those owned by Churchill or Magna, which is what happened in the current California dispute. In essence, then, a company owned by Churchill and Magna may be negotiating on behalf of ADW companies owned by Churchill and Magna with racetracks owned by Churchill and Magna – an interesting scenario, to say the least. In some cases, as in California, those negotiations do not include representatives of horse owners.

Many industry participants who have been following CDI’s activities over the last 18 months are convinced the company is intent on moving wagers made on track or at simulcast facilities – including those owned by Churchill Downs – to its TwinSpires ADW platform. The reason? Churchill is positioning itself to make more from each dollar wagered through TwinSpires than it does from a dollar wagered on-track or at one of its off-track betting facilities.

The company has refused to negotiate with the Thoroughbred Horsemen’s Group, a company formed in November 2007 to act as an agent on behalf of its members (local horsemen’s organizations throughout the United States) on ADW contracts. In fact, last year, when horsemen in Kentucky and Florida exercised their rights under the Interstate Horseracing Act to cut off signals for simulcasting or account wagering, CDI sued several local horsemen’s organizations and the Thoroughbred Horsemen’s Group, alleging anti-trust violations.

Some parties were dropped from the suits when CDI and local horsemen’s organizations reached contractual agreements on ADW revenue splits (in some cases, very short-term agreements). But at least one of the defendants, the Kentucky Horsemen’s Benevolent and Protective Association, which countersued CDI, opted not to have the legal action dropped after CDI and the horsemen reached an agreement on account wagering for the 2009 Churchill Downs spring meeting.

It’s an interesting case. In its counterclaim, the Kentucky HBPA pointed out a clause in the purse contract between Churchill and Kentucky horsemen that dealt specifically with possible future ownership of an account wagering company by CDI. The contract, said to be written by the Kentucky HBPA’s longtime counsel, the late Don Sturgill, with Sturgill, Turner, Barker & Maloney, was executed before CDI got into the account wagering business and is effective through the end of 2009.

The counterclaim (click here for a copy) against CDI reads: “Section 4E of the contract clarifies that wagers made on races through an ADW owned by CDI, i.e. TwinSpires, are to be treated as if made physically at Churchill Downs racetrack for purposes of determining the percentage of monies to be paid into the Horsemen’s Account for horsemen’s purses. Section 4E specifically states:

“Telephone Account or Other Electronic Media Wagering: For purposes of determining the amount of purses to be paid under this Paragraph 4, a telephone account wager or other wager made through an electronic media wagering system, the majority of which is owned by Churchill, shall be deemed to have been made at the racetrack or Trackside (Churchill’s OTB facility), as the case may be, and Churchill revenues received therefrom shall be allocated and paid to Horsemen as purses in the manner decribed in the appropriate subparagraph of this Paragraph 4. Fifty percent (50%) of any source market or other similar fees received by Churchill from telephone account wagering systems as a result of wagers made in Kentucky on races simulcast from within or outside of Kentucky shall be allocated and paid to the Horsemen as purses. For purposes of this Agreement, the term “source market” or “other fees” shall mean: any and all fees paid to Churchill and/or its horsemen by Television Games Network or any other account wagering entities not owned by Churchill for the right to accept wagers from account holders located in the state of Kentucky.”

The HBPA claims that Churchill Downs has not paid horsemen in accordance with that clause in its purse contract, and estimates a $3 million shortfall in purses.

Judge John Heyburn II of the U.S. District Court for the Western District of Kentucky at Louisville has ordered a Feb. 19 conference to discuss and argue the pending motions in the case. Judge Henburn also wrote a draft (which can be seen by clicking here) containing “a statement of the relevant facts and Plaintiff’s (Churchill Downs) legal theory as well as discussion of the standing, statutory immunity and contract issues.”

The HBPA must feel as though they are on solid ground with their counterclaim against CDI. Otherwise, why wouldn’t they have agreed with CDI to have the legal action dropped?

Account wagering has brought about many changes in the pari-mutuel industry. It’s clear that what is decided now on the division of revenue, either in the courts or among horsemen, tracks and ADW companies, will have a major bearing on the future economics for horse owners, tracks and the wagering companies, as well as on the horseplayers who fuel the game.

Let’s hope these issues are resolved while we still have people interested in betting on our sport.

The Paulick Report is interested in what you think about this issue. Write a publilc comment in the section below, and take the Daily Paulick Poll (located on the left-hand column of the home page) about whether you think it’s in the best interests of horsemen and fans for Churchill Downs Inc. to purchase TVG.

Copyright © 2009, The Paulick Report

Visit the Paulick Report for all the latest news throughout the racing world.

Sign up for our Email Flashes to get the latest news, analysis and commentary.

By Ray Paulick

Are betting exchanges a possible solution to the problems facing the U.S. Thoroughbred industry, which in 2008 saw its annual pari-mutuel handle fall for the fourth time in six years, dropping over 7% to a 10-year low? The Thoroughbred Owners of California thinks they may be, having recently signed a letter of agreement with betting exchange giant Betfair to have the UK-based company promote California racing abroad while TOC helps BetFair obtain statutory and regulatory approval to operate a betting exchange in California.

Betfair, which has been trying for several years to gain access to the U.S. market, is also believed to be a leading candidate to buy TVG, whose parent company, Macrovision, announced its intention to sell TVG last year. Though there are no confirmed suitors, others rumored to be potential buyers of the racing network and Advance Deposit Wagering platform include Churchill Downs Inc.; Marc Nathanson, a cable TV industry billionaire and father of TVG president David Nathanson; and an industry consortium that could include Keeneland, the New York Racing Association, former Hollywood Park chairman R.D. Hubbard, and Los Alamitos racetrack owner Edward Allred.

Betfair, a privately held company, was founded in June of 2000, using a technologically advanced platform permitting individuals to go online and bet against one another on a wide range of events, including horse racing, sports, politics and even reality television shows. By taking commissions of 2%-5% from winning bets, the company offers extremely low takeout and has built enormous volume: it claims to have over one million customers from 140 countries, with 100,000 or more active players in a given week. (UPDATE: Betfair said in October 2008 that it signed up its two millionth customer; see comments section, below) Its wagering platform handles over five million bets per day. In 2007, Betfair had 42 million English pounds in earnings before interest, depreciation, taxes and amortization on revenue of 240 million pounds. According to its annual report (which can be seen here), Betfair has 110 million pounds cash on hand.

CONCERNS ABOUT BETFAIR

The problem many see with Betfair is that the company pays a small percentage for the rights to races on which it handles wagers. In England, for example, it pays a bit over 10% of gross profits on racing wagers. In some cases, however, it pays no fees at all, as is currently the case with racing from the U.S. Betfair currently accepts bets on American racing, but only from customers outside of the U.S., and it does not have rights to any video signals. Betfair is acutely aware of concerns from racing interests in the U.S. who believe betting exchanges would cannibalize pari-mutuel betting and decrease revenue to tracks and purses. It addresses some of those fears in this pamphlet, which was designed to appease the racing industry in the United Kingdom.

Another concern raised about Betfair centers on wagers it accepts that a specific horse will lose, prompting worries about race-fixing. But Betfair has cooperated in several investigations involving horse racing and sports betting, giving authorities access to detailed betting information as part of its memorandum of understanding. 

Drew Couto, the president of TOC, said the letter of agreement with BetFair was signed last month. He believes wagering will continue to suffer unless the industry distances itself from Albert Einstein’s definition of insanity: doing the same thing time after time and expecting a different result.  “That really describes our industry’s approach to this sport and business over the last decade,” Couto said. 

“Going forward,” he added, “we have to face two very important realities. “First, we have allowed the sport to basically disappear. It’s no longer a sport, but simply a justification to gamble and wager, and as a wagering proposition we know it’s not the most attractive. We have to go back and make it a sport. We have to give the sport some structure to have it make sense for the fans, make some very serious fundamental changes to focus on the sporting aspect of racing. We have left it largely to the tracks to be the stewards of the sport, and they only care about the financial side. 

“Second,” Couto said, “we have to adopt new ways our fans can participate. New wagers, betting exchanges. We have to embrace these new ways of playing as ancillary to the way we currently operate, so it’s new and fresh. That includes tournament-style wagering that was approved by the RCI (Association of Racing Commissioners International) last summer. If we don’t begin to do things differently and find new ways to operate, we are bound to be the definitive example of what Einstein said.”

CAN RACING DEVELOP ITS OWN BETTING EXCHANGE?

Chris Scherf, executive vice president of the Thoroughbred Racing Associations of North America, a racetrack trade organization, for years has advocated that North American tracks consider developing their own betting exchange. He sees the trend in downward handle as a serious crisis. 

“We’ve got to look into pricing (the takeout charge on pari-mutuel bets), the product that’s being provided and the convenience factor for wagering,” Scherf said. “We need to make the same kind of concerted effort on handle that is currently being made to improve the safety and welfare issues. Track by track, you can get swamped in a million problems, but this has to be at the top of the pile. We are losing bettors. What do we have to do to change that aspect of the business, the part that provides us revenue? Of course, the entire debacle of cutting off signals in the last year (due to contractual disagreements between tracks and horsemen over ADW splits) was extremely detrimental to any kind of sustained gambling business. 

“The problem,” Scherf said, “is we’ve got tracks and horsemen both saying they need more money in this economy. But the first thing we need is an engaged gambling public, and they should be at the top of the list.”

Scherf said he is “somewhere in between fear and welcoming” Betfair into the industry. “We had no master plan for how ADW would fit in and now we are trying to retrofit it, which is causing a lot of angst and problems. We need to spend more time developing a strategy (for exchange betting), though it’s difficult to do that when you have a wide disparity throughout the industry in resources and markets.” 

Lonny Powell, an industry consultant based in Lexington, Ky., who previously served in executive positions with racetracks (including head of Santa Anita Park), the ADW company Youbet.com and as president of the Association of Racing Commissioners International, said BetFair has done a good job of “mainstreaming themselves” in recent years by sharing more of its profits with the racing industry in Europe. 

“It’s here to stay,” Powell said of Betfair and exchange betting. “When I was in the ADW world, I wished they would just go away, but I don’t feel that way anymore. We’re like an ice cream store that only sells vanilla, but you can go over to Baskin Robbins and get 33 flavors. We need variety.” 

Powell, who said he is optimistic the industry will find a solution to its present challenges, believes racing interests should look at developing their own betting exchange. “If the industry could somehow take this wagering crisis a little more seriously and rather than find ways to kill something, find ways to make it work, we can grow the gambling dollar,” he said. “A Betfair type of platform can be operated by U.S. racing interests. The economic model that Betfair offers is flawed, but we all agree our current model is flawed, too. I’ve got to believe a Betfair type of platform would work. Our product is stale, and our wagering levels are stale.”

INTEGRITY ISSUES REMAIN A CONCERN

The reason for declines in handle go beyond a limited product line, said Mike Maloney, a professional gambler in Kentucky who has become an outspoken advocate for horseplayers at industry conferences and who served as an ad hoc member of a Kentucky Horse Racing Commission Task Force. “We are at a very significant crossroads in racing,” Maloney said, “probably the biggest one in my lifetime. The financial crisis is magnifying our problems, but the problems have to be dealt with before racing can recover. The economy may improve, but racing’s problems will still be there.

“Our customer base is aging, and they’ve lost a lot of their faith in the integrity of racing,” he said. “As they age, they aren’t being replaced. The second problem is the takeout is too high. We can’t attract new players and are having a hard time holding on to existing ones. It’s exacerbated because the takeout keeps going up. With competition from other gambling opportunities, you can’t get away with that any more. It’s roughly 5% in other forms of gambling – sports, table games, trading options – but it’s 20% for us. New York just raised takeouts; trifectas are 26% now, and I just refuse to play it. Kentucky wants to raise takeout. What other business in this economic climate would consider racing prices? 

“Third,” Maloney said, “racing integrity problems are real, and they are not exaggerated. If anything, they probably are underplayed. Trainers who use drugs to cheat; unsecured wagering pools with outdated technology; unregulated participants allowed access into those pools. People are just beginning to learn about some of the problems in these areas. In the last couple of years the light is being shined on them. These are serious problems that need to be dealt with. Big players realize they can’t trust the pools they are playing money into.”

Finally, Maloney said, the corporate mentality of many racetracks has hurt the game. “There is a disconnect with customers with some of these racetrack holding companies. They don’t really understand their business, and there’s too much short-term bottom line thinking; cutting costs, worrying about the next quarterly report, and too little thought about long-term improvement of the product.”

Maloney, who called betting exchanges a “two-edged sword” because of how they would cannibalize pari-mutuel betting, said the industry has had a wake-up call after being “rocked by betting and drug scandals and threatened” by the federal government. “This crossroad we’re at, what we do from here, will determine the fate of racing.”  

(Do you have an opinion on how the industry reverses the trend in declining handle? We’re interested in your comments below and in your thoughts about betting exchanges, the subject of the Daily Paulick Poll, which can be found on the left-hand column of the Paulick Report home page.)

Copyright © 2009, The Paulick Report 

Visit the Paulick Report for all the latest news throughout the racing world. 

Sign up for our Email Flashes to get the latest news, analysis and commentary.