Posts Tagged ‘RCI’

Yes, it is true state governments are facing hard economic times. So are the American people, including most racing participants and fans. The elimination of the government regulation of this form of gambling will destroy this sport in ways that I am sure Mr. Irwin does not intend or envision. Perhaps if there were no gambling, then his idea might make sense. So, unless he seeks a private club with no gambling everyone’s time is wasted contemplating the insane idea that elected officials are going to allow gambling enterprises to self police themselves. It’s a bad idea that will not pass the smell test.

To bolster his case, Irwin cites how the New York Racing Association in New York was victimized by the state. Excuse me, but NYRA did have to march in front of a federal judge and admit to a conspiracy to defraud the government. The “we have great racing and we know what we’re doing” defense wasn’t going to work given the magnitude of the felony that cheated the public regardless of whether they were racing fans or not. This was a terrible black eye on racing by an entity governed by some of the most prominent individuals in American Thoroughbred racing and it would not be in racing’s future interest for people to minimize the seriousness of that situation.

As one who worked on that case, it was amazing that NYRA refused to do a daily cash count and reconciliation in the mutuel department. They do that at the corner grocery store, but somehow this was something to be resisted when suggested by the state. I will never forget the day when NYRA sent in a team of some of the most politically connected trustees to argue against a daily cash count. One of those present was the president of my bank. I stopped using that man’s bank.

Sure, let’s open some champagne and make those nasty state regulators go away. After all they were the ones who investigated and cracked the case that exposed how a tote company’s computer programmer could access a live wagering file and turn a losing Breeders’ Cup Pick 6 wager into a winning one. The New York Racing and Wagering Board partnering with the New York State Police cracked that case within 48 hours of Valponi’s Classic win. What was amazing in doing the investigation was that this activity had gone on undetected for some time and no internal controls, self auditing or self policing program had safeguarded the industry’s interests. We unearthed a problem plaguing the industry and regulators alike.

Mr. Irwin seems to like the Stewards, who for the most part are employees of the state commissions. Well, we must be doing something right. But he does not appear to tolerate due process. Commissions are as frustrated with this as anyone, but perhaps if Mr. Irwin had been around in the days of Ben Franklin, Thomas Jefferson and John Adams, things might be different. In a system of due process, allegations must be proven based on solid evidence. People have a right to appeal and we are always open to solid suggestions as to how to minimize the ability of some to “play the system”. The concept of a Monarch was rejected in the revolution and we have no choice but to accept the constitutional guarantees that we all enjoy, including the scoundrels.

At no point in the almost five years I have been at RCI or the preceding nine at the New York Racing and Wagering Board did Mr. Irwin ever make a suggestion directly to either entity as to how to more effectively tackle racing’s integrity challenge. Things can always be done better but racing should never forget that when it comes to drugs, we test for more substances at deeper levels than any other professional sport. There is a lot that is done right, but you’d never know it as some explain their loss by leveling undocumented charges against winners. Perhaps if racing stopped casting aspersions on those who are successful on the track or at the betting windows we might be able to generate some excitement and attract new fans. But no, if you hit a lucky streak you must be cheating.

The only entities that sort out what is real and what is not are the state racing commissions. Those who cheat will do it for the money and the initiatives of RCI and the state regulators to track the money through independent real-time wagering monitoring have met with nothing but unexplained resistance or foot dragging from key industry entities. Some of those barriers are coming down, but oh so slowly. I agree with Mr. Irwin that cheaters can kill this sport, but why do we devote all our attention to following the drugs and virtually none to following the money? The money path will help identify the real drug problem or fraud by collusion. It is unexplainable to me that people resist when the regulators want to chase the money in addition to chasing the drugs.

The state regulators have been calling for reforms and could really use some help from the industry in terms of either money, commitment, or support in state capitals to protect commission budgets that pay for drug testing, pre-race exams, backstretch investigators, the officials, the background checks, name it. In these tough times racing regulatory commissions are vulnerable targets for state budget offices looking to fill potholes rather than test more horses for drugs or monitor betting activity. We’re not perfect, no institution or person is. But every regulator that I know is committed to trying to do the job as best as possible, despite the lack of budgetary or industry support.

There are those who want to create a federal regulator which would just create another layer that would have to be paid for. An alternative is to explore the concept of creating a national regulatory body through a new interstate compact, a mechanism for state regulators to act as one in certain instances. Just this week, 15 state regulatory commissions held a joint discussion on how a proposal working its way through the New York legislature might work in their states. There is progress being made and the impetus is coming from the RCI member staffs, vets, labs and vendors who form the backbone of the Racing Medication and Testing Consortium’s drug initiative.

When I started with RCI in 2005, we called for a new public private partnership and a restructuring of our collective “integrity efforts”. I reiterated that at this year’s Racing Congress. No takers. Rather than partner with the regulators, pool resources and improve the status quo, new entities are formed, funded and promoted by hired guns. Dump on us all you want but state racing commissions are a given and we will not stop in trying to raise the bar.

Please join with us Mr. Irwin. Perhaps together we can break the negative energy that is sinking this sport.

I felt, for the first time in over 20 years of reporting on the RCI, that it actually might have a pulse. I flashed back to the cherubic Tony Chamblin, whose primary job as longtime head of the RCI was trying to keep his own job. When he could no longer win that battle, he left behind a legacy of a civil war among regulators, one that resulted in two national organizations, RCI and the splinter group North American Pari-Mutuel Regulators Association. Racing industry veteran Lonny Powell replaced Chamblin in 2001, and in his tenure helped put Humpty Dumpty back together. Martin finished the job in 2005, when he succeeded Powell as president of RCI, and the merger of the two organizations was completed in 2006.

So, a cynic might say, we once again have just one useless national organization of regulators with no real authority, instead of two.

Martin is hoping to change that image of the RCI, but it was clear in his rising voice and pointed words that his frustrations are growing. Betting scandals and pari-mutuel pool tampering continues, Martin said, but regulators do nothing. The industry spends $35 million on drug testing to little avail, he said, but virtually nothing on wagering security, the economic foundation of the business. Regulators  at the RCI convention hear proposals for how wagering security can be improved and then go home and do nothing. Tracks, he said, say they want to do their own thing but end up doing nothing.

Professional horseplayer Mike Maloney outlined ongoing problems with past-post betting and pool tampering and said regulators exacerbate the problems and suspicions about the integrity of wagering by shielding the incidents from the public. There must be transparency before you can insure integrity, Maloney said.

I had the opportunity to address the regulators at the RCI convention and tried to impress upon them that horseplayers are fed up like I’ve never seen before. I asked readers of the Paulick Report to tell me what they think should be the top priorities of state racing commissioners, and owners, breeders, trainers and horseplayers responded with legitimate and well-reasoned concerns. Foremost among them were calls for tougher enforcement of medication violations and uniform rules from one state to another, something that might not have been important 25 years ago when racing was a localized sport. Today, with interstate simulcasting accounting for nearly 90% of pari-mutuel handle, it is imperative that the rules are the same across the board: on medication, drug testing, penalties, wagering, and licensing.

There is cheating going on, and people in this industry know it, whether it’s medication violations by trainers and veterinarians who know how to game the system (and only get a slap on the wrist when they’re caught) or gamblers using off-shore account-wagering businesses that are not adequately regulated.

Your comments (all of which are being made available to RCI members) helped me convey to regulators how critically important it is for them to take serious action. If they don’t, I suggested, the federal government will.

That point was driven home earlier in the day by Keeneland president and CEO Nick Nicholson, who is also chairman of the American Horse Council and as a former U.S. Senate aide knows how Washington can work. “This particular Congress is not concerned where the problem is but they are determined that they will be part of the solution,” Nicholson said. “This Congress is going to be activist.”

Nicholson brought the Council of State Governments into play last year in hopes of creating an alternative to federal intervention, using interstate compacts, something that is common to other industries. RCI’s president, Ed Martin, also sees interstate compacts as a realistic solution to the challenge of having 38 state regulatory boards walking in lock-step with one another. But it’s going to be up to the individual state racing commissions to make a compact work.

John Mountjoy, director of policy and research for the Council of State Governments, explained to RCI members how interstate compacts work and outlined their various benefits. Among other things, Mountjoy said, interstate compacts offer a federal solution “without Washington.” Uniform rules, operations and training can be achieved through an interstate compact, he said, while allowing flexibility and state sovereignty.

Interstate compacts can’t happen overnight, he added, indicating it could take several years to have one fully operational.

This much we know. There is a crisis of confidence in this industry among the biggest stakeholders–the horseplayers who fund the economic engine with billions of dollars of bets each year. But those stakeholders wagered fewer dollars on U.S. racing in 2008 than in any year since 1998, and this year’s handle promises to be even lower.

Racing commissioners from different states have shown over time they are incapable of taking the necessary steps to address the fundamental problems. There may be a pulse at the RCI that I didn’t sense 10 years ago, and there are good people involved at RCI and many state racing commissions. However, I’m afraid that when most of the commissioners and their paid staff return home from the RCI 2009 convention, it will be business as usual and nothing significantly will change.

That will open the door to Congress and let the federal government come up with its own solution.

Copyright © 2009, The Paulick Report

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We’ll be live at ringside in Lexington, Ky., for as much of today’s activities as we can put up with (before making our own remarks to the regulators later in the day).

Here’s the batting order: Kentucky Horse Racing Commission chairman Bob Beck, followed by Kentucky Gov. Steve Beshear, RCI chairman Joe Gorajec (an executive with the Indiana Horse Racing Commission), and keynote speaker Nick Nicholson, the president and CEO of Keeneland, chairman of the American Horse Council, and a board member with the National Thoroughbred Racing Association and Thoroughbred Racing Protective Bureau. Nicholson is the hands-down winner of the longest resume on today’s program.

9:15 a.m. … Gov. Steve "Boogity Boogity" Beshear was a no-show, unless you count the magic of videotape. Yes, he videoed it in. Beck explained that the governor was really busy this time of year. Yes, checking out those NASCAR tracks and then asking for tax breaks for their billionaire owner is time consuming. Thanks, Gov. He asked the attendees to have and get around Kentucky to see all that it has to offer. "We are the horse capital of the world. We are the home of beautiful horse farms. For centuries,horses and horse racing have been an integral part of our culture and our economy. We have a lot riding on the horse industry here in Kentucky." 

I’m betting more of them will drive up to the Belterra casino across the river in Indiana.

9:20 a.m. … Always thought Joe Gorajec was a bright and insightful guy. He quoted from the Paulick Report on something I’d written about the shelf life of "white papers" and urged the commissioners to go home and take action. That’s a good thing. How can I knock Joe? Gorajec cited a couple of articles from the current issue of Sports Illustrated that were extremely negative: Ernie Paragallo’s starving horses and Jeff Mullins’ "honest mistake" treating a horse in the Aqueduct detention barn. "The negativity is unprecedented," Gorajec said. "Hardly a week goes back without solme incident triggering an avalanche of criticism, from inside and outside the sport." For those who haven’t followed Indiana racing, Gorajec is a "hangin’ judge," imposing tough sentence on cheaters in Thoroughbred and harness racing. Other states should look to Indiana for leadership on regulations…and I’m not saying this just because he promoted the Paulick Report.

9:30 a.m. … Nick Nicholson …. how many of these speeches has he delivered over a lifetime in politics and racing? Slick Nick. Very entertaining story about the Blue Grass Stakes winner and the one-horse stable owner, former school teacher and principal Tom McCarthy. On to the serious stuff….

Nicholson calls the NTRA Safety and Integrity Alliance a "seminal moment" in showing "the industry and the country" that racing people can police themselves. Keeneland "killed a tree" to comply with the inspection team, he said. Hope he explains that one.

"I said at the press conference (when Keeneland was accredited) something I want to lead with this morning," Nicholson said. "I said at the press conference that day that this could not have happened without the competent regulation of the Kentucky Racing Commission. It would be impossible for Keeneland to be certified…were it not for the Kentucky Racing Commission." He then made executive dirctor Lisa Underwood and chairman Beck stand up to applause.

"We should not accept our status quo. We push ourselves to continually improve….We are all in this together. This could not have been done by Keeneland alone. The private sector and public sector have a joint necessity of working together."

10:30 a.m. … Forgot to mention that Richard Thalheimer, a numbers runner for industry groups (also known as a research consultant) is on the agenda to send everyone who likes horse racing into a deep, deep depression. Pari-mutuel handle down over 50% over time since lotteries and the expansion of casino gambling. I’ve seen this movie before, for the most part. Short message: we are doomed.

But Thalheimer has a new twist based on a Prairie Meadows study. Live racing helps slots handle, as does simulcast racing.  I guess the good news here is "racinos" that might consider getting rid of horse racing and just going with slots might be better off if they keep live racing and/or simulcasting. Who is the dog and who is the tail and who is being wagged here?

"Having slots at the track has saved our industry. On the other hand for the long run viability of our industry, (we) have to find ways to increase the pari-mutuel viability," said Thalheimer. He called it a "two-edged sword" that live racing helps slots, though slot machines reduce pari-mutuel handle. "Finally, I’d like to mention…racing has a viable product where you can sell your signal from ADW and online wagering. The time to do it is now."

10:50 a.m. … Touching on fans and the impact that the death of Eight Belles had on people, Waldrop spoke about how the Safety and Integrity Alliance came to be. He said revelations about Big Brown racing on steroids was a major concern with "core fans" and that the Eight Belles death had a bigger impact on "casual fans." After both incidents, he said, "Understandably there were calls for change….Others wanted a czar or commissioner. At the heart was a very serious and correct question: Does it have the will and can it change? Or is it doomed to disparate disjointed state by state regulations that is competitive and doesn’t represent the interest of the fans and the industry. That is the one we wrestled with at the NTRA last summer."

"We focused on safety and integrity." The integrity focus was more on therapeutic medication and drugs and not on wagering integrity,  he said. "Not that wagering integrity isn’t important." Waldrop asked:  "Is (the Safety and Integrity Alliance) an anti-regulation approach? Absolutely not." 

2:00 p.m. … Professional horseplayer Mike Maloney was introduced and began his presentation by urging commissioners to become familiar with a new organization, Horseplayers Association of North American (HANA), and he presented four things HANA would like to see achieved. all track signals available to accredited tracks, lower takeout, strict uniform medication and improved wagering security. Easy to state, hard to achieve, Maloney said. He talked about the confusion horseplayers have about wagering formats from track to track, especially on which races have trifectas or superfectas due to the different state rules that apply to field size of those races.

Maloney urged states to allow trifectas in small fields, something Kentucky has done. He said the handle increases when tracks do that. He then went on to talk about past-post wagering, late odds changes and wagering pool manipulation. Maloney called for wagering pools to close at one minute to post time. "That a bitter pill to swallow that we would ever have to do that," he said, "but it would solve these problems." He acknowledged that it would cause a reduction in handle. "But if that’s what we need to do, if a y ear or two from now if we are still sitting here and don’t have a solution, then I think we seriously need to consider closing the windows early enough so that the odds are final before the gates are open. That would bring back a lot of confidnece in that game."

Maloney also said he supports the NTRA Safety and Integrity Alliance. "I also support Alex Waldrop," he said. "I have a lot of faith and trust in Alex."

His final comment involved transparency. "Incidents of past-posting have been hidden from the public," he said.  Maloney wants all rulings from commissions to be made available to the public. Maloney himself was involved in a past-posting incident he reported, but he said he has not been able to find out from the Louisiana Racing Commission where the investigation has gone. "Lack of transparency" hurts the game, he said.

I hope Mike sticks around for the cocktail hour. There will be more commissioners there that he can give the message to than there were in the room for the meeting on Wagering Systems and Tote Standards. It needs to be heard.

That’s about all I can take. That’s it from the RCI Convention, where the empty seats outnumber the empty suits.

Copyright © 2009, The Paulick Report

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This alleged practice, which is prohibited as a Class 2 violation in the classifications of the Association of Racing Commissioners International, made headlines a couple of years ago when a racetrack veterinarian in Nebraska was charged in a criminal case with injecting alcohol in horses with the purpose of affecting the outcome of a race. Those charges were eventually dropped when witnesses couldn’t be located for the trial.

Things got quiet on the alcohol in horses front until last fall, when three trainers at Turf Paradise had horses test positive for ethyl glucuronide, a metabolite of ethanol. Ethanol is the alcohol in beer, wine and hard liquor.

One of the horsemen was Keith Bennett, a former leading trainer at the Phoenix, Ariz., track, who is currently second in the standings with 64 wins from 198 starts, a healthy win percentage of 32%. A second is Justin Evans, who is third in the current standings with 37 wins from 113 starts, a 33% win percentage. The third is E. Mark Welch, with nine wins in 82, an 11% win percentage.

Evans had three horses test positive for ethyl glucuronide positives in a 12-day period between Oct. 31-Nov. 11, 2008. The chief veterinarian for the Arizona Department of Racing ordered tests for the substance in late October 2008. A search of Evans’ barn uncovered six or seven 7.5-liter bottles of vodka in a file cabinet. Evans said in a hearing that he used the vodka as an “old trainer’s remedy,” soaking a pad in the alcohol and using under leg wraps on all of his horses.

The testing was conducted by Industrial Laboratories. Tests for ethyl glucuronide had only been developed a few years earlier by the University of Pennsylvania and had not been widely available until recently, an employee of Industrial Laboratories told the Arizona Department of Racing.

As a result of the multiple positives, stewards ruled that Evans should be suspended a total of 18 months. He was also fined $3,150 and the owners were stripped of purse winnings. Evans appealed, and an administrative law judge reduced the suspension to 120 days. Click here to read the adminstrative judge’s ruling.

According to sources, Turf Paradise officials exercised their right to exclude trainer Evans from the premises, though he was told he could apply for stall space in the future. He is currently stabled at Lone Star Park in Texas, where he won with one of his first four starters of the recently opened meeting, with two third-place finishes.

Another trainer, speaking on the condition of anonymity, told the Paulick Report alcohol is also being used in connection with so-called milkshakes, which contain baking soda and electrolytes and are designed to reduce the lactic acid buildup that causes fatigue. The concoction is mixed together as a paste, the trainer said, and can be administered through a dose syringe, though it is more effective when given through a tube into the horse’s stomach.

“You’re getting them carbohydrates at the top of the lane where some horses are running out of gas,” the trainer said. “I tried it, and believe me, it works. But I quit doing it because I couldn’t afford to get caught.”

Scot Waterman, executive director of the Racing Medication and Testing Consortium, said he is skeptical about the effectiveness of alcohol in milkshakes. It’s his understanding the substance is given to calm horses, not to increase carbohydrates. But he said the use of alcohol in horses has “always been in the rumor mill,” and is something the RMTC takes very seriously. The organization funded a study several years ago to develop the most effective detection methods for ethanol using blood and urine tests and even experimenting with a breathalyzer. “It’s easier to detect when given orally (than intravenously),” Waterman said. “The absorption is slower.”

Turf Paradise steward Ismael Trejo said backstretch security has been employed as an adjunct to testing in hopes of acting as a deterrent to trainer who might otherwise consider giving alcohol or other banned substances to their horses. “We put state investigators on trainers’ barns and have had investigators shadow private veterinary practitioners,” he said. “Maybe we won’t catch them, but we hope we can stop them. The fear of getting caught can be the best deterrent.”

“We do catch cheaters,” said Eugene Joyce, general manager of Turf Paradise. “It might be painful to read the headlines, but we do catch them. We want trainers and $2 bettors to have confidence in the game and to make people believe it’s being contested on a level playing field.”

There are concerns in Arizona and other racing jurisdictions that budget cuts by state government will lead to fewer post-race tests and reduced personnel for backstretch security and investigations. And security is a key to deterrence, said Dr. Rick Arthur, equine medical director for the California Horse Racing Board.

“Our security has been specifically alerted to watch for this type of thing (administration of alcohol),” he said. “Investigators know to watch for it, and this is one of the reasons we are adamant about our ‘water only’ rules on raceday. If it’s not water, the investigators can tell the difference.”

Arthur said some “old-time trainers” will say they used to dose horses with alcohol “somewhere in the neighborhood of four ounces. It is something we are concerned with, something we watch for.”

The CHRB regularly confiscates and tests syringes used by veterinarians to ensure raceday injections are Lasix only, Arthur said. “When we confiscate one syringe, everyone on the racetrack knows about it an hour later," the former racetrack practitioner and surgeon said. "If somebody wants to bend the rules, I don’t want them to be comfortable doing it. That’s why we do barn inspections, vet vehicle inspections, to make people say, ‘Hey, this isn’t worth it.’

“We have no problem prosecuting people we catch, but the goal of our program is to stop people from anything illegally.”

Copyright © 2009, The Paulick Report

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In those days, you could find out who was fined for having a loose dog, smoking in the shedrow, or parking illegally in the stable area. You could also read what jockeys have been suspended or fined for rules violations, what trainers got positive tests for prohibited drugs or overages for permitted medications, and what owners hadn’t paid their bills.

But as profits and news space shrunk, the Form cut out many of its “service to the industry” features, and one of the things to hit the editor’s cutting-room floor was stewards and racing commission rulings. It became increasingly difficult to keep up with why certain jockeys weren’t riding, why some red-hot trainers suddenly went ice-cold, or why a horse was now being trained by someone we hadn’t heard of (usually an assistant to a suspended trainer).

Some tracks post their stewards and commission rulings in public areas or in the racing office; big name suspensions or fines might get picked up in the trade press or local newspapers. But, by and large, it’s been a hit or miss proposition to try and keep up with who has run afoul of racing officials.

Enter the RCI, an organization formed in 1934 under the name National Association of State Racing Commissioners whose name was changed to Association of Racing Commissioners International in 1988. Whether under the NASRC or RCI banner, this has traditionally been viewed as one of the most useless organizations the industry has ever had, mostly because it lacks authority to get anything done. The RCI is an association that can make all kinds of recommendations to its members, but lacks the authority to enforce anything. Some years ago, the RCI threatened to sanction members that didn’t adopt its guidelines on such issues as medication regulations, but those efforts were laughed off. To make matters worse, then RCI president Tony Chamblin was under fire from many commissioners, and a number of states quit RCI and in 1997 formed a splinter group, the North American Pari-Mutuel Regulators Association.

Thus, until the two groups merged back together in 2006, racing had the ultimate absurdity: two competing national associations of regulators, both of them relatively toothless and useless. It’s no wonder we are in such dire straits today regarding the lack of national rules and regulations for the sport.

Fortunately, RCI and NAPRA did merge, and for the past few years RCI president and CEO Ed Martin has been putting the pieces back together. The RCI remains toothless, and some would suggest they are still useless. However, there are things that RCI can do in the way of communications to the public and education to its members, and it’s good to see the organization is focusing on those areas.

One thing RCI can’t control is the quality of its membership. For the most part, racing commissioners continue to be political appointees of governors who in many cases are returning favors for campaign contributions or other types of assistance. Many of those appointees are absolutely clueless when it comes to racing, but RCI can help educate them.

From the standpoint of communicating to the public, there is no greater role for RCI to play than to be a clearinghouse of current and past information from all of its members. That means all rulings from stewards and racing commissions against licensees should be easily accessed at the RCI website, and in a perfect world those rulings would be completely searchable. That’s not the case yet, because RCI is yet another one of those cash-strapped racing organizations that has a bigger mission budget.”

However, what the RCI has (click here to view recent rulings) is a pretty good start. Looking at the rulings posted today, for example, I learned that jockey Gabriel Saez (who was under fire from animal rights groups last year after the death of Eight Belles) was fined $500 for striking his mount with the whip after dismounting from a Feb. 8 race at Fair Grounds. I also learned that a Kentucky licensee named David L. Kirk has been suspended six months for “possession of injectable medications and hypodermic needles” on association grounds.

There are clearly some errors and omissions on the RCI rulings page. One ruling involving Monticello harness track in New York is listed as under the jurisdiction of the California Horse Racing Board. There are numerous rulings missing from California, and none from Arizona, among other states.

But it’s a start.

Why is it important for this information to be public? From the perspective of racing fans, their money supports this game and they deserve to know who among the state licensees has been sanctioned for any and all rules violations. Owners who make a significant investment in the game also have a right to know who is following the rules and who isn’t. Access to this information should be seamless and completely transparent for all jurisdictions.

Some state regulatory bodies, including the California Horse Racing Board, New York State Racing and Wagering Board, and Kentucky Horse Racing Commission, among others, have focused on making their own websites searchable for rulings and infractions. But their time and money might be better spent helping the RCI build a comprehensive, user friendly and completely searchable web site so that racing could have a dependable clearinghouse of information. It’s something the industry deserves, and the RCI is the best-positioned group to deliver it.

Copyright © 2009, The Paulick Report

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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.)

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