'Quick-Picks' Questions: No Fast Answers

'Quick-Picks' Questions: No Fast Answers
Photo: Vassar Photo
Bay Meadows Racetrack
To hear Jerry Jerry Jamgotchian tell it, the federal lawsuit he recently filed over the “quick-picks” wager situation in California involves at least $5 million in damages to bettors unknowingly caught up in a fraudulent action. To hear the California Horse Racing Board tell it, the regulatory agency believes there was no intentional wrongdoing by the target of the legal action, tote company Scientific Games, and the involved dollars are much lower.

To hear Scientific Games tell it  … well, the publicly-traded gaming company isn’t saying much of anything these days about the programming glitch in its BetJets self-service wagering terminals, a snafu that apparently for months automatically excluded a race’s highest-numbered horse from the random-picked bets in California and other jurisdictions. The company instead says its responses will be heard through the court system.

But that hasn’t stopped Jamgotchian, a Thoroughbred owner and long-time California industry activist, from taking the allegations of his styled class-action lawsuit to another level. During several telephone interviews with The Blood-Horse, the former shopping mall developer charged the CHRB with various forms of complicity with Scientific Games, which he still holds out as negligent in its handling of the situation.

“My whole feeling, my basic thought from what I have learned, is that this was a conspiracy between Scientific Games and CHRB to defraud the bettors,” claims Jamgotchian, who from his own research has collected dozens of supporting documents, including purported internal communications. “I don’t know if it started out as one, but it ended up as one.”

Jamgotchian, who has both friends and foes as a long-time critic of the CHRB, claims it was his actions taken after receiving an anonymous fax in mid-May that forced the California agency and Scientific Games to go public with the wagering issues.

“It wasn’t until I exposed it -- this quick-picks fiasco would still be going on,” he said. “Seven months of betting with no chance to win by bettors, we are talking millions of dollars.”

The CHRB, which is not named as a defendant in the lawsuit, takes issue with much of what Jamgotchian says, including his role as a whistle-blower, though it declined to comment on the particulars of the lawsuit, which was filed Aug. 5 in California federal court.

“It sounds to me he is trying to make a case for his lawsuit,” said CHRB assistant executive director Richard “Bon” Smith, who led the agency’s investigation into Scientific Games. “I can’t speak to his allegations. Not no-how. Absolutely not.”

But Smith isn’t saying Scientific Games is without blame in the matter. He points out the CHRB ordered the tote company to cease offering the quick picks option on its machines May 9 – just days after what he terms an “anomaly” came to light: A still unidentified bettor at Bay Meadows purchased a total of 1,300 quick-picks superfectas on the May 3 Kentucky Derby Presented by Yum Brands! (gr. I), and none carried the No. 20 of ultimate winner Big Brown in any of the four legs off the bet.

And the CHRB conducted an investigation which resulted in a multi-dimensional settlement which included payments totaling $200,000 to the CHRB and charities, and an extension of the license which allows Scientific Games to operate in California.

Smith claims the $200,000 was never intended to compensate for all claims arising from the situation, saying, “A separate piece of the settlement is that anyone that had a legitimate claim would be taken care of.”

He said bettors of pertinent quick-picks have been promised an opportunity of seeking refunds by Scientific Games, although he isn’t sure exactly how it will be done. Since most bettors hastily discard assumed losing tickets, and since the paper records have never carried a computer-recorded identifiable marker as a quick-picks wager (an issue both the CHRB and Jamgotchian have with Scientific Games), the determinations of refundable tickets might possibly be made by Scientific Games by examining the randomness of printed numbers, Smith said.

“There is no absolute proof, because no one keeps the tickets,” he said.

Scientific Games hasn’t publicly provided details of exactly how it will handle a refund situation, or much of anything else since the settlement with the CHRB was announced in July. Repeated attempts by The Blood-Horse to arrange an interview with company officials, including an e-mail with specific questions about the incident, yielded the following one-paragraph statement attributed to a Scientific Games official:

"Our reaction to these lawsuits is discussed in our SEC filings,” said the statement, referencing comments the company made in its most recent quarterly earnings filing with the Securities and Exchange Commission. “We do not believe they have merit and will defend them in court. Because the litigation is pending, we will not comment on facts or allegations."

The company has indicated in a court filing it intends to file a motion to dismiss as its initial response to the complaint. The parties are asking for an initial Oct. 14 court hearing.

Scientific Games is the parent company of Autotote, which was part of the focus of the infamous Pick-6 scandal in 2002. In that incident, Autotote programmer Chris Harn conspired with others to rig a $3 million winning ticket at the Breeders’ Cup after months of testing their system with smaller winning bets. Harn, who at the time was described by Scientific Games chairman Lorne Weil as a “rogue” employee, pleaded guilty to charges of wire fraud and spent a little more than 10 months in federal prison, and his accomplices also served time in prison. Neither Scientific Games nor Autotote were held complicit in the incident.

Still left in the recent quick-picks fallout are unresolved issues, questions on wagering integrity, allegations by Jamgotchian of conspiracy and other indiscretions, and rumors, rumors, rumors. Here is a capsule looks at some of them:

How many bettors are involved, and what kind of money are we talking about?

Scientific Games has supplied evidence, upon prodding from the CHRB, that the glitch existed in some capacity in California for several months, starting at least in late October 2007 through the time it was discovered in early May, but perhaps longer on both ends. A purported Scientific Games correspondence supplied to The Blood-Horse showed company programs flagged the quick-picks problem in certain BetJets terminals on Oct. 30, 2007, and carried descriptions of four failed fix attempts in January, March, and April. The timeline also said on May 7 – four days after the Bay Meadows incident – “California personnel (were) first aware of Quick Pick problem and that the fix was in (another software version).”

Jamgotchian claims he and some associates have developed a formula for calculating potential lost winnings.

“We believe that there was in excess of $5 million of quick picks wagers without the opportunity to win, and it could be far more,” he said. “And a $200,000 settlement does absolutely nothing to compensate the bettors. It does allow Scientific Games to abscond with millions of dollars, and only be able to repay $200,000, and get their (operating license) extended. How is that a settlement to the bettors that were screwed by the California wagering system?”

Smith said the CHRB, working sometimes in conjunction with Scientific Games, estimated the actual raw pool of quick-picks bets made in California during the acknowledged glitch period as about $1.5 million, or a half-percent of the total pool. Quick-picks are more popular on big races such as the Derby, or in the case of a large Pick-6 carryover, Smith said, but little used otherwise.

“From that potential pool of as much as $1.5 million, you should also reduce (potential damages) by the percentage of races that didn’t include the outside number as a possible winner, and you are going to get down to the potential loss being a pretty small figure,” he said. “We are not justifying ‘Sci Games’ putting forth a bad system, all we are saying is that the probability and the possibility of loss is pretty small. People were hurt, but it’s a pretty small amount, in relative terms.”

Why did it take so long for the glitch to become public, and why weren't bettors warned?

On the surface, this is kind of how the timeline goes: A day or two after the May 3 Derby, the Bay Meadows bettor, who is a horse owner, asked his trainer, also still unidentified, to approach the track stewards about their tickets. The stewards then contacted track officials and the CHRB.

“We got the official word May 7, and on (May 9) we issued the notice to Sci Games to stop selling the quick-picks,” Smith said.

But Smith, who emphasized the glitch was not evident in manual machines run by clerks, said it was “probably a week” before quick-picks functions were completely eliminated from all self-service machines in California. When asked why it took that long for implementation, and if self-service bettors in the meantime were warned by track personnel about the glitch (for example, by a note being placed on the machine), Smith said, “I can’t give you a good answer for that.”

It was a week or so later, on May 17, when The Blood-Horse, working on a tip from Jamgotchian, broke the story about the wagering snafu. Prior to that, neither the CHRB nor Scientific Games had gone public with the information, which was then at least two weeks old. The next day, May 18, the CHRB issued a press release confirming its investigation into Scientific Games.

“We wanted as much information, and as thorough a picture before it became public,” said Smith, who scoffed at the idea the CHRB would have kept the matter internal indefinitely. Later, Smith added he doesn’t believe today the CHRB would have handled things much differently. “Maybe the logistics could have happened quicker. But I think we represented the interests of the wagering public very well, and we hope that it has gotten the attention of the tote companies and racetracks as well.”

If the reporting delay truly got anyone’s attention, it was Jamgotchian’s. He believes Scientific Games purposely did nothing upon learning of the glitch, and that the CHRB allegedly joined in on a conspiracy to hide it from the public, perhaps for reasons of damage control.

Jamgotchian said he has three main issues with the CHRB in the latest incident: The alleged conspiracy, an alleged lack of oversight on wagering integrity, and a lack of transparency. “It’s not even transparency -- it’s secrecy,” he said. “I can assure you that the quick-picks bet is not the only one being compromised in California wagering.”

Are there other wagering issues?

Richard Castro, the president of the Pari-Mutuel Employees Guild of California, the 1,600-member labor union for clerks and related service personnel, said there are problems with other Scientific Games hardware and software in the state, but declined to elaborate.

But he said Scientific Games and a recent influx of its new products are to be blamed for the maladies. “Of course,” he said. “I think what they did was rushed into all of it.”

Castro said in the Aug. 28 interview that Scientific Games currently has engineers at California tracks trying to fix various problems. He also confirmed he wrote a letter to the CHRB May 16 on behalf of the union requesting the quick-picks option be removed. And he further claimed the CHRB threatened employees with disciplinary action, including possible termination and license revocation, if they continued to process quick-picks bet through manual machines (Jamgotchian persuaded a clerk at Hollywood Park to process a quick-picks bet on May 22).

Smith said he wasn’t aware of any other issues with Scientific Games products or protocol, and suggested the union is in the habit of protecting itself however it can in an era of declining membership (Castro said the union’s membership was as high as 2,600 in 2000).

“If they have questions, if they have beefs, we will look into them,” he said.

What was the glitch, and why did it take so long to get fixed?

The CHRB investigation determined the error apparently resulted from Scientific Games’ software reading program numbers starting with zero instead of one. In the case of the Derby, the system recognized a numbering lineup of zero through 19, although zeroes evidently didn’t show up on any tickets either. Smith acknowledged the snafu was flagged in Scientific Games reports in October, but may have not been immediately recognized by a human, he suggested.

“That’s how it was explained to me,” he said.

But, he said, that explanation is a “sticky” point between the CHRB and Scientific Games. “They apparently knew and generated a fix,” he said of a company log provided to the CHRB. Then, a workable fix may have been put in with other fixes that didn’t go through in a batch fashion implementation Scientific Games said it typically utilizes.

“As a result, it didn’t get implemented,” Smith said. “Even though it worked, it was packaged with something that didn’t pass. That’s the explanation we’ve received.”

What about the Bay Meadows bettor?

The bettor was given a refund for his 1,300 tickets by Bay Meadows, which was then reimbursed by Scientific Games, Smith said. He added he didn’t know anything about a rumored settlement in which the bettor was paid additional sums by Scientific Games or some other entity to keep quiet about the situation.

“My understanding is that because of the contractual agreement for deployment of the terminals between the track and Sci Games, the track paid the customer, and then was reimbursed by Sci Games,” he said, adding he tried to talk to both the bettor and his trainer, but calls were not returned.

Jamgotchian isn’t totally buying this explanation, and he said his legal team will look into any alleged agreement that might have been signed by the bettor.

As an aside, Smith said none of the 1,300 superfecta tickets the bettor purchased had all of the second-, third-, and fourth-place finishers in the Derby (Eight Belles, Denis of Cork, and Tale of Ekati), so even if Big Brown’s number 20 had been on top, the bettor still wouldn’t have won the $29,368.90 payout for a $1 superfecta.

Who's watching the store?

Jamgotchian feels no one is providing oversight of California wagering pools, which allowed the quick-picks bet to happen for such a long period of time.

“There is no protection for a bettor to have a secure wagering pool -- and that’s scary,” he said. “That just further destroys horse racing in the United States. The bettor drives horse racing. If we don’t have bettors, we don’t have horse racing. The bettors are being ignored, and the wagering integrity of bettors in California is being ignored.”

Despite calls for independent real-time monitoring systems of wagering pools, particularly following the Pick-6 scandal in 2002, placement of such safeguards are limited. The Association of Racing Commissioners International, which is a trade group representing 44 jurisdictions and nine neighboring territories or countries, and the Thoroughbred Racing Protective Bureau, which is an investigative arm of the racetrack group Thoroughbred Racing Association of North America, have both developed systems they say will provide intensive live monitoring.

Neither the ARCI nor the TRPB were called into investigate the quick-picks situation, and since neither have regulatory authority, neither could order an investigation.

“The civil suit (of Jamgotchian) underscores the need for the racing industry to step to the plate and be cooperative with some of our wagering initiatives,” said ARCI president Ed Martin. “Our model rules call for the licensing of tote companies, and independent testing of the code. We would hope the industry would embrace this and work with the tote companies, and figure out how to pay for this.”

The TRPB said because the original incident didn’t take place at one of its member tracks, it had no authority to look into the situation, and wasn’t asked to. But the group’s director of wagering analysis, J. Curtis Linnell, said Scientific Games did approach the TRPB about evaluating certain parts of its system in July.

“It didn’t have anything to do with the incident, it had to do with their programming package that addressed the BetJets terminals,” said Linnell, who deferred to Scientific Games to provide details of the tests. “The results were reasonably favorable.”

The quick-picks bet function is still suspended from wagering options in California, Smith said. For it to be re-implemented, he said there would have to be a request from the relevant racing associations, and a marker system for the tickets to be put in place by Scientific Games, which he said the company was “reluctant to do.”

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