Horsemen: No Position Yet on Rebate Shops
by Tom LaMarra
Date Posted: 1/17/2005 6:10:52 PM
Last Updated: 1/18/2005 12:49:35 PM

The National Horsemen's Benevolent and Protective Association's board of directors will decide Jan. 18 whether to endorse an updated "white paper" on simulcasting, but it won't decide--at least for several months--its position on high-volume rebate operations.

The white paper reiterates two major issues facing horsemen and others in the racing industry: tracking where signals go and how much revenue is returned to purses, and developing a business plan that combines distribution models and maximizes revenue for the entire pari-mutuel industry.

The organization's Wagering and Alternative Gaming Information Committee approved the document during a Jan. 17 meeting in San Antonio, Texas. The paper discusses a report issued by the National Thoroughbred Racing Association Wagering Systems Task Force and various pari-mutuel models that can trigger increases or decreases in revenue for horsemen and racetracks.

The paper broadly warns against singling out specific models or entities for revenue declines and notes the contradictory conclusions in the industry when it comes to rebate shops.

It also discusses account wagering and suggests that, based on standard host fees, purse deductions, and state taxes, if the $1.8 billion wagered through hubs in Oregon during an almost three-year period had been bet on track, purse accounts would be $111.1 million richer, and racetracks would have earned an additional $123 million in revenue.

At least one account wagering provider has questioned those numbers. At the national HBPA board of directors meeting Jan. 18, Jeff True, a representative of Youbet.com, questioned the accuracy of those numbers.

The rebate issue has lingered for years, primarily because the shops generate 10% to 15% of total annual handle, according to industry estimates. The recent indictments in New York for alleged illegal gambling tied to rebate shops led the NTRA to say it's not in the best interest of racetracks to allow rebate shops access to commingled pools until they disclose ownership and offer full access to all wagering data.

National HBPA president John Roark said he wants the organization's more than 30 affiliates to do some homework and decide where they stand on the rebate issue by this summer. Roark said, in his opinion, the industry should work with rebate shops to maximize revenue.

"Some of us think rebating isn't all bad," Roark said during the Jan. 16 committee meeting. "I've gotten to know guys that bet $10 million to $400 million a year. Most of them weren't horseplayers. They had never been to a racetrack, but they saw that with racing--if they had a good computer--they could make wagers to the tune of 14% of our annual handle."

Roark then questioned industry studies that suggest handle and purses would rise if rebate shops were eliminated.

"I don't know how losing 14% of your handle makes you more money, but that's a personal opinion," he said.

Bill Walmsley, a member of the Arkansas HBPA and the wagering committee, said the issue of takeout should first be addressed. Studies have suggested takeout rates and signal pricing have created the current problems in the pari-mutuel industry.

"Right now for the bettor, the worst deal is to come to the racetrack," Walmsley said. "If we don't address that issue, we'll continue to lose patrons at the racetrack."

Dave Stevenson of Stevenson & Associates, a pari-mutuel consulting firm under contract with the National HBPA, said the industry must differentiate between "acceptable" and "unacceptable" rebate operations. He also said racetracks have failed to adequately deal with the takeout issue.

On another front, Stevenson said plans for an offshore wagering hub that would take foreign wagers on U.S. races remains in play even though it has been delayed almost a year. The HBPA endorsed the plan because a percentage of revenue would go to horsemen for purses.

Stevenson said SimulTech, the name of the company that plans the hub, spoke to about 15 investors but most of them weren't acceptable. He said a desirable investor recently surfaced, however, so the plan "is very much alive."

Stevenson said the company has incurred about $600,000 in expenses thus far, and had to alter its legal documents given elimination of the 30% federal withholding tax on winnings by foreigners on U.S. races. The original SimulTech plan called for separate-pool wagering, which could eventually go by the wayside in the industry given elimination of the withholding tax.

The National HBPA white paper addresses the potential growth of international markets: "With U.S. pools now seemingly open to all global markets, the National HBPA--now more than ever--stresses the importance of full disclosure to all affiliates of all locations from international hubs which connect to each of our domestic hubs."

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