Questions Raised on California Rebating

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Here’s a fact: Some domestic advance deposit wagering outlets are openly offering cash rebates to customers that wager on California racing signals.

Now, here’s a question: Is this legal?

And here’s the answer: Nobody really knows for sure.

Certain domestic ADWs -- which operate Internet, telephone, and mobile-device platforms -- have been offering cash rewards or wagering credits to its customers, including on current California signal offerings from Golden Gate Fields and Santa Anita Park.

But the practice is viewed by some – and not by others -- to be in violation of a California law that prohibits “any off-track betting facility” from offering rebates to its customers.

So what’s up with all of this? The California Horse Racing Board, in response to queries from The Blood-Horse and other “public pressure,” is asking the same question. And the state regulatory authority has tentative plans to address the issue at its Feb. 26 board meeting at Santa Anita.

Further, a clarifying amendment to the cited state rule may be submitted to the board by CHRB executive director Kirk Breed, asking that rebates on California signals be prohibited by state-licensed ADWs.

“We may suggest an amendment to the existing regulation to add ADW companies so that there is no doubt who is and who isn’t covered in the law,” said Breed, who couldn’t guarantee the topic would make the February agenda due to deadline constraints.

“The argument is that we already have a prohibition against rebating by OTBs,” he continued. “It can be argued that this creates an unfair environment which allows ADWs to cherry-pick the best customers. The ADW companies are going to have to come here and say what they are doing.”

What some ADWs “are doing” is clearly evident in some cases, and not so clear in other cases. Some entities, such as two of the largest domestic entities, XpressBet.com and Twinspires.com, are offering their customers wagering “credits,” which cannot be withdrawn as cash.

XpressBet, for example, is offering a limited offer of a 2% credit on wagers on current live racing signals affiliated with Magna Entertainment Corp., which also owns the ADW. The incentive, which runs through April 30, was launched with the start of the Santa Anita meet in December, and includes wagers made on Golden Gate Fields, Gulfstream Park, Laurel Park, and The Meadows harness facility in Pennsylvania, which is managed by MEC.

When asked specifically about the California rule regarding rebates, XpressBet president Ron Luniewski acknowledged there is “some ambiguity” regarding the regulation, but did not elaborate.

“We wanted to draw attention to XpressBet, so we thought this limited promotion would be a good way to do that, and stimulate handle on MEC content,” Luniewski said. “We are pleased with the results thus far.”

Customers of BetAmerica.com, which is affiliated with North Dakota OTB operator Lien Games, enjoy 3% rebates, although it recently dropped the percentage on California signals to 2% upon what it said was pressure from the Thoroughbred Owners of California. BetAmerica customers are able to withdraw the rebates from their accounts, according to the company’s Web site.

Then there’s Youbet.com, which doesn’t publicly advertise cash-rebates on its Web site, but is believed to offer certain large-volume customers a wide variety of rebates on North America content, including in recent months rewards of at least 3% and higher on California signals, depending on the wager placed.

Youbet officials did not respond to repeated requests to discuss the alleged cash-rebate program, but The Blood-Horse has viewed documents which suggest the practice has been in existence for at least a few years. It is believed some customers of the program were recruited last year when Youbet’s former subsidiary, off-shore rebate shop International Racing Group, was closed down by its parent amid a federal investigation.

Impact of the TOC

A prominent player in the legal rebating discussion is the TOC horsemen’s group, which, because of authority given it under the federal Interstate Horseracing Act, has the power to control what entities get California racing signals.

In brief interviews with TOC president Drew Couto discussing the California rebate situation, it was disclosed to The Blood-Horse that the group has a few internal standards for dealing with such cash-reward practices. Included in the mix is a TOC requirement that allows entities such as large-volume off-shore shops Elite Turf Club and Racing & Gaming Services to rebate on California signals as long as its customers wager $1 million annually, a policy that has also been adopted by TrackNet Media Group, the content partnership of MEC and Churchill Downs Inc.

Couto also indicated the TOC now allows entities with which the group has agreements to rebate 2% to its customers – hence, the incentive program of XpressBet (and the percentage reduction announced by BetAmerica).

But the TOC has also denied certain ADWs access to California signals because they rebate, though Couto said there were usually other integrity-related questions involved in making those decisions.

The TOC, as recently as 2004, shut down a rebate operation launched by XpressBet. At the time, it was reported the TOC wasn’t sure if XpressBet was operating in violation of California law.

What’s next, CHRB?

The closing of that XpressBet operation in 2004 led to an intense discussion of rebating at the CHRB’s annual meeting held in March of that year. (The entire annual meeting transcript, including discussion of other topics, is available here). In the meeting, a cast of industry interests spoke about the dynamics involved with rebating, but no conclusion was met, and the subject was dropped, for all intents and purposes.

All of which brings us back to 2009, and the potential inclusion of another hard look at rebating regulations by the CHRB.

One of the issues with the language of the current rule, Breed said, is that it hasn’t been tested – i.e., in court – against ADWs.

“What we need to do is modify the rule to include ADWs,” he said. “The key term in the rule is ‘off-track betting facility.’ Does that mean only brick-and-mortar OTB facilities, or any outlet not on-track, such as an ADW?”

Breed, who joined the CHRB as executive director last year, noted the original rule has been on the books since 1996 – which is pre-dawn of wide-spread Internet use and advance deposit wagering. He said the rule at the time was written to prevent such entities as Las Vegas racebooks from offering rebates to its customers.

Cash-reward rebates in racing are regarded by some in the industry as no different than other “cash-back” programs offered by many retail/service entities, such as in automobile sales, and are lauded by some as ways to retain large churn in pari-mutuel pools.

But others have long decried its use in wagering, saying rebates draws money away from higher revenue-producing pools, such as in on-track settings, and creates an unfair advantage for rebate outlets. The practice has also come under past scrutiny because of alleged illegal money laundering being funneled through a few off-shore rebate locations.