Testimony of Gregory C. Avioli to Oversight And Investigations Subcommittee

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July 12, 2001

I appreciate this opportunity to present the views of the horse industry on the financial aspects of Internet gaming as it applies to the pari-mutuel horseracing industry.

I am testifying today in my capacity as Deputy Commissioner and Chief Operating Officer of the National Thoroughbred Racing Association (the "NTRA"). The NTRA is the national organizing body of the sport of Thoroughbred racing representing the interests of the majority of racetracks, owners and breeders in the United States.

THE PARI-MUTUEL RACING AND BREEDING INDUSTRY

Pari-mutuel horseracing, including off-track and inter-track wagering is legal in 43 states and involves the racing of Thoroughbreds, Standardbreds, Quarter Horses, Arabians, Appaloosas and Paints. There are over 175 racetracks in the U.S. Racing and racehorse breeding is a widespread and diverse industry that includes sports, legal wagering, recreation and entertainment and is built upon an agricultural base that involves the breeding and training of the horses.

Economic Impact

According to the "Economic Impact of the Horse Industry in the United States," a study done by Barents Group, LLC, the economic and fiscal consulting unit of KPMG Peat Marwick LLP, for the American Horse Council Foundation, racing and racehorse breeding have a total economic impact in the U.S. of $34 billion and generate 472,800 total full-time-equivalent jobs. There are 941,000 people and 725,000 horses involved in the racing industry.

Wagering on horseracing is permitted in 43 states and there is an active horse breeding and training business in all 50 states. In many, the economic contribution of the racing and breeding industry to state and local economies is substantial and the industry ranks among the state's most significant economic entities. For example, in New York, it involves 45,000 horses, has a $2.6 billion economic impact and generates 33,600 full-time job equivalents; in Florida, it involves 37,000 horses, has a $2.1 billion economic impact and generates 27,300 full-time equivalent jobs; in California it involves 69,000 horses, has a $4.1 billion economic impact and generates 52,000 FTE jobs; in Illinois, it involves 52,000 horses, has a $2 billion economic impact and generates 30,700 FTE jobs; in Ohio, it involves 40,000 horses, has a $1.3 billion economic impact and generates 17,000 FTE jobs; and in Texas, it involves 74,000 horses, has a $1.8 billion economic impact and generates 27,900 jobs.

Pari-mutuel racing generates over $500 million annually in direct state and local revenue from pari-mutuel taxes, track licenses, occupational licenses, admission taxes and miscellaneous fees.

Racing as a Sport

Racing is an activity that attracts millions of fans who appreciate it and follow it as a sport and who enjoy the excitement of the race and the athletic ability of the horses. The Triple Crown and Breeder's Cup World Thoroughbred Championship races are considered among the most important sporting events conducted in the United States each year and are widely reported in the sports media. Over 160 additional hours of top Thoroughbred races are broadcast on national television each year, on networks including NBC, CBS, the ESPN networks, and CNBC. The national championships of Standardbred and Quarter Horse racing are also televised nationally and widely covered by the media. In addition, most major U.S. newspapers cover racing and print the results of the races at their local tracks on a daily basis, much like they print the box scores of other sports.

The Pari-Mutuel System

While horseracing is a sport on which one can gamble, it would be erroneous to assume that pari-mutuel wagering is the same as other forms of gambling. Unlike most other forms of gambling, horseracing uses the pari-mutuel system in which bettors wager against one another instead of against the "house." Of the total amount wagered on a particular race, approximately 80% is returned to winning bettors. The other 20%, called the "takeout," is shared between the state government, the racetrack and the horsemen who race at the track. Takeout rates, which vary from state to state, are published in track programs, which are available at race tracks and at simulcast wagering sites away from the track, so that fans know the rates and how they might affect their wagering.

Wagering computations are accomplished by a totalisator machine, a computer that adds bets over and over again during the course of betting. Every 30 to 60 seconds the "tote" flashes new betting totals and odds for each horse. The machines contain a number of features designed to minimize the potential for pari-mutuel fraud or machine malfunction. These features include coded ticket paper and duplication of all critical functions by two computers working independently of one another.

I point this out because the pari-mutuel system and the published information available ensure that the public has easy access to data regarding the wagering odds. The use of the tote machine allows bettors to determine the betting odds every 30 to 60 seconds. In addition, the race upon which the wager is made, and paid, is a public event, watched by fans at the track or off-track facility, often viewed by others on television or cable, and always overseen by the stewards at the track itself and the state racing commission to ensure the integrity of the race.

In 2000, over 30 million people attended the races and wagered over $14 billion, approximately 80% of which was returned to the winning players.

CURRENT ACTIVITIES OF RACING

The dissemination of information about racing, simulcasting, account wagering and commingling of pari-mutuel pools have been ongoing activities conducted by state-licensed entities for many decades. These activities, which in today's modern world are now heavily dependent on the use of computer networks and, in many cases the Internet, are the primary revenue-generators of the racing and breeding industry.

Continued. . . .