RCI: Exchange Wagering Takes Center Stage

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Exchange wagering was a hot topic during the annual conference of the Association of Racing Commissioners International in New Orleans on March 25, as the need for strong regulatory guidance and preventative action was stressed by those with experience in offering and monitoring the format.

New to the United States, exchange wagering is a betting system by which wagers are matched among customers through a company such as Great Britain’s Betfair, the world’s leading exchange wagering business. With more than three million customers and a weekly total handle of more than $80 million, Betfair also owns TVG, a U.S.-based wagering and broadcasting company.

U.S. horseplayers in two states will soon be able to wager on horses to win – and lose – through new the format, which was first permitted by California legislation Sept. 23, 2010, in a law that goes into effect in 2012. In New Jersey, a bill was signed into law Jan. 31 that allows the New Jersey Sports and Exposition Authority to contract with an exchange wagering operator approved by horsemen’s groups.

Now, racing commissioners are hustling to create regulations that will safeguard the integrity and well-being of U.S. racing as exchange wagering is introduced to the states.

Stephen Burn, president of TVG and global director of horse racing at Betfair, promised full cooperation in the process of rule-making to U.S. regulators as he addressed common concerns in relation to the topic.

“I don’t think you’re going to have any pushback from us regarding where the bar is set so far as regulation is concerned,” Burn said. “We helped write the rulebook as far as integrity goes (in Europe), and we’ve cooperated openly with any regulators across all jurisdictions. We want there to be a very high bar to protect our customers.”

Burn said Betfair, which has indicated strong interest in running the New Jersey betting exchange as it seeks to develop exchange wagering ties to the U.S. market, will work in a collaborative way to help legislators write their laws to protect the industry.

“Our intention in the short term is to offer bets in the win markets, although we have the option for win, place, or show,” he said. “The key (to the successful introduction of exchange wagering in the U.S.) is going to be about integrity; you have to get people used to the idea of how exchange wagering works.

"Racing has the ultimate sanction here, and if you don’t like the way things go, then you can turn it off and shut it down. We’ve invested millions to try to build exchange wagering in the U.S., and in the end we must offer something good for the customer that can sell itself.”

Paul Scotney, director of integrity services, compliance, and licensing at the British Horseracing Authority, shared some of the concerns the governing body has in dealing with exchange wagering, and recommended serious penalties for abuse of the system.

“People in positions of power and governments in racing will need to be thinking every consequence through very carefully and addressing these issues in advance,” he said. “Once you go down a route, it’s very difficult to go back in a different direction.”

Scotney said the fact that gamblers can place a bet and lay a bet has significance because “you can never know for sure that a horse is going to win, but you can know it’s going to lose.”

“Exchanges do offer another way to cheat, make no bones about it,” he said. “They don’t cause it, but they do offer another way, so take that into account.”

Scotney also said traditional bookmakers will restrict the amount players can wager due to liability issues, but because the return on exchange wagering has to do with how much money another individual bets, making six figures on one bet is a very real possibility.

“Everyone in the sport of racing needs to know what they can and cannot do, where the line is in the sand,” Scotney said. “I already see a great challenge for you in your state-by-state system; it’s easy for me because I set the rules for all 60 racecourses in my jurisdiction. You need to create very straightforward rules because if there is no perceived threat of significant sanction then people will cheat.”

Curtis Linnel, director of wagering analysis for the Thoroughbred Racing Protective Bureau, brought racing commissioners up to date on the organization’s Wagering Tote Security Initiative, which is working with key organizations like SportTech, AmTote International, United Tote, and Las Vegas Dissemination Co. He said the TRPB has developed a series of questions to be asked of prospective exchange wagering companies before host tracks sign contracts allowing the companies to offer wagering on their races.

Burn also addressed a common concern expressed by horsemen who fear exchange wagering will cannibalize existing pari-mutuel pools instead of creating growth.

“We’re going to use our exchange product, if we ever get a license, to try and attract people in on the win market, and while they’re there, we want to cross-sell exactas and trifectas and pick sixes,” Burn said. “We think we can actually grow the sport rather than cannibalize it.

"The model will be written differently from the way it is in Europe, and however the contracts are arranged, the money from our takeout we will share with horse racing so that a percentage gets channeled back directly into the game.”

At the conclusion of the meeting, commissioners appeared cautiously optimistic about the introduction of exchange wagering in their respective states, though many still had additional questions and concerns. Willie Koester, chairman of the Ohio State Racing Commission and incoming chairman of RCI, said he would love to see the new format accepted by his state.

“This industry is dying,” Koester said. “State governments are asking for financial kickbacks, and some form of action must be taken to build revenue and ensure the health of the sport for the future.”