Exchange Wagering Grilled at CHRB Meeting

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Exchange wagering in California drew some strong opposition from The Stronach Group and several horsemen's organizations during its first California Horse Racing Board committee hearing Feb. 9 at Santa Anita.

Commissioners David Israel and Richard Rosenberg heard testimony regarding implementation of exchange wagering in the state following passage of state legislation enabling it. At the end of the four-hour meeting, they took no action on a set of proposed rules developed by CHRB staff.

“It seems to me this isn’t cooked yet,” Israel said at the conclusion. “There are too many objections by too many stakeholders. This has to be fully contemplated and the rules and regulations need to be tied down. We need to be realistic about how much time it’s going to take.”

Exchange wagering allows bettors, using advance deposit, to post and accept odds to either "back" or "lay" individual horses. It is a popular form of betting in the United Kingdom. But it has not been tried in the United States, where it is illegal in most jurisdictions. The ADW firm Betfair/TVG is strongly endorsing exchange wagering and has the support of Del Mar Thoroughbred Club.

But others, including the Thoroughbred Owners of California, spoke against implementation of exchange wagering. Most cited integrity issues raised because a bettor could wager on a horse to lose. Also of concern was the economic model put forth by Betfair/TVG and the possible harm it could do by cannibalizing pari-mutuel handle.

“We are opposed to exchange wagering,” said Scott Daruty, representing The Stronach Group, which owns Santa Anita and Golden Gate Fields as well as the ADW company XpressBet. “Exchange wagering is a very innovative approach to horse racing, but ultimately the question we try to answer is will this innovation be good for the industry or is it an innovation that ultimately will leave the industry worse off.

"Our opinion is that the integrity problems that exchange wagering brings to play and the fact that the economic model doesn’t work lead us to the conclusion that it’s not going to work and not be good for the industry.”

Del Mar CEO Joe Harper expressed support for exchange wagering. No Hollywood Park officials spoke at the meeting. Harper said he hoped the CHRB could approve exchange wagering in time for the 2012 Del Mar summer meeting.

“We think it’s innovative and will get us into a market area that we’re not in presently,” he said. “This industry is in the pits. The only way that we’re going to pull this thing out of the fire is to be innovative.”

Del Mar's backing may be moot in light of opposition from the TOC, the organization representing horsemen. In order for exchange wagering to be implemented, the TOC must approve it. That's a step that the group's president, Lou Raffetto, said horsemen are not prepared to take.

Raffetto said that the TOC shared the concerns raised by Daruty and others. He cited the possibility of a reduction in revenue to purses if Betfair implemented rebates. Based on information the TOC has gathered, Raffetto said that an exchange wager would have to be seven times that of an on-track wager to generate the same amount of purse money.

“To this point in time, we’ve kept the car in neutral,” said Raffetto of the proposal. “Now we’ve thrown it into reverse. We think this concept needs review. We urge delay to look at other models. TOC is not willing to move forward.”

The full CHRB is expected to hold a public hearing for exchange wagering at its Feb. 23 regular meeting at Santa Anita. But Rosenberg wondered if CHRB staff should be devoting so much of its time to the subject if Betfair/TVG can't get the approval of the TOC.

The committee meeting began with a presentation from Stephen Burn and John Hindman of Betfair/TVG. They explained how they propose to implement exchange wagering in California and answered questions from Israel and Rosenberg on subjects ranging from bettor demographics to their marketing and security strategies.

Betfair advocated several core principles, including that exchange racing must deliver a positive return to racing; that the infrastructure should reside in California; that it is in everyone’s interest to ensure that racing is free of corruption; and that the license fee structure should reflect uncertainties in the model.

Another potential exchange wagering provider, Global Betting Exchange, also made a presentation during the meeting.

Many horsemen’s groups spoke out against exchange wagering, as did a representative of TwinSpires.

“We think this would be just terrible for us,” said trainer John Sadler, representing California Thoroughbred Trainers. “A lot of people are going to be accused (of race fixing) even if they’re not guilty. We’re terrified of this. I spoke to trainer John Gosden, and he told me that it makes good people cheat and is the worst thing that ever happened to English racing. This is going to be the first time you can bet to lose, and we don’t think it’s a good idea.”

Barry Broad of the Jockeys’ Guild said that group has not yet taken a position but is concerned that a written protocol be established so that jockeys wouldn’t be placed under investigation without reasonable cause.

Former jockey Gary Stevens, also representing the Guild, was adamantly opposed to exchange wagering. He said that it would change how jockeys ride a race. In a turf race, Stevens said, he was always taught to save ground and hope for an opening along the rail because most horses aren’t good enough to win if they have to go around the field. He said that if exchange wagering were allowed, jockeys would always go around so that they couldn’t be accused of getting the horse stopped.

“Jockeys will consciously go five or six wide,” said Stevens. “You’re penalizing people who bet the horse to win.”

Jeff Platt of the Horseplayers Association of North America spoke in support of exchange wagering. He said that people are already betting on horses to lose.

“If I know the favorite is going to lose, I can bet the second through seventh horses (by betting odds) and I can statistically guarantee a profit,” Platt said. “At every racetrack every day, they are betting horses to lose. If I am cheating in the pari-mutuel pool, I can do it anonymously. If I’m going to cheat on an exchange, at least I have to identify myself as an account holder and they get a complete auto-trail on my activity.”

Platt voiced some concerns. He wanted assurances that a bond would be posted in case an exchange provider could not pay winning bettors. He wanted to know if customer funds would be held separately from operating expenses and whether racing insiders would be allowed to wager with the exchanges.

At the end of the meeting, CHRB staff members reported on discussions they had in England with the British Horseracing Authority and how to create a database to monitor the integrity of exchange wagering.