ADW Providers Defend Business Practices

Representatives of eight advance deposit wagering companies seeking licenses to do business in Kentucky appeared before a Kentucky Horse Racing Commission subcommittee Feb. 29 to answer questions about their applications and to defend their business practices.

During the ADW License Application Review Subcommittee meeting, each of the applicants outlined why they want to do business in Kentucky and discussed logistical issues of their operations.

ADW providers accept electronic wagers on races across the country in what is called the fastest-growing segment of pari-mutuel betting in the United States. Accompanying the industry’s growth has been greater scrutiny on the business model of ADW companies.

The greatest concern is that a much smaller percentage of each ADW wager is returned to the industry when compared with a wager made on track. The growth of ADWs has impacted purse levels and funds needed for other industry initiatives, such as breeders’ awards programs, officials have said.

Most of the company representatives said they operate on small profit margins, and that any additional costs they incur could impact their ability to retain customers.

Ned Bonnie, a KHRC and subcommittee member, told ADW representatives he wants a revenue split from their business activities that benefits Kentucky racing as part of their licensing. He noted, for example, that if a Kentucky resident places ADW wagers through an electronic device on a race being held outside the state, such as in New York, the Kentucky racing industry receives no cut of that wager.

Bonnie said the eight states that license ADW providers require them to share some of the revenue from wagers placed by residents of those states on out-of-state races.

“I am interested in the health of the horse industry, not the health of the ADW industry,” said Bonnie, who noted he has spent more than a year researching and probing ADW operators’ business models. “Your policies have to be consistent with the best interests of the Thoroughbred industry.

“There is a reasonable approach to sharing the paradigm with respect to an ontrack wager and an ADW wager.”

In reviewing the applications, Bonnie said he would consider whether it is "a business that helps Kentucky horsemen.”

Nelson Clemmens, a Kentucky Thoroughbred owner and breeder and chief executive officer of ADW license applicant AmWest Entertainment, said ADW companies are not unlike other offtrack betting and simulcast operators in having to pay competitive host and source-market fees to racetracks. Those fees help fund purses and provide revenue to racetracks, he said.

Clemmens said ADW providers grew as a result of customer demand, and that he started AmWest as an alternative to offshore wagering sites that were not returning any money to the U.S. racing economy.

“We have to be competitive with other forms of gaming,” Clemmens said. “At the end of the day, it is the quality of racing that makes it all happen—for ADWs or for tracks. I couldn’t be more vested in the sport and improving the economics of the (horse) industry.”

Brad Blackwell, vice president of TwinSpires.com, also said his company was a reluctant player in the ADW market, noting that the Churchill Downs Inc.-owned entity was responding to customer demand and industry trends. “We are a company very steeped in horse racing, and were very reluctant to get into the ADWs,” Blackwell said.

Blackwell said ADW is a key part of horse racing’s future because it offers wagering opportunities that are more convenient than the ontrack or offtrack betting experience.

“ADW is horse racing’s broadest distribution of its product,” Blackwell said. “The ADW is actually something that is creating growth for our industry. There is always a balance to make sure there is a healthy return to the industry. We feel ADWs are a positive thing.

“We don’t see this as competition between ADWs and racetracks. We all have to work together.”

Some of the larger ADW operators said offering rebates to the largest customers is necessary to retain the business that would otherwise go to another wagering company or to an offshore wagering provider. They noted that higher operating costs imposed on ADW companies could impact the rebates they can offer and eventually impact their business.

One applicant appearing before the subcommittee-- Keeneland Select—was praised by Bonnie after Keeneland chief operating officer Vince Gabbert said all profits from the ADW operation are returned to help fund purses at the Lexington track. Keeneland Select is managed for Keeneland by TwinSpires.com.

While the subcommittee, chaired by KHRC chairman Robert Beck, took no action on any of the applications, the panel plans to have its work completed and recommendations for ADW licenses ready for the full commission to consider at its March meeting.

The companies that submitted Kentucky ADW applications were AmWest Entertainment, Ebet, Keeneland Select, Premier Turf Club, Racing2Day, TVG, TwinSpires.com, and Xpressbet.com.

The license applications are the first to be submitted since the KHRC last year adopted regulations governing the licensing of ADW providers and totalizator companies in the state. Accompanying their applications, ADW applicants were required to submit a cashier’s or certified check for $5,000 to cover the commission’s costs associated with reviewing the applications, including conducting background checks.

At the same time Kentucky is moving to license ADW companies, the state General Assembly is considering a bill that would tax pari-mutuel wagers made by Kentucky residents through the providers. The bill, which would impose a 0.5% tax on ADW operators from wagers made by Kentucky residents, was approved by the House of Representatives Feb. 24 on a 79-15 vote. It is now being considered by the Senate.

The tax revenue would be split with 15% going to the state‘s general fund and 85% to purses.

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