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Jury Out on Rebates, Computer Bets

Rebate shops and computer-assisted wagering were on the horsemen's agenda Jan. 25.

Bob Reeves took a page from FOX News in outlining the goal of a Jan. 25 informational session on wagering issues during the National Horsemen’s Benevolent and Protective Association winter convention in New Orleans.

“We report, you decide,” said Reeves, an Ohio HBPA board member and president of the Thoroughbred Horsemen’s Group.

Report they did, but there were no decisions. And there may not be decisions in the ongoing debate over high-volume betting shops and computer-assisted wagering. The industry remains split on mechanisms that have increased or shifted pari-mutuel handle, depending on the point of view.

“A lot of people think they know about rebate shops, but they really don’t know what they are,” Reeves said. “There are good things they do, and possibly bad things they bring to the industry.”

Racing and Gaming Services, perhaps the whale of high-volume betting shops, is based in St. Kitts in the Caribbean but has a pari-mutuel hub in the United States. Company chief executive officer Kirk Brooks made his case for rebate operators to about 150 horsemen, some of which remain skeptical.

Brooks said RGS in 2007 handled $445.2 million and paid $19.8 million in host fees to racetracks. The company averaged 80 active customers per day last year, he said.

Brooks said 90% of RGS handle is “new money”--65% from people who didn’t bet horses, and 35% from horseplayers who were able to increase their play six-fold because of rebates. In the past 10 years, RGS players have “lost” about $200 million and have paid $45 million in federal withholding taxes, Brooks said.

That contradicts a general belief in the pari-mutuel industry that high-volume players are taking money out of pools and making losers out of on-track patrons. Oaklawn Park, for instance, cut off rebate shops a few years ago because it had to ship out millions of dollars to correct negative settlements, horsemen’s representatives said.

RGS pays an average host fee of 4.5% for signals, and 10%-13% to customers in the form of rebates. After taxes, the company keeps 1.97%, Brooks said.

“We’re very happy with that, believe me,” he said.

Brooks said RGS has paid about $190 million in host fees since it began operating in 1998. “Hopefully, horsemen have gotten their share,” he said.

Brooks and Randy Sampson, president of Canterbury Park in Minnesota, detailed the results of an experiment from 2004-06. Canterbury pulled the plug on rebate shops for its 2005 season, but signed on again in 2006.

In 2005, on-track handle dropped 4% and off-track handle declined 22%. In 2006, with rebate shops back in the fold, on-track handle dropped 4% while off-track handle increased 36%.

“This really isn’t a black-and-white issue,” Sampson said. “We have a unique perspective. The fundamental issue that makes this difficult for racetracks is the fundamentals (of the simulcast model).

“I really don’t want to paint these guys as bad guys. Making a living as a horseplayer is a very difficult thing to do. These guys are significant players (in the simulcast market). They did 12% of our total handle.”

Sampson provided another telling number: In 2005, high-volume shops accounted for 10% of the host fees collected by Canterbury. In 2007, they provided about 25% of total host fees; in total, 40% of the track’s host fees came from account wagering.

“There needs to be a different model,” Sampson said. “There needs to be a bigger percentage returned to maximize revenue. We’re taking 20% dollars and shifting to 4% dollars.”

Don Johnson, a former racing executive who is now a full-time horseplayer that uses computer-assisted wagering programs, said there are misconceptions in the industry. He said the programs put variables into a mathematical formula that spreads the money around on multiple combinations based on probability.

“It’s totally foolish and inaccurate to believe a robot pushes a button,” Johnson said of the practice sometimes termed robotic wagering.

Johnson also said there is no past-posting--betting after “off” time of a race--with computer-assisted wagering.

“Past-posting is a track issue, and it always will be,” he said. “The real issue is the time it takes the tote to go through bet cycles. I would suggest the industry work together to cycle wagers to the host track quicker. The tote needs to cycle every five seconds. At least that would change public perception.”

Tote systems currently cycle every 45 seconds. An industry group continues to work toward improving wagering protocol, but the process has taken years.

Johnson also said computer-assisted wagering does not create late changes in win odds because the players aren’t dumping large amounts of money on one horse.

“That’s a misconception thrust on the public, horsemen, and tracks,” Johnson said. “A computer-assisted wagering bettor generally bets on multiple horses. The computer is programmed to look for value.”

The National HBPA has taken no position on rebate shops or computer-assisted wagering.