New York state Inspector General Kristine Hamann

New York state Inspector General Kristine Hamann


'Integrity' Report Released; Rebate Shops a Concern

A report by the New York Office of Inspector General to Gov. Eliot Spitzer lists four "general areas of concern" among the four entities seeking the franchise to operate Aqueduct, Belmont Park, and Saratoga.

By Tom LaMarra and Tom Precious

A report by the New York Office of Inspector General to Gov. Eliot Spitzer lists four “general areas of concern” among the four entities seeking the franchise to operate Aqueduct, Belmont Park, and Saratoga, including relationships with rebate shops and bookmakers who take bets on racing from the United States.

The Office of Inspector General was ordered by Spitzer to conduct a due diligence review of the ethics and integrity of the groups seeking the franchise: Capital Play, Empire Racing Associates, Excelsior Racing Associates, and the New York Racing Association, which currently holds the franchise. The report was released July 2.

The four general areas of concern are all four entities have some ties to rebate shops; several individuals didn’t return fingerprint packages; the report found “numerous civil lawsuits involving key persons or business entities” involved with all four bidders; and some individuals associated with the bidding groups have made legal but “sizable contributions” to New York political leaders.

Spitzer didn’t use the report to make any indications about who he believes should get the Thoroughbred racing franchise. Government sources recently said the Spitzer administration was warm to a plan that would let NYRA continue running racing while giving Excelsior Racing Associates the gambling side of the franchise, which could include video lottery terminal casinos at Aqueduct and Belmont.

The administration may recommend awarding one entity the right to operate racing and a different entity the right to manage non-racing development and gaming operations, or may recommend that a single entity be awarded the racing franchise and also be given responsibility for developing gaming and other non-racing operations, Spitzer said in a written statement.

“The (Inspector General’s) report illustrates why racing is one of the most heavily regulated industries in the nation,” Spitzer said in the statement. “History has shown that the large amounts of cash at stake in racing pose risks for illegal activities including money laundering at rebate shops, tax schemes, and race-fixing. This potential means that we must be scrupulous in monitoring and regulating activity.”

The governor also expressed possible interest in further restrictions on whoever gets the franchise, including the use of private, outside monitors and added state regulatory powers.

In regard to rebate shops, the report noted NYRA stopped sending its signal to such wagering outlets in the wake of a federal indictment and probe into alleged race-fixing in New York.

As for Empire Racing, the report said five of its corporate members--Churchill Downs Inc., Delaware North Companies, Magna Entertainment Corp., Scientific Games Holding Corp., and Woodbine Entertainment Group--have business relationships with rebate shops. The report also says a number of Empire Racing’s corporate business members have business relationships with Hipodromo de Agua Caliente, a Tijuana, Mexico, bookmaker linked to money-laundering activities for a major Mexican drug cartel.

The report says Excelsior Racing Associates partner William Johnston Jr., who operates two Chicago-area harness tracks, doesn’t ban rebate shops but attempts to ensure they comply with the law. He said he relies on Scientific Games, a tote provider, to regulate bets made by rebate-shop customers on product from his tracks.

The two Illinois harness tracks told investigators they send their signals to MIR International, a San Diego, Calif., company that does business with Caliente bookmakers. The report says MIR International was found by the Puerto Rico Racing Administration to be “unsuitable for licensure.”

Capital Play, based in Australia, is a licensed bookmaking operation that provides wagering services to Australians who bet on North American races. The report says Capital Play offers rebates, which are paid on a monthly basis and reflect 10%-12% of money wagered through the system.

The report said though rebate shops "are not, per se, illegal, there is a wide disparity of opinion among the racing industry and law enforcement experts as to their importance and impact on the continued viability of the racing industry."

View the Report