National Thoroughbred Racing Association chief executive officer Greg Avioli

National Thoroughbred Racing Association chief executive officer Greg Avioli

Skip Dickstein

Internet Betting Amounts to a Tricky Opportunity

Passage of the Illegal Internet Gambling Enforcement Act may contain protection for pari-mutuel horse racing, but it also could create some obstacles in the future, officials said Oct. 16 during the opening session of the International Simulcast Conference in Philadelphia.

"What happened last month was not the end of the battle," National Thoroughbred Racing Association chief executive officer Greg Avioli said in reference to approval of the legislation by Congress. "In some ways, it's just the beginning."

The Internet gambling bill, attached to broader port security legislation signed into law by President Bush Oct. 13, bans the use of credit and fund transfers for illegal wagering but permits account wagering on horse races under the Interstate Horseracing Act. The IHA, a 1978 law that governs interstate wagering, was amended in 2000 to allow for account wagering across state lines.

Avioli noted passage of the law doesn't remove a conflict with the United States Department of Justice, which believes interstate wagering isn't allowed under the Wire Act of 1961. The Department of Justice contends the Wire Act, a criminal statute, trumps the IHA, a civil statute, Avioli said.

Another issue is a World Trade Organization ruling in which U.S. laws on remote gambling were considered in violation of WTO commitments based on a dispute between the U.S. and Antigua over cross-border betting. A deadline for U.S. compliance passed with no action earlier this year.

Avioli said there are several ways for the U.S. to comply: legalize Internet gambling, outlaw interstate wagering via the Internet, let international companies take bets from U.S. residents on horse racing, or settle the dispute through payment or changes in taxes. Avioli said the latter seems a possibility, though "short of those answers, this is going to stay in limbo."

John Farmer Jr., the former attorney general for the state of New Jersey, said the Illegal Internet Gambling Enforcement Act remains unclear, and regulations to be developed over the next 270 days will be "crucial" to how the law is interpreted. He urged the pari-mutuel industry to weigh in when the regulations are drafted.

Farmer also said he doubts the $10-billion Internet gambling market to disappear because the U.S. has a new law. He said an unintended affect could be that legitimate operators are forced out of business and "fly by night" offshore operators find ways to take bets.

Avioli suggested horse racing has a "golden opportunity" to capitalize on its legal account wagering status. Avioli said ideally, the industry would have one wagering site that would return proper revenue to racetracks and horsemen.

"It would be powerful," he said. "People would know to go there to bet. It's pie-in-the-sky, but that's my plea for positive change."

Such a scenario seems doubtful given resistance to the idea in the late 1990s and the rapid growth of account wagering companies in the U.S. and offshore.

Also during the opening day of the simulcast meeting, panelists discussed the impact of Internet technology on business, including horse racing. The premise of the panel discussion was that the Internet sustains account wagering, the growth segment in the pari-mutuel business, but in turn is disruptive because it can take bettors away from the racetrack.

It was suggested the current model in racing is a failure. James Murphy, founder of Murphy & Advisors, and investment firm, and a former executive at Atlantic City Race Course in New Jersey said there is a disconnect between the breeding and racing aspects of the industry in that farms keep producing horses as racing becomes less profitable for tracks.

Murphy also said subsidies from casino-style gambling have allowed the industry to avoid what other businesses have found to be inevitable--developing a business model that works. "Racing has been very good for the past 20 to 30 years in putting a band-aid on situations and sustaining itself," he said.

Dr. William Shanklin of the University of Dayton in Ohio said any new business model would destroy the old one. He equated that to "telling the offspring to kill the parent."

During previous industry meetings, particularly those involving horsemen, it has been said the current pricing structure in racing is flawed because it's based on a formula enacted when simulcasting started in the 1980s. Nothing has been done to remedy the situation.

The simulcast conference continues Oct. 17 with discussions on revenue models and jockeys' insurance, among other things.