Betfair Official Says U.S. Racing Could Make Millions

Betfair, the rapidly growing exchange-wagering provider based in Great Britain, believes it could provide up to $50 million in new revenue for itself, racetracks, and horsemen by 2008 should it be permitted to operate in the United States.

The company, which now generates about $250 million in revenue a year, has cultivated 500,000 members in four years. It allows players to wager on horses to lose, and offers other "peer-to-peer" bets on just about anything.

The U.S. racing industry has resisted exchange betting. Officials believe Betfair accepts wagers from U.S. residents even though the company said it "does not accept bets from U.S. debit or credit cards."

Christian Hellmers, director of U.S. business development for Betfair, said the service could increase the $134-million annual win wagering market in the U.S. up to 59% if exchange betting was offered to U.S. customers. He said gross revenue could hit $30 million by 2007, and $50 million by 2008.

The money would be shared by Betfair, racetracks, and horsemen in the form of purses, Hellmers said. Betfair takes a commission of 2% to 5% on every wager, odds for which are set by individual bettors who wager against each other.

Hellmers, who spoke May 4 during a panel discussion at the National Equine Law Conference in Lexington, claimed exchange wagering has advantages over traditional pari-mutuel wagering such as fixed payouts and large wagers that don't impact odds. He said the standard 20% takeout rate in the U.S. is a detriment to handle growth, and indicated it could impact international expansion for U.S. racing.

"Racing is going to have to hold its breath if it plans to charge 20% in Europe," Hellmers said.

Betfair, under an agreement, provides British racing with $9 million to $10 million a year in revenue. But should members set odds and make bets on the May 6 Kentucky Derby presented by Yum! Brands (gr. I), no revenue would be returned to host Churchill Downs or horsemen.

The law conference panel discussion focused on rebates and pari-mutuel pricing. Dr. William Ziemba, a British Columbia-based consultant for various wagering concerns, including Keeneland, blasted the U.S. pari-mutuel industry for failing to keep pace with technology and customer desires.

"The attitude of U.S. racing is from 1960," said Ziemba, who referred to himself as "Dr. Z" during a presentation. "How do they transition an attitude of the 1960s to 2006? The American racing industry is backward in many respects. They don't know their customers. It's clear that in any other business, you get volume discounts."

"Rebates are simply rewards for performance," said Dick Powell, a New York-based pari-mutuel consultant who counts Racing and Gaming Services among his clients. "(The industry has taken its) biggest customers and treated them suspiciously. I don't think an industry can survive like that. And for some reason, racing has decided technology has to be viewed suspiciously."

Powell said RGS, a St. Kitts-based company with a wagering hub in Lewiston, Maine, pays the highest host fees of any betting entity in the industry. He wouldn't reveal the figures, but it is believed RGS pays up to 8% for premium signals.

RGS and other similar operations have been accused of not being properly regulated, and therefore have been cut off from some U.S. pari-mutuel pools. "We are not offshore bookmakers," Powell said. "We've been accused of piracy by some disingenuous people. Many people blur the line between us and offshore bookmakers."