Ray Paulick<br>Editor-in-Chief

Ray Paulick

No Gift Exchange

We live (and race) in interesting times. Collisions between technology and tradition, competition and cooperation, and ideology and reality ensure the pari-mutuel industry will continue on an unpredictable path.

Among the hottest issues raging is the betting exchange, a recent phenomenon developed in Europe using Internet technology to facilitate wagers between individuals on horse racing and virtually every other sport. Exchanges allow bettors to price-shop, offering or accepting the odds on a variety of wagers.

The sudden growth of betting exchanges is as dramatic as it is frightening to officials in the pari-mutuel industry. Exchanges provide two major departures from tradition in horse racing.

First, there is minimal return to the horse racing industry from betting exchanges, which leads to their popularity with gamblers and profitability for their owners. Horse racing, at least in North America, is based on a takeout system that helps pay for the bricks and mortar of a track and purses that subsidize an owner's investment.

Secondly, exchanges delve into bets that go to the heart of this sport's integrity. Unlike traditional horse racing bets that pay off when a horse performs well, betting exchanges offer some propositions that win only when a horse does not. That is troubling, both in practice and in theory, as England's horse racing industry has discovered through a series of recent scandals. Everyone recognizes it is easier to lose a race, and wagers that reward losses provide an invitation for cheaters.

Chris Scherf, executive vice president of the Thoroughbred Racing Associations, is rightfully concerned that North America's racing industry can be exploited by overseas or offshore betting exchanges. Scherf suggests the issue be studied to determine whether it is feasible for the industry to establish its own betting exchange.

Betting exchanges make slot machines look old school, and it is interesting to note that key officials at both Churchill Downs and Magna Entertainment--North America's two largest racetrack companies--downplayed the importance of slot machines to this industry during the recent University of Arizona Symposium on Racing. That's curious positioning considering these two publicly-traded corporations just spent considerable sums of money for public referendums on racetrack slots in California (where it lost) and Florida (where it won and now goes to a local vote in Dade and Broward Counties).

Also interesting was the olive branch extended by Magna's James McAlpine toward those jockeying for position to guide the future of New York racing. Thoroughbred owner/breeder Frank Stronach created Magna with an ideological vision of independence, innovation, and free enterprise, but the execution of that vision has been difficult given the company's isolationist philosophy. Magna acquired tracks quickly, invested heavily, and shunned cooperative ventures.

The resulting disarray includes multiple horse racing television networks and account wagering companies, feuds over racing dates, and competing lobbying efforts.

Now, with former National Thoroughbred Racing Association commissioner Tim Smith working on an initiative designed to replace the New York Racing Association, McAlpine has said Magna is looking for partners. While many may view his statements with skepticism, it is a refreshing and welcome change, due in part to the reality that Magna has not succeeded very well by going it alone.

Similarly, another positive sign from Magna was the recent announcement that its tracks will renew their commitment to the NTRA for 2005. With its purchase of Santa Anita Park just over six years ago, Magna instantly became a major player in this industry. With its new philosophy, perhaps it will learn to be a team player.