Pari-Mutuel Industry Digs Deeper Into Wagering Structure

There's more than meets the eye as the pari-mutuel industry examines the relationship between handle and purses, and the National Thoroughbred Racing Association is working behind the scenes to investigate the legal ramifications.

The NTRA recently formed a Wagering Systems Task Force that is looking for reasons why handle was up a tick but purses were down a bit in 2003. (The figures, provided by Equibase, were only for Thoroughbred racing.) The NTRA, however, has hired consultants and lawyers to examine equally important issues such as intellectual property and anti-trust risks.

"We're going to do a top-grade analysis of what's happening," Greg Avioli, deputy commissioner of the NTRA, said during an April 3 panel discussion at the Joint Conference of Racing Regulators in New Orleans. "The issue of leakage is the most serious (in the industry). It threatens the underlying economics of the entire industry and, if not addressed, threatens the ability to pay for live racing."

Avioli said at this time, it appears the industry may not have a legal claim to keep non-licensed entities from using the product -- live video of horse races. He also said the potential for taking collective action is there, but so are anti-trust risks.

"We need to be very careful how we do this," he said.

The panel was titled "Handle Up -- Purses Down? Myths, Mysteries, Theories, and Realities." In the words of Chris Scherf, executive vice president of the Thoroughbred Racing Associations, it could have been called, "Exactly How Stupid Are We?"

Scherf then said it really wasn't a matter of stupidity but implementation of a business model that worked 20 years ago. When simulcasting began, 3% was believed to be a reasonable fee -- and found money -- for signals, but the dynamics have changed dramatically. He suggested the industry might have to revisit its pricing structure to ensure that purses and tracks receive proper compensation.

Scherf also noted that the 2003 figures released by Equibase include purses generated by revenue from alternative gaming. If that money were removed from the mix, purses would have been even lower, he said.

Phil Langley, who now heads the United States Trotting Association and is an executive with Balmoral Park and Maywood Park, two Illinois harness tracks, said the racetrack operators are to blame because they never sought increases in the percentages that have led entrepreneurial companies to serve as wagering facilities that offer rebates to big players.

"I don't blame the bettors," Langley said. "They were just doing what's right for them."

Scherf believes something must be done, but he also noted there is nothing illegal about rebate shops that have deals with racetracks.

"You see some of these exotic sites, but they're all mentioned in (pari-mutuel contracts)," he said. "Access to mutuel pools is not being stolen. That's not theft of services."

In an interview April 2, Lonny Powell, president of the Association of Racing Commissioners International, said he expects regulators to be involved as the Wagering Systems Task Force continues its work. He said standards could be developed that would be converted into model rules for the industry.

Powell noted that account wagering is expanding and could end up being the subject of model rules. Other related areas are tote contracts and simulcast contracts.

"All the parties involved will have to take these documents much more seriously," Powell said. "Contracts must be looked at, and we may come up with recommendations for those as well."

A model rule for account wagering is of particular interest to some states in which regulators and horsemen are unable to get figures as to how much in-state residents wager on out-of-state products through account-wagering providers.