Complete Text of Interim Report from NTRA Wagering Technology Working Group and Guiliani Partners


Interim Report
February 12, 2003

NTRA Wagering Technology Working Group met today by telephone and, in conjunction with its security consultants Giuliani Partners, approved the following interim report on the current status of wagering security initiatives recently undertaken by the horseracing industry:

Progressive Scanning.

The major totalisator companies each have installed "progressive scanning" software at all relevant U.S. wagering outlets. This enables each such outlet to detect in real time -- after any leg of a Pick Six or other multi-leg wager, for instance -- any attempted change to wagering selections after the fact. This step provides a significant deterrent to the kind of fraud attempted in connection with last October's Breeders' Cup Pick Six.

NTRA staff and Giuliani Partners will follow up with the tote companies and member tracks and OTBs to monitor use of the new software, along with review of any further enhancements (e.g., additional software) that could promote ease of use and additional effective deterrence.

Review of Past Wagers.

In 2002, there were 337 Pick Six events, and 127 Pick Four events, with payoffs of $10,000 or more. That includes consolation winners such as those picking five of six winners correctly in connection with the Breeders' Cup Ultra Pick Six on October 26, 2002. Each of these wagering events, plus others selected at random for review, involve a number of winning tickets (e.g., 1-50), with some of these occurring through legal telephone or account wagering services on a paperless basis.

Starting with the five of six consolation winners in connection with the Breeders' Cup Pick Six, the Committee is reviewing every winning wager to determine if there are any suspicious circumstances that pertain to it. In some cases the paperless wagers may have been made in a remote location, within or outside the United States, so that verification of the wagering specifics (e.g., via audio or digital tapes) necessarily involves the cooperation of multiple parties (e.g., host track, its tote company, a U.S. wagering hub, its tote company, and an OTB or account wagering service and its tote company). Thus, the process can be time-consuming and relies on the cooperation of numerous groups and jurisdictions. Former law enforcement and system security specialists at Giuliani Partners have assisted the Ticket Review Committee in their work to date.

The Committee's review of the 2002 Breeders' Cup five of six winners has been completed and no irregularities were found. That information and analysis has been forwarded to Arlington Park and the Illinois Racing Board in order to expedite payment to these winners.

Regarding the several hundred other wagering events under review, the process is well underway. New York and California together account for 77% of all Pick Six wagering events. Therefore, the Committee has started with those states. Using Equibase data, the Committee has contacted the host tracks involved in these states, and, through them as necessary, each tote company, wagering hub and wagering service involved. Data tapes are being pulled for each relevant wagering event. We are pleased to report that this process -- a joint effort of the Committee, the host tracks and Giuliani Partners -- has received full cooperation to date from all tote companies, hubs and wagering services, including off-shore entities.

Well over 50% of the wagering events in question have been reviewed by the host track involved, with follow-up requests for additional information sent to the appropriate tote companies and any others in the data communications chain. That information is being reviewed by the Committee and Giuliani Partners as soon as it is received.

As with the winning Breeders' Cup five of six wagers, no suspicious circumstances have been discovered thus far. However, the detailed reviews of the large majority of these other large payoff Pick Six/Pick Four wagers have not been completed and will require several more months to finish.

Ernst & Young System Security Review.

After a delay due to scheduling and legal issues, the Ernst & Young process of reviewing tote system security systems also is actively underway. Its on-site work with Autotote has been completed, and it is expected to complete similar reviews at the other totalisator companies within the next three to four weeks. E&Y's report to the Working Group of overall findings and recommendations is anticipated by late March. While company-specific details will not be made public pursuant to confidentiality agreements entered into with E&Y and the totes, generic analysis of system security and recommended "best practices" for the future, in part based on E&Y's review, will be included in the final Giuliani Partners Report, which will be shared with NTRA members and the media.

Customer Outreach/Public Opinion.

From the outset, the NTRA and Working Group have identified maintaining customer and public confidence in wagering system security as an overriding priority of the industry's response to the events of October 26th. To this end, the Working Group asked noted handicapper Jim Quinn to undertake an outreach and communications program with regular, prominent players. This effort, which has been most productive and helpful, was supplemented with customer focus groups in late November and early December in Los Angeles, Dallas and New York. Recently, through the ESPN Sports Poll, the NTRA also has been monitoring overall public opinion about horseracing.

There is no question that many of horseracing's best customers were concerned and in some cases upset at the apparent security lapses in connection with the Breeders' Cup Pick Six. Besides supporting immediate changes to how multi-leg wagers are sent to host track pools, these leading customers also have been strong advocates for the type of "systematic review" of past wagers now underway. In short, they wanted candid, accurate information from the industry on the scope of the problem. Finally, they suggested other, wagering-related issues that they thought should be addressed, including steps to reduce late odds changes (particularly those not reported until after horses leave starting gates).

Fortunately, customer confidence and public opinion relating to horseracing have not declined since October 26th and, if anything, have somewhat improved. Jim Quinn's "player panel" for the most part is pleased with the industry's response to the attempted fraud on Breeders' Cup day, and they do not appear to have reduced their wagering activity, either generally or in connection with multi-leg wagers like Pick Sixes. Handle levels for such wagers support this view.

In the case of broader public opinion, favorable and unfavorable opinions about horseracing have remained basically unchanged since October. Over the last few years, the segment of the public holding favorable opinions of horseracing has increased to more than 55%, while the proportion with unfavorable views has decreased to less than 30%. Those numbers, both of which represent solid improvement since the NTRA's 1997 "benchmark" survey, have remained essentially the same in November and December. (It is believed that most of the negative opinion is tied to horseracing's connection with legal wagering, since about 15-20% of Americans oppose all wagering.)

The Working Group recommends continued monitoring of public and customer confidence in wagering integrity and system security. In particular, it suggests that the NTRA give serious consideration to continuing and, if possible, expanding the positive communications process started with the leading player group initiative consulted on recently by Jim Quinn.