Are Online Race Betting Services Messing with Texas?

Interactive horse betting companies could soon find out if the saying "Don't mess with Texas" is true.

Racing officials and regulators in the Lone Star State are contemplating what they can do to combat online operations that they claim are illegally accepting wagers from the state and the state's racing industry millions of dollars.

"The issue isn't whether the law is ambiguous, but whether prosecutors will do anything about it."

- Paula Flowerday
Texas Racing Commisssion

Representatives from three leading interactive betting services that accept wagers from Texas, meanwhile, say they're prepared to fight any challenge to their business.

The issue was raised in Texas when members of the Texas Racing Commission were considering approval of the sale of Lone Star Pack to Magna Entertainment.

It was then that regulators were leery of approving the sale to Magna because one of its subsidiaries, XpressBet, had accepted Internet wagers from customers in Texas. The debate didn't stop the sale, but it forced the commission to look further into the issue.

Paula Flowerday, the executive director of the commission, said the commission is limited in capacity by being a state agency.

Nearly two years ago she wrote letters to a handful of companies that she felt were violating Texas law by accepting wagers from Texas residents.

"That is about all we can do since we don't have law enforcement authority," Flowerday said. "We are just a state agency."

Tom Kelly, a spokesman for the state attorney general's office, said the state justice department's hands are tied.

"That kind of betting in Texas is illegal," Kelly said, "(but) it's a local law enforcement issue."

State officials have never prosecuted an individual for betting over the Internet, nor has any U.S.-licensed operator been charged with breaking the law for accepting such wagers.

The loss of revenue to Internet operations has big implications on the state's tracks. Officials at Magna's Lone Star Park, which will host the Breeders' Cup in 2004, said the rise of Internet wagering contributed to recent declines in attendance and turnover at the track.

Lone Star Park GM Jeff Greco said the track's attendance and handle fell to all-time lows during this season.

Attendance dipped to a daily average of 8,600, down 4.7 percent from a year ago; on-track handle fell 7.2 percent, to an average of $1.19 million. Greco said there are many reasons for the decline, but he puts the rise of Internet gambling near the top of the list.

"I know we've lost a number of our horseplayers to the comfort of their own homes," he said. "They stay at home and bet over the Internet."

For Magna's purchase of Lone Star to get approval, XpressBet had to close all Texas accounts (as of May 2002), although the company could be held accountable for its previous practices. Television Games Network (TVG), also licensed in California, does not accept bets from Texas either.

But others do.

Youbet.com, one of the leading interactive race wagering services, accepts wagers from more than 30 states, including Texas. The company operates out of California, where it is one of the state's three license holders for advanced deposit wagering, but offers its services in many states were there is a gray area around Internet wagering.

"I haven't seen anything from anybody in Texas saying this is illegal. We comply with the law."

- Michael Weiss
AmericaTAB

Youbet.com reported a total handle of $73.3 million for the year ending September 2003, an increase of 85.3 percent from the same period the previous year. The company did not report how much of that business came from Texas, but three of the top 25 contestants in a recent online handicapping contest held by the company were Texans.

Some states' attorneys generals, Missouri to name one, have warned the company to not accept wagers from residents in their states, but Texas has not so far.

Youbet CEO Charles Champion said he was unaware of questions raised about Youbet's legality in Texas.

"I have never been told by anybody that it's a criminal offense (in Texas)," he said. He added that Youbet would challenge any effort aimed at cutting off Youbet's services in Texas.

Flowerday said Youbet was one of the companies to receive a letter from the commission, although Champion was not with Youbet at the time.

"In my opinion, it's a criminal offense for a person in Texas to wager over the Internet," Flowerday said. "The company that accepts the wager becomes a gambling promoter because that's what the statute says. The issue isn't whether the law is ambiguous, but whether prosecutors will do anything about it."

BrisBET.com, based in Lexington, Ky., also accepts Internet wagers from Texans. The site is affiliated with AmericaTAB, an Ohio company that actually handles the Internet wagers.

Like Champion, Michael Weiss, the general manager of AmericaTAB and Beulah Park racetrack in Grove City, Ohio, said concerns over his company's operations in Texas were new to him.

"I haven't seen anything from anybody in Texas saying this is illegal," Weiss said. "We comply with the law."

AmericaTAB processes Internet wagers for its nine affiliates, including BrisBET. Weiss said he assumed all of the affiliates accept bets from Texans.

Champion said Texas racetracks actually benefit from Internet companies such as Youbet because of the handle they generate from other states. For example, when a person in New York bets on a race at Lone Star Park through Youbet, he explained, that money is transferred into the betting pools at the track. He added that it's the offshore companies that contribute little or nothing to purses or racetracks and, as a result, damage the sport.

Flowerday is hopeful the issue can be cleared up, with either local law enforcement officials taking charge or the state legislature amending state regulations to create the framework for an advance deposit wagering system, similar to that of California.

She acknowledged, however, that both scenarios are long shots.