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Kevin Smith

Rebates, Betfair Catch Ire of Racing Industry at US Conference

23 December 2003

Controversy seems to follow Betfair.

Representatives from the leading betting exchange were in the United States during the first week of December attending the University of Arizona's Symposium on Racing when discussion turned to the betting exchange model and the perceived shortage of money Betfair pays back to the industry.

The Betfair discussion was part of a conference that concentrated heavily on ways tracks can recover some of the revenues they're losing to off-track betting shops and offshore operators.

Also at the top of the list was the topic of rebates being used by non-racecourse sites to entice high rollers. The concept has worked, and now rebates are a main factor considered by professional gamblers and heavy hitters looking to wager.

The rebates, however, are hurting racecourses, which can't afford to offer rebates because their margins are tighter than offshore and off-track competitors.

Figures released this month by the Thoroughbred Racing Association show handle on horseracing was up 2.5 percent in the second quarter of this year and 3.4 percent in the third quarter. Despite the increase in money bet on racing, though, purses declined over the same two quarters, 1 percent and 4.2 percent respectively.

The numbers show a recent trend that could mean trouble for the racing industry: In 2002 handle increased 3.2 percent, but purses rose only 0.6 percent.

The last two years are only a part of the growing problem, says Blood-Horse editor Ray Paulick, who has studied the percentage of pari-mutuel handle directed into purses from 1989-2000.

Simulcasting came to age during the early part of the 1990s, and Paulick feels that as more and more money was bet away from tracks, less and less of it found its way back into the pockets of horse owners and trainers.

In 1989, 7.5 percent of all pari-mutuel wagers on Thoroughbred racing went toward purses. In 2000, only 5.7 percent of handle was funneled back to purses, and Paulick thinks that number will continue to shrink with no end in site.

Purses have increased at a good clip over the years, but only because revenue from other non-pari-mutuel resources started to come in as more and more tracks installed slot machines and VLTs.

Even with these extra revenues, purses increased only 16.5 percent from 1989 to 2000 while handle went up 52.9 percent.

Rebates, Paulick said, play a central role in the disproportionate growth of handle and purses.

Those that offer rebates can do so without it hurting their business. Most sites that receive a racing signal buy the product for $0.03 and sell it for $0.20. If a track or OTB takes bets on a race from another track, it also pays back $0.03 of every $1 wagered back to the original track.

If takeout is 20 percent, a remote site is entitled to up to $0.17, which in most cases is divided equally among horsemen at the location of the live track. But a growing number of simulcast receivers are located where there is no live racing and no horsemen to collect revenue.

Operators can then turn that extra revenue into rebates offered back to their best customers.

The topic came into the spotlight at the Arizona symposium during a panel discussion that included Drew Couto, a consultant with the Thoroughbred Owners of California, and David Cuscuna, a Florida-based professional gambler who receives rebates.

Cuscuna admitted that rebates play a big part in determining where he will spend his money. He said that a computer program he uses to calculate the optimal size of a wager would tell him that he should bet $13,438 in trying to hit a fictional $50,000 carryover pool when he receives a 9 percent rebate. On the other hand, without the rebate, the program instructs him to bet $2,356.

He also said the industry should be thanking punters who take advantage of rebate offers for increasing the handle for races.

He cited figures showing that two rebate shops have paid $149.6 million in commissions to the racing industry since 2000, and estimated that rebate shops currently account for more than $1 billion in handle, or approximately 7 percent of the national total.

Couto questioned Cuscuna's figures and said rebate shops should have to pay more for their signal, which is typically higher than the 3 percent industry average.

Couto argued that rebate shops do not have to pay horsemen or maintain a racetrack, and that the sites should be forced to pay far higher rates than counterparts in the betting network. He said it was the responsibility of sites that benefit from racing to pay for the sport's day-to-day operations and the investments other companies make to keep the game in business.

The elevated tensions set the stage for a panel the following day that included Betfair founder Ed Wray; Ian Hogg, the managing director of attheraces; and Karl Schmitt, the president of Churchill Downs Simulcast Network.

Hogg referred to Betfair as a "parasite" and challenged American racetracks to fight Betfair by blocking access to their signals and data and enforcing intellectual property rights on their races.

Betfair offers wagering on American races, but Wray said the company prohibits U.S. citizens from opening accounts with the service.

Wray, meanwhile, offered to give up a percentage of betting on U.S. races in exchange for a license to offer Betfair's service in the States--a compromise Betfair has pushed for unsuccessfully for months in Australia.

Rebates, Betfair Catch Ire of Racing Industry at US Conference is republished from
Kevin Smith
Kevin Smith