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Editorial: Racing Rebates Controversy a Sign of a System in Need of Change

29 December 2003

By Tim Ryan

Given the recent flair up of rebating as an "issue of the week" in the racing world, I did a couple of searches last week on the topic.

Searches on thorougbredtimes.com and bloodhorse.com (dating back to Jan. 2, 2000) each produced fewer than 15 articles, while a search on drf.com produced 74.

A search on Google using the term "rebates racing betting," meanwhile, turned up 4,420 results.

A bit of difference there!

It just shows how easy it is for a punter to find a rebate outlet. It also shows that racing has not made any real effort to educate its constituency (let alone the wider community) on the issues, and without having done that, it's impossible to galvanize some action against rebating.

A couple of articles at drf.com from respected Washington Post columnist Andrew Beyer cover the topic. Beyer is against rebates (for much the same reasons that I am), but he uses the fact that they exist to support an argument for lower takeouts (applicable to all punters, that is true to the "sacred trust"). While I enthusiastically support the argument for uniformity, my view is a touch more tempered than Beyer's. My view is that the takeout should be set to the optimum rate that maximizes revenue for the pool (be that by lowering or raising takeout rates).

Beyer's argument, however, has one important leg: The rise of alternative forms of legal gambling in the United States has caused a loss of soft money (from recreational "mug" punters), thereby increasing the "hardness" of the residual pool. This supports a case for lower takeouts, but racing has done the reverse; in the face of lower turnover, it has increased takeouts.

I did find one recent industry-published article (www.bloodhorse.com/viewstory.asp?id=19004) that provides long-term data fully backing my primary thesis. That is, at the time of establishment of simulcasting, the host fee represented less than half the fee actually paid to horsemen (in purses). Accepting that only half the host fee went to horsemen, the host product fee represented only 20 percent prize money/purse distributions from wagering revenue (using calculations based on a host fee of 3 percent and prize money of 7.5 percent of turnover). In effect, the other 80 percent (viz. 6 percent of turnover) was coming from domicile-based contributions from wagering at local contributing betting on foreign (remote) racing.

If, as should be the case, the racetracks are considered part of the racing industry, then, based on turnover, some 15 percent of turnover (or 75 percent of the takeout) should be flowing back to the "racing industry" as revenue (and the balance probably constitutes taxes).

Therefore, the main cause of the significant drop in pari-mutuel wagering contribution to prize money/purses from 7.5 percent to 5.7 percent is simply increased growth in turnover at non-racetrack outlets.

Exacerbating this even further, recently introduced U.S. account wagering (for some operators, at least) only pays "source market fees" (or what I would call "domicile fees"), where the punter resides within 25 miles of a racetrack. This is simply ludicrous--or more accurately, extraordinarily selfish--on the part of some commercial racetrack and wagering operators (particularly Magna) who want to limit their obligations for payments to "horsemen."

Somehow, U.S. racing (probably horsemen given some the legislative mandates) has to think outside the square (e.g. come up with a regime where the starting host fee is, say, up to 15 percent of turnover, or 75 percent of the takeout, and domicile fees are paid to racing authorities in the jurisdictions where the punters are; and the racing authorities distribute that to the racetracks to be used for both prize money and racetrack "works").

Of course, the horsemen could say to the racetracks, "Sorry you are on your own here, but the product fee (as against host fee) just went from 3 percent to 9 percent," with the host horsemen associations redirecting the extra 6 percent back to the horsemen's associations where the punters are. Given McAlpine's/Magna's stand on this issue, that may not be a bad idea.

This 20/80 split may seem the wrong way round (that is, the supplier of the product should be paid the majority), but it is entirely logical, as the whole strength in garnering revenue from wagering comes from legislative support and structure of organized (as in legal) gambling based solely on domicile. As I understand it, the web of state and federal statutes providing for simulcast wagering (and commingling etc.) is all predicated on horsemen's associations giving permission both to export and import signals--again, domicile or "jurisdictional integrity" control.

All I know is something has to be done quickly to stem the tide or racing will never again gain the high ground. Once the "ordinary" punter has tasted the forbidden fruit of rebates (and Internet account wagering is making this accessible to anyone), he will find the "old" product repugnant.

This, of course, supports the proposition of an international agreement on commingling. The Asian Racing Federation's "Good Neighbor Policy" sets the tenor for cooperation, but a clearer framework of commercial terms should be canvassed and guidelines issued.

In an ideal world, the Australian "gentlemen's agreement" would be the model; that is, in respect to wagering, revenues (or at least the distribution thereof) are 100 percent to racing jurisdiction of the punter (irrespective of where the racing is sourced from). The only "product" fee comes from the sale of vision rights to those jurisdictions (and that sale is not directly on the basis of wagering revenue, but a separate media model, which may be indirectly related to wagering on that vision).

In a less-than-ideal world, a fee would be paid to the "product" creator, but in view of the principle of jurisdictional integrity, I would argue that the maximum would be 20 percent of wagering revenue generated from the "product" returning to the source of the "product."

Editorial: Racing Rebates Controversy a Sign of a System in Need of Change is republished from iGamingNews.com.
 

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Tim Ryan
Tim Ryan