TIF Reports: Horse Racing and 'Legal' Sports Betting

TIF Reports: Horse Racing and ‘Legal’ Sports Betting

February 1, 2019

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

THE IDEA featuring their favorite leagues, teams, and players. The opportunities will be endless. North American horse racing is facing a Adding to this competition for bettors, the cost momentous threat to its business: the rapid of a sports bet is significantly lower than expansion of legal sports betting. horseracing’s takeout, typically two-to-three In May 2018, the United States Supreme Court times cheaper. Average takeout in racing, before overturned the 1992 law established by the any bigger players receive substantial rebates, is Professional and Amateur Sports Protection Act approximately 20%. For sports betting, it’s closer (PASPA), which had effectively banned individual to 5%. states from offering betting on sports, with few With greater efficiencies and innovation in the exceptions – Nevada being the most notable. future, experts suggest sports betting pricing will What has transpired in the ensuing months is, as eventually push lower than ever before. If racing ESPN writer David Purdum described, “the gets it right, the cost of wagering should go the American sports betting gold rush.”1 way of $35 commissions for stock trades.

Eight states and the District of Columbia have Markets and industries evolve. North American advanced legislation authorizing sports betting horse racing must adapt to compete. in their jurisdictions in the eight months since The established leagues which oversee the PASPA was overturned, and up to 30 states are sports that will serve as the major conduits for expected to permit some sort of legal sports betting – Major League Baseball, the National betting within the next three years. As a result, Basketball Association, National Football League well-established sports – most of which already and National Hockey League, among others – enjoy significantly greater distribution and after decades of opposing legalization, are now popularity than horseracing – will see millions of embracing it, recognizing the value of the added Americans take added interest in their games via attention this will bring to their product. legal gambling options. Gambling will be good for their business – and How is this a threat to horse racing? like responsible businesses that wish to grow the While sports betting has long existed in an pie for their investors and participants, they are unorganized fashion, its legalization will swiftly aiming to please customers. Sports Business lead to a massive development of supporting Journal named these customers – “The American infrastructure – including marketing, data Sports Gambler” – the most influential person in services and customer management – that will sports business in 2018.2 transform the competitive landscape of the What is the product these customers want? gaming industry. Fixed-odds betting. Racing’s existing customers, including our best Outside of occasional casino-based future customers, will be wooed by fabulously funded wagers on the Kentucky Derby or Breeders’ Cup, sports betting agencies, while future generations American horse racing has not offered fixed- of potential customers will be avalanched by odds wagering in any legal capacity since the customized fixed-odds betting products

1 http://www.espn.com/chalk/story/_/id/25145786/why- 2http://www.espn.com/chalk/story/_/id/25559213/ameri nba-other-professional-leagues-jumping-sports-gambling can-sports-gambler-beats-adam-silver-roger-goodell-most- influential-2018

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019 reign of on-course bookmakers in the early channel network dedicated to sports gambling 1900s. The venerable pari-mutuel system of information.”3 betting in horse racing will be a stark contrast to Talent on the network includes the legendary the booming fixed-odds products available to broadcaster Brent Musburger, whose references the sports bettor. to gambling in mainstream sports coverage over In other words, this threat presents an a five-decade career behind the microphone irresistible opportunity for horse racing. were as appreciated by many viewers as they were cringe-worthy for network executives. Over roughly the next two to three years, racing must adapt to these new market conditions – Times have changed. accepting fixed-odds and exchange wagering on To coincide with the 2019 CES, VSiN hosted a its product; developing a new funding model to three-hour summit to discuss the explosive support the sport in light of this disruptive, growth of sports betting, assembling two well-financed and aggressive competition; distinctive panels. The first panel included three significantly boosting and improving our long-time bookmakers (Johnny Avello, Vinny marketing efforts; and innovating to create new Magliulo and Jimmy Vaccaro), a group with more types of bets for customers who will soon be than 120 years of collective time setting markets, taken by agile, forward-thinking sports betting taking bets and serving the sports gambling outlets. industry – almost exclusively in Nevada. The future of horse racing on the continent will The second panel was markedly different. depend on it. Among those participants was Bobby Skoff from THE “AMERICAN SPORTS Swish Analytics, “a machine learning platform BETTING GOLD RUSH” for sports betting, fantasy and data,”4 Davyeon Ross from Shottracker, “a sensor based system The Consumer Electronics Show (CES) is the that automatically captures statistical and largest convention annually in Las Vegas. More performance analytics for an entire team in real- than 180,000 converged on the city in the second time,”5 and Darren Rovell, formerly of CNBC and week of January from all corners of the globe to ESPN, now the senior executive producer for The hawk or gawk at the newest technology, attend Action Network, described as “the market leader insightful sessions with industry leaders and and most trusted source for sports fans, network. enhancing their betting and entertainment experience through original news, premium A short drive south of the Strip is the South Point, insights, betting tools, data and odds.”6 a full-service hotel, casino and entertainment complex, and also the home of the Vegas Sports Accurate estimates of the existing illegal sports and Information Network (VSiN), which betting market in America are elusive. According launched in February 2017 as “the first multi- to one piece from Wired, “experts estimate total

3 https://globenewswire.com/news- 5 https://shottracker.com/ release/2017/01/30/912056/0/en/VSiN-First-Media- 6 https://www.actionnetwork.com/about Network-Dedicated-to-Sports-Betting-Information- Launches-on-Biggest-Gambling-Day-of-the-Year.html 4 https://swishanalytics.com/about/

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019 wagers at anywhere from $80 to $150 billion Conversely, in horse racing, the price is only set annually.”7 when the market is closed and additional money cannot change the odds. The pari-mutuel system, The legal market handle on racing in the United in which the weight of all the bettors’ money on States in 2018 was $11.26 billion.8 any possible combination of outcomes When asked at VSiN’s summit how large was the determines the price, is foreign to other types of projected legal market for sports betting, Jimmy event-based wagering. Vaccaro did not waver. The “gold rush” of American sports betting is all “Whatever you think it will be, multiply it by five, in fixed-odds markets. But horseracing’s and that might be low.” competitive challenge is not just the kind of bet offered, it’s the price of the bet – pari-mutuel “LEGAL” MEANS MUCH MORE wagering on horse racing is expensive.

THAN SIMPLY ALLOWED BY LAW “Racing has largely not understood it has a pricing problem. But even those of us fortunate Maury Wolff, a long-time professional bettor, was a horseplayer selected as one of the 30 enough to get substantial discounts [rebates] are members of the Wagering Systems Task Force paying more than sports bettors,” says Wolff. (WSTF), a group organized by the National “That’s inevitable, horse racing bettors have to Thoroughbred Racing Association (NTRA) in 2004 pay the cost of production – sports bettors don’t. to review some growing concerns in racing. But gambling isn’t a morality play and you will While many of the recommendations from the shop or bet where you find the best deal. And if WSTF remain unresolved, Wolff is keen to that’s the NFL instead of Belmont, so be it.” highlight the even more challenging threat The cost of horse racing betting in today’s looming for racing today. market – through takeout – is too high. The most “Sports betting is hardly a new competitor, but substantial players in racing receive rebates to the current change is in its legality. The word help mitigate that cost. Ordinary players tend ‘legal’ means much more than ‘simply allowed not to receive such rebates. by law.’ A widespread, “legal” fixed-odds sports betting “‘Legal’ means infrastructure, strategic product will naturally shine a spotlight on the planning, investment and innovation, mobile cost chasm between racing’s pari-mutuel delivery, customer service standards, product and the emerging, well-distributed marketing and advertising – lots of advertising. alternative. And importantly, it comes with the assuredness of being paid. That adds up to a lot.” THIS ISN’T YOUR FATHER’S

All sports betting in America, now and in the NEIGHBORHOOD BOOKIE foreseeable future, is conducted at fixed-odds. If you think that the average American won’t be Prices are set and changed by the operator of the inclined to sit and engage a two or three-hour sportsbook. You bet at a price and know what sporting event awaiting a final result, more so return you will get if you win.

7 https://www.wired.com/story/the-sports-betting- 8http://www.equibase.com/content/news/releases/01041 revolution-will-be-muted-online/ 9release.cfm

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019 than they already are now – then you’re not “Bet Request is what we call it. [Now], thinking. you can start tweeting to sports books in Europe – ‘I don’t see this on your site, but Gambling on sports in America will be intensely I’d love to bet on LeBron James to score customer-driven, on markets of the bettors’ own exactly 42 points tonight because it’s my choosing. 42nd birthday and I think I’m lucky’ – well,

the sports book will tweet back and say Swish Analytics’ Bobby Skoff explains: ‘wait an hour, go to this link, our guys

“Odds-making over the course of the will figure what the right price is for that history of sports betting in Nevada and exact bet and we’ll hang it out there and even overseas has been very manual. It you can place a bet on it.’ We’re looking has been large trading teams sitting to innovate that very quickly, to around trying to figure out exactly what automate that entire process.” certain spread totals and different kind “I think we can all agree in a mobile of prop lines should be. We’ve started to world, in a world where a much younger really dive into automating that process audience which grew up with technology, by building models off historical and they want what they want when they real-time data. want it and nothing else. That’s the point “What that does is provide more we are innovating towards. Machine accurate pricing overall. Eventually in learning and data science is at the core the US we’ll come to a mature state of allowing that to happen. where I believe people will start to We see a lot of popularity in our compete on price. You won’t just synthetic markets. [A customer says] ‘I download your favorite app, but do want to bet on Steph[en Curry] over 5 ½ some price shopping as we all do in other three-pointers and Steph under 10 ½ sectors in our lives…and it allows you to assists.’ Those markets are correlated, so start providing newer experiences that you need to take some approach in previously never really existed. Building understanding how to price that automated infrastructure that allows correctly. We have spent a ton of time on you to take whatever is happening on figuring out how to provide that in real the field at any given time and turning time to the customer as quickly as that into a compelling, bet-able market possible.” that is risk-averse and safe for the sports book, but also compelling to the This is the betting environment in which racing customer. will need to compete. Skoff goes farther, noting that similar to some TEAMS AND LEAGUES RESPOND more time-consuming, customized requests that IMMEDIATELY TO OPPORTUNITY exist in some European markets at present, automation will enable sports betting customers The swift reaction and support of teams, leagues, to request and obtain pricing on almost any broadcast partners and gambling-related outcome, of any sporting event for which data sponsors to the May decision of the Supreme exists, at any time. Court cannot be ignored.

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

Here are just some of the developments that and baseball in particular,’ he added. have occurred in this rapidly-evolving market ‘We have to take advantage of every over the last seven months: opportunity to drive engagement by fans.’” 11  The NBA, NHL and shortly thereafter

MLB announced deals with MGM  The NBA signed separate deals ensuring Resorts International as official sports official data from the league’s games can betting partners in July, October and reach other legal betting entities. November, respectively.

“Under identical multiyear deals, Genius “Our collaboration will result in the best Sports Group and Sportradar AG will be possible gaming and entertainment the official gatekeepers of the NBA and experience for consumers through the WNBA’s betting data, serving as use of accurate, real-time NBA and middlemen of sorts between the WNBA data, and our collective efforts to leagues and gambling houses across the maintain and enhance the integrity of country.” 12 our games,” said NBA Commissioner

Adam Silver.9  NBC Sports Washington, the broadcast

rights holder for the NBA’s Washington "The new sports betting landscape Wizards, hosted a gambling-related presents a unique opportunity for fan broadcast on its alternate channel, engagement utilizing technology and engaging viewers in a series of predictive data that are exclusive to our contests during a January game against league...Fan engagement, technological the Milwaukee Bucks, the first of eight advancement and innovation are such broadcasts for the season. paramount to our progressive approach and will be at the forefront of everything “We are encouraged by the early we do,” said NHL Commissioner Gary engagement data,” NBC Sports Bettman.10 Washington GM Damon Phillips told The Action Network’s Darren Rovell. “We “‘There’s been a huge change in public had close to 4,000 responses. Fans who opinion,’ [MLB Commissioner Rob] participated in Predict the Game spent Manfred said. MLB will make a limited significantly more time on our digital part of its Statcast data available to platforms than regular users.”13 MGM on an exclusive basis. That data Rovell wrote: also is available to the 30 clubs. ‘It has presented an opportunity for all sports

9 http://www.nba.com/article/2018/07/31/mgm-resorts- 12 https://www.bloomberg.com/news/articles/2018-11- international-becomes-official-gaming-partner-nba- 28/nba-breaks-fresh-ground-for-sports-with-first- official-release gambling-data-deal 10 https://www.cbc.ca/sports/hockey/nhl/nhl-sports- 13 https://www.actionnetwork.com/nba/nbc-sports- gambling-partnerships-1.4882268 washington-betting-broadcast-alternate-wizards-2019 11https://www.usatoday.com/story/sports/mlb/2018/11/2 7/mgm-resorts-is-mlbs-official-gaming-partner-after-nba- nhl/38627859/

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

“There have been plenty of predictive terms of ability to engage people for long win products that let you play along with periods of time with multiple the game, but this was the first time competitions or multiple ways to present there was an integrated product with a it.” rightsholder…the alternative broadcast “For a sport that has often arrived late to tested the future of a seamless sports trends,” Kilbridge wrote, “Monahan and gambling product and was the first the Tour seem to be getting ahead on broadcast by any of the four American gambling. They’ve quietly built an major sports leagues to do so.” integrity and monitoring program over  A December report noted that NBC the past several years to watch for Sports, whose broadcast rights include tampering. They’ve been in talks with the NFL, NHL, NASCAR, the PGA Tour, gambling outlets and daily fantasy Premier League and the Triple Crown operators and recently announced a deal series, registered a variety of website with IMG Arena, which will distribute domains – including NBCSportbook.com Shot Link and other data directly to and NBCSportsSportsbook.com.14 betting operators.” 15

Turner president David Levy, speaking at the CES  Despite a combined record of two wins Convention in Las Vegas, summarized the impact from 146 combined tournaments over succinctly. the last five full years, legendary golfers Tiger Woods and Phil Mickelson “If you bet on a sports game, you are squared-off in a made-for-TV, and made- almost 80 to 90 percent more likely to for-gambling head-to-head, winner- watch more of the event. If you watch take-all match in November. more of the event, you are engaged. If you’re engaged, guess what happens to Golfweek writer Dan Kilbridge ratings? One of the Nielsen metrics is investigated the sport’s growing time-spent-viewing. If you are spending acceptance, and eventual integration, more time watching sports, ratings will with gambling. go up.” “PGA Tour commissioner Jay Monahan The inference, then, is that the value of those sees sports gambling as a way to help broadcast rights will also rise, and so too the accomplish his greatest challenge values of the teams. entering 2019: expanding viewership and bringing more fans to golf… "It doubled the value of the professional sports franchises in a second,” said Dallas Mavericks Monahan said: “On a normal week, first tee time at 7 (a.m.), last group off the course at 6 (p.m.). And that’s Thursday, Friday, Saturday, Sunday. Different markets around the world. We have something that no other sport has in

14 https://domainnamewire.com/2018/12/24/nbc- 15 https://golfweek.com/2019/01/13/golf-on-tv-pga-tour- registers-domain-names-for-sports-betting/ commissioner-jay-monahan-understands-opportunity- with-gambling/

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019 owner Mark Cuban in the immediate aftermath Roughly two decades ago, racing generally of the Supreme Court’s decision.16 leveraged many of its pre-existing locations as acceptable zones for gambling and in many The key point here is the fundamental jurisdictions, landed comfortable deals to share difference in the revenue model for horseracing in slot revenues. compared to other sports. There could be some places where racing may Sports leagues and franchises are funded try to secure this. But sports betting often through distribution deals – primarily television. produces far smaller margins than slot play. The Betting on sports is, for those leagues, a massive number of outlets to be licensed in some states marketing windfall, not a revenue source. could far exceed the number of racetracks, and Whatever small piece of the action the leagues those independent locations will fight might receive from sports betting agencies, if relentlessly to leave racing out, far more than any, is merely incidental to the vastly increased racing will fight to be included. consumer attention to their games that betting will create. North American racing, however, Passive deals where racing can be cut into the cannot survive without betting revenue. mix are unlikely to have much impact.

Given the financial implications of the Supreme Our more active suggestion – racing must Court decision, and the commensurate rapid compete. responses from leagues and teams, racing must We believe the most meaningful way racing will react on its own in order to survive in this benefit, directly, is to meet the exploding sports dynamic market. betting industry where it is – with fixed-odds A reliance on the pari-mutuel system, and at its and exchange offerings to its existing and current pricing, is a path to more widespread potential customers, and the development of horse racing industry failure. new ways to bet on the sport.

Change is necessary. Furthermore, the cost of a racing wager – takeout – must decline if racing is to survive in THE RACING INDUSTRY this market.

RESPONSE Jockey Club Chairman Stuart S Janney III offered a reference in his closing remarks at the 66th Off-the-cuff reactions from some racing insiders Annual Round Table Conference on Matters has been that there will be some benefit to Pertaining to Racing last August in Saratoga racing with the addition of sports betting, or that Springs. racing needs to find a way to get a cut of the proceeds. “Finally, lobby for a horse racing fixed- odds betting pilot. Virtually all sports We believe that such an opinion is misguided. bets are placed with fixed-odds, as you Fighting for racing to “get a cut” of the sports heard, and customers are accustomed to betting market could yield some additional it. They want to know the payoff they'll revenue for horsemen. win. Especially in this area of sports

16http://www.espn.com/chalk/story/_/id/23511326/dallas mavericks-owner-mark-cuban-says-sports-betting-ruling- doubled-franchise-values-overnight

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

betting, shouldn't horse racing be able to The mechanics of this are not simple, and every offer fixed-odds like everyone else?” 17 jurisdiction is in a different place in the sports betting legalization cycle at present. The answer to Chairman Janney’s closing question is a resounding YES. New Jersey, without question, is farthest along.

So who has the burden to ensure that racing Betfair, now part of FanDuel Group which also does this? operates the only legal ADW in the state – 4NJBets.com – has offered exchange wagering to We believe this falls almost exclusively to the residents of the Garden State since April 2016. horsemen’s organizations to drive the conversation and begin structuring deals. With analytics on players in both the traditional tote and the newer exchange markets, FanDuel Racetracks, many of which have slots facilities or suggests that not only do they not see any full-fledged casinos as part of their business, will cannibalization with the exchange now an option, certainly seek to be in the sports betting business. they report incremental growth, with dual- Some already are - Monmouth, Parx, Penn product customers growing total handle by an National and Charles Town (the latter three of average of 15% and representing the largest which have full casinos on their property) have share of growth in 4NJBets.com annual business. already launched sports books. FanDuel also operates a sports book at The But will these tracks exploit this opportunity to Meadowlands. generate increased revenue for themselves, or will racing be a part of that in some capacity? English bookmaker William Hill18 has partnered with Monmouth Park since 2013, launching a It is incumbent upon horsemen’s groups to be sportsbook in mid-2018, shortly after the proactive. They must ensure that any sports Supreme Court ruling enabled such an action. betting bill their jurisdiction considers clearly identifies horse racing as one of the sports upon The book even offered fixed-odds prop bets on whose outcomes sports betting licensees can the 2018 Haskell Invitational – one which offer wagering products. This would featured six head-to-head matchups, paying out automatically legalize fixed-odds betting on on whichever horse finished ahead of the other, horse races along with other sports, allowing and a second which paid out on the official racing to compete on the same terms. winning margin of the race. Another required bettors to select the winner of three races The path to structuring a deal is, admittedly, less (including the Haskell) and the winner of the clear. The guaranteed takeout model which the Cubs/Cardinals baseball game that night. industry has relied upon for decades does not apply to booked racing bets, but rather, the The head-to-head props handled $15,012 with “house” winning. the margin prop collecting $4,396. The four-way racing/baseball parlay handled the least at $4,233.19

17http://jockeyclub.com/default.asp?section=RT&year=20 19 http://live.drf.com/nuggets/44061-monmouth-some- 18&area=8 racing-sports-figures 18 William Hill recently reached an agreement to operate a sports book at Iowa’s Prairie Meadows if the state approves such wagering.

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

New Jersey’s Division of Gaming Enforcement But to remain competitive and provide liquidity approved the application for these wagers just to the most significant players in pari-mutuel days before the race and as the Asbury Park pools, racing’s tote business must also adapt to Press reported, “while there aren’t a large this new competition in order to retain number of wagers available, it marks the first customers, and this includes the need for the step in the process of creating synergy between industry to analyze if its betting menu is the horse racing product and sports betting, appropriately priced at its current levels. with plans for expansion.”20 If racing gets it right, the current cost of With almost no advanced marketing of these wagering should go the way of Blockbuster bets, no history of fixed-odds wagering on horse Video stores and of $35 commissions per stock racing, the bets being offered only to customers trade. betting in a very limited area of the facility (the Markets and industries evolve. William Hill Sportsbook), and without any other distribution (simulcast), the total of the fixed- Seth Klarman, billionaire investor and fund odds bets on the Haskell still exceeded several manager, and also passionate horse owner exotic betting pools offered on the day’s races. whose runners have accounted for more than 3,300 starts, recently gave a rare interview to In late 2018, the New Jersey Thoroughbred The New Yorker regarding the state of the global Horsemen’s Association announced a deal to markets. launch a mobile sportsbook in concert with Toronto-based theScore. While the terms were “I think people who fail to evolve and learn are not disclosed, this represented the first such part of the problem.”22 agreement in the market.21 North American racing’s betting markets and Racing cannot grow or thrive solely in a market opportunities must evolve. Racetracks, where it continues to offer only its existing menu horsemen’s groups and regulators are vital to of pari-mutuel options – win, place, show, exacta, this evolution as they establish a modern trifecta, superfecta, high-five, double, pick three, funding model for the sport. pick four, pick five, pick six (and whatever outrageously expensive jackpot varietals one How could the future of North American horse could imagine). racing wagering look? Here is just a small sampling of the possibilities. It should not go unnoticed that there ARE some clear benefits to pari-mutuel betting that should - Tracks installing photo finish cameras at ensure its survival – notably the ability to earn the half-mile pole, taking fixed-odds bets potentially huge payoffs through exotic on the winner at that pole. wagering, risks that bookmakers offering fixed- odds returns are generally unwilling to take. - Offering mid-race, fixed-odds markets after the first quarter-mile of a race (exchange wagering offers in-race

20https://www.app.com/story/sports/horses/2018/07/27/ 22 https://www.newyorker.com/news/daily-comment/the- haskell-2018-parlay-head-head-bets-approved-sports- investor-seth-klarman-in-a-rare-interview-offers-a- book/850621002/ warning-davos-should-listen 21 https://mobile.thescore.com/2018/12/thescore- announces-plans-to-launch-mobile-sportsbook-in-new- jersey/

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

wagering throughout the race already). disclosure and reporting. The stewards’ reports found in Australia, Hong Kong and Singapore - An over/under on the number of Chad would serve as meaningful examples of what Brown trained winners on Travers Day at North America needs. Customers need more Saratoga. direct proof that stewards are looking out for their best interests, and racing’s participants - An over/under on the number of Chad should want this too. The status quo is far too Brown trained winners on Travers Day casual. after the first seven races. Fixed-odds and exchange wagering also require

vigorous monitoring to protect both the integrity - Customers creating their own parlays, of the sport and the betting customers. In any combination of races and sporting November, the Sports Wagering Integrity events. Want a pick three that Monitoring Association (SWIMA) was launched, encompasses Parx’s first race, modeled after the Europe Sport Security Aqueduct’s third and Mahoning Valley’s Association. “The organization…will bring fifth? Machine-learning should help together key gaming stakeholders, including automate pricing these markets to state and tribal regulatory bodies, federal, state please both the market-makers and the and tribal law enforcement, in an effort to customers. uncover and prevent fraud and other illegal

activities related to sports betting and sporting - How many winners will Jose Ortiz ride events.”23 this…year, month, at Saratoga, or tomorrow at Gulfstream? Racing’s current monitoring entity, the Thoroughbred Racing Protective Bureau, Pari-mutuel pooled trifectas, superfectas and describes its activities as follows: multi-race Pick n wagers still have a place in the future, filling a market gap that fixed-odds “The TRPB, a wholly owned subsidiary of operators are unlikely to want. A robust fixed- the Thoroughbred Racing Associations of North odds market should enliven development of the America, operates as a national investigative tote to focus on offering better service for exotic agency in the horse racing industry…The wagers, integrating technology available today mandate is to expose and investigate all activity with predictive pricing on those markets. prejudicial to horse racing and to maintain public confidence in the sport of Thoroughbred TRANSPARENCY, INTEGRITY racing.”24

ENHANCEMENTS NEEDED Its website, under the “wagering security” tab, Commensurate with the growth of fixed-odds reports it is still “under construction” as of late and exchange wagering, racing must improve January 2019. the integrity functions of the sport. This includes Firms such as Sportradar have emerged, offering all of the current requirements of stewards, but services “that identify betting-related brought to a much higher standard of public manipulation in sport.” 25 The same should be

23 https://sportshandle.com/mgm-caesars-among- 24 http://www.trpb.com/index.html founding-members-of-sports-betting-integrity-monitoring- 25 https://integrity.sportradar.com/products-and- group/ services/monitoring-and-detection/

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019 required for racing, but particularly in a legal They cite racing “prospering in other countries” fixed-odds environment. which also offer a legal sports betting product. Taking two of their example jurisdictions – racing SECURING RACING’S FUTURE turnover has grown in Hong Kong over the last five years, with handle up 18% from the 2013-14 The Board of Directors of the Thoroughbred Idea fiscal year through 2017-18. But, soccer betting Foundation comprises a wide cross section of the during the same five-year period is up 66%. 27 sport – owners, breeders, horseplayers, former Australia, in just the last fiscal year published, jockeys, industry executives – all business people saw a rise in racing betting of 6.9% while sports who have enjoyed great success on the track and betting was up 15.3%.28 quite a bit away from it as well. Our group is well aware of the dynamics that exist beyond our Racing may not be in dire straits in those industry, and this paper implores the industry to jurisdictions, but the growth rates in sports embrace much-needed change. betting are exponentially exceeding those in horse racing. The comparison isn’t as rosy as We believe this paper should serve as a call to described. action to begin down the path towards modernization, creating new ways to bet on the Racing needs to change. sport and ensuring racing’s sustainable future. This means that the stakeholders that set Furthermore, there is a fairly narrow window of racing’s funding model – most especially time to accomplish this and still remain horsemen – must agree on a path forward that competitive in the minds of the American includes fixed-odds and exchange wagering. consumer, maybe two or three years, and a bit Concurrently, they should also address the longer in some states that are slower to adopt pricing scheme that exists through tote betting legal sports betting. now and adjust it while they can. Action is required. The clock is ticking – racing’s actions on these The Round Table meeting in August featured a matters must occur before sports betting takes presentation by consultants from McKinsey who off and leaves its relatively single-minded pari- rightly noted the rise of sports betting, but mutuel brethren at the gate. Different states will contrary to our opinion, suggested racing had have different timelines. Some may strike more little reason to worry about the loss of customers, favorable terms than others. Some will approach or cannibalization, due to sports betting. They it in a different fashion. Some will have to adjust cited their own research that showed 4% of models after launch. horseplayers surveyed would “bet less on racing Horsemen – now is the time to lead and preserve if sports betting were legal in their state.”26 your future by embracing the unassailable We believe most of the surveyed interpreted the change that is sweeping the land. Take the reins word “legal” as “allowed by law,” and not Maury and start now. The future of the sport depends Wolff’s far more eloquent depiction of a legal on it. product as noted earlier in this paper.

26http://jockeyclub.com/default.asp?section=RT&year=20 28 https://responsiblegambling.vic.gov.au/about-us/news- 18&area=6 and-media/latest-edition-australian-gambling-statistics/ 27https://corporate.hkjc.com/corporate/english/history- and-reports/annual-13-14.aspx

TIF Reports: Horse Racing and ‘Legal’ Sports Betting February 2019

Board of Directors Rory Babich, Craig Bernick, Donna Barton Brothers, Catherine Donovan, Lesley Howard, Corey Johnsen, Paul Matties, Justin Nicholson, Tom Reynolds, Gary Stevens, Jack Wolf

Executive Director Patrick Cummings