Thoroughbred idea foundation Reports Wagering Insecurity PUBLISHED: MAY 20, 2021 Patrick Cummings Executive Director, Thoroughbred Idea Foundation ContentS PART ONE 04 EXPECTATIONS PART TWO 08 Intertwined PART THREE 15 VOLPONI PART FOUR 20 CONFIDENCE PART FIVE 24 BINGO PART SIX 29 PROOF PART SEVEN 35 Z PART EIGHT 38 DAMAGE PART NINE 43 ALERTS PART TEN 46 GREY PART ELEVEN 51 Recommendations PART TWELVE 61 PRAVDA 66 APPENDIX Part one EXPECTATIONS Integrity is essential in horse racing to give all participants confidence. Customer confidence is important for any business, but especially so when people are investing their money. Across the forthcoming installments of the “Wagering Insecurity” series, several unsettling perspectives are offered. TIF spoke with nearly 50 long-time current and former industry executives, regulators and officials from around the racing world, some for direct attribution and others on background, who shared their unease with the status quo. A common thread: the blame is shared. Photo: Thoroughbred Idea Foundation 4 TIF REPORTS: WAGERING INSECURITY The poor state of wagering systems Horse racing is competing for customers, security and integrity measures is not the working to retain existing ones while trying fault of any one individual, group, regulator to attract and develop new ones, like any or corporation, it is how horse racing in business. Proper standards of integrity are North America has evolved. necessary. Wholesale improvements are needed. If Are racing’s customers, the bettors, we lift our standards, confidence will build, properly protected at present? participation will grow and racing’s future TIF believes the answer to that question will be more secure. is “no.” The security of racing’s wagering Participants across racing should have systems is not up to contemporary some basic expectations met. standards. The oversight of racing from Simply put, the competitions within stewards and regulators is not sufficient at racing should be fair and honest. Horses present for customers to have confidence should be free from any illegal performance in the legitimacy of results. enhancement. Jockeys should expect Both perspectives are addressed horses are sound, track surfaces are safe throughout the series. and stewards enforce rules consistently. When American racing fails its bettors Bettors should expect that jockeys give and stakeholders, it loses customers. In a horses their best chance to win, betting world where sports betting is available to information is accurate and that wagering almost half of the American population and systems are secure and do not advantage typically just involves downloading a mobile some customers over others. app, cheaper and better policed gambling Are we meeting these expectations? opportunities are easily found. This series delves into the integrity of Do participants in racing have confidence North American horse racing, specifically as in the outcomes on the track and through it relates to the $11 billion wagered through wagering? Right now? No. Could they? Yes, the pari-mutuel system, and the uncounted or at least far more so than exists now. billions wagered outside the purview of Confidence is good for business. North American racing regulators. who is betting what? Racing’s business statistics are deliberately opaque. There is no central office that tracks racing’s betting business and performance, a perpetual disservice to the sport’s stakeholders. Basic metrics on wagering would be helpful for many stakeholders in the sport but getting them is practically impossible. This lack of clarity has become increasingly problematic because the business changed fundamentally in the 1990s and the division of revenues from wagering did not keep pace. Handle shifted from on-track to off-track as full-card simulcasting and internet-enabled advanced deposit wagering (ADW) took hold. On-track betting revenues are often the most lucrative 5 TIF REPORTS: WAGERING INSECURITY for purses under current agreements largest registered ADWs, show that handle between bet-takers, tracks and horsemen. for the three largest ADWs in 2020 – TVG, It has declined while the ADW business has TwinSpires and Xpressbet – was more than grown in significance, with the pandemic- $6.2 billion. That includes all breeds and related closures turbocharging that growth, greyhound betting through those ADWs, accounting for an estimated $7 billion of not just U.S. Thoroughbred betting, though U.S. Thoroughbred racing handle last year. Thoroughbred racing does generate the Now, who is betting what, and through vast majority of total action. which channels? NYRABets, a fourth major ADW which When Equibase reported total wagering hubs some of its betting through Oregon, on U.S. racing in the pandemic-impacted reported handle of $225 million, but that 2020 was $10.92 billion, down less than 1% isn’t the entire picture as much of its handle from the previous year despite nearly ten comes from New York residents, which is months of racing without live attendance, not included in Oregon figures. The New that felt like a decent showing. York in-state numbers have not been made But total handle figures at a nationwide public. level, or even at the individual track level, What about the rest? do not offer much insight to the health of the business. They tell us very little. It is the composition of that handle which is a more meaningful measure, but such details are The Groups almost never available to anyone except the host track where the race occurs. Some came from on-track money from Citing total handle figures as a measure of January through early March when tracks performance should be viewed skeptically, were open. A small amount came from particularly by horsemen. tracks with live attendance after March. Where does handle come from? How Some came from smaller ADWs hubbed many individual customers are wagering? in North Dakota, where betting handle by How many new customers have been ADW is not made public. Some came from created, and how many are still betting? How Canadian customers. many customers are betting substantial But much of it came from groups like amounts over $10 million, $50 million, or Elite Turf Club, entities which TIF has called over $100 million annually? What is the “high-volume betting shops” (HVBS) in our effective takeout for customers of different previous white paper but are more formally ADWs? How much are purses earning from known within the industry as secondary different customer segments? pari-mutuel organizations (SPMOs). These Without centralized reporting of these groups are the biggest customers by handle, figures made available to all parties in the receive substantial rebates and have direct sport, it is almost impossible to know. access to pari-mutuel pools. Here is what we do know. In his 2016 book “The Perfect Bet,” author Reports from the Oregon Racing Adam Kucharski called it “scientific betting.” Commission, which serves as a hub for the “The techniques are now so effective – 6 TIF REPORTS: WAGERING INSECURITY and the wins so consistent – that teams… of millions annually. Their total handle is don’t celebrate when their predictions come unknown to the wider industry because it is good.” commingled with ADW betting. These groups participate at an institutional Bettors may not understand how the big level. They bet big because that is what the HVBS/SPMO groups operate and exactly math dictates. It is cold, calculated investing. what they are betting, but they can readily Kucharski continues: observe their impact on the game. “It’s not cheap to set up a scientific What horseplayer hasn’t watched as betting syndicate. To gather the necessary a horse that is last into the gate at 23-1, technology and expertise, not to mention breaks on top and is never headed, winning hone the prediction method and place the at a much-reduced 11-1? Horses routinely bets – costs most teams at least $1 million. enter the gate at 5-1, only to win at 5-2. Or in Because betting strategies are expensive to the last flash of a mandatory payout when run, teams in the United States often seek a bet of half a million dollars shows up in out racetracks that offer favorable gambling the pool? conditions.” These are discouraging experiences According to court filings from 2017, The for the people who cash a bet in those Stronach Group (now 1/ST) owns Elite Turf races and draws headshakes from many Club. others. For more than two decades, these Based on a variety of projections which incidents have plagued North American TIF has updated to account for 2020 figures, racing’s customers without any meaningful we estimate total betting from the HVBS/ attention or action from track operators. SPMOs was likely between 33% and 40% Perhaps their most noteworthy response of total U.S Thoroughbred handle, in the has been removing the odds from the vicinity of $4 billion out of the total $10.92 screen in the final seconds of loading billion. The reality could be higher or lower. through the first quarter-mile of a race so In 2003, they represented approximately the drops are less visible. In many cases, only 8% of total wagering. the big syndicates wagering hundreds of These groups might not be growing, millions annually through HVBS/SPMOs but rather they are representing a larger are the cause of such price crunches, percentage of wagering as mainstream degrading the experience for everyone else. horseplayers abandon racing, or shift The inability of regular horseplayers to more of their action to legal sports betting have any idea what price they are getting options. damages the product every day. Sports The majority of play from the HVBS/ betting customers know exactly what their SPMOs is not counted in the ADW figures. return will be if their bet wins.