The Rise of Bet Takers in North America - By Fred Pope

(Originally published in the July 10, 2010 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)  

France just banned Betfair, the popular betting exchange. Rude? No, the country has always protected its horse industry. French racing doesn’t own a white flag. No outside bet takers are allowed.

Bookmakers rule England, where they take bets and the risks. France created the pari-mutuel system, where there are no risks. A portion of the wager, called takeout, funds its racing and breeding.

We adopted the pari-mutuel system and outlawed bookmakers too. When our wagering was all “on track,” just like France’s, all takeout stayed with those putting on the show.

Then Congress passed the Interstate Horseracing Act of 1978, allowing offtrack wagers across state lines. It should have skyrocketed the sport. Instead, it opened the door for bet takers in North America.

Offtrack bet takers at other racetracks, offtrack betting outlets, and advance deposit wagering companies now control 90% of our wagering revenue. As they rise, revenue to live racing falls, just as in England.

As France does, we used to protect racing. We didn’t care if people wanted to bet on other sports. We stopped people from gambling on Internet games. The number of agricultural jobs racing provides has made the case for this position. Such “hardboot” actions built and protected this industry until we fell prey to bet takers.

Our industry does not have a “think tank.” A few of us spend our personal time and money on research and analysis of problems. My area is marketing, which involves this distribution and pricing issue.

Recently, I spoke to the Kentucky Thoroughbred Association’s Vision 2020 Club (maximum age 39) about the offtrack problem and touched on the ebb and flow of bloodstock among countries. I related how 30 years ago my clients used artificial tax laws to acquire leading stallions and bloodstock from France.

France has turned the tables, using racing to fuel its rebound. No slots, no other games, just racing. Regardless of where the bet is made, or technology used, all revenue flows to the sport, not to bet takers. France is the only open port in a worldwide Thoroughbred storm.

When offtrack wagering started, we should have used the same distribution model. The IHA could have specified a small fee to those taking the offtrack bets. Instead the tracks forced an upside-down revenue model, in which bet takers keep the lion’s share. Incredibly, they also allowed casinos and OTBs to use the same model and keep the host tracks’ money.

When ADWs introduced phone and Internet wagering, they cannibalized the tracks and OTBs. Today, bet takers are pulling more money out of purses than slots are artificially pushing into purses nationwide.

Our tracks made this terrible distribution mistake. But for some reason our industry has not corrected the problem. It bothers me this problem is not recognized and our young people are told the sport has no future. We can make a surgical repair to the enabling legislation and bring new life to racing in the world’s largest economy.

Congress can set a price floor in the IHA for host tracks to receive a minimum 50% of the takeout, similar to the price floor set for milk. This will put live racing on equal footing with bet takers and start the transition to direct wagering, where the revenue stays with the host track/purse account. When the IHA is corrected, analysis shows most tracks will see net increases in total revenue. In addition, purse accounts will rise dramatically. The bet takers will see revenue fall.

This transition to host tracks accepting wagers directly will also solve the offtrack “settlement” problem, where bankrupt bet takers now owe hundreds of millions to host tracks and owners’ purse accounts. The IHA can insure that never happens again.

Thousands of owners and breeders impact hundreds of thousands of jobs, but there are just a few bet-taking operations. Politically the numbers favor change, but some in our industry are invested in these bet-taking companies, and, as you can imagine, they do not want the IHA changed. If you think that’s why nothing has been done, you might be right.

Let’s not have to look the next generation in the eye and tell them it wasn’t worth an internal fight to save this sport. In true “hardboot” fashion, reject the interests of others—even if it is someone you know—and do what is best for your industry.

You can turn the page now, or you can start writing down names of fellow owners and breeders to call and correct the IHA. 

Fred Pope is a marketing and advertising executive in Lexington. He has worked for racing and breeding clients most of his career. 

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