Daily Settlements Needed to Protect Players

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In late November, in a move done in large part to protect horseplayers at advance-deposit wagering companies, the Kentucky Horse Racing Commission approved a rule that would require ADWs that operate in the state acquire a bond of up to $500,000 as a condition of licensing.

The new requirement should provide added protection for Kentucky ADW customers—as well as the state—should an ADW declare bankruptcy.

Under the plan, ADW companies will be required to secure a bond that would cover the average daily account holdings of its Kentucky players as well as an average month's worth of state taxes. The thinking is that if a bankruptcy should occur, that bond money would ensure there's cash to pay players and state taxes.

Such a requirement could prove useful should an ADW declare bankruptcy as, for reasons I'll never understand, courts have ruled that wagering money owed to players is not separate from other operational funds owed to other vendors during a bankruptcy. Of course the most prominent racing industry bankruptcies where this has occurred have involved racetracks.

Bonding should provide some protection for players but state regulators continue to take no action on a seemingly simple rule that would greatly enhance protection of players and wagering outlets: require that all wagering wins and losses be resolved on a daily basis. 

Currently such settlements can take days or weeks to complete. That is to say if an outlet finishes in the black on a given day, that money may not be paid by the host site for days or weeks.

The problems with this setup were exposed in the 2009 MEC bankruptcy when four ADW owners said their players were owed more than $7 million in player winnings from tracks owned by MEC. The ADWs were unable to keep most of that money out of the unsecured funds listing of the bankruptcy.

As it's not a good practice for an ADW to not pay money won by its customers, the ADWs were left on the hook to square the difference with their players.

If wins and losses were resolved each day between host tracks and outlets, such scenarios would not occur or would at least be minimized. With the industry slow to take action, state regulators should find ways to put this requirement in place.

The current setup is especially vulnerable because the tracks or outlets most likely to fall behind on payments would be the tracks or outlets most likely to file bankruptcy.

 Today's blog item initially ran as a Dollars and Sense column Dec. 3 in BloodHorse Daily. 

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