Embracing I-Gaming - by Tom LaMarra

Last year a door opened for the pari-mutuel industry, leading to an opportunity for racetracks to expand their gaming options and potentially boost revenue and purses.

But too few have even bothered to look through the door, let alone pass through.

That doorway leads to Internet gambling, and, in at least one gaming executive’s opinion, racing is quickly losing ground because of inaction.

 “Rather than embracing the gaming marketing, the racing industry has been hermetically sealed,” Joe Brennan Jr. said during the recent International Simulcast Conference in Clearwater Beach, Fla. Brennan is head of the Interactive Media Entertainment and Gaming Association. “In Europe there is no such thing as just a horse racing website. Half of the (racing) industry is trying to be protectionist, and half of it is trying to find solutions to get into this game.”

Brennan later said: “I’ve asked this question many times. Why aren’t you leading this? What are you waiting for? You’re late because you’ve allowed yourself to be late.”

The questions could pertain to many aspects of horse racing. But Brennan was addressing Internet gambling, now called I-gaming.

The door opened when the U.S. Department of Justice issued an opinion that the federal Wire Act pertains only to wagering on sporting events, meaning online bets on lotteries and casino games, for instance, are fair game.

A revision to the Interstate Horseracing Act of 1978 gave horse racing—a sporting event—exclusive rights to interstate online wagering. Because of that, Brennan said racing has an advantage in the online gambling market.

There has been movement on Internet gambling legislation, but it has been intrastate, meaning bets must be made within the state in which it is legal. Those include Nevada, Delaware, and New Jersey.

Internet gambling is a perfect example of states’ rights versus federal oversight. States control gambling, but wagering across state lines (interstate) lies with the federal government.

As Brennan noted at the conference, New Jersey Gov. Chris Christie believes only the Atlantic City casinos, not the state’s racetracks, should benefit from I-gaming. Delaware is a different story.

The Delaware Gaming Competitiveness Act of 2012 authorizes the state’s three racetrack casinos to offer intrastate I-gaming. The law actually states one of its purposes is to “provide further support to Delaware’s harness and Thoroughbred horse racing industries by expanding the gaming offerings benefitting video lottery licensees and the horsemen who race there.”

Delaware is far from perfect, but no state has respected more the original intent of its law authorizing racetrack video lottery terminals: The bill was passed to protect horse racing and its agriculture-related economic benefits.

Delaware horsemen get a cut of the revenue from VLTs, casino table games, and limited parlay sports betting on professional football, which was expanded to non-racetrack facilities this year. Though not stated in the most recent gambling expansion law, they also get 4.5% of I-gaming revenue, whenever it materializes.

Horsemen’s groups are working with the administration of Gov. Jack Markell to increase that percentage should I-gaming generate more revenue than projected. With a population of under one million, it would appear intrastate I-gaming won’t be a windfall unless people drive to the state specifically to place bets via their computers.

What Delaware did, however, is put itself in a position to benefit greatly should I-gaming become interstate in nature.

What does that mean for horse racing? That’s hard to say, given racing’s track record.

Anyone who frequents racetrack casinos knows the deal: There may be 5,000 people in the casino and 250 betting on live horse racing and simulcasts. If betting on horse races and casino games were offered on the same website, would the same thing occur?
Would wagering on racing be marketed as well as wagering on blackjack or video slots? That hasn’t been the case at many brick-and-mortar facilities.

Also disturbing is the fact that advance deposit wagering was hailed as the primary vehicle to attract new customers to horse racing. The percentage of ADW pari-mutuel handle has grown—but total handle has declined in recent years. ADW is a good thing, but it’s clearly not the savior.

So horse racing is faced with a choice: It can use its current interstate online wagering exclusivity to its advantage—assuming racetrack companies have their hearts in the right place—or crawl into a hole and be reactionary.

Brennan’s questions are legitimate, but they beg even more questions.

Does horse racing have a plan for I-gaming? If so, how does racing fit in?

Revenue from slots, table games, and non-racing sources should be a bonus, not a subsidy. The ultimate objective should be growing pari-mutuel handle through multiple sources.

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