Computer-Robotic Wagering (CRW) - By Frank Angst

Computer-robotic wagering (CRW) has helped prop up pari-mutuel handle in recent years but has made race betting less attractive for every other player by making it difficult for racing to attract new bettors. Now, based on law enforcement officials’ assessment of fantasy sports wagering, CRW may be illegal.

Considering one in five dollars bet into pari-mutuel pools in 2014 came from CRW, a determination that this betting form is illegal would devastate racing’s economic engine short-term. But long-term, eliminating this unfair advantage in which players use computers programmed to find value in pari-mutuel pools and then target wagers into those pools could lead to a healthier business model.

The instantaneous knowledge of probable payouts, ability to wager thousands of different combinations, and the capability to make those bets just a few seconds before the race when odds have settled, provide CRW players unfair advantages over other bettors. Even if that “human” bettor could instantly discover pool value, speech limitations and relatively slow fingertips would prevent punching in thousands of wagers to take full advantage of that insight.

This setup is especially damaging in converting new players into regular players. Even if new players don’t fully understand what is happening when they bet races, they soon recognize there are few instances where the winning payout is better than expected. The chance of finding that type of payout—an overlay—is race wagering’s real attraction, one of its few advantages over casino games. CRW players have helped reduce instances of such overlays, weakening the betting product for everyone else.

When racing has problems competing with casinos for wagering dollars, some experts will tell you it’s because pari-mutuel wagering is too complicated. Don’t buy that for a second. Poker players have invested countless hours reading books and attending camps to improve their games. Fantasy sports players devote days on end to reading stat sheets and news reports looking for ways to top their rivals and win money.

Pari-mutuel wagering on horse racing is the original daily fantasy sport and should be enjoying a renaissance as bettors look for a greater challenge than pushing a slot machine button. Casino executives at this year’s Global Gaming Expo acknowledged some floor space needs to be converted from mindless slot machines to games-of-skill preferred by younger bettors. But racing’s current model that relies on high takeout and a select few CRW players poaching off others has left pari-mutuel wagering ill-equipped to take advantage of these trends.

New horseplayers are no match for CRW players who receive lucrative rebates to encourage increased play. Those rebates are made possible, in part, by the high takeout paid by new players. If this sad cycle sounds criminal, it may be.

When New York State Attorney General Eric Schneiderman this month asked the two leading daily fantasy sites to stop operating in the state, he referenced unfair advantages for some players.

“… both companies consistently use deceptive advertising to lure consumers into an unregulated online gambling operation that, while marketed as a game that anyone can win, in fact distributes the vast majority of winnings to a small subset of experienced, highly sophisticated players,” Schneiderman said.

The New York Times and Wall Street Journal have reported the FBI is investigating similar problems in daily fantasy sports. The Times reported in October, “many of the professional (fantasy players) use automated processes that let them change hundreds, if not thousands, of lineups in seconds, a decided advantage when last-minute changes are made in the lineups in real football, basketball, or baseball teams.”

That description sounds a lot like CRW. It may be only a matter of time before law enforcement takes a look at horse racing’s unfair pari-mutuel model. 

Despite the short-term pain, it’s time for racing to shake its unfair model. Perhaps CRW could gradually be phased out before law enforcement takes action. After all, the money pumped into the current system by CRW players has not been enough to offset the lack of new players sticking around, players reducing play, or players completely leaving the sport. Pari-mutuel wagering is declining or flat and CRW players are part of the reason other players are reducing play and new players aren’t sticking.

Eliminating CRW and putting in place optimal takeout rates for all players so that everyone competes equally would restore the attraction fantasy sports bettors currently enjoy—finding the edge. Millions of new players are finding that attraction in fantasy sports; they should be finding it in horse racing.

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