This is Part 1 of the Thoroughbred Idea Foundation’s (TIF) series “Wagering Insecurity.”

Faced with remarkable competitive pressure from the rise of legal sports betting, horse racing is at a crossroads.

Confidence amongst horseplayers and horse owners is essential to the future sustainability of the sport. Efforts to improve the greater North American Thoroughbred industry will fall flat if its stakeholders fail to secure a foundation of integrity, along with increased transparency of the wagering business and its participants over time. Achieving this is growing increasingly difficult after the sport has neglected its core base - horseplayers – for decades.

“Wagering Insecurity” details some of that neglect, and the need to embrace serious reform. Fortunately, there are examples across the racing world to follow.

PART 1

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.  

The poor state of wagering systems security and integrity measures is not the fault of any one individual, group, regulator or corporation, it is how horse racing in North America has evolved.

Wholesale improvements are needed. If we lift our standards, confidence will build, participation will grow and racing’s future will be more secure.

EXPECTATIONS

Participants across racing should have some basic expectations met.

Simply put, the competitions within racing should be fair and honest. Horses should be free from any illegal performance enhancement. Jockeys should expect horses are sound, track surfaces are safe and stewards enforce rules consistently. Bettors should expect that jockeys give horses their best chance to win, betting information is accurate and that wagering systems are secure and do not advantage some customers over others.

Are we meeting these expectations?

This series delves into the integrity of North American horse racing, specifically as it relates to the $11 billion wagered through the pari-mutuel system, and the uncounted billions wagered outside the purview of North American racing regulators.  

Horse racing is competing for customers, working to retain existing ones while trying to attract and develop new ones, like any business. Proper standards of integrity are necessary.

Are racing’s customers, the bettors, properly protected at present?

TIF believes the answer to that question is “no.” The security of racing’s wagering systems is not up to contemporary standards. The oversight of racing from stewards and regulators is not sufficient at present for customers to have confidence in the legitimacy of results.

Both perspectives are addressed throughout the series.

When American racing fails its bettors and stakeholders, it loses customers. In a world where sports betting is available to almost half of the American population and typically just involves downloading a mobile app, cheaper and better policed gambling opportunities are easily found.   

Do participants in racing have confidence in the outcomes on the track and through wagering? Right now? No. Could they? Yes, or at least far more so than exists now.

Confidence is good for business.

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 for purses under current agreements between bet-takers, tracks and horsemen. It has declined while the ADW business has grown in significance, with the pandemic-related closures turbocharging that growth, accounting for an estimated $7 billion of U.S. Thoroughbred racing handle last year.

Now, who is betting what, and through which channels?

When Equibase reported total wagering on U.S. racing in the pandemic-impacted 2020 was $10.92 billion, down less than 1% from the previous year despite nearly ten months of racing without live attendance, that felt like a decent showing.

But total handle figures at a nationwide level, or even at the individual track level, 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 almost never available to anyone except the host track where the race occurs.

Citing total handle figures as a measure of performance should be viewed skeptically, particularly by horsemen.

Where does handle come from? How many individual customers are wagering? How many new customers have been created, and how many are still betting? How many customers are betting substantial amounts over $10 million, $50 million, or over $100 million annually? What is the effective takeout for customers of different ADWs? How much are purses earning from different customer segments?

Without centralized reporting of these figures made available to all parties in the sport, it is almost impossible to know. 

Here is what we do know.

Reports from the Oregon Racing Commission, which serves as a hub for the largest registered ADWs, show that handle for the three largest ADWs in 2020 – TVG, TwinSpires and Xpressbet – was more than $6.2 billion. That includes all breeds and greyhound betting through those ADWs, not just U.S. Thoroughbred betting, though Thoroughbred racing does generate the vast majority of total action.

NYRABets, a fourth major ADW which hubs some of its betting through Oregon, reported handle of $225 million, but that isn’t the entire picture as much of its handle comes from New York residents, which is not included in Oregon figures. The New York in-state numbers have not been made public.

What about the rest?

THE GROUPS

Some came from on-track money from January through early March when tracks were open. A small amount came from tracks with live attendance after March. Some came from smaller ADWs hubbed in North Dakota, where betting handle by ADW is not made public. Some came from Canadian customers.  

But much of it came from groups like Elite Turf Club, entities which TIF has called “high-volume betting shops” (HVBS) in our previous white paper but are more formally known within the industry as secondary pari-mutuel organizations (SPMOs). These groups are the biggest customers by handle, receive substantial rebates and have direct access to pari-mutuel pools.

In his 2016 book “The Perfect Bet,” author Adam Kucharski calls it “scientific betting.”

“The techniques are now so effective – and the wins so consistent – that teams…don’t celebrate when their predictions come good.”

These groups participate at an institutional level. They bet big because that is what the math dictates. It is cold, calculated investing. Kucharski continues:

“It’s not cheap to set up a scientific betting syndicate. To gather the necessary technology and expertise, not to mention hone the prediction method and place the bets – costs most teams at least $1 million. Because betting strategies are expensive to run, teams in the United States often seek out racetracks that offer favorable gambling conditions.”

According to court filings from 2017, The Stronach Group (now 1/ST) owns Elite Turf Club.

Based on a variety of projections which TIF has updated to account for 2020 figures, we estimate total betting from the HVBS/SPMOs was likely between 33% and 40% of total U.S Thoroughbred handle, in the vicinity of $4 billion out of the total $10.92 billion. The reality could be higher or lower. In 2003, they represented approximately only 8% of total wagering.

These groups might not be growing, but rather they are representing a larger percentage of wagering as mainstream horseplayers abandon racing, or shift more of their action to legal sports betting options.

The majority of play from the HVBS/SPMOs is not counted in the ADW figures. Customers like those at Elite, and it is only a few customers, place their bets directly into the pools, bypassing an ADW intermediary. There are also smaller computerized robotic wagering groups which DO process bets through ADWs, entities betting tens of millions annually. Their total handle is unknown to the wider industry because it is commingled with ADW betting.

Bettors may not understand how the big HVBS/SPMO groups operate and exactly what they are betting, but they can readily observe their impact on the game.

What horseplayer hasn’t watched as a horse that is last into the gate at 23-1, breaks on top and is never headed, winning at a much-reduced 11-1? Horses routinely enter the gate at 5-1, only to win at 5-2. Or in the last flash of a mandatory payout when a bet of half a million dollars shows up in the pool?

These are discouraging experiences for the people who cash a bet in those races and draws headshakes from many others. For more than two decades, these incidents have plagued North American racing’s customers without any meaningful attention or action from track operators. Perhaps their most noteworthy response has been removing the odds from the screen in the final seconds of loading through the first quarter-mile of a race so the drops are less visible. In many cases, the big syndicates wagering hundreds of millions annually through HVBS/SPMOs are the cause of such price crunches, degrading the experience for everyone else.  

The inability of regular horseplayers to have any idea what price they are getting damages the product every day. Sports betting customers know exactly what their return will be if their bet wins. What was once a harmful feature of pari-mutuel wagering is now a huge competitive disadvantage.

Sports betting is growing at an explosive rate with attractive betting offerings and widespread distribution. Operators are spending vast sums using bonuses and promotions to acquire customers and are embracing modern betting technology.  That is not bad news for racing companies in the racing wagering space, like TVG and TwinSpires, whose parent companies run sports betting businesses, but it is bad for those who depend on purses for their livelihoods.  

For the last 25 years, as betting shifted online, purses in many North American jurisdictions have been bolstered by subsidies from additional gaming, be it slot machines, video lottery terminals (VLT), historical horse racing (HHR) machines or others. That era in American racing is far closer to sunset than sunrise as casino wagering moves online where revenues are undivided. Decoupling racing from slot and casino revenues will likely increase. While all stakeholders in racing should undoubtedly pursue every funding source possible, the single greatest, sustainable source of revenue for racing on the continent remains actual wagering on racing.

There are avenues for improvement, but any efforts to attract new wagering on racing will fall flat if the North American racing industry fails to embrace integrity across the sport – within its wagering systems, betting platforms and the running of the races themselves.

In our next installment, one leading expert makes it clear – doping in racing is intertwined with gambling. So why is gambling almost never referenced or investigated in North America in such cases?

Coming Thursday, April 15 – Part 2 – Intertwined

Review the Executive Summary to "Wagering Insecurity"

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