This is Part 10 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 10 - GREY

Jim “Mattress Mack” McIngvale made it clear how important it was, for him and the overall racing industry, to place his massive Kentucky Derby bet on-track at Churchill Downs. He told the Thoroughbred Daily News:

“It’s crazy that some people in the horse racing business bet with a bookie or go offshore to a place like Costa Rica. They’re not supporting racing.”

While there are plenty of legal arrangements for betting on U.S. racing, be it through any ADW account, at the track, an OTB outlet, or even for those abroad betting through licensed bookmakers who have agreements in place with U.S. tracks, there are many illicit operators which seek to skirt the law and share no revenue with horsemen or track operators.

Betting markets can be classified in three categories, defined below in the recent Handbook from the Asian Racing Federation’s Council on Anti-Illegal Betting and Related Financial Crime (ARFCAIB):

[Legal] market: Companies licensed to operate in the jurisdiction where their customers are located.

 Grey market: Companies licensed in some jurisdictions, but which take bets from consumers in jurisdictions where they are not licensed.

 [Illegal] market: Operators who have no license from any jurisdiction.

No matter how robust your legal market regulation and monitoring may be, racing operators worldwide must be attentive to the issues created by grey and illegal betting sites.

For this report, we speak most about “grey market operators” – or GMOs. Their presence can impact legal pari-mutuel markets, degrade customer confidence and threaten the integrity of the sport. That impact was felt on at least three occasions in the last month at one U.S. track.

RECENT MANIPULATION

In April 2021, at least three instances of tote pool manipulation occurred in quinella pools at Will Rogers Downs in Oklahoma. 

Extremely large wagers, relative to the size of the overall pool, were placed on combinations likely to lose, inflating the actual tote returns on more favored horses.

The goal of such manipulation is to dramatically change the odds on the pari-mutuel outcomes and win far more by betting through a non-parimutuel operator (like a GMO) which pays at track prices and at generous limits. While the manipulated bets on the legal, pari-mutuel pools are expected to be losing ones and inflate the returns for other successful customers, the manipulator aims to make a far larger score through their other plays. There were instances of such manipulation through the mid-1990s at Nevada racebooks before most books stopped booking racing bets and adopted pari-mutuel wagering on racing.

The quinella pool at Will Rogers typically handled between a few hundred dollars to less than $2,000 per race. In the most egregious example of manipulation, which occurred in Race 2 on April 27, the quinella pool totaled $7,469 for this Oklahoma-bred claiming event.

The winning quinella (first two horses in any order) featured the two favorites in a five-horse field and returned an astounding $51.30 for every $1 bet. The exacta with the same horses returned $6.20 while the trifecta with the third choice in betting running third paid $9.60.

What seemed like a gift for favorite backers could have been a nightmare for those who legitimately backed the two longest-priced runners in the small field if that result had materialized. The quinella probable payouts featuring those two horses, who closed at 6-1 and 9-1 in the win pool, would have returned $1.05 for every $1 bet.

Tote Pool Manipulation.PNG

A review of the quinella probables in the final moments of betting showed that the eventual winning combination was paying $3.90 in the next-to-last update of the probables, while the longshot combination, which would tumble to $1.05, was paying $18.30 at that time.

What was being treated as the least likely outcome in the win and exacta pool would close as a 1-20 favorite in the quinella pool.

There were variations on these manipulations earlier, on April 7 and April 20. The acts of manipulation are not in violation of law or even existing betting rules but could trigger a blow to customer confidence and lead to legitimate questions about the integrity of race results, depending on the circumstances of each race. Vigilance from stewards and regulators is absolutely necessary.  

Will Rogers Downs, much to their credit, stopped offering quinella wagers after their April 28 races.

GMOs

While wanting to raise awareness to the issues the GMOs create, TIF has no interest in promoting a troublesome betting option. For that reason, we use generic titles below to describe the actions of three GMOs.

Grey Market Operator 1 (GMO1) is based in Asia and is reportedly the world’s largest unregulated betting exchange. It shares no information and allegedly handles as much on Hong Kong racing as the Hong Kong Jockey Club (HKJC) itself.

Michael Cox’s 2015 profile is well worth reading, providing additional insight on GMOs and a connection to U.S. racing.

In February 2021, three men were arrested, and more than US$1 million in cash seized, at Hong Kong’s Sha Tin Racecourse where the men were allegedly laying horses which were slow into stride, using sites like those run by GMO1 and taking advantage of the lag between live viewing of the races and the ability of sites to shut betting.

Sha Tin Racecourse - Alex Evers Photo.jpg
Hong Kong's Sha Tin Racecourse - 2018
Photo: Alex Evers

Attendance at Sha Tin was severely limited due to the COVID-19 pandemic and those arrested were guests of, at the least, Hong Kong horse owners.

As cited previously in this series, Hong Kong’s betting monitoring includes profiles on jockeys and alerts are triggered if “irregular trends” for slow starts are identified.

Grey Market Operator 2 (GMO2) is perhaps the most aggressive operator seeking to attract racing wagering from Americans.

GMO2 operates a marketing arm which produces legitimate, original racing-related content from established and even award-winning American racing writers and media members. They created an annual award series, tagging various trainers, jockeys and other racing fans through social media in the hopes of engaging them to spread their message and promote their illicit platforms.

You won’t find a more striking example of the degradation of American racing journalism and its lack of independent media coverage on it than seeing recognized journalists and publicists accepting work for a GMO.

GMO2 prefers that its customers use cryptocurrency to fund accounts and receive winnings while guaranteeing a daily rebate on all play. One executive with a legal American ADW, who asked not to be identified, told TIF that GMO2 has “an incredibly effective search engine optimization strategy which almost certainly is helping them grow their business.”

Grey Market Operator 3 (GMO3) offers 17 different methods to fund accounts to bet on any number of sports or racing offerings. Eight of the funding methods are cryptocurrencies, headlined by Bitcoin, but includes Ethereum and several smaller cryptocurrencies. GMOs seem to have a growing affinity for cryptocurrency because of the difficulties with legitimate banking transfers.

According to the ARFCAIB Handbook, this evolution in funding methods presents more challenges to concern racing.

“Many cryptocurrency betting operators accept bets that allow the customer complete anonymity…

“To support integrity operations, sports and gambling regulators rely on information-sharing agreements with betting operators…

“Account opening procedures can be limited to user name, password and e-mail address, while some operators do not even require these for a customer to place a bet.”

On Saturday, January 30, 2021, GMO3 took betting across every Thoroughbred and Standardbred race in America.

One year earlier, in January 2020, a tweet from an American owner whose horses accumulated earnings approaching $9 million from more than 1,000 starts over the last five years as of April 2021, boasted about winning thousands from GMO3 and posted screenshots (since deleted, though retained by TIF) of the successful bets.

A second horse owner whose family history in the sport includes a win in a Breeders’ Cup race, posted images of successful GMO bets on racing via social media in February 2021. He indicated ADWs were not legal in his U.S. state, and thus he had no choice but to use such an option.

Betting with GMOs is the least sustainable method of wagering on American racing. No revenue from these bets is returned – to horsemen to fund purses or tracks to fund operations.

They are free riders on racing’s own product.

RACE FIXING AND WORSE…

Speaking at the 2020 Asian Racing Conference, Tom Chignell, the HKJC’s Executive Manager, Racing Integrity and Betting Analysis, a member of the ARFCAIB, and a former betting investigator with the British Horseracing Authority (BHA), offered a sobering assessment of the overall situation:

“The greatest betting integrity threat to racing are jockeys or trainers stopping horses from winning and then betting them to lose on the illegal markets.”

Chignell makes it clear that the sport’s attention to bet monitoring must come not only on the legal markets on which racing regulators have some oversight, but also an awareness of other, less-visible markets which can also lead to corruption of the sport.  

“You have to be looking at the illegal market. If you are looking to race-fix or match-fix, why would you bet with the legal market where there are healthy, established reporting channels when there is a large illegal market, with insufficient know-your-customer [policies] and almost non-existent reporting channels to racing authorities?”

Betting sites in the grey or illegal markets are not operating solely out of pure profit motives either, but also as a conduit for money laundering of other criminal proceeds.

The ARFCAIB Handbook outlines the specifics:

“Illegal betting is also a key means of money laundering by transnational organized crime. It has been estimated that US$140 billion, or 10% of global crime proceeds, is laundered through sports betting every year…

“Sports betting websites are essentially analogous to financial institutions as they are involved in deposits and withdrawal of money, which can be huge amounts. Yet, illegal operators are subject to none of the [anti-money laundering] oversight of financial institutions or indeed legal betting operators.

“Exacerbating this is the fact that many illegal operators are deliberately run poorly in this regard – they are set up by transnational organized crime specifically to make the proceeds of crime appear to be the profits from licensed betting operations.

“For example, in 2015, police seized EUR2 billion [approximately $2.5 billion] of assets from the ‘Ndrangheta, the Italian organized crime group behind most of Europe’s cocaine trade. These assets included 82 gambling websites licensed in the betting haven of Malta, through which huge sums were laundered.”

The ARFCAIB does not currently have a member from North America within its ranks, which includes racing industry representatives from Australia, Great Britain, Hong Kong, New Zealand, South Korea and organizational representation from the United Nations Office on Drugs and Crime, INTERPOL and the Australia Criminal Intelligence Commission.

The more direct connection between the role of racing and that of grey and illegal markets becomes clearer, as the ARFCAIB Handbook continues:

“The globalization of sport and betting has been a perfect combination for the corruption of racing and other sport. Match-fixers can arrange a fix safe in the knowledge that leading Asian illegal bookmakers often accept large bets on even obscure sporting events.

“Unlike legal operators, illegal betting operators do not share information about suspicious betting patterns or otherwise co-operate with law enforcement or sports governing bodies. Illegal betting operators ignore race-and match-fixing, and may actively participate.

“Race-and match-fixing has a huge social and economic impact, and if not stopped leads to a vicious cycle of corruption which can destroy the public’s faith in the sport. Once lost, it is extremely difficult if not impossible to win back this trust.

“For horse racing, this is of even greater concern, since the sport depends on public confidence in racing integrity, without which there is no betting appeal.”

While a majority of developed racing jurisdictions are managing their racing and betting operations cognizant of these threats, North America is falling short of much of the rest of the racing world, at least for now.

Coming Tuesday, May 18:  Part 11 - Recommendations

Miss a previous installment? Click on the links to read more.

Part 1 – Expectations

Part 2 – Intertwined

Part 3 – Volponi

Part 4 – Confidence

Part 5 – Bingo

Part 6 – Proof

Part 7 - Z

Part 8 - Damage

Part 9 - Alerts

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