Illegal betting doesn't get a lot of ink in the racing industry trade press, but horseplayers have probably seen its impacts before. We at the Paulick Report do receive queries from bettors periodically about payouts or pools that didn't follow an expected pattern. Sometimes this happens because of bets placed with the assistance of complex computer models.
Sometimes though, those oddities may be explained by intentional pool manipulation connected to wagering on unregulated or underregulated betting markets.
A panel of experts at the recent 48th Annual Global Symposium on racing provided an overview of what we know (and what we don't) about the illegal gaming threat.
Here are a few takeaways:
-It is of course, hard to say how much money gets wagered on horse racing in illegal or gray betting markets around the world since the whole point is they don't report their incomes to government tax authorities and pay nothing toward track operations or purses. There are international organizations that have made a study of this type of activity and claim as much as 80% of the money wagered on sports and racing worldwide is placed in illegal markets. The totals bet illegally each year on sports and racing could be as much as $340 billion to $1.7 trillion, according to Martin Purbrick, chairman of the Asian Racing Federation's Council on Anti-Illegal Betting and Related Financial Crime.
These markets may be located anywhere, but are largely housed in Asia – Singapore, Macau, and Malaysia have long been familiar homes for such websites, as well as Malta, the Philippines, and Curaçao.
-The illegal markets are growing, and the COVID-19 pandemic assisted with that. Data show legal betting rose 36% during the pandemic, and it's likely illegal wagering rose by twice that much, according to Purbrick.
The draw for many users is that they're offered better pricing and promotions from unregulated or under-regulated markets than legitimate sites can offer. Some people may also be unaware they're putting their money into an unregulated exchange, because a good number of illegal markets use mirror sites that are designed to replicate the look of a legitimate site with a slightly different URL. Purbrick said illegal sites will often have multiple of these because they're more likely to evade notice from regulators, but even if one is sunk they'll have several others in play.
-There are a couple of reasons governing sports bodies and racing regulators should be worried about illegal wagering markets. For one thing, racetracks, horsemen's groups, and state governments aren't seeing any of the money wagered there the way they do when someone places a bet through a legal ADW.
For another, there's a lot of concern that the volume of money flowing through those illegal markets and the markets' possible ties to organized crime sets up an environment where the event being bet is ripe for manipulation.
-Illegal wagering is not limited to racing in Hong Kong, though it has been a focus of integrity groups based there for many years now, given its geographic closeness to several hub bases. Citibet, which is the largest known conglomerate of illegal markets, offers betting on all races, including American racing. Purbrick said they're responsible for taking bets of $7.5 billion on racing around the world.
-The way most of these markets work is that they pay out based on the parimutuel odds a horse goes off with from the legitimate market – with certain limits. Unlike legal markets though, illegal operators are not paying the racing operator or horsemen anything and keeping profits for themselves.
That means it's in the best interests of someone putting big money through these markets to make sure the odds on the racetrack toteboard are to their advantage, so they'll put some money into the legitimate market to influence those odds. The bets they place on the parimutuel markets are on horses they expect will lose, and they're intended to be offset by winning bets placed on illegal markets.
Pat Cummings, executive director of the Thoroughbred Idea Foundation, provided three examples of what this pool manipulation may look like. Cummings stuck with simple examples on show pools, but bettors may engage in similar behavior across different types of pools.
-In an obvious, successful example of manipulation at a small track, Cummings showed a theoretical scenario where a manipulator places $200 to show on the #5 horse in a race across 10 different non-pari-mutuel offshore sites, spending $2,000. In the final 60 seconds before the final wagering cycle, the manipulator drops $4,500 into the legal market on longshot #4, taking that horse's odds from 25-1 to 19-1. That has a ripple effect on the odds of the other horses in the race though, giving the manipulator a more appealing payout. Where #5 previously had $49 of a $316 show pool, it went off with $131 of a $4,951 show pool.
When the #5 finished third and paid $21, the manipulator lost their $4,500 on the parimutuel market but made $21,000 on the illegal market.
-Manipulators may be more subtle, shifting payouts by a dollar or two over what they would have been, but if the bettor is betting on the illegal market at a high enough volume, they can still profit.
-There are also times, Cummings says, when manipulators make a mistake and end up putting a chunk of money on the parimutuel market on what's intended to be a losing horse, only to have that horse pop up and win.
-A manipulator will probably spread their winning bets across multiple illegal exchanges in case one fails to pay or is unexpectedly shut down by authorities – indicating that the savvy players are aware the exchanges are illegal.
-Smaller pools are a better target for someone looking to engage in any kind of manipulation, because it costs less to change odds significantly and the payoff can be just as good as manipulating a large pool.
These manipulations, whether they're successful for the manipulator or not, have real impacts on the payouts to legitimate customers. Over time, they serve to undermine customers' confidence in the integrity of the racing product.
These manipulations are also pretty common – Cummings said he had tracked five dozen reports of possible pool manipulation this year alone. He believes in many cases, tracks may not have been aware of the manipulation until he brought the wagering activity to their attention.
-Unfortunately, Cummings said, it's probably beyond the capacity of most racetracks to stop this, given how broad the problem is. Their best bet is to increase stewards' awareness of these issues, and to offer more competitive wagering menus that could be attractive to legitimate players and less appealing to manipulators.
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