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Letter to the Editor – The Aftermath of Disqualifications

I retired in 2019 as the most prolific bugler in horse racing history with over 60,000 performances of “First Call” at a record-setting 51 racetracks in 23 states and Canada. My herald trumpet, which I used at NYRA for most of my time there, has been on display at the National Museum of Racing and Hall of Fame for the past three years. Of this, I am very proud.

But this is not the subject of my email.

The subject is betting on horses, and I had some success in this endeavor. In fact, after my Pick Six score at Aqueduct in January of 1992, I maintained a flat-bet profit of $60,000 for 29 years. The CAWS and past-posting and the drug problem caused me to blow all of that in just three years. I played a few more years and then abruptly quit betting horses (forever!) last September. After sending about $1.5 million dollars through the windows, my net loss over 37 years amounts to $35 a week. Less than the price of a ball game at Fenway Park.

The point of this email, however, is the aftermath of disqualifications. I can recall how angry this game made me and certainly other horse players when our horses were disqualified. We put in a lot of time and effort handicapping, and when we are right, we expect to get paid. And then we don't. This is the only sport where if your team wins you still might not get paid. That's not an attractive thing to market to newbies. “Hey, your horse may win, but you might not get paid.” This never happens in poker. But chopped pots happen all the time and it keeps the game moving.

Why do I mention “chopped pots”? Because this is the idea, I have to help horse racing stay alive. If your horse wins, but the horse is disqualified for any reason, you still get paid-but like a dead heat. You chop the pot with the horse that got moved up. Everything. WPS, all exactas and other exotics. Chop the pot. BUT ONLY FOR THE BETTORS. The connections of the DQd horse are still penalized the same way they are now. They lose the purse, and the purse gets redistributed to the connections of the horse who was moved up via DQ. But the bettors still get paid.

Maybe it's an idea already floated by others, but I hope that this idea might be helpful to the game that sustained me for 32 years. There's not a lot I can do to give back, so maybe this idea will catch on and suffice.

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Taking Up For Bettors: Kentucky Rep. Koenig Seeks To Eliminate ‘Breakage’

Kentucky State Representative Adam Koenig is taking up the banner for the most-neglected component of horse racing: the bettors.

Koenig is co-chair, with Sen. Damon Thayer, of the Pari-Mutuel Wagering Taxation Task Force appointed to review taxation policies on gambling on the Commonwealth's horse-racing products. Koenig said on last Friday's Kentucky Racing Spotlight weekly radio show on Louisville's ESPN 680 that based on the task force's findings, he will introduce legislation for a flat 1.5-percent tax on the gross (before winning bettors are paid off) of pari-mutuel wagers, including the highly successful historical horse racing operations. Such a measure would substantially increase the tax on bets placed on Kentucky racing through online platforms, known as Advance Deposit Wagering (ADW).

Another provision Koenig is championing in the bill he plans to introduce during the current 2022 state legislative session: rounding payoffs down to the penny, rather than down to the dime on a $1 mutuel.

The practice of rounding down is known as breakage. It's a decades-old policy that allows racetracks and any licensed bet-taker, including ADWs, to keep the extra money, to the frustration of horseplayers who believe it should be returned to winning bettors.

“The thing I'm perhaps most excited about is the elimination of breakage on live racing,” Koenig told Kentucky Racing Spotlight hosts Joe Clabes and Jennie Rees on the show. “It's something that happens at every track everywhere. Win, place, show … they (pay off) – at least in Kentucky and most other states – to every 20 cents (on a $2 mutuel). You pay $3.20 or $3.40 or $3.80. But it doesn't work out that way. You might deserve $3.47 or $3.68. We're going to try to make that happen. Because it's your money and it goes back to – I don't know, the 1930 or 40s – when the only place you could gamble legally was the track. There were long, deep lines, and they didn't want to pay everybody to the penny every time they came up.”

If Koenig is successful, Kentucky would be the first state to essentially eliminate breakage. New York, with a sliding breakage calculation, is the only state in the last 30 years to address breakage, but the proposed plan for Kentucky is easily the most player-friendly of any, according to industry expert Pat Cummings of the Thoroughbred Idea Foundation.

“I think not only will it be great for the bettors, but I believe it will be an incentive for people across the country to bet on Kentucky racing,” said Koenig, an Erlanger resident whose district in Boone and Kenton County is adjacent to Turfway Park. “Maybe if you're a bettor like me who bets $5 to win, place on a race, it's not that big a deal. But if you're somebody who doesn't mind betting $200 across the board on a horse, that adds up to real money over time. I think the tracks will get the money back with additional wagering.”

“… I'm not doing it to cost the (tracks) money or even to help their product. I'm doing it because with the passage of this HHR (legislation) and increasing the numbers of HHR machines, we've taken care of the breeders, taken care of the owners; the trainers and jockeys are running for bigger purses,” Koenig continued, referencing legislation passed last February to protect historical horse racing. “The only person we haven't taken care of is the bettor. You can't run the show without all of those people — but you have to have the bettors.”

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The task force was convened in the wake of last year's passage of SB 120 that cleaned up the language to ensure that historical horse racing was legal under the Kentucky constitution. Some lawmakers felt HHR should be taxed at a higher rate, with more money going to the state's General Fund. Subsequent testimony documented that — by being taxed on the gross rather than on net revenue and with a mandated amount going toward purses for live racing — the excise tax on HHR is effectively 32.2 percent.

That places Kentucky's tax rate on the high end of surrounding states with casino gaming, testimony before the task force documented. While standardizing the 1.5-percent excise tax, Koenig's bill would increase the tax on online and phone wagers made in the state from 0.5 percent to 1.5 percent.

“There is a range of tax rates when you make a wager,” said Koenig, who continues to work on the language of the bill before filing. “… When you're at a track and you go to the window, go to a (self-bet) machine, there's a 1 1/2-percent tax on that. But if I am at Keeneland or Churchill Downs and I bet on a simulcast race, say Oaklawn, that's taxed at 3 percent. If I bet on that same race at Oaklawn on my phone, it's taxed at one-half of 1 percent. I'm sure these tax rates made sense when they were created. But now, they don't make so much sense.

“… I believe we're going to generate a fair amount of money, especially with raising the ADW tax from a half of a percent to 1 1/2 percent. It's very complicated because within those tax rates you're funding purses for thoroughbreds, for standardbreds, funding the University of Louisville (equine business) program. Funding pays for improvements at the track. It's more complicated than I ever thought. We're going to make it more even, so that it makes more sense, and we're going to generate some additional revenue for the General Fund.”

Koenig said his bill also will remove any restrictions on how Kentucky Thoroughbred Development Fund (KTDF) supplements can be used as long as recipient horses are foaled in the commonwealth and sired by a Kentucky stallion. The bill would leave it up to the Kentucky Horse Racing Commission's KTDF advisory committee to set the policy but would be expected to allow the Kentucky-bred supplements to be added onto claiming races for the first time.

Among other likely provisions:

Funding for the equine programs at the University of Kentucky and the Bluegrass Community & Technical College.

Requiring that the horse-racing industry pay for the cost of its regulation, with the budget for the racing commission currently coming out of the General Fund.

Creation of a revenue stream to provide help for problem gamblers. HHR facilities would be required to maintain and share self-exclusion lists, where problem gamblers who ask to join the list will be refused admission to such properties.

Kentucky's 2022 legislative session runs through April 14.

Kentucky Racing Spotlight, presented by the Kentucky HBPA, will run Fridays from 6-7 p.m. ET through March 4 on ESPN 680/105.7 with streaming at espnlouisville.com, the ESPN 680 app and the iHeart and TuneIn apps. The shows are archived at davisinnovation.com/kyracing. In addition to the Kentucky HBPA, Kentucky Racing Spotlight is sponsored by Davis Innovation, NKY Tribune and the Louisville Thoroughbred Society.

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Class-Action Bettors Urge Judge Not to Dismiss Derby Suit Against Baffert

Alleging that trainer Bob Baffert “is the Lance Armstrong of the horse racing world” because of a purported years-long pattern of racketeering activity related to the alleged “doping” of Thoroughbreds, a group of horse bettors who brought a class-action lawsuit seeking compensation for damages over the result of the 2021 GI Kentucky Derby urged a federal judge Wednesday not to grant Baffert's motion to dismiss the case.

The original version of the suit, led by Michael Beychok, the winner of the 2012 National Horseplayers Championship, was filed four days after Baffert's disclosure that now-deceased Medina Spirit (Protonico) had tested positive for betamethasone after winning the May 1 Derby.

Split-sample testing at two different labs approved by the Kentucky Horse Racing Commission (KHRC) has since confirmed the betamethasone overage, but no (KHRC) ruling has yet been issued over those findings.

The plaintiffs and class members of the suit have alleged that they “have been cheated out of their property” because they placed wagers on other horses and betting combinations that would have paid off had “the drugged horse” not won the Derby.

“The Plaintiffs here are not asking this Court to determine the outcome of the Kentucky Derby,” Beychok, et al, argued in the Dec. 29 filing in United States District Court (District of New Jersey).

“The stewards of the subject race will be the ones to determine the outcome of the Kentucky Derby. Regardless of the stewards' determination, Defendants have still harmed the Plaintiffs and will continue to harm individuals through Baffert's racketeering scheme. The Court is being asked to hold the Defendants accountable for the racketeering enterprise,” the filing stated.

In addition to asking the court to consider the Derby's potential pari-mutuel payouts as an assessment of damages, the plaintiffs, among other demands, are also seeking an order from the judge stating that the Hall of Fame trainer must divest himself from the sport. Baffert, plus his incorporated racing stable, remain as the only defendants after Medina Spirit's owner, Amr Zedan, was dropped from the suit by the plaintiffs back on June 23.

When Baffert asked the court to dismiss the suit Sept. 1, his filing stated that the plaintiffs “are a group of disgruntled gamblers who placed bets on the 2021 Kentucky Derby and lost.”

Baffert's argument stated that the bettors “attempt to do what courts across the country have routinely rejected: they seek to recoup their gambling losses through a myriad of frivolous claims. No matter how creatively the Plaintiffs attempt to craft their pleadings, they cannot escape the fact that every single court which has looked at gambling losses associated with sporting events has held that no claim can be maintained as a matter of law.”

The class action members begged to differ in Wednesday's filing.

“[Baffert] would have the Court believe that there is no injury because Medina Spirit has yet to be disqualified. The disqualification of Medina Spirit is inconsequential to Plaintiffs' causes of action. The [Racketeer Influenced and Corrupt Organizations Act] violations occurred regardless of Medina Spirit being disqualified. As alleged, Baffert entered Medina Spirit illegally [and] the Baffert enterprise has already successfully harmed Plaintiffs. Once again, Baffert has profited while the Plaintiffs have been robbed of their day at the track.”

The Dec. 29 filing continued: “Plaintiffs have stated causes of action that do not rely upon the horse racing regulations but instead are independent claims existing under federal and state statutory law and state common law. These claims are allowed whether they are allowed under the regulations or not. Defendants argue that Plaintiffs were obligated to follow the rules but side-step any obligation of Baffert's accountability.

“Baffert suggests to the Plaintiffs that if they don't like the rules they don't have to bet. But more to the point, if Baffert doesn't want to be held accountable under the laws set forth by the federal and state legislatures, then he shouldn't conduct an illegal enterprise of racketeering and fraud,” the filing stated.

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TIF Special Report: Racing Not Only For the Elite

Instead of #FreeDataFriday, the Thoroughbred Idea Foundation is released a special report: “Racing Not Only For (the) Elite,” which focuses on wagering and the horseplayer,

The TIF stated that: “The report is the culmination of months of research, conversations across informed pockets of the industry and extreme frustration. The frustration is grounded in an assessment of the current state of racing when combined with the realization that the industry commissioned a detailed study that identified these current issues 16 years ago, when their impact was far smaller than it is now.”

Click here for the executive summary for the report or here to read the full report.

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