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Computer Assisted Wagering: Anatomy Of A Deal

A deal that Del Mar has made with a titan of Computer Assisted Wagering (CAW) provides a rare glimpse into the tremendous sway that individual players can wield over track and racing officials, the potentially lopsided economic ramifications of such deals, and the tremendous pressures that California executives are under with competing jurisdictions that enjoy purse subsidies not available in the Golden State.

It also turns a spotlight onto a world largely hidden from the public eye-one that industry leaders are generally loathe to discuss publicly, and in which just a few anonymous gamblers can have an outsized impact on the financial fitness or ill-health of the sport.

Last year, Del Mar continued a deal with a player identified as Elite 17 that saw them enjoy a noticeably more favorable rate of play than other high-volume players that wager through the CAW platform, Elite Turf Club, according to detailed wagering reports obtained by the TDN, background conversations with racing officials and figures within the CAW world, along with publicly available data.

At the enormous volumes CAW gamblers play, such deals can give individual players a significant financial edge.

The result was that this one player constituted nearly 47% of Elite Turf Club's total handle on Del Mar last year, according to the reports. Two years prior, Elite 17's play had constituted just over 36% of Elite Turf Club's total handle on Del Mar, according to publicly available California Horse Racing Board (CHRB) data.

At the same time, the amount of money another Elite Turf Club player (Elite 2) wagered on the track dropped off by over $32 million between 2021 and 2023, the reports show-from around $45 million in 2021 to around $13 million last year. In 2021, Elite 2's play came to just over 27% of Elite Turf Club's total handle on Del Mar. Last year, that number had dropped to around 12%.

According to multiple sources familiar with the situation, Elite 2 received a deal similar to Elite 17 in prior years at Del Mar, but not last year.

An individual familiar with the situation-who spoke as a “California racing source” on condition of anonymity-said that, prior to the track's 2023 summer meet, Elite 2 declined such a deal, which would have necessitated paying a “substantial seven-figure up-front payment.”

Del Mar Thoroughbred Club | Horsephotos

When asked if Elite 2 had changed their mind about the deal after the summer meet was underway, the source declined to answer, citing concerns about proprietary business information. “But you can't make an up-front payment after the meet has started,” the source added.

Such arrangements have served as a pre-payment on host fees to be split between the track and the purse account, sources say.

The deals that Del Mar has struck with Elite Turf Club players over the years, while hardly an anomaly among tracks nationally, nonetheless raises questions about the best approach to managing CAW play in a state where purse revenues are generated solely through betting. If purses fuel the sport, getting this equation right is an imperative.

Are deals between tracks and individual CAW players, therefore, a sustainable approach for growing the sport in California? Is CAW play now so vital to the economics of horse racing that every step must be taken to maximize their business? Or should California's tracks be much more focused on incentivizing play from the average punters who generally contribute the biggest slice to purses, rather than pandering to the whales of the betting seas?

While it's difficult to know exactly how such deals might have impacted Del Mar's purse account revenues, the bare numbers illustrate a track facing tough economic headwinds, with serious implications for the horsemen and women in the state.

Purses last fall at Del Mar were reduced by over 10% due to a purse account overpayment reportedly to the tune of $2.1 million. All-source handle at the track's flagship summer meet declined nearly 11% from 2022 to 2023, according to the DRF. Wagering through Elite Turf Club on the track's product has declined from around $167 million in 2021 to around $113 million last year, according to the CHRB.

“As a track with no subsidies from alternative forms of gaming that depends exclusively on handle for purse generation, promoting handle from all segments of the betting market is very important to us. On an annual basis we sit down with the [Thoroughbred Owners of California] TOC to both establish purse levels and to discuss how we best promote wagering on our simulcast signal,” wrote Del Mar Thoroughbred Club president, Josh Rubinstein, in response to a series of questions.

Before the start of each meet in California, the tracks present the TOC with a list of individual host fees charged to each location that receives its simulcast signal. For that track's meet to proceed, the TOC must first sign this document.

“We are proud of our racing product, which has been well-received for the last several years, and confident that our host fees are fair and competitive with other major race tracks. We will continue to work with our partners to balance pricing considerations with the overall demands of the wagering markets,” Rubinstein added.

How takeout is divided from CAW play

BACKGROUND ON RATES AND REBATES
The debate around CAW players typically surrounds the major edge they wield over regular gamblers thanks to their use of sophisticated wagering technologies and the attractive rates and rebates offered to them-inducements not available to the average punter.

When “rates” are mentioned, what is meant are “host fees.” This is a charge wagering outlets pay to track operators for the contractual right to import a simulcast signal. A wagering outlet could be another racetrack, an ADW platform (like FanDuel), or a CAW platform (like Elite Turf Club).

Experts say that CAW host fees for the premium tracks typically vary between 6% and 8%. After breeders' premiums and other minor deductions have been removed, host fees are roughly split 50/50 between the track and the purse account in California.

The entities that pay the lowest host fee, therefore-like CAW players-contribute the lowest per-dollar amount to purses. At the same time, proponents of CAW argue how these inducements are warranted due to the vast amounts these players inject into the betting pools.

The amount CAW players are “rebated” can be broadly calculated with this simple equation:

Rebate = Takeout minus host fee (plus any other associated minor fees). The smaller the host fee and the larger the takeout, then the bigger the rebate.

Let's use the 20% blended takeout rate among the pools. And let's say the host fee (plus other associated fees) that the CAW player pays comes to 7%.

The rebated discount for the CAW players, therefore, could be a maximum 13% on every dollar wagered.

Experts recently told the TDN that the most successful CAW players can consistently win at an average rate of around 92%. At that win rate, a 13% rebate (for example) would see the player enjoy a 5% profit margin.

According to wagering reports reviewed by the TDN, that win rate is an undercount. These reports show how Elite Turf Club players can win at an average rate in excess of 105%, even before their rebate from Elite is factored in. At this rate, the profit margin would be much better than many investment accounts.

It's also important to note how the numerical monikers given to Elite Turf Club players-a company majority owned by The Stronach Group (TSG)-don't relate to just one person.

These players employ a team of potentially dozens of people, including mathematical wizards who create sophisticated computer algorithms capable of analyzing the betting markets for exploitable weaknesses, as well as individuals who place the bets for them.

Insiders consulted for this story describe how these teams of experts can, over time, deduce through the betting markets and through other data sources if rival CAW players receive more favorable rates.

Given the money at stake, the competition can be cutthroat.

ELITE 17'S DEAL
As CAW play has grown exponentially in recent years, track operators have cut deals like that between Del Mar and Elite 17 to attract their business. And the amount these gamblers wager is often so huge, just one player can make up a significant portion of a track's overall handle.

In 2019, when the renowned gambler “Dr. Nick” stopped wagering on Australian racing reportedly due to increased taxes on bookmakers, his exit was projected to trigger a 6% drop in turnover on racing across the board.

Multiple sources for this story said that Elite 17 and Elite 2 were both well-known Australian gamblers.

Scott Daruty | Horsephotos

Scott Daruty, president of both TSG's Monarch Content Management and of the Elite Turf Club, declined to confirm or deny their identities, citing confidentiality agreements.

According to detailed reports obtained by the TDN, Elite 17 wagered more than $650 million on U.S. racing through Elite Turf Club alone last year. In 2021, Elite 17 wagered roughly $60 million on Del Mar's product, according to the CHRB. Last year, Elite 17 wagered some $53 million. Last summer at Del Mar, the amount Elite 17 wagered was roughly 10% of the total handle at Del Mar, using the DRF's all-source handle figures as a baseline.

These numbers don't account for Elite 17's potential play on horse racing through other methods such as fixed-odds providers and exchange options like Betfair in other countries, or on other sports. Some CAW players also have accounts with different CAW platforms like Velocity, owned by Churchill Downs, which enables wagering on tracks whose simulcast signals are managed by Churchill.

At the same time, multiple sources say individual deals are still fairly prevalent among smaller tracks struggling financially, but that they're now unusual among the nation's top-tier tracks.

According to wagering reports reviewed by the TDN, the New York Racing Association (NYRA) offered the same host fee to Elite Turf Club players at Saratoga last year, irrespective of the betting pool. This included Elite 17. The host fee NYRA charged was slightly lower than Del Mar charged the same CAW players (outside of Elite 17), these reports show.

“NYRA cannot responsibly comment or opine on information never provided to our organization,” wrote NYRA spokesperson, Pat McKenna, in response to questions about the wagering reports. The TDN provided to NYRA an overview of the figures in the reports but not the raw data. NYRA's data was independently verified for the TDN. NYRA is a minority owner in Elite Turf Club.

McKenna did, however, stress the steps the organization has taken to manage CAW play, including barring CAW play in the Pick 6, Late Pick 5, and Cross Country Pick 5 pools, and requiring CAW players to place win bets on its races no later than two minutes to post.

California has also taken similar steps to moderate CAW play.

Since Santa Anita's 2022 fall meet, the win pool has been closed to CAW players one-minute to post, or else they must also pay a surcharge of around 3.5% on top of their normal rate if they want to bet to the close of the win-pool. Last year, Del Mar followed suit. Both tracks have also reverted to the traditional Pick 6.

When it comes to Del Mar's deal with Elite 17, the agreement was incumbent upon the player making a substantial payment at the start of the meet, according to multiple sources. Once that up-front payment was made, Elite 17 paid a host fee almost half of that for other Elite Turf Club players, wagering reports show.

But multiple sources familiar with the situation explained how factoring in the up-front payment, Elite 17 paid a host fee on Del Mar's product last year around a percentage point or so lower than the other CAW players.

At the volume CAW gamblers play, just one percentage point difference in host fee can mean a significant edge for one CAW player over all others, along with possible residual effects on all other participants in the betting pools in terms of late odds movement.

Bill Nader | Horsephotos

TOC president and CEO Bill Nader explained that deals involving up-front payments incentivize the player to maximize the amount they wager on the track's product.

“For example, if the player bets over a certain threshold, the player benefits from a high-volume discount. If the player does not reach that wagering threshold, the effective rate would be higher than other CAW players,” wrote Nader.

But could the deal that Del Mar struck with Elite 17 have prompted other CAW players-and Elite 2 in particular-to have curbed their play at the track last year?

The California racing source said that other CAW players were offered similar terms to Elite 17 last year. However, it should be noted that the other CAW players that wager through Elite Turf Club on Del Mar didn't bet to nearly the same volume as Elite 17 last year, and that Elite 2 was the only Elite Turf Club player to wager in the region of Elite 17's handle in 2021.

The California racing source also noted how CAW play is closely aligned with overall handle on a track's product, and that declines in total handle would invariably lead to decreases in CAW play.

“It's hard for us to say with any certainty why player A or B may have reduced his or her volume of play,” the source said. “The best source for that is the player themself.”

The TDN reached out to a representative of the player believed to be Elite 2, who declined to discuss the situation.

Here, it should be noted that at least one Elite Turf Club player increased their play between 2021 and 2023. This was Elite 10, who wagered $4.9 million in 2021 and $6.7 million in 2023 on Del Mar's product.

The TDN does not have access to data showing individual CAW handle on Del Mar's product in 2022. That was the year the California Horse Racing Board (CHRB) stopped making such data publicly available. Even so, California remains more transparent than other jurisdictions about what CAW data it makes publicly available.

Another wrinkle in this story is how Del Mar boasts an attractive wagering product with good field sizes and an impressive safety record. With that in mind, was the deal the right one to strike?

“With the benefit of hindsight, it has been the wrong deal for over 10 years and this is why we need a market correction,” wrote Nader, in response to a series of questions. “We represent the owners and purses are paid to owners, trainers, and jockeys, and there is room for improvement. This is what the TOC hired me to do.”

When asked why the TOC approved the deal last year, Nader wrote how 2023 “was my first full year with the TOC and we needed time to work with our Board members and others, notably the tracks, to voice our reservations and allow for a period of adjustment. This entire exercise has been a work in progress.”

WHY IS THIS IMPORTANT RIGHT NOW?
The issue of shrinking purse revenues amid declining economic benchmarks couldn't be a more pressing issue in California right now, where the industry attempts to piece together a revised racing framework in the wake of Golden Gate's impending closure in June.

At the end of the day, therefore, those arguably most impacted by decisions around managing CAW play are the industry stakeholders attempting to eke out a living from the sport.

When asked for comment on the story, the California Thoroughbred Trainers (CTT) wrote in a prepared statement how, “based on Del Mar's representations and the TOC's confirmation of how the purse account there has been managed, we can only say we're disturbed and confused. In January of 2021, at a CTT Board meeting, we attempted to question TOC leadership at the time about how purse levels were being funded, and were angrily rebuked by those in charge.”

At that point in time, Greg Avioli was TOC president.

“Since purses are the lifeblood of our sport, and are fueled by the public's interest and its confidence in the integrity of pari-mutuel betting, the apparent lack of transparency we're hearing about now has to be remedied immediately,” the CTT added.

Scott Chaney | courtesy of the CHRB

According to CHRB executive director, Scott Chaney, the agency is “keenly aware of the questions, importance and interest surrounding CAWs and plans to place the topic on our meeting agenda in the next month or so.”

Chaney added how “the concepts of purse accounts and structure are also vitally important to racing in California, therefore in order promote understanding and transparency, we are in the process of amending our race meet license application to include additional questions in this area.”

All of which leads to this question: Will Elite 17 be offered the same deal this year?

“No. Negotiations are ongoing across the entire customer sector,” wrote Nader.

“High-volume players will agree that two key deliverables to make their business models more attractive are access and liquidity to commingled pools,” added Nader. “Our racetrack partners should also understand the collective upside and if everyone can take a step back and look at this thing holistically, we can work it out.”

The post Computer Assisted Wagering: Anatomy Of A Deal appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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Computer Assisted Wagering: 101 for California Stakeholders

Last June, Pat Cummings, executive director of the National Thoroughbred Alliance and former executive director of the Thoroughbred Idea Foundation, issued a stark warning about the encroaching impacts from Computer Assisted Wagering (CAW) to the men and women trying to forge a living through horse racing in the Golden State.

CAW players constitute a small group of mostly anonymous, high-volume gamblers with an outsized impact on the betting markets–including in California–due to their use of sophisticated wagering technologies and the inducements offered to them in the form of attractive rates and rebates not available to the average punter.

At the time, CAW play was the main source of handle growth in California, which by extension “is contributing the lowest percentage for purses” and thereby presenting “a serious, long-term concern for California and its horsemen,” wrote Cummings.

Cummings's detailed study appears prescient. Since then, several reports have illustrated the extent of California's purse account woes.

To explain the recent 25% purse cuts at Golden Gate Fields, the Thoroughbred Owners of California (TOC) said the track's purse account was over $3 million in the red. Purse cuts at Santa Anita stem from a near $4-million purse account overpayment. During the January California Horse Racing Board (CHRB) meeting, it was explained that Del Mar's purse account was overpaid by $2.1 million.

Pat Cummings | The Jockey Club

A complicated set of factors determine purse revenues. Field sizes, for example, are arguably the biggest architects of how much is wagered on an individual race. But CAW play has grown exponentially as a percentage of overall handle in recent years, giving it a key role in the sport's future in California. Why?

Unlike other states where purses are supplemented from alternative gaming like slot machines and casinos, California is reliant solely on betting to generate purse revenues. In other words, California more than any other major jurisdiction needs to thoughtfully manage its betting revenues–including from CAW–if it's to remain a healthy enterprise long into the future.

The problem with CAW–like so many aspects of the sport–is that it has long been shrouded in ambiguity.

To help peel back this opaque curtain, the TDN sought answers to some basic questions about how leaders in the Golden State manage such an influential part of the industry:

What CAW-related information is shared between whom? What oversight mechanisms are in place? If the state's horsemen and women feel they aren't getting a fair deal, can they leverage what they see as a better one? And where do state regulators fit into the scheme?

What is CAW?

In short, CAW players–frequently registered in offshore tax havens–use sophisticated digital tools and teams of staff to spot exploitable deficiencies in the betting pools, and to scour reams of betting and past performance data to identify winning opportunities at high rates of success.

Even individually, they can bet huge. Indeed, last year the Financial Times estimated that just two individual CAW players each wager “on the order of $1bn a year” on State-side racing alone.

In the U.S., CAW players largely wager through a handful of CAW agents' betting platforms, which in many ways act as glorified ADWs.

The biggest in terms of handle is the Elite Turf Club, majority owned by The Stronach Group (TSG), which also owns the Santa Anita and Golden Gate Fields racetracks in California. The New York Racing Association (NYRA) also owns a portion of Elite Turf Club.

Other key CAW platforms include Racing and Gaming Services (RGS), and Velocity, owned by Churchill Downs.

The bettors who aren't privy to the same rates and rebates as these deep-pocketed gamblers (more on this in a bit) argue that CAW players are driving the average gamblers away from the sport in droves, to the point where it's killing the betting markets and hurting purse revenues. Indeed, if CAW players become too big a percentage of the pools, their impacts become magnified and they essentially “cannibalize” the markets.

TOC president Bill Nader has pinned this tipping point at about 25% of the betting pools. Cummings's June 2023 report found that back then, CAW play in California often surpassed that benchmark.

CAW proponents counter that these well-capitalized gamblers provide vital liquidity and efficiency to the betting pools. Without them, these proponents argue, the sport would be significantly poorer, and that by sheer volume of play, they help prop-up purse accounts.

Indeed, the loss of just one major CAW player could hit a track's handle hard. This also means, however, that the biggest individual CAW players have historically been able to wield no inconsiderable leverage to negotiate their terms of play.

What Portion of CAW Play Goes to Purses?

To understand what part of the betting dollar goes to purses, there are two terms of note: Host fees and Takeout rates.

“Takeout” is the percentage sliced out of every dollar wagered. This pie is divvied up various ways, including a portion funneled into the purse account. Bets wagered on-track direct the largest slice back into the purse account. Bets wagered through ADW and CAW platforms direct the smallest amounts.

Takeout varies on several things like the host track state and bet type. But takeout is determined by track management and regulators and is non-negotiable. A general rule of thumb is an average 20% blended takeout rate across the different pools.

For CAW play, when the term “rates” are mentioned, what is meant are host fees, and these are negotiable.

Host fees are what any wagering outlet pays to track operators for the contractual right to import a simulcast signal. A wagering outlet could be another racetrack, an ADW platform (like FanDuel) or a CAW platform (like Elite Turf Club).

TDN spoke with several track and industry executives about the state of CAW play today. These experts said that CAW host fees for the premium tracks typically vary between 6% and 8%.

After breeders' premiums and other minor deductions have been removed, host fees are roughly split 50/50 between the track and the purse account in California.

Therefore, if Santa Anita beamed its signal to a location at a host fee rate of 6%, roughly 3% of the total amount handled on that signal at that location will flow back into Santa Anita's purse account.

Primary Oversight of Agreements

Before the beginning of each meet in California, the tracks present the TOC with a list of individual host fees charged to each location that receives its simulcast signal. For that track's meet to go ahead, the TOC must first sign this document, said Scott Daruty, president of both TSG's Monarch Content Management and of the Elite Turf Club.

“Before the Santa Anita meet opens, we give them a list of every location and price that Santa Anita is sold for,” said Daruty. “They [the TOC] either approve it or they don't.”

The list includes host fees the track charges CAW betting platforms. If the host fee of an individual CAW player deviates from that afforded an overall CAW platform, that too would have to be divulged, said Daruty.

“If there was an individual deal [between a single CAW player and the track], that would have to be disclosed to the TOC,” said Daruty.

Scott Daruty | Horsephotos

TOC president Bill Nader said that he has signed all such agreements since joining the organization in October of 2022.

Nader said he was unable to disclose what the host fees that CAW players receive. All host fees are private (not just for CAW players). But Nader described the negotiation of these fees as a “moving target as to how you get this right and how you get it right across all customer segments.”

Where Do Rebates Come From?

The way Nader and other experts explain it, the amount CAW players are “rebated” can be broadly calculated with this simple equation:

Rebate = Takeout minus Host Fee (plus any other associated minor fees). The smaller the host fee, typically the bigger the rebate.

Let's use the 20% blended takeout rate among the pools. And let's say the host fee (plus other associated fees) that the CAW player pays comes to 5%. The rebated discount for the CAW players, therefore, could be a maximum 15% on every dollar wagered (though more on this in the next section).

It's also important to note that bets with higher takeout rates leave the door open to potentially higher rebates. The seemingly counter-intuitive goal is that this leads to higher overall handle.

Several experts said the most successful CAW players can consistently win at an average rate of around 92%. At that rate, for example, a 15% rebate would see the player enjoy a 7% profit margin. According to Daruty, a 92% win-rate isn't typical.

“That's someone really hitting it out the park,” he said.

The bigger the rebate CAW players receive, therefore, the greater their overall profit. And the greater their overall profit, the more they're likely to wager. As one expert put it, “it's like a high-yield investment account.”

Indeed, former Australian bookmaker Tom Waterhouse recently said he was considering investing venture capital funds into horseracing-focused professional betting syndicates that receive these huge rebates.

“[Gambling] is a three trillion-dollar industry, and most people lose. The edge is against you,” said Waterhouse. “But there are a few groups globally that are able to find an edge.”

These rebates are usually returned daily–typically the following morning, said Scott Finley, former NYRA director of simulcasting with a long career in the pari-mutuel betting industry.

“In some cases, they might be done weekly,” Finley added. “But the general idea is, the quicker you front that money back to the CAW players, they're just going to churn that money and bet more. Remember, there's no credit betting allowed anywhere in the U.S. These are all true advanced deposit wagering accounts.”

The TOC, said Daruty, is not privy to the rebate rates that CAW players receive.

“I'm not sure the TOC has ever made that request,” said Daruty, when asked why this information isn't shared with the organization. “But if they were to make that request, I think our response would be to politely deny it.”

When asked why the TOC hasn't asked Elite for rebate data, Nader said that he can get a “very good idea of what the gross rebate would be” by looking at the takeout on the different bet types. “I can work that out,” he said.

What's in it for Elite?

All of which begs the question: What's in it for a CAW platform like the Elite Turf Club?

According to Finley, CAW platforms typically retain between 0.5% and 1.25% as a commission from the amount their players wager.

“It's all based on individual contracts between the [CAW platform] and their player teams,” Finley explained, about how these commissions are negotiated.

As an idea of what kind of number this commission might generate, Elite Turf Club handled over $180 million on Santa Anita's races during 2022, according to the CHRB's statistical opersion reports. At Del Mar during 2022, Elite handled just over $146 million.

Daruty said he was not at liberty to comment on the Elite Turf Club's commission rate.

When asked how, between the host fee and the CAW commission, it appeared that TSG was essentially double-dipping, Daruty said the company's tracks and Elite Turf Club performed two separate functions.

“It's only double-dipping if you're getting paid twice for doing the same thing. This isn't double-dipping because it's two completely different services. In fact, I think it's to the horsemen's benefit that we're operating Elite because they're getting more visibility and more knowledge,” said Daruty.

“If it was a third-party operator, they might not be getting that, but they'd still be paying the same fee,” Daruty added.

Individual Deals with the Tracks

At last year's Global Symposium on Racing in Arizona, Cummings raised the issue of individual players and their representatives negotiating directly with the tracks to receive favorable host fee rates. Some of these deals were negotiated years ago.

“There is undoubtedly a concern when one or two of the biggest players in the sport go door to door across this country and ask a track operator for a discount. Not a rebate–a discount on the host fee,” said Cummings.

John Woodford, chief executive of GWG Group, a Las Vegas-based LLC that provides domestic and international services to CAW players, said that while GWG does not have any such “bespoke” deals for its individual players, such agreements are unsurprising given the amounts sometimes wagered.

“It's the same for other industries,” explained Woodford, “if you're a significant contributor or participant.”

Last year, the Financial Times reported that just two individual CAW players that wager through the Elite Turf Club–Elite 17 and Elite 2–had significantly increased their wagering on California horse racing over the past 15 years.

Since that story came out, the CHRB stopped publishing wagering data showing individual CAW accounts–which it had done since 2008–and now pools these numbers together under the CAW platform. In fairness to the CHRB, however, no other jurisdiction publicly discloses this individual information either.

In this vacuum of individual player data, however, it begs the question: Are any CAW players still privy to favorable deals directly negotiated with California racetracks? Several sources consulted for this story said that at least one player still enjoys such a deal.

Nader declined to answer the question directly, but said that discussions with the tracks are ongoing, and that over the past year, the TOC had successfully negotiated better rates for its constituents. “Everything is a work in progress,” he said.

TOC Leverage?

If the TOC believes the horsemen and women don't receive a fair deal in these negotiations, it can refuse to sign the document authorizing tracks to send out their signals, essentially causing a simulcasting blackout. Nader calls this threat the “nuclear option.”

When asked if during his time the TOC has considered using this option during CAW negotiations, Nader responded that it should be used only as a “last resort.”

“You never really want to do that. If there's a complete breakdown, perhaps. But it should never come to that,” said Nader.

The TOC has deployed this “nuclear option” before in contentious simulcasting disputes. Back in 2008, the TOC withheld Hollywood Park's signal over multiple weeks to increase the amount ADWs were contributing to the purse account.

Bill Nader | HKIR

The move–which reportedly cost Hollywood Park some $500,000 a day in lost revenues–was deeply unpopular with both the ADW platforms and the tracks.

“It didn't make me the most popular guy in racing to the effect I got death threats against me and my family,” said then TOC president Drew Couto, who explained that during the simulcasting blackout, TVG repeatedly shared on-air his personal and home telephone numbers.

“They encouraged their disgruntled viewers to call and let their disappointment be known,” said Couto. “It also led to several death threats being called into the offices. The TOC had to close down for a few days while we addressed the security issues.”

But the TOC's hard-line stance in 2008 ultimately led to a better rate for the state's horsemen and women.

“They came around because we cut off the signal,” said Couto. “You have to have a strong board that says, 'we will weather the storm. But at the end of that, we will come out with better rates.' And those better rates will help us put on a better product. And that better product will hopefully appeal to players who want to bet eight-horse fields rather than four-horse fields.”

Couto said the Interstate Horseracing Act of 1978 gives the TOC the authority to dictate rates and fees.

“The TOC has used that structure in the past to set the rates, to set access, to determine who has access, and to control the use of our product,” said Couto. “It's not the racetrack's product.”

When asked about this authority apparently afforded the TOC through the Act, Nader stressed the ecosystem nature of the industry.

“I would see it more as a 50-50 partnership between the tracks and the horsemen, especially in a state where there's no other purse-enhancing supplements. That's how the tracks get paid as well,” Nader said.

“I think what makes this sport so uniquely spectacular is the competition on the track and the competition on the Tote,” Nader added. “For us, it's more finding the right balance across all segments.”

CHRB'S Role

The TOC isn't the only guardrail to ensure that CAW fee agreements are drafted with horse racing's long-term interests front and center.

While the CHRB does not routinely see those documents, “The CHRB has full legal authority to review any agreement if that were to become warranted,” wrote CHRB spokesperson Mike Marten in written responses to several questions.

The CHRB, wrote Marten, has not yet exercised that legal authority.

In response to questions concerning betting integrity, Marten wrote that, “We understand that Monarch pays special attention to CAW companies (i.e. Elite and RGS) whereby each of the CAW players undergoes repeated, extensive background checks every six months.”

Marten added that the Thoroughbred Racing and Protective Bureau–a subsidiary of the Thoroughbred Racing Associations of North America–has “performed a thorough investigation of many wagering sites, including Elite and RGS, as part of its service to the racing associations.”

The CHRB, Marten wrote, “also has access to those reports if warranted.” And he added how, “sparked by concerns about the individual locations/operators,” the CHRB “some years ago” obtained an unspecified number of these TRPB reports from its client racetracks.

The review resolved any concerns, “so no was action taken,” he added.

Conflicts of Interest?

Eagle-eyed observers of California's racing product and betting markets might have noticed the ownership makeup of recent GII San Pasqual S. winner, Newgrange.

Since at least September of 2022, Newgrange has been owned by a group that includes Little Red Feather, Rockingham Ranch and David Bernsen.

Bernsen is the founder of GWG Group. One part of Bernsen's role at the GWG Group has been to represent individual CAW players in their negotiations with the tracks, but Woodford said that Bernsen hasn't run or managed the company for the past couple of years, and is now focused on industry initiatives “outside of the CAW sector,” including racehorse ownership. Little Red Feather's managing partner is TOC chairman, Gary Fenton. Bernsen and Fenton, therefore, appear to sit on opposite sides of the CAW table. Does their ownership connection in Newgrange rise to a conflict of interest on the part of the TOC chairman?

Both Nader and Fenton said it doesn't. Nevertheless, Fenton said that he has recused himself from all CAW-related matters before the TOC since April of 2023 to avoid the appearance of any conflict of interest.

“Incidental co-ownership of a horse isn't considered a conflict by the TOC, but I made sure Bill and members of the board were aware. Still, due to the sensitive nature of simulcast rates, and out of an abundance of caution, when a matter connected with David [Bernsen] came up for the first time, I recused myself. Virtually all owners who serve on industry boards face similar instances,” wrote Fenton, in a statement.

Several experts interviewed for this story described TSG's ownership of both Elite Turf Club and two of the state's racetracks as a dynamic that does indeed rise to that level.

Daruty, however, refuted any conflict-of-interest accusations, and pointed to the historical ownership relationship between tracks and wagering outlets.

Though the nature of these “betting platforms” has evolved over the years–from on-track Tote windows to off-track-betting hubs to ADWs–the racetracks have always been part of the ownership mix, he said.

Daruty added, “This is just one more example of that.”

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When Do CAWs Help And Hurt California Racing?

Last month, a lengthy Financial Times feature detailed the growing share of overall handle generated through Computer Assisted Wagering (CAW)–both in California and nationwide.

CAW players are a small group of high-volume and largely anonymous gamblers with an outsized impact on the betting markets due in no small part to the sophisticated wagering tools at their disposal. Because of their high stakes play, they're offered inducements in the form of rebates and reduced takeout rates largely not available to the average punter.

CAW proponents argue that these deep-pocketed players provide much needed financial ballast to an industry in flux. Critics say the industry has bent over backwards to accommodate their trade, to the point where their influence on betting pools is akin to a run-away train. It's not an easily told story–attention needs to be paid to the numbers behind the numbers.

Using California Horse Racing Board (CHRB) data, the story illustrated the way total California handle has shrunk appreciably between 2007 and 2021, but the share of that handle from CAWs has increased hand over fist during the same window.

When it comes to by far the most influential of these computer syndicates, the Elite Turf Club–a Curacao-based company owned in part by The Stronach Group and NYRA Bets LLC–their share of overall wagering has increased from about 3% to roughly 30% between 2007 and 2021, according to the FT's analysis of CHRB data.

Just two Elite Turf Club accounts account for the majority of all “Elite Turf Club” wagers bet, the FT calculated. Though here it should also be noted that other important betting entities facilitate CAW play, including some key ADW platforms.

Bill Nader, president and CEO of the Thoroughbred Owners of California (TOC), told the TDN that the Elite Turf Club's percentage share of the overall handle during Santa Anita's recently completed “Classic Meet”–which ran Dec. 26 last year through April 9–was 22.89%.

This number is important for one crucial reason: There is a tipping-point when the percentage share from CAW players on overall handle becomes so large that their participation at these levels becomes unsustainable–that it begins, essentially, to cannibalize the market.

“I think everyone would pretty much agree that around 25% is the cap and anything above that might be taking it too far,” said Nader, who presides over the organization given final say over any betting-related contracts inked in the state.

“Even the CAW player would agree that in striking the right balance through their lens–to avoid the CAW player competing against the CAW player which is not what their model wants–they need liquidity in the pools for distribution of investment,” said Nader.

Scott Daruty, president of Elite Turf Club, agrees there's a balance to strike–but he takes a more circumspect route as to what the tipping point is, highlighting different variables factoring into the equation, like the size and location of a racetrack.

“There are very different answers. I can only speak to the tracks that we operate,” said Daruty, pointing to the 1/ST Racing facilities.

“I would think if CAW is 15% of the pool, you're fine. I think if it's 30% or more of the pool, I personally would start to get worried about that,” Daruty said. “Other tracks who have different circumstances may answer that question differently.”

Does the 22.89% CAW play on total handle from the recent Santa Anita Classic Meet strike the right balance?

“I am not overly troubled at 22% if in fact that is the [right] number,” said Daruty, adding how, at the time of the interview, he was not able to verify the figure.

Earlier this week, the Daily Racing Form reported that Santa Anita will cut purse levels for the upcoming Spring meet. This cut was anticipated months in advance, said Nader, but has been influenced by issues like a slate of lost racing days through inclement weather this winter in Southern California.

Not inconsequentially, the purse account is in an operating deficit–a number currently sitting at $554,417 in the red, but expected to shrink to $430,789 through June 18, said Nader. How much of the state's purse account deficit can be attributed to the impacts from CAW play?

“They're volume players and they make a significant contribution,” Nader responded. “That's where I come back to the need to strike the right balance.”

Santa Anita | Benoit

Modifications Already Instituted in California

That said, efforts have already been made at Santa Anita and Golden Gate Fields to control CAW growth in California—the first concerning the Rainbow Pick 6.

Since Santa Anita's fall meet last year, CAW players have been prohibited from taking out the Rainbow Pick 6 jackpot on a non-mandatory payout day.

“CAW players must bet in a 40-cent unit which means they can't take out the jackpot,” Nader said. By rule, the only way the jackpot would be paid is to a single 20-cent unit.

The second concerns a bête noir of CAWs among ordinary gamblers–swinging last-minute odds changes. In response, CAW players must pay a surcharge of around 3.5% on top of their normal rate if they want to bet to the close of the win-pool, said Nader.

These modifications, said Daruty, were made at least partly in response to player feedback.

“There were complaints about late-odds shifts and a lot of focus on CAW players as the cause of that, and we wanted to take steps to try to alleviate the problem if not wholly at least partially,” Daruty said.

Have these modifications rectified the problem of late-odds changes? “We've monitored it carefully and we believe it has had a materially beneficial impact on that issue,” Daruty replied, leaving the door ajar for further possible pricing changes in CAW play.

“I don't know there is ever a perfect answer or a final answer,” Daruty said, adding that anything more specific on possible pricing tweaks would be a hypothetical. “It's an issue we will continue to monitor and if necessary make adjustments.”

Nader took a similar stance to Daruty, saying that the CAW surcharge is so prohibitive, “it effectively prices them out of participating in the win pool.”

But these modifications haven't fully addressed the issue of striking the right balance between CAW and non-CAW play, Nader added, once again saying “it's all about how we control access to the pools and how we price it to ensure fairness.”

As to what additional controls on the betting pools could and should be instituted, Nader also largely steered away from specifics, explaining that contract negotiations are ongoing between the tracks and the TOC with the Del Mar summer meet on the horizon.

Del Mar offers an intriguing case study as to the growing impact from CAWs in California.

According to publicly available CHRB data, the total amount Elite Turf Club wagers at Del Mar annually has increased nearly 56% comparing 2018 data–the year prior to the Santa Anita welfare crisis and a global pandemic–and 2022 numbers.

On a handle-per-race basis, the increase is even more stark. Comparing 2018 numbers to 2022, the Elite Turf Club's per-race handle increased 73.1% at Del Mar.

“I'm not trying to avoid the question, but we still need to have the conversations with the track partners,” Nader said, when asked about specifics concerning these ongoing negotiations. “We have the rights to approve, but I need to respect the position of the tracks. We need to come together.”

Nader pointed, however, towards the higher takeout wagers–like the Pick 4, 5 or 6 bets–as an area for possible pricing modifications.

“The CAW players have gravitated towards the multi-leg wagers which are higher takeout wagers. In many cases, higher takeout wagers can lead to higher rebates. There's where I think there's room for discussion,” said Nader.

For win, place and show or Exacta wagers, the takeout is extracted one time for each race. In the multi-leg wagers, however, the takeout is extracted only one time for a sequence of races.

“So, in terms of payments to tracks through commissions and to owners through purses, those dollars are not working nearly as hard as they would be in the single race pools,” said Nader.

Del Mar | Horsephotos

Concern Over Core Customers

The Thoroughbred Idea Foundation (TIF), an industry think-tank, has been banging the drum about the rise of CAWs, and the implications for the industry, for several years.

Just this March, TIF co-founder Craig Bernick warned that the current trajectory of CAW play risks substantial losses to both mainstream betting customers and to racehorse ownership.

In the same vein, Pat Cummings, TIF executive director and a former executive with the Hong Kong Jockey Club, stressed how vigilant California horsemen should be to the impacts from CAW to the long-term sustainability of the state's racing industry.

“No group should be pushing more for reform in this space–and to date, that has not really happened,” Cummings said, pointing to how California's purses are built solely upon handle, unlike other states which bolster their purse revenues through other sources. “Wagering is the lifeblood of the sport, but in America, nowhere more so than California.”

As such, pricing is key. “The growth of CAW play is proof that the cost we charge bettors via takeout matters,” Cummings said. “If takeout was higher for CAWs, they wouldn't wager or churn as much as they do,” Cummings added. “And while we don't have access to the deals cut to incentivize them, their overall growth is the sign that improving their experience through better pricing has worked.”

Indeed, the lack of public transparency by the industry at large about the impact from CAWs is glaring. Take the CHRB, one of the more transparent commissions when it comes to CAW data.

Until 2021, the CHRB issued detailed annual betting data on individual Elite Turf Club accounts. Last year, the CHRB lumped all Elite Turf Club accounts into one block.

More specifically, the incentives offered these players is another major bugbear of CAWs. According to the FT, the rebates that CAW players receive can be around 10% of whatever they bet.

When asked if these details should be made public, Nader said that any effort at pricing transparency should ideally be done uniformly across the nation. “But I'm not sure there's a willingness to do that,” said Nader, who added that legal obstacles could similarly hinder such endeavors.

When asked the same question, Daruty said that “we believe very strongly that the personal wagering habits of our customers and their personal situations is something that should remain private, so we're not prepared to discuss specific rebates of specific players–that would not be appropriate.”

Individual rebates, Daruty explained, are dependent upon a wide variety of factors.

“Thus far we haven't found a one-size fits all model that we think makes sense for our racetracks, the horsemen who run there, as well as our customers. Until we can come up with such a model, we're going to continue to have a wide variety of rebates available to a wide variety of customers,” Daruty added.

Which leads to a fear among track operators that weakened CAW incentives could drive these price-sensitive players from the game. At the same time, without controls on CAW access to the betting pools, CAW is only going to further sour the average gambler to the game, Nader admitted.

“For the casual bettor, I'm not so sure,” Nader said. “It's the core customers, they're the ones I'm concerned about. I'm talking about the ones at a level just below the CAWs–they're the ones contributing on a day-to-day basis or participating at a higher rate. We want to make sure we're looking after their interests.”

What should that look like? Nader skirted specifics, calling it “a question for the industry at large to look at.” That said, “the key is introducing new people to the sport. Maybe we haven't done a good job at that for the last 10 to 20 years.”

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The Week in Review: Handle Falls Sharply Again in February… What’s Going On?

Figures released last week by Equibase showed that U.S. handle declined by 5.21% in February. This comes after handle declined by 7.19% in January. For the year, that's a drop off of 6.22% and, if those numbers hold up throughout the year, total handle will be off by $750 million and the year-over-year percentage decline will be the worst the sport has suffered since 2010.

And it's not just that racing has gotten off to a slow, reversible start this year when it comes to wagering. Whatever is going on, it started in October. Handle was up 2.68% in September and up 1.78% through the third quarter of 2022. Then the numbers took off in another direction and they haven't stopped falling since. Handle was off 4.93% in October, 4.47% in November and 7.52% in December.

Taking a look at the usual factors that affect handle doesn't yield any obvious answers. The average field size so far this year has been 7.66 horses per race, almost identical to the 2022 number, which was 7.67. The total number of races run has actually gone up, from 4,345 to 4,508. But the average amount wagered per racing day is off 8.35%.

This is a mystery not easily solved, but the best guess is that it has something to do with the amount being bet by the Computer Assisted Wagering (CAW) players who received huge rebates from betting outlets like Elite Turf Club, which caters to the biggest bettors in the world. Had something happened to impact the amount they wager that would explain the recent declines?

Maury Wolff, who was a professional horseplayer before retiring and studies betting trends, speculated that some tracks may have raised the host fees they charge Elite and other ADWs. The signal fee is the percentage of every dollar of handle that an ADW or simulcast outlet must pay the host track for the right to wager on that track's races. If host fees go up, the rebates the ADW can offer its players will likely have to drop. A smaller rebate would lead to a CAW player betting less. Information on how much is bet at places like Elite and how much they pay in host fees is a carefully guarded secret.

“There is a possible explanation, but you'll never get to the bottom of it,” Wolff said. “What are racetracks doing when it comes to signal fees? An unreal amount of the total amount bet is driven by Elite and if there have been changes to signal fees, that would reduce handle at Elite. Have signal fees gone up to the shops, and when you are talking about the shops you are talking about Elite? I would be very suspicious of that. They are so much the driver now. Anything that affects them is going to be an earthquake to the business. That strikes me as a possibility.”

But Wolff admitted that his theory amounts to only an educated guess.

“But these are suspicions and suspicions are not facts,” he said.

What's the answer? We're not sure. Neither were a handful of other experts I consulted. But this is something to keep an eye on. One of the good news stories in racing over the last few years is that handle has more than held its own and done so despite the advent of legalized sports betting outside of Nevada. Handle was up by 11.8% in 2021 and, despite the decline over the last three months, down less than 1% in 2022. It looks like that's not going to be the case in 2023, which is off to an inauspicious start.

Why You Should Bet on Hawthorne

It's not easy being Hawthorne Race Course. Though a casino is on its way, as of now, they get no additional funding from slots, etc., and offer purses that are far lower than those found at the top-tier tracks. Because they are obligated to run a harness meet, Hawthorne can offer only a 68-day Thoroughbred meet that ends Sept. 3. Illinois racing misses Arlington Park.

But you can't say that Hawthorne isn't trying. Hoping to attract more business at the current meet, which began Mar. 5, the takeout on win, place and show bets has been slashed to 12%. When it comes to straight wagers, there's no better deal in the sport.

“You have to be aggressive with takeout sometimes,” said Hawthorne Racing Analyst Jim Miller. “Minor drops are always welcome, but we wanted to be really aggressive. Our takeout in the past on these wagers was 17%, so to drop five percentage points to 12% is very significant. We wanted to make a splash and we want to put out a product that people will want to bet on. We want people to focus on our races. We know handle will have to increase to cover what we are losing in commissions with the lower takeout, but in first couple of days of racing we have seen that handle has increased and we are hopeful we will have a very good year.”

Hawthorne is also thinking out of the box when it comes to its racing schedule. They will not race on Saturdays in March, April or May, going with a two-day week that includes racing only on Thursdays and Sundays.

“What we're doing is smart,” Miller said. “Here's a great example. Normally, our opening day would have been last Saturday. That happened to be the same day that you had three major racetracks with Derby preps and three or four other stakes on the card. These are great circuits that people want to watch. You want to see what's going on at Aqueduct, Gulfstream, Santa Anita. We knew that if we threw our card out on that day, we wouldn't handle anymore than $600,000. By shifting that card to Thursday, we handled $1.2 million and that's because there's not as much competition and there is more exposure. We want to put our product out there where the gamblers can see it and see all that we have to offer and see that we are offering a 12% takeout on win, place and show wagers.”

For good reason, horseplayers love to complain about how high the takeout is in racing. The best way to fight back is to support tracks like Hawthorne when they go out of their way to offer the customer a better deal.

Tapit Trice Did Just Fine in the Tampa Bay Derby

Perhaps you were expecting Tapit Trice (Tapit) to win the GII Tampa Bay Derby in a cakewalk. The expectations were high for the grey 3-year-old and they should have been. By Tapit, trained by Todd Pletcher and a $1.3-million yearling purchase at Keeneland September, he forced his way into the conversation for the GI Kentucky Derby with an impressive eight-length win in an allowance race at Gulfstream. He was sent off at 1-2 in the Tampa Bay Derby for a reason, because he looked much better than everyone else on paper.

But nothing came easily for Tapit Trice in his two-length win. He was 11th of 12 down the backstretch and looked beaten when he was still ninth on the far turn and was being hard ridden by Luis Saez. But he kept grinding away and managed to draw clear in the final sixteenth. His Beyer figure, an 88, was nothing to get excited about.

Was his Tampa Bay Derby performance good enough to win the Derby? No. But that doesn't mean he can't win the Derby. At Tampa, he ran like a horse who is still figuring things out. There's one more race to go, the GI Toyota Blue Grass S., and eight weeks to go before he'll get into the starting gate for the Derby for the Hall of Famer Pletcher. Look for a better, more focused horse next time. He should be fine.

The weekend also included a big win by GI Kentucky Oaks winner Secret Oath (Arrogate) in the GII Azeri S. at Oaklawn. Beating a quality filly in Clairiere (Curlin) by 2 3/4 lengths, she couldn't have looked better. It was her first win since the Oaks.

Before the race, trainer Wayne Lukas said his goal for the year was to win an Eclipse Award with Secret Oath. With Nest (Curlin), last year's 3-year-old filly champion, back for another year, that won't be easy. But Secret Oath could not have gotten the year off to a better start.

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