After “Spreading Like Rabbits,” The Plug Has Been Pulled On Gray Games In Kentucky

They first showed up in Kentucky in 2021. Called gray games, they looked and acted like a slot machines, but the companies that manufactured the machines made the spurious claim that they were legal because they were actually games of skill. Before long, the machines grew to be so popular that, by some estimates, there were more than 5,000 of them, taking up residence in bars, restaurants and convenience stores across the state.

“They spread like rabbits,” said Majority Floor Leader Senator Damon Thayer of the games that got their name because, when it comes to legality, they operate in a gray area. “Before you knew it they were everywhere. These were mom and pop small businesses who were basically running illegal casinos in the back rooms of their gas stations, convenience stores, bars and restaurants.”

“This was their business model,” Thayer continued. “They'd come into a state where the games were illegal but there might have been a loophole in the law of a gray area in the law that gave them enough impetus with local businesses to go in and install the machines.”

The American Gaming Association (AGA) estimated that there are 580,000 gray games machines nationwide, including 67,000 in Pennsylvania, another state where the racing industry is dependent upon revenues from legal slot machines at its racetracks. The AGA also estimated that gray machines generated $27 billion a year in revenue. In 2021, the games were banned in Virginia, another state where racing benefits from revenue generated by HHR machines.

To Thayer, a staunch supporter of horse racing, gray games were a problem that was about to get much worse as the number of the machines in the state continued to climb. Not only did he believe that the machines were illegal but he recognized the threat they posed to racing. Purses have exploded in Kentucky in recent years, in large part because of the success of Historical Horse Racing (HHR) machines. The gray games machines gave HHR players another outlet, a place to spend their gambling dollars that would be of no help to horse racing.

“On behalf of the 60,000 jobs and billions of economic activity our signature horse industry provides, I proudly vote aye,” Thayer said when casting his vote in favor of the ban.

During the 2022 fiscal year, a total of $4.5 billion was bet through HHR machines in Kentucky.

“We went through so much to get HHR legalized and the machines are very popular and have led to huge purse growth that we all predicted,” Thayer said.  “And along comes this illegal threat to pari-mutuel wagering on horse racing as well as charitable gaming and the lottery. The gray games machines were viewed as an existential threat to all forms of legalized gambling in Kentucky.”

The problem was solved on March 16 when Kentucky Governor Andy Beshear signed House Bill 594, which outlawed the machines.

“They're entirely unregulated,” Beshear said after signing the bill. “I don't believe that they were legal, yet they came into Kentucky and just set up and were taking dollars from Kentuckians and taking them out of State with zero regulation, zero taxation, zero system to help those that might develop any issues from using them for gambling.”

Despite having key politicians like Beshear and Thayer in favor of a ban, nothing came easily when it came to gray games. Just two weeks before Beshear signed the bill a plurality of lawmakers voted to table the bill. That group wanted to create a state gaming commission to regulate and tax the machines. And in 2022, the Kentucky House passed a bill to ban the machines, but it got sidetracked when the Senate amended the bill and the House would not agree to the changes. Thayer said that gray games were gaining such momentum that he feared that if they weren't banned when they were their proponents were going to find a way to make them, officially, legal.

“They wanted to go another year with the machines continuing to multiply,” Thayer said. “They knew that if they made it another year with no ban there wouldn't be much the state could do to get rid of them. There was a real sense of urgency to pass a bill.  The feeling was if there was another year of uncontrolled growth of these machines they'd be here for good. That's because the more businesses that installed the machines the more advocates they would have calling representatives and senators to convince them not to ban them.”

Gray games had their advocates, primarily from the businesses, many of whom were, as Thayer described them “mom and pop” operations, who said they could not stay in business if the revenue they received from the gray games disappeared. Thayer said the gray games operators and manufacturers had “an army of advocates” and spent heavily on lobbyists and campaign contributions.

“You had this big freewheeling group of gray game operators spending an incredible amount of money on lobbyists and campaign contributions” he said. “Of all things, they aligned with group of Southern Baptist legislators who voted against HHR who were arguing to keep the gray games going. They did so because they had people in their district who owned places where they had the gray games machines. It was a strange group of bedfellows, one of the weirder things I have ever seen.”

The bill banning gray games goes into effect July 1, at which time they will disappear from a state where the horse racing and breeding industries can usually count on support from the state's lawmakers.

“There were a lot of reasons to be against gray machines,” Thayer said. “Everyone who voted to ban the machines had different reasons for doing so. There certainly was a big group of legislators who thought it was an illegal form of gaming that was a big group that saw it as a threat to horse racing.”

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Sixty Incidents of Pool Manipulation. The Industry Shrugs

A month ago, the Thoroughbred Idea Foundation (TIF), a think tank that uses independent research to try and drive changes in the sport, brought to light an example of what it said was brazen quinella pari-mutuel pool manipulation at Gulfstream Park. The scheme was apparently designed to jack up the odds the manipulator would receive on winning bets placed with non-pari-mutuel offshore bookies that paid on-track prices.

On Wednesday, Pat Cummings, the TIF's executive director, told an audience at the Global Symposium on Racing hosted by the University of Arizona Race Track Industry Program in Tucson that this incident was one of more than 60 purported pool manipulations he has documented at North American racetracks since the spring.

“The reason we wrote about that particular incident was because it was easily the biggest of more than five dozen incidents that we've tracked in the last six or seven months affecting, really, a significant number of racetracks, most of whom don't seem to know any of this is going on,” Cummings said.

And in the cases where regulators and racetrack operators do acknowledge that pool manipulation exists, Cummings said, they often believe the practice is victimless, without harm to the sport, or beyond their power to change.

All of those ideas are incorrect, Cummings said in a panel discussion titled “Illegal Betting's Threat to the Racing Industry.”

“I've approached regulators across America with this,” Cummings said. “And they say, 'Well, it is handle, right?' I mean, the tracks want this money…”

Cummings trailed off midsentence, giving the impression that industry bigwigs often shrug when faced with evidence of pool manipulation (Gulfstream, however, did discontinue quinella wagering days after becoming aware of the Nov. 11 pool irregularities).     A recent report titled “The State of Illegal Betting,” compiled earlier this year by the Asian Racing Federation, exposed the proliferation of unlicensed and unregulated online horse racing and sports wagering companies. The report found the global demand for online wagering is increasing faster than industry's ability to react. The suspicious betting patterns detected by the TIF in American pools may have a connection to non-pari-mutuel bookmaking.

Wednesday's panel, which also included global perspectives from Matt Fowler, the London-based director of integrity for the International Betting Integrity Association, and Martin Purbrick, the chairman of the Asian Racing Federation's Council on Anti-Illegal Betting and Related Financial Crime, outlined some major threats and discussed what actions could be taken going forward.

But it was the presentation by Cummings–who isn't even a regulator or investigator, but is more akin to an ombudsman for U.S. wagering–that hit closest to home for most stateside racing stakeholders.

Cummings said the first fundamental step is to recognize that pool manipulation is never going to be eradicated entirely. It's not even explicitly illegal. A good chunk of it, he said, occurs with the aid of the “vast” gray-market global bet-booking business whose handle is “far in excess of the legal market, and it has infiltrated American racing. There is absolutely no question.”

Cummings gave an overview of how a manipulator might work, using show pools as an example. (If you want to read a more in-depth TIF writeup on the process, click here.)

A manipulator might bet $2,000 to show on a horse or horses who look certain to finish in the money at a track where the fields are uncompetitive and/or short and the show pools are miniscule. But instead of betting that money in the pools, he instead spreads it across a number of different offshore bookmakers in smaller increments. These are bets he intends to win, and it's important to note that the offshore outlets don't often “lay off” this money into the mutuel pools.

In the same race, the manipulator then bets, say, $4,500 into the show pool on one of the longest shots on the board, and this money does go through the mutuels, making a horse who is unlikely to hit the board based on past performances the overwhelming favorite in that pool. This bet he intends to lose–it's a business cost whose sole function is to abnormally drive up the show prices on the more likely horse(s) to hit the board that he backed with the offshore bookies who pay the on-track prices.

If the race unfolds as the manipulator envisioned it will, the hapless heavy show favorite runs out of the money, while the more talented horse(s) he backed via bookmakers cruises home in the top three, triggering something like a $21.00 show payoff.

“So they sacrificed $4,500 to win maybe $21,000,” Cummings said. “The manipulator is spreading his or her risk, likely across multiple accounts, because the offshore operator may not pay them. That's just part of the risk.”

Cummings continued: “I don't see a lot of [bettors] talking about this or noticing it. And the reason is, if you bet an even-money shot to show thinking you were going to get $2.20, and [instead] got $21.20, who's complaining?”

That's an obvious example that should stand out, Cummings said. But this pattern occurs with more subtlety using smaller dollar amounts, he explained, like when a manipulator might be content not to make a single big score, but instead routinely inflate 1-to-5 shots in the show pool so they pay off like a 4-5 shot would.

And occasionally, the horse who was supposed to be a dud wins or hits the board, Cummings said. That's when bettors do speak up and complain about the pools not being on the level, because the big long shot they legitimately bet in the mutuels returns a vastly underlaid show payout.

That can lead to image and integrity problems, Cummings said.

“You do not want a bad name associated with your product. And every time someone manipulates your pool, if it's noticed, it's bad for your product,” Cummings said.

Beyond creating bad perceptions, Cummings said, rampant pool rigging could also encourage manipulators to get a bit bolder with their actions, perhaps by spending a bit extra to bribe participants to ensure desired outcomes in races.

“If someone's willing to bet $4,500 to show in a race where the winning jockey is earning $900, what's an extra $500 to make sure they don't run in the money?” Cummings said. “Or an extra $500 to the trainer to tell the jockey to maybe be a little slow out of the gate today.”

Cummings stressed that to his knowledge, there is no current evidence that pool manipulators are reaching out to arrange fixed races.

“That's a good thing–for now. But it's out there. And it happens. And there is no reason that others might not try to copy this,” Cummings said.

Cummings explained that he's a proponent of the “best defense is a good offense” strategy to try to keep pool manipulation at bay. The industry can do this, he said, by recognizing that our pari-mutuel system is ripe for being controlled in the manner he described, and by increasing stewards' awareness and oversight so there is a better focus on pool-watching.

A fixed-odds system might be a better long-term solution. But that style of betting is not completely immune from manipulation, either, Cummings said.

Reinventing our wagering menus could be an option, Cummings said, with an eye on pruning off the low-volume pools.

“Should a track that has offered win, place and show betting for the last 60 years continue to do so when the place and the show pools only average $1,200?” he postulated.

In that case, maybe the solution is to get rid of the place and/or show pools.

The proliferation of rolling horizontal wagers on practically every race card on the continent is also a hazard waiting to happen, Cummings said, because those bets, too, draw very little mutuels action and have low base-bet increments.

“We have to rethink the way we're doing this, because every small pool is a way to manipulate the outcome, to corrupt a participant, to help exact these sorts of outcomes,” Cummings said.

Cummings said he has spoken with various groups of officials and regulators over the past year about the problem of pool manipulation.

Their reactions?

“Interested, but [there was] very little they thought they could do about this,” Cummings said.

“This falls back on track operators. It falls back on horsemen's groups,” Cummings said, pointing out that the idea of looking the other way when pool manipulation occurs is not justifiable simply because it increases handle and thus fuels purses.

“If you don't recognize it, [or] if you bury your head and say, 'I don't want to hear about it–not interested,' it's going to keep happening,” Cummings said.

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How to Better Promote Racing…a Q & A with Mattress Mack

Jim McIngvale (Mattress Mack) made history when the Houston Astros won the World Series. He made bets that returned $75 million when they won, the largest win ever in the history of sports betting. The bets were tied into a promotion McIngvale has used many times at his Gallery Furniture Stores in Houston. If he wins the bet, his customers get free mattresses.

He's great at getting publicity for himself and his stores, but never had he seen anything like what happened with this bet, the story of which became a huge hit on social media. In particular, B/R Betting, an arm of Bleacher Report, followed McIngvale from Game 1 of the World Series through the team's victory parade and captured the agony and ecstasy of each moment from someone who had $75 million at stake based on the outcome of a baseball game. Mattress Mack content amassed 75 million video views on B/R Betting, which posted the content on Twitter, Instagram and TikTok. McIngvale figures he got millions of dollars in free publicity out of the B/R Betting posts.

It just goes to show that when it comes to promoting his business and himself, McIngvale has no equal. Because of his bet and the publicity it received, McIngvale became as famous as the Astros star players. So what advice does this master promoter have for horse racing and how can it better promote itself? Those were the questions we had for Mattress Mack.

TDN: In what areas should racing focus its attention when it comes to improving the visibility of the sport?

JM: People love gambling stories. Horse racing needs to do more to play on the gambling aspect because these young kids are fascinated by it. When I went to Philly and got into that famous confrontation with some Phillies fans, which was not my finest hour, everybody up there knew me. They all know me from all the exposure I was getting with places like Bleacher Report. Horse racing needs to have more connection to young people through gambling and find ways where people can win a lot of money. Absolutely, we should promote gambling more. In Philly, everyone knew Mattress Mack and knew about my bet on the Astros. They knew me because they saw me on B/R Betting or the Action Network or whatever. What's better? Horse racing or the lottery? There's no comparison. Horse racing is a much better gambling game and they need to get the word out about that.

TDN: You won $75 million on your Astros bet. There is no way for a person to make that kind of money betting on a horse race, even at the Kentucky Derby. What's your answer to that?

JM: No, you can't make that kind of money betting on racing, but you can make racing a better product for the bettor. Do whatever it takes to get bigger fields and lower the takeout. Figure out a way to get 15- or 20-horse fields like they have in England. You do that and all of a sudden you have a different game, a better game. We see far too many races and stakes that have five-horse fields with big favorites. People don't want to bet on that. Increase the size of the fields and give people a chance to gamble on a good product. That's all people want. People are fascinated with gambling, particularly with sports betting. You've also got to lower the takeout to compete. It's 5% when I make a sports bet. In racing it's four times that.

TDN: What did you think of the decision to retire Flightline (Tapit)?

JM: You have to have superstars. Retiring Flightline. I get it. They had to make the money. But what a shame there wasn't a way to keep him around longer. Football has Tom Brady and a bunch of other high-profile players. Baseball doesn't do a good job promoting its stars, but basketball certainly does. You have to create household names and get people excited about a horse appearing here or there. To me, that's really important. They have to find a way to keep these horses running longer so they have a chance to become household names. The game has to figure out how to keep these horses around as long as they are sound because everyone wants to see a superstar. Pay them an appearance fee. Pay them money to just show up, whether they win or lose. That's one way to get horses to stay around. We need more superstars like Zenyatta, who was still running when she was six. She stuck around and built up a huge fan base.

TDN: What's your opinion of fixed-odds wagering on horse racing?

JM: Going to fixed odds would be would be outstanding. When you bet at 3-1 and the horse goes off at 4-5, that's hard to swallow. I get fixed odds on my Astro bets. Fixed odds are the way to go so that way people know what they are going to get for their money. I think fixed odds would be a great benefit because pari-mutuel betting is too complicated for the average person out there.

TDN: What are some of the problems you see with horse racing as it is now?

JM: No. 1, it has to be more transparent. The optics on horse racing are not good when these guys get slapped on the wrist for these drug positives. That's horrible. You can't have people thinking a horse won because it was drugged. We've also got to do more to keep these horses safe. They've got to improve the technology. Dr. [David] Lambert has this device you can put on the horse and it tells you when it's going to red line and something is going to pop. That needs to be done in workouts and when they race and it needs to be done everywhere. When those horses red line and are about to pop they need to stop on those horses. All that stuff is doable. Dr. Lambert and I are working on what we call the Runhappy Wellness program. We want to get the racetracks to put these monitors on the horses so they can tell when something is going to go wrong. They monitor the baseball players and they monitor football players, so why can't we monitor these horses and make it as transparent as possible? The more transparent the better.

TDN: What are other sports doing right that racing isn't?

JM: Take a look at F1 (Formula 1 racing). F1 came to Austin, where my daughter runs a restaurant for us. They had the biggest two days in their history while F1 was in town. Five years ago, F1 was nothing. I asked a sports marketing friend of mine, how did F1 go from nothing to something, from the bottom of the heap to the top? It all comes down to a deal they did with Netflix. They told the story of F1 on Netflix and look what happened. It has turned into one of the hottest sports in the world. Racing needs to come up with some creative ideas like that. If F1 can do it, why can't horse racing?

TDN: Tell us about your experience with B/R Betting.

JM: It was incredible. Those guys do a great job. The guys from Bleacher Report followed me the whole time during the World Series. We also have our own social media team that runs our sports website, Gallerysports.com. The amount of hits was just incredible. They know how to make this work. You put something on TikTok and it blows up exponentially. It's just unbelievable. People like to see the agony and ecstasy of the big bet. They loved the story.

TDN: Your bet on the Astros was tied into a promotion you do at your stores, where people got mattresses for free if the Astros won the World Series. You had to give away an awful lot of mattresses. Did you come out ahead?

JM: I won $75 million and we sold over $70 million in mattresses. It's the greatest promotion ever. After the Astros beat the Yankees, that Sunday was biggest day we've had in 43 years. The following day, Monday, which was a non-holiday Monday, we did 25% more than that. I had to cut the promotion off because I had reached the max in insurance money, which is what I call my bets. I was filled up to capacity. If I had kept going through the World Series, we would have sold another $40 million worth of mattresses. I got $100 million worth of publicity off this Astros bet. The brand awareness of my business increased tenfold in the last two weeks. When I was on that victory parade with the Astros players going through downtown Houston, people were chanting 'Mattress Mack, Mattress Mack.' There were two million people there. How the else do you achieve something like that?

TDN: Are you optimistic about the future of racing?

JM: Yes, because there is so much opportunity to make things better.

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U.S. Wagering Holds Steady in August

Wagering on U.S. races held largely steady in comparison with 2021 figures, with year-to-date wagering reaching $8,604,332,789–up 0.24% from the 2021 figure of $8,583,460,027. During August, U.S. wagering was $1,194,876,167, a dip of 0.86% from last year's figure of $1,205,251,116.

Through August, U.S. purses were $843,635,983, an increase of  12.29% from the corresponding 2021 figure of $751,274,418. During August, U.S purses were $130,206,874–up 3.66% from the August 2021 figure of $125,611,453.

Comparing year-to-date figures from 2022 to 2020, wagering on U.S. races is up 17.76% and purses are up 62.57%.

 

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