Letter To The Editor: Craig Bernick

No business can change what it does not measure. Racing's public measurement of support, via wagering, hides serious issues.

Recent stories have continued to cite declines in total handle, wondering just what is at play. How that handle has been derived has changed dramatically, but that's not reflected in the overall numbers.

Over the last century, U.S. racetracks have reported total handle on their races and, for most of that time, it was one metric that accurately depicted the health of the business. But in our modern era of simulcasting, rebating and high-frequency betting from professionals, often called computer-assisted or robotic wagering (CAW/CRW), total handle figures actually deceive industry stakeholders more than anything.

Just over $12 billion was bet in 2022, which is roughly the same as in 2000. Adjusted for inflation, total wagering is down nearly 50% in the last 20 years. To compound the issue, research conducted by the Thoroughbred Idea Foundation (TIF) estimates that roughly $4 billion of total handle from 2022, around one-third of betting, was from the CAWs/CRWs. Others think the figure is probably higher.

Racing industry stakeholders should know how much is being wagered, through which channels, how much of those wagers are going towards purses and how that has changed and continues to change. But racetrack operators and executives in the betting space seem to have little interest in publicly discussing how their CAW/CRW business is thriving while their mainstream business appears to be floundering. That lack of transparency wasn't always the case.

Big Changes Over 20 Years

In 2004, an NTRA-commissioned study showed the burgeoning CAW/CRW space represented about 7-8% of total betting. Now, it seems headed towards 40%. This does not have to be the problem it has become. On its own, betting from CAW/CRW groups represents a modern, tech-based, intelligent and efficient form of betting. It should be something we can embrace and improves the overall business.

NASDAQ estimates that high frequency trading now represents half of all stock trading. But trading and investing from mainstream investors has never been cheaper or more accessible. Racing has not evolved similarly.

Racing's costs–through takeout–have grown for mainstream customers while rebates for high-frequency bettors are believed to be higher than ever. The amount the public actually loses, “effective takeout” also seems greater than ever. TIF research, led by Pat Cummings, has uncovered public data which shows mainstream ADW customers are losing far more than the traditional blended takeout rate at tracks in Florida. A figure that should be approximately 20% is often closer to 30%, and it typically gets worse on mandatory payout days.

While racing should be able to embrace a future with more tech-enabled betting, it cannot do so at the expense of mainstream customers. All of the evolution has focused on CAW/CRW bettors, making it easier to bet and at lower price points, while mainstream customers are still paying full-freight on a product that has not evolved for them…and they have fled the sport in droves. Total handle figures hide that shift. The higher the takeout, the more room there is to rebate the sport's biggest players. And they have responded! The segment that has actually grown is the segment with the lowest takeout!

Using inflation-adjusted figures from that NTRA study, published in 2004, CAW/CRW betting has likely tripled in the last 20 years. That means mainstream betting is probably down about two-thirds since then. This is an atrocious trajectory from racing's largest customer base–rank-and-file horseplayers–and has occurred during a period where racing had a veritable monopoly on legal, regulated betting via the Internet.

Now racing's inferior, expensive product for mainstream bettors has to compete with legal sports betting. Good luck.

Great Purses Should Not Buy Our Ignorance

Owners and breeders have enjoyed purse supplements through additional gaming revenue for over two decades now. Combined with poor reporting of actual wagering trends, these supplements have also succeeded in buying our general ignorance of the core product–betting on racing. That's incredibly problematic in the long term.

Horseplayers are some of our sport's greatest advocates, and many of our biggest owners were first introduced to racing as $2 bettors. Not only do we risk losing a generation of future owners if our sport is no longer relevant to mainstream bettors, but we are also squandering the business acumen of leading owners on industry boards by failing to give them an accurate picture of how wagering on the sport has evolved.

More than ever before, racetrack operators are owned, or controlled, by gaming companies. Combined with racing stakeholders' ambivalence towards wagering, gaming corporation ownership often does not seem to rate daily racing as a long-term priority. For many of them, owning and operating racetracks has been a not-so-subtle trojan horse for gaming machines.

Particularly in jurisdictions with heavily-supplemented purses, owners should be advocates for reduced takeout and a healthier evolution of the wagering product for all customers. This will drive future participation. It has gotten easy to ignore how the betting business has evolved when tracks run maiden races for over $100,000, when auction prices climb and the business of buying and selling horses is so lucrative. It defies logic that purses have grown considerably thanks to purse supplements but yet takeout remains high for our mainstream customers.

Industry stakeholders–specifically, owners and breeders–must be more attentive to the alarming trajectory of the wagering business, demanding both more transparent reporting and a product that can grow all customer bases–not just the high frequency bettors at the expense of rank-and-file horseplayers.

I'm all for technology. I'm not against CAW/CRW play. I want all customer segments to grow. I want a bigger pie for everyone. I'm FOR horse racing. We all enjoy bigger purses, but the realities of our core wagering business, which sustains the sport and keeps it in the public consciousness, is really alarming. Most owners and breeders don't see it because it has been, relatively, hidden behind antiquated methods of reporting handle.

I encourage owners, breeders' and horsemen's organizations to demand far greater transparency–both of operators and regulators–as it relates to racing's wagering business. We need to be stewards of our sport and not merely accept elevated purses while ignoring the economic fundamentals that impact our largest base of customers.

Craig Bernick  is President and Chief Executive Officer of Glen Hill Farm, a breeding and racing operation based in Ocala, Florida. He founded the Thoroughbred Idea Foundation.

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From the TIF: Fixed-Odds in NY Could be Next

Fixed-odds betting options on horse racing could come to New York residents if a new bill introduced by Senator Joseph Addabbo, Chairman of the state Senate's Racing, gaming and Wagering Committee, is passed, according to a story from the Thoroughbred Idea Foundation.

Senate Bill 2343 is similar to a measure introduced a year ago, also by Sen. Addabbo, but which was never advanced for a vote, TIF reports.

“There should be no doubt amongst racing stakeholders that our existing pari-mutuel offerings are not enough in today's competitive market,” said Thoroughbred Idea Foundation executive director Patrick Cummings.

“Fixed odds bets for racing won't replace pari-mutuel wagering, but rather complement our existing offerings, and meet modern customers with a modern product that they currently enjoy with widespread sports betting options.

“After adjusting for inflation, we estimate that mainstream handle on U.S. racing has declined by roughly two-thirds over the last 20 years. The pari-mutuel status quo with high takeout rates and the constant promotion of low-churn exotic bets have depleted our mass market customers. Fixed odds betting offers racing a chance to recapture those that drifted from the sport while introducing our product to new audiences.”

In a statement from the New York Racing Association published earlier this week by DRF, spokesman Patrick McKenna indicated the measure had NYRA's support and “presents an enormous opportunity for horse racing to share in the rapid growth and unrivaled success of New York State's mobile sports wagering marketplace.”

“Allowing mobile sports wagering platforms to offer premium horse racing content would generate untapped gaming revenue for New York State, attract new fans to horse racing, and deepen the sport's overall economic impact.”

TIF supported the expansion into complementary fixed odds options in its 2019 white paper, which can be reviewed here.

Last year was the first full season with fixed odds offerings for on-track customers at Monmouth Park in New Jersey, where the offering is managed by Australian firm BetMakers. Wider distribution to New Jersey customers, including ADW betting via fixed odds on Monmouth races and simulcasted races, is expected in 2023, the TIF reported.

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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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Better Than $1.1M Returned to Bettors Via Penny Breakage

Through the conclusion of racing at Keeneland Sunday Oct. 15, more than $1.1 million has been returned to bettors since the introduction of penny breakage–rounding pari-mutuel winnings to the penny and not the dime–less than two months ago, according to a blog post from the Thoroughbred Idea Foundation (TIF).

TIF was a vocal supporter and champion of the penny breakage provision, the first of its kind in North America as part of broader legislation designed to standardize pari-mutuel taxation.

“The total is even higher than $1.1 million, that is just in the Thoroughbred win, place and show pools” said TIF Executive Director Patrick Cummings. “The breaks from exotic pools and Kentucky's Standardbred races add even more to the total.”

According to the post, in previous times, if an unrounded $1 return for a bet was $5.0918, under the rules of dime breakage, an even $5 would be returned to gamblers. Under the new rules, a winning bettor receives $5.09.

“Based on observations across Kentucky's tracks and discussions with tellers, there has been a short acclimation period for everyone to get used to it,” Cummings added. “But now that customers receive a 'full' dividend, not only is there no going back, but we start looking elsewhere wondering why others are not as progressive as Kentucky.

“It's been seamless for ADW bettors and overall, the feedback TIF has received has been entirely positive.”

The penny breakage provision was included in Kentucky House Bill 607 and was passed by both legislative branches in March before being signed into law the following month.

“The legislative support to accomplish this cannot be understated, led by Representative Adam Koenig in the House and Majority Leader Damon Thayer in the Senate,” Cummings said. “They mustered the backing of a vast majority of their colleagues to be the first in America to right a multi-generational wrong.

“The penny breakage provision was a small part of a much bigger bill and it is paying back horseplayers that bet Kentucky races, enabling them to churn more across the sport.”

The Keeneland-hosted Breeders' Cup Nov. 4 and 5 will include the enhanced payouts for the first time, as will next year's Kentucky Derby and Kentucky Oaks.

“Other states and tracks should want the same, following Kentucky's lead. But until then, Kentucky pays you more,” said Cummings.

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