According to an administrative ruling dated Sept. 12 and signed by Waqas Ahmed, the KHRC's director of pari-mutuel wagering and compliance, United Tote “provided improper totalizator services” on races conducted at Oak Grove (July 17-19) and The Red Mile (July 31).

The first of those violations occurred two days after Kentucky first rolled out its mandate that dime breakage be replaced by bettor-friendly penny breakage.

According to the ruling, the mistakes also occurred despite the fact that United Tote “completed pre-meet totalizator tests with KHRC personnel using the correct breaks.”

The ruling stated that on July 20, United Tote submitted an Oak Grove incident report “showing that prices were calculated with ten-cent breaks instead of the required penny breaks, with a $1,916.56 liability owed to the public.”

Then on July 31, a separate incident report from The Red Mile stated “that prices were calculated with ten-cent breaks instead of the required penny breaks” but only for “remote sources outside of Kentucky that wagered on Race 2 onward on that date.” The liability owed to the public was $2.529.21, according to the KHRC.

According to the ruling, “ordinarily, the fine would total $1,000 for each day of violation; however, due to mitigating factors, that amount is reduced to $500 from July 17 through July 19  and July 31. According to the KHRC, those factors were:

“Oak Grove Racetrack has been conducting pari-mutuel wagering before the new breakage requirement that went into effect on July 14. The above events only impact the last three race dates of this track's 2022 race meet.

“[United Tote] calculated and paid the correct prices for all Kentucky sources for the wagering conducted on Red Mile Racetrack's meet. However, the penny break was not applied to Race 2 onward for all other sources due to a software defect.

“The violations were not intentional [and] the [United Tote] fully cooperated with the KHRC on determining the liability due,” the ruling stated.

Bettors will theoretically get repaid through the mandated pool seeding, which must occur “at a harness racetrack in the calendar year 2022 [with] all details…approved by the KHRC.”

In addition, United Tote “must submit its process for complying with regulatory requirements related to providing totalizator services,” the ruling stated.

It was unclear at deadline for this story whether United Tote is appealing the penalties.

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Churchill Downs Incorporated has entered into a multi-year agreement with FanDuel Group involving different facets of FanDuel's sports wagering, advance deposit wagering and television business.

Under the Agreement, CDI will provide certain technology and services to enable FanDuel's customers to place pari-mutuel wagers on horse racing via FanDuel's sports wagering and ADW platforms. CDI will also authorize wagering on CDI's owned or controlled horse racing content via FanDuel's platforms in the United States and grant FanDuel certain television and media rights to broadcast CDI-owned racing content on FanDuel's television network(s). In addition, the Agreement provides FanDuel non-exclusive Kentucky Derby sponsorship rights within the sports wagering category.

Beginning in January 2023, FanDuel will pay for CDI technology and services provided by United Tote Company to facilitate pari-mutuel wagering on FanDuel's platforms in the United States, including FanDuel Sportsbook and TVG. As previously announced, CDI has entered into an agreement to sell 49% of United Tote to New York Racing Association (NYRA) in a transaction that is expected to close by the end of 2022.

CDI will provide FanDuel wagering rights to horse racing content owned or controlled by CDI, including the Kentucky Derby, and will receive customary content fees when FanDuel accepts wagers on CDI-owned content. FanDuel will also receive exclusive television rights to the racing content of all CDI Thoroughbred racetracks, including Churchill Downs, once its existing non-Derby media rights deal expires in 2023. The Agreement excludes certain specified racing content, including Kentucky Derby Week.

As part of the Agreement, FanDuel will also receive a non-exclusive sponsorship of the Kentucky Derby in the sports wagering category beginning in 2023 in exchange for an annual sponsorship fee.

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CDI and NYRA intend to work together to create and provide a comprehensive and efficient industry-leading pari-mutuel solution through United Tote that will expedite the expansion of horse racing seamlessly onto sports wagering platforms to reach new customers. Pending the appropriate regulatory approvals, NYRA will transition its pari-mutuel wager processing to United Tote in 2023 under a separate agreement.

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Officials at Churchill Downs Incorporated (CDI) have announced that Nate Simon has been named Senior Vice President and Chief Technology Officer of the company. He will be responsible for providing strategic technology leadership and services. Simon replaces Ben Murr who was promoted to President of TwinSpires and Online Gaming in January.

Simon joined CDI in 2011 as Vice President of Operations for the Company's United Tote division before his promotion to President of United Tote in 2012. During that time, Simon was accountable for over 200 employees across the United States and Canada and over $25 million in global revenue.

“I am very proud of the results Nate has delivered in modernizing United Tote over the past 10 years,” said Bill Carstanjen, Chief Executive Officer of CDI. “We look forward to him building on these contributions by delivering further innovation and growth to the Company as the Chief Technology Officer.”

Prior to joining CDI, Simon was the Global Head of IT Operations for Clariant. He started his career with General Electric Co. where he completed the GE Information Management Leadership Program and worked as an Enterprise Resource Planning Project Leader. He holds a Bachelor's degree in Computer Science from Indiana University.

Simon's promotion is effective immediately. CDI will move quickly to fill the role of President of United Tote.

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Faced with remarkable competitive pressure from the rise of legal sports betting, horse racing is at a crossroads.

Confidence amongst horseplayers and horse owners is essential to the future sustainability of the sport. Efforts to improve the greater North American Thoroughbred industry will fall flat if its stakeholders fail to secure a foundation of integrity, along with increased transparency of the wagering business and its participants over time. Achieving this is growing increasingly difficult after the sport has neglected its core base – horseplayers – for decades.

“Wagering Insecurity” details some of that neglect, and the need to embrace serious reform. Fortunately, there are examples across the racing world to follow.

PART 5 – BINGO

The NTRA-led initiative to bring wagering integrity to North American racing had failed. Independent oversight was falling apart. The frustration was palpable in December 2008. The University of Arizona Racing Symposium (click here to read the full transcript) convened a panel to discuss the state of these initiatives.

Paul Bowlinger, a long-time horseplayer, attorney, former regulator and then the executive vice president for the Association of Racing Commissioners International (ARCI) found it Shakespearian.

“…The real genius of that soliloquy of Hamlet is not 'to be or not to be,' whether that is the question. He goes on to say, 'To die, to sleep, perchance to dream, aye, there is the rub, for in that sleep what dreams may come?'

“Because what Hamlet is really quite simply saying is, what we may discover is scarier than what we already know.”

Later in the session, Bowlinger highlighted that the complexities of the industry, compounded by other issues, distracted the evolution of integrity measures.

“…We no longer have to dream about what's on the other side of an unmonitored pari-mutuel pool…

“The second part in that soliloquy is, 'Whether tis nobler in mind to suffer the slings and arrows of outrageous fortune,' and what has bothered me is that since 2002, the Pick-6 scandal, it was the topic du jour, it was the topic du everything.

“Now granted, there have been other issues that have taken our time, medication issues, the tragic Eight Belles, Barbaro, the steroid issues, they've all come into place and they've diverted our attention and rightfully so in many ways.

“But I think our betting public is fed up with taking the slings and arrows of outrageous fortune.”

When TIF reached him in February 2021, Bowlinger's recollection of the time was unchanged.

“The industry's complete lack of interest was so frustrating.

“We met with everyone, tried to make it work and we had all the numbers in place for it to work. All of the executives started out by saying 'yes, yes, yes,' and when it came down to executing, they ended up saying 'no, no, no.'

“I owned a nightclub for a long time and I would not possibly think of ignoring my actual customers. Racing is run as if its betting customers don't exist. I would not walk into my club and not notice my customers.

“Instead, racing goes to its distributors and asks them how they are doing. It's a remarkable way of doing business.”

Bowlinger left ARCI in 2010, returned to private law practice and has been out of the racing business ever since.

At the time of the 2008 Arizona Symposium, Bowlinger's fellow panelist Isidore Sobkowski had been out of the NTRA's Office of Racing Integrity for several years and was running his own company, Advanced Monitoring Systems (AMS), described by Bowlinger in the session as “specifically created to meet the pari-mutuel industry's need for cyber security of wagering pools and wagering accounts.”

Sobkowski lamented the lack of accomplishments to that point.

“There's a lot of talk about wagering integrity but so far I think precious little has been done.”

WITHOUT CONTROVERSY

Kevin Mullally provided an external perspective. After 12 years with the Missouri Gaming Commission, Mullally was early in his career with Gaming Laboratories International (GLI) as Director of Government Relations and General Counsel. He had recently served as Vice President of the North American Gaming Regulators Association (NAGRA). Given his broad experience in gaming regulation, he used his time at the 2008 panel to express his bewilderment at how racing could be such an outlier regarding its regulation of technology.

“This is my third consecutive conference.

“I came here two years ago to learn a little bit more about why the racing industry had managed to be the only component of the gaming industry that had not implemented any serious oversight to its technology.”

TIF contacted Mullally in March 2021 and his views were unchanged and now augmented by the new forms of gaming technology which have entered the market, each aligned to a set of technical standards that are independently tested under the authority of their regulators. Racing's controls fall farther behind.

“If you were to put me on a panel today, 13 years later, I'd say the exact same thing.

“The only difference is that the tote systems stand out even more given how technology in the rest of the gaming industry has evolved. Testing is not only ubiquitous in every other sector of gaming but is also without controversy. 

“The only aspect about testing of gaming equipment that is controversial is if someone suggests that it is not needed…

“Automated bingo card devices in church basements have more independent monitoring than the tote systems.”

Ironically, Mullally added, the primary source of new money to the racing business – subsidies via slot machines, video lottery terminals and historical horse racing (HHR) machines (slot machine-like devices driven internally by race results) – are all substantially more controlled than the billions going through the tote system.

“Historical horse racing machines have similar levels of controls and oversight as any casino or lottery-style machines. Tote systems that have been used in America lack the clear lines of accountability and defined processes to independently validate the technology. Moreover, they lack proper safeguards to independently investigate a malfunction, or investigate attempts to compromise the system. The message has always been, 'we can do better.'”

Tote operators, not so much.

Mullally's position from outside racing was affirmed by one active racing executive whose role includes managing wagering, but asked not to be named because of ongoing relationships with tote companies. That executive told TIF in early 2021 that AmTote, which was reported to process about 80% of North America's pari-mutuel bets, has consistently disappointed his track:

“They have not met our expectations on tote processing innovations and it has long seemed like they are not receiving the cash needed to evolve or innovate in racing. If anything, they have given the impression most of their team was working on their historical horse racing technology.”

That technology powers the slot-like devices used to subsidize racing in states including Arkansas, Kentucky and Virginia.

MONITORING

Back in the 2008 panel, Bowlinger, Sobkowski and Mullally were all bearish on the state of wagering integrity and did not hold back.

In the session's Q&A period, Chris Scherf, long-time Executive Director of the Thoroughbred Racing Associations of North America, the owner of the TRPB, publicly contested Sobkowski's monitoring business, challenging the underlying technology and claiming it insufficient to meet industry needs.

“I think it vastly overpromises.”

By this point, Scherf had almost two decades of experience working with the tote companies and noted that the technological infrastructure that was required to institute independent monitoring was not possible given the rather sorry state of technology on the part of the tote companies.

Reached in March 2021, Scherf made it clearer.

“You haven't had an adventure in life until you've tried to get tote companies to do something in concert. I found quickly that when you get them all into a room, everyone was in favor of uniformity and the definition of uniformity was everyone doing it 'my' way.”

The Scherf challenge in 2008 was an engagement familiar to Sobkowski, who had heard the hemming and hawing before.

“We are a vendor. We compete in a free market and we've got a good system. I understand TRA [Scherf's employer, funded by the consortium of track owners] has a system as well, we'd love to go ahead and compete against you, love to go ahead and partner with you.

“We're looking for an industry solution here, we're not looking for any kind of unfair monopoly or any kind of unfair advantage.”

Earlier in his main remarks, Sobkowski struck hard at the racing industry's overwhelming reluctance.

“I just want to say that the industry has had some pretty significant push-back to the things that we're doing as a company.

“I've been told, for example, that our system is too simplistic. I've been told that our system is too sophisticated. I've been told that our system works too well and we don't need it. I've been told that our system doesn't work at all and why bother?

“But what I've really been told over and over is that someone has to pay for this and the industry doesn't want to pay for it.”

A DEAD RAT

In 2009, the Indiana Horse Racing Commission (IHRC) decided to move forward with Sobkowski's firm, AMS, declaring itself the first state in America to institute real-time, independently monitored pari-mutuel wagering.

Joe Gorajec was Executive Director of the IHRC for 25 years, and pulled no punches in 2021 when assessing the state of wagering integrity in America, suggesting little, if anything, has been done in the almost two decades that have gone by since the Fix Six scandal. He told TIF:

“Most racetrack operators would rather have a dead rat in their mouth than expose or take action on any wagering malfeasance that occurred on their races.

“If there is a system in place, today, that is for racetracks to use to monitor live betting, then the tracks should be reporting the results to the public. The reports should indicate exactly the problem that occurred, here's what was done about it and what steps are being taken to ensure it does not happen again.

“You almost never hear that, ever, from anyone.

“Tracks will not take action on their own because tracks are not in the business of integrity. Tracks are in the business of making money conducting horse racing. Some are more integrity and safety minded than others.

“I think most tracks, confronted with a wagering integrity issue, would either bury the information or bury their heads in the sand and it would never see the light of day. That's not every track across America, but the majority would not want to make public any information that would question the integrity of wagering on their product.”

New York adopted a rule requiring independent wagering oversight, and hired Sobkowski's AMS in October 2009 to monitor all betting on tracks in the state. The rule still exists, but one long-time tote executive told TIF the technology is so limited, monitoring to meet the rule can only take place on live, in-person betting at the host track. Thus, actual monitoring only occurs on just a sliver of total betting.

Widespread independent monitoring across the tote landscape never actually materialized in any state, from AMS or another firm. Though formal explanations are impossible to find, TIF learned from multiple individuals that the protocols which govern the tote system are so antiquated that betting details from the tote companies could never get to the monitoring groups in formats that would enable transaction-level oversight. Investment to upgrade systems to enable such transmissions have not been made. These protocols remain in place today.

At present, two of the three main tote companies serving North America are owned by major racing corporations, each of which also own racetracks, ADWs, high volume betting shops, content distribution arms and a host of other service providers. AmTote was bought by Magna Entertainment (later, The Stronach Group and now 1/ST) in 2006 and as was previously cited, controls most of the tote relationships between tracks and betting sites. Churchill Downs Incorporated acquired United Tote in a November 2009 deal as part of its purchase of Youbet. The third, Sportech, sold its global tote business in December 2020 to Australian firm The BetMakers.

TIF asked former TRA boss Chris Scherf in 2021 if consolidating ownership of tote companies with racetracks, as was the case with AmTote and United Tote, made any noticeable difference.

“No. I don't think anyone perceived anything was going to change or be improved, and that's the way it played out.

“It made it easier getting the tote companies to the table a bit more regularly, but that's about it.”

During the period from the Fix Six scandal of 2002 through 2009, horseplayers increasingly questioned the ability of tote firms to secure betting as they witnessed the failings, making it all the more inexplicable that independent monitoring was rebuffed. Tote representatives said there were no such issues.

One professional horseplayer proved, and reported, that he could bet up to 50 seconds into the start of a race.

Coming Thursday, April 29: Part 6 – Proof

Miss a previous installment? Click on the links to read more.

Part 1 – Expectations

Part 2 – Intertwined

Part 3 – Volponi

Part 4 – Confidence

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