11/30/2015 2:47PM

Betfair gains first exchange-wagering license in U.S.

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Betfair, the British-based owner of Television Games Network, has been granted a conditional license by New Jersey regulators to launch the first exchange-wagering platform in the U.S., a development that could have a dramatic impact on the racing industry if its supporters' goals are fully realized.

The approval of the license could usher in a new era for Thoroughbred racing in the U.S. if the proposition of exchange wagering survives what is expected to be close scrutiny by state and federal legal authorities and myriad hurdles to its widespread adoption in U.S. states. Exchange wagering, which has been embraced in the United Kingdom but has drawn criticism in many other countries, allows bettors to post prices and accept bets from other customers of the betting platform. The practice is closely akin to bookmaking, which is illegal in nearly every state in the U.S. under strict interpretations of federal law.

The license granted by the New Jersey Racing Commission is subject to the expiration of veto periods granted to both New Jersey Gov. Chris Christie and the New Jersey attorney general. Both periods expire in early December. Christie has never shown any interest in preventing the establishment of exchange wagering in the state, but the approval of the license and the eventual launch of the system is likely to draw attention from the federal Department of Justice, which has not yet issued an opinion on the legality of exchange wagering.

Under current rules in New Jersey, only New Jersey residents would be able to open accounts on the platform, though residents of the United Kingdom would be allowed to bet against those New Jersey customers. Bets will only be allowed to be posted and matched on races from tracks that have explicitly granted approval to Betfair to offer the service, according to Frank Zanzuccki, the executive director of the state racing commission.

Technically, Betfair received the license through Darby Development, a horsemen-led group that operates Monmouth Park in Oceanport, N.J., under a lease from the state. Dennis Drazin, the head of Darby, has pushed for approval of the exchange-wagering platform, so if successfully launched it will at the very least offer bettors the opportunity to make and accept bets on races from Monmouth, which is expected to hold live races this year from May until the end of September.

"We're fully on board," Drazin said.

Drazin said that Betfair officials have stated they expect to launch the platform in March. He deferred to Betfair on questions about the availability of signals, but said that he believed some Standardbred tracks have expressed interest in being offered on the site. Handle on Standardbred racing in the U.S. is roughly a tenth of handle on U.S. Thoroughbred racing.

Betfair officials did not immediately respond to requests for comment. 

The approval of the license is the culmination of years of effort by Betfair to gain regulatory approval in a U.S. state. Only two states, New Jersey and California, have passed bills approving exchange-wagering since Betfair began lobbying state legislatures to endorse the practice after buying Television Games Network, a U.S. account-wagering provider and horserace broadcasting network, in 2009.

The effort in California to launch a platform has been bogged down by disagreement among Betfair, horsemen, and racetracks over the amount of money the racing industry would receive from the operation's revenue. As currently negotiated, the splits are far lower than the industry receives from bets placed through parimutuel pools. Drazin declined to discuss the business arrangement between Monmouth and Betfair.

Supporters of exchange wagering contend that the practice will reinvigorate interest in racing by offering players a new way to wager on the game, at a price to the player of approximately 5 percent of winnings, compared to existing takeout rates in the parimutuel pools that hover around 20 percent. The service has proved very popular in Britain and Ireland, where bookmaking was an established part of horserace betting markets hundreds of years prior to the advent of exchange wagering.

In addition to matching bets prior to a race being run, the service also allows its customers to post propositions during the running of a race. In the United Kingdom, those propositions can be offered at any time up until the race is declared official, but New Jersey rules will prohibit any in-race betting once the first horse crosses the finish line, Zanzuccki said.

U.S. critics have said they fear the practice could cannibalize the industry's existing parimutuel revenue streams. But Drazin said he believes new gamblers will be drawn to in-race betting, while reserving judgment on the impact of the platform on existing betting through parimutuel win pools and other simple bets.

"The in-race betting, that's something that appeals to young players, to arbitrage types, to Wall Street types," he said. "That's all new money, and that's a good thing. We're going to have to wait for some time to figure out whether the other stuff is cannibalizing the existing revenue streams."

Critics have also said that exchange wagering will introduce widespread suspicion from gamblers over the results of races due to concerns over wagering by insiders on horses that are held in races to cash bets on the platform. Unlike parimutuel betting, exchange wagering allows a person to bet on a single horse to lose, an infinitely easier race-fixing proposition than conspiring to get a single horse to win. The U.S. betting public is far more vocal in voicing suspicions of race rides than gamblers in other countries, and critics contend that even if the suspicions are unfounded, the outcry about race results may do significant damage to U.S. racing's already fragile reputation and stagnant growth rates.

Betfair has countered that it closely monitors wagering on its platforms for suspicious betting patterns and complies with all investigations into possible race-fixing. Zanzuccki said that New Jersey's rules require the company to cooperate with regulators investigating suspicious bets and alert regulators to any activity on the site that could point to race-fixing schemes.

"The Betfair system in Europe is highly scrutinized, and it's probably a more effective system to catch cheaters than we have here," Drazin said.

Zanzuccki said that the New Jersey license prohibits betting on the exchange by robotic programs that are designed to scour the propositions offered on the site and quickly match or propose wagers. Betfair officials have told the commission that 70 percent of its business is generated by the programs, and Zanzuccki said the racing commission may reconsider the prohibition after a study of the robotic programs' existing practices are conducted by an independent consulting group that conducts audits of gambling operations on behalf of state gambling agencies.