02/20/2003 12:00AM

Betting exchange bill could ruffle feathers


A bill that would allow bettors across the country to wager directly against each other on the results of horse races has been passed out of a state Senate committee in North Dakota and is headed to the Senate floor.

The bill would allow a racing licensee in North Dakota to create a "betting exchange," a type of wagering operation that allows a bettor to set odds on a horse to win or lose and take bets from other players. Exchange wagering, which has been criticized by some regulators in England and the U.S. for offering incentives for horses to lose, has become enormously popular in some countries through Internet companies like Betfair, a British operation that acts as a market-maker for gamblers on a wide variety of events, including U.S. horse racing.

The North Dakota bill was initially crafted to rework the tax percentages on bets. The betting exchange language was added on Wednesday during an Appropriations Committee meeting, when the bill was passed 9-5, according to the North Dakota legislature's website.

It was unclear who added the betting-exchange language. The bill's co-sponsors, Sen. Joel Heitkamp and Sen. Tony Grindberg, did not return phone calls seeking comment on Thursday.

One person with knowledge of the legislation, who spoke on the condition of anonymity, said the language authorizing betting exchanges may be removed when the bill arrives on the Senate floor. As of Thursday afternoon, the language remained.

The legality of betting exchanges in the U.S. is questionable. Betfair, which, according to reports, handles approximately $10 million a day, recently sent its U.S. subscribers a message saying their accounts would be deactivated within a week "due to uncertainty about the legality of accepting bets from within the U.S."

Betting exchanges for horse races have also become a matter of concern because one of the bettors in each wager is betting that a horse will lose. That could give horsemen and jockeys an incentive to purposely hold a horse in order to cash bets. It also could give unrelated parties an incentive to tamper with horses in order to affect their performance.

In Britain, the Jockey Club's security department has held discussions about the losses of some short-priced favorites in which Betfair wagering patterns were suspicious, according to The Times of London.

In the U.S., racetracks have complained that betting exchanges could siphon money out of parimutuel pools and into a new business that does not make contributions to the industry. Bets placed on betting exchanges are not commingled into wagering pools.

"That's a big problem," said Chris Scherf, the executive vice president of the Thoroughbred Racing Associations, a racetrack trade group. "They don't need the racetracks, they don't need contracts, and they don't return one dollar to the racing industry."

Scherf said he was not aware of the North Dakota legislation until a reporter informed him about it on Thursday. Scherf also said that the the betting exchanges created concerns about "racing's integrity."

Nearly all of the horse racing handle in North Dakota is sent through Racing Services Inc., which operates offtrack betting parlors in the state and sells simulcast signals in South Dakota, Idaho, and North Dakota. Racing Services, which does not own a racetrack, has been criticized by many tracks because the company offers rebates to high-rolling bettors. The rebates can range as high as 10 percent of a big bettor's handle.

Racing Services, which pays 1 percent of its handle back to the state to support racing purses in the state - compared to as much as 10 percent at many live tracks - has built a lucrative business using its rebate program. In 1998, before the rebate program was implemented, the company handled $9 million in wagers; handle soared to $172 million in 2002, according to figures from the racing commission.

Efforts to reach Susan Bala, the chief executive of Racing Services, were unsuccessful on Thursday.

Racing Services was also criticized in early 2001 for allowing one of its bettors to make last-second wagers through a direct computer link into the nationwide wagering network that processes commingled bets. The link was shut down after officials at Gulfstream Park and other tracks complained about the bettor's access to the system, calling it unfair to other bettors and a potential security threat.

The North Dakota bill would allow the racing licensee running the exchange to deduct 5 percent from any winning wagers, compared to takeout levels that range from 15 to 20 percent on win bets at tracks across the U.S. Betfair currently deducts 2 to 5 percent of winning bets, depending on a customer's overall handle.

Account-wagering in North Dakota is legal, so the betting exchange could be set up as an Internet site that takes bets from players across the country. The section in the legislation that creates the betting exchange also states that any bets made through a North Dakota betting service, no matter where the bets originate, are considered under state law to be placed within the state.

Federal racing lobbyists declined to comment on Thursday about the legality of betting exchanges in the U.S., citing their unfamiliarity with the North Dakota bill.