08/02/2017 5:35PM

Kentucky Downs may allow exchange wagering from New Jersey residents

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LEXINGTON, Ky. – A committee of the Kentucky Horse Racing Commission voted on Tuesday to recommend approval of a plan by Kentucky Downs to allow New Jersey customers of an exchange-wagering company to bet on the track’s races, but not before the plan satisfied three requirements.

The Wagering Integrity Committee, which includes two members who are full-time horseplayers, voted after discussing the plan with officials of the exchange-wagering company, Betfair US, for 90 minutes. The discussion covered a wide range of topics before the committee members, led by chairman Frank Kling, who is also the chairman of the full commission, called for the motion with the three requirements attached.

“We are talking about five days,” Kling said, in reference to the length of the Kentucky Downs meet this fall. “We can see if we come up with anything we don’t think we can handle, and we can go from there.”

Kentucky Downs, a small track near the Tennessee border that uses subsidies from a gambling parlor to fund purses of nearly $1 million a day, is scheduled to run this year on Sept. 2, 7, 9, 10, and 14. If ultimately approved by the full commission, the plan would allow exchange-wagering on all races at the track without coupled entries, with betting limited to residents of New Jersey who are physically in the state at the time the wagers are made.

Kentucky Downs is the first track in the state to seek approval to allow the New Jersey exchange to accept bets on its races. Exchange wagering, which was pioneered by Betfair, a British company, allows customers to post prices on horses and accept wagers from other customers, with betting limited to win, place, and show. The practice has been controversial in some corners of the racing industry.

The motion approved by the committee would require Betfair to stop accepting prerace bets on Kentucky Downs’s races at the time the first horse goes in the gate (Betfair also allows betting while the race is being run, which is called “in-play betting”). That provision was recommended by the committee’s two full-time horseplayers, Mike Maloney and Chuck Grubbs, who raised concerns that television delays and slow Internet connections could create advantages for some players. Both players have raised concerns in the past about past-posting in the parimutuel pools.

For parimutuel bets, stewards at the racetrack order betting closed manually at the time they see the gates open, with a backup at the companies that process the bets. Betfair officials acknowledged during the meeting that no such ontrack system exists at the company; instead, so-called “market operators” at the company’s headquarters in London, monitoring video feeds that often have latency issues, determine when betting in the prerace market closes.

Bart Barden, Betfair’s director of U.S. exchange, appearing via video feed from Dublin, Ireland (with no delay), agreed readily to the condition, and he also offered to have a Betfair employee manually stop betting for each race in consultation with a racetrack official at the track via phone. “We’d be willing to facilitate that,” Barden said.

A second condition will require lawyers for the racing commission to issue an opinion that the commission agrees with Betfair that exchange wagering fits the state’s legal definition of parimutuel wagering. That condition was raised by Kling toward the end of the discussion, when he stated, without prompting or antecedent, “Has John Forgy [the commission’s general counsel] looked at this to determine if it’s parimutuel wagering?”

The legality of exchange wagering under U.S. laws is matter of contention to some. Betfair has claimed that the practice is “fixed-odds parimutuel wagering” that complies with a definition of parimutuel wagering contained in the 1978 Interstate Horseracing Act, federal legislation that provides the legal framework for interstate simulcasting. However, some legal experts believe the practice is more akin to bookmaking, which is illegal under federal law, with some exceptions.

Two states, New Jersey and California, have passed legislation allowing for exchange wagering, but the system has been launched only in New Jersey. Both states’ laws call for approval of the practice by racetracks, horsemen, and the state racing commission. Horsemen in California have balked at the plan, citing their concern over fees generated by the wagering, while California tracks owned by The Stronach Group have raised separate concerns about integrity. The New Jersey operation was launched last year, and no federal law-enforcement agencies have raised any public objections to the legality of the practice.

Lastly, under the approved motion, the state stewards in Kentucky would be required to sign off on the plan after a consultation with racing commission officials and Betfair representatives.

Aside from those requirements, the discussion touched on several issues surrounding exchange wagering, including the concern that allowing players to bet on a horse to lose creates incentives for horsemen and riders to hold horses in races. The Jockeys’ Guild, which had two representatives participate in the meeting, has long cited those concerns in discussions with Betfair and racing commissions, but Betfair has countered that it flags suspicious betting patterns and forwards that information to commissions to investigate.

Notably, Mindy Coleman, the general counsel for the Jockeys’ Guild, said at the meeting that the guild’s concerns had abated to a large degree based on the experience in New Jersey. But she also told committee members that rules had to be drafted to protect jockeys from being unfairly accused of holding a horse during a race through due-process protections that prohibit the naming of a rider until an investigation is complete.

“We’re not saying we’re in opposition,” she said, participating by phone. “We just want everything taken care of before this gets in place.”

Jeff Lowich, Betfair’s director of track relations for the U.S. exchange, told the committee that the New Jersey system has not generated a single flag since its launch last summer, from a total of 17,000 races offered on the service. But that did not put committee members completely at ease, with Kling saying that he was uncomfortable relying on Betfair to forward suspicious betting patterns to the relevant commissions.

“I’m not in love with this part,” Kling said.

Still, committee members pushed aside those concerns in approving the plan, in part after acknowledging that Kentucky stewards would have the right to review Betfair’s wagering data for any races in which a horse’s performance raised suspicions.

In addition, Marty Maline, the executive director of the Kentucky Horsemen’s Benevolent and Protective Association, raised concerns that the track and horsemen will share from betting on the exchange. Maline said he “believed” that Kentucky Downs and its horsemen will split 2 cents of every dollar won on the exchange, a number well below the commissions received on ontrack wagers and simulcast bets. (Betfair U.S. charges a 12 percent commission on every winning wager.) Betfair officials countered Maline’s criticism by saying that they believe exchange wagering creates new fans and is “additive” to existing wagering, using a term from Barden.

Several racing commissions across the U.S. have already approved allowing exchange wagering on races run in their states, including Pennsylvania and Texas, and in Ontario, Canada. Kentucky’s commission, which has become far more aggressive in the past decade, is considered a high hurdle to mount, and Betfair officials claimed that they intended to address all of the commission’s concerns as a requirement to get the state’s races on the exchange.

“This is Kentucky,” said Barden. “We need to prove ourselves. We need to put our money where our mouth is.”