11/23/2010 3:48PM

New Jersey moves closer to allowing exchange betting


The New Jersey Senate on Monday passed a bill that would legalize exchange wagering, a measure that has been supported by the state’s horse racing industry and pushed by the owner of the largest betting exchange in the world.

The bill, which has been sent to the state’s General Assembly after passing by a vote of 34-1 in the Senate, would allow residents of New Jersey to take and accept bets on horse racing with other New Jersey residents or residents of other states where exchange wagering is legal. Earlier this year, California passed a bill legalizing exchange wagering, effective in 2012. The two states are the only jurisdictions known to be actively pursuing the legalization of the practice.

Exchange wagering was pioneered in the United Kingdom 10 years ago by Betfair, which runs the most popular betting exchange in the world. The company entered the U.S. market several years ago by purchasing Television Games Network, and it has been aggressively pushing for the legalization of exchange wagering in many racing jurisdictions since then.

The New Jersey bill was amended prior to passage on Monday to include language that requires 50 percent of the exchange-wagering operator’s revenues from betting on Thoroughbred races to be dedicated to overnight purses “after deducting all reasonable and necessary expenses incurred by the licensee in administering, marketing, and operating the exchange wagering system,” according to the amendment.

Critics of exchange wagering have contended that betting-exchange operators fail to adequately compensate racetrack operators and horsemen in jurisdictions where they have succeeded. In the U.K. and Australia, Betfair provides racetracks and horsemen with approximately 10 percent of its profits on racing, an amount that critics say is approximately 1/20 of the amount traditionally returned through the parimutuel pools in the U.S.

The legality of exchange betting is also an open question in the U.S., where federal laws prohibit bookmaking, unlike in the U.K. and Australia. Under exchange betting, customers of an exchange post odds on horses and are allowed to take bets from any other customers at the posted odds as long as the potential payouts do not exceed the customer’s funds on deposit.

Betfair has argued that the practice is a new form of parimutuel wagering, but critics have said that the practice fits the legal definition of bookmaking because the customer sets the odds, not the distribution of money within a pool. The U.S. Justice Department has declined to comment on whether it has examined the legality of the practice.