03/05/2004 1:00AM

Owner group puts kibosh on XpressBet's rebating


Magna Entertainment Corp. has shut off a betting syndicate that was receiving rebates through the company's account-wagering platform, in response to vociferous objections from the Thoroughbred Owners of California.

The syndicate, which was led by Don Johnson, a former racetrack executive, had begun betting through Magna's account-wagering company, XpressBet, three weeks ago. Magna cut the syndicate off on Wednesday, after the TOC confronted Magna with its concerns over the practice of awarding rebates to selected customers.

The TOC coupled its demand with a threat to rescind its approvals for XpressBet to offer California signals to its customers if Magna did not provide information about the group's agreement by Saturday morning, the day of the Santa Anita Handicap at the Magna-owned Santa Anita Park. Magna officials said they had met the TOC's demand as of late Friday afternoon.

"We've accommodated the requests of the TOC," said Jim McAlpine, the chief executive officer of Magna. "The experiment is terminated. We are going to examine what we have learned."

Several TOC officials said that the discovery of the agreement, which had not been previously divulged to the TOC, had incensed many members of the TOC board and staff. Relations between the TOC and Magna have been strained recently by declining business at Santa Anita and dissatisfaction of TOC members over the way Magna has run its account-wagering business.

Johnson's betting syndicate wagers more than $20 million a year. The group had previously been placing its wagers through an account-wagering operation run by a Native American casino in Coeur d'Alene, Idaho, which awarded the group generous rebates on handle. It was unclear if Magna officials approached Johnson or if he had approached them.

Johnson, reached on Thursday, said that his group had stopped betting through XpressBet as of Wednesday because of "political concerns." Johnson refused to answer questions related to the syndicate's agreement with XpressBet, its rebate rates, or the number of members in the syndicate.

Johnson's group has been recruiting players through Jerry Brown, the owner of the popular Thoro-Graph handicapping service. Brown has sent e-mails to hundreds of his customers promising players rebates if they qualify to join Johnson's syndicate.

California regulations prohibit rebates under certain conditions. It was unclear on Friday whether XpressBet's agreement ran afoul of the rules. The CHRB has not enforced the regulations in the past as long as all racing representatives agreed to the terms of simulcast contracts with rebate shops. McAlpine said he did not believe the rebate agreement violated the law.

Drew Couto, the TOC's executive director, said the organization has not yet reached a conclusion as to whether Xpressbet's agreement broke California's laws. "We have demanded details," Couto said. "We are not going to reach any conclusions until we know exactly what the agreement was."

Couto also said that the TOC was concerned that the betting syndicate was recruiting California horseplayers. XpressBet's agreement with the players did not include provisions that would allow the company to verify the residence of a member of a syndicate, Couto said.

McAlpine said that questions over the residency of one of the syndicate members had become a concern. However, he said that Magna would not reinstate the syndicate's wagering agreement even if the bettor's residence could be positively determined.

With increasing frequency, rebates are emerging as one of the most divisive issues in racing. The awards, which were once given to a handful of players, have now spread to thousands of horseplayers through a potpourri of offers developed by offshore and domestic off-track betting sites, U.S.-based account-wagering operators, and racetracks.

Rebates, which are derived from the difference between the takeout and the price a site pays for a signal, grant players cash awards based on handle, with the rebates typically increasing in proportion to a player's betting totals. Many of the highest-betting players or syndicates in horseracing can receive rebates that reach 18 percent on high-takeout bets such as trifectas.

Supporters of rebates say the awards are tailored to price-sensitive players who would not bet if the awards did not exist. Supporters also contend that rebates benefit racing because the players' high volume of bets ultimately increases revenue to tracks and horsemen. Critics of rebates contend that the awards introduce inequities into the parimutuel pools by essentially lowering the takeout for a small group of well-funded players. The critics also say that rebates eventually drain money away from nonrebated players through reduced payoffs.

According to figures supplied by the Idaho Racing Commission, handle through the Coeur d'Alene Casino, where Johnson's group had previously bet, was $55 million in 2002 and $45.3 million in 2001. The vast majority of that money was believed to have come from Johnson's group.

XpressBet's agreement to offer rebates to players was surprising to many top officials in California racing. John Harris, the chairman of the California Horse Racing Board, said on Thursday night that he "had assumed that XpressBet did not offer rebates," citing public statements Magna officials have made at CHRB meetings in the past.

Late last year, Magna pulled its signals from competing account-wagering companies and began negotiating for much higher rates from sites that award rebates, in an attempt to drive more business to XpressBet and increase Magna's leverage in the simulcast market. The policy has been met with fierce criticism from competing account-wagering companies, and has also ignited a boycott of Magna by horseplayers frustrated by the lack of cooperation among account-wagering operations.

Magna's negotiations with rebate shops broke down in some cases, which resulted in dramatic dips in handle at both Santa Anita and Gulfstream Park. Two weeks into those meets, however, Magna renegotiated the contracts with several of the rebate shops, and handle numbers have begun to recover over the past month.

McAlpine has frequently said that Magna is dissatisfied with the percentage of revenue that the company retains from selling its simulcasts. The practice of selling signals for pennies on the dollar - the typical simulcast signal is sold for 3 percent of handle - reaches back into the early 1990's, when simulcast revenue was considered found money in the emerging market for full-card simulcasts.

Several officials who were critical of the XpressBet agreement said that McAlpine has told California horsemen that Magna was concerned about rebating. "But I never heard anything about Magna getting into the rebate business itself," one of the officials said.

McAlpine said that while he may not have told officials specifically that Magna planned to offer rebates, his talks with industry officials of late have focused on reducing the influence of off-track sites that have little to no financial obligations to purses or racing facilities. "Our position, when we look at the landscape, is that our job is to maximize the returns to the tracks and the horsemen," McAlpine said. "You do that by cutting out the middleman."