08/17/2003 11:00PM

Racing moving toward overhaul of tote system

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SARATOGA SPRINGS, N.Y. - The racing industry is seriously considering an overhaul of the sport's national wagering network after completing a preliminary review of security issues related to last year's Breeders' Cup pick-six scandal, according to several top officials.

At the forefront of the movement are influential organizations like The Jockey Club, as well as powerful racetrack companies like Churchill Downs. Representatives of the groups contend that the wagering network, a series of hubs that connect a vast number of far-flung wagering outlets, needs a major change, not only to protect wagers but also to take advantage of technological innovations that would allow bets to be placed through remote devices like cell phones and other handheld devices.

An overhaul of the existing network might include a takeover or the creation of a totalizator company, or a separation of the responsibilities for taking wagers and for processing the data. Any plan would likely face resistance from the three major tote companies - AmTote, Autotote, and United Tote - as well as some tracks that support the current system. Autotote is by far the largest of the three, processing about two-thirds of all wagers in U.S. commingled pools.

Last year, $15 billion in wagers were placed nationwide.

Plans to change the tote network have been considered before but were dismissed. This time, support for an overhaul has been bolstered by the Breeders' Cup pick-six scandal, in which an Autotote employee breached the network and rigged a winning ticket after the first four races of the sequence had been run.

Supporters of an overhaul point to the work recently completed by several task forces set up by the National Thoroughbred Racing Association and two of the NTRA's consultants, Giuliani Partners and Ernst and Young. The recommendations of the groups, which were announced at Sunday's Jockey Club Round Table Conference in Saratoga Springs, included the creation of a national security office that would develop and use a new computer network to monitor every wager placed into North American commingled pools. Also, the security office would set minimum standards for wagering outlets.

The NTRA is developing a business plan for the security office, with the goal of completing the plan by the end of this year. The NTRA has also hired an executive search firm, Russell Reynolds in New York, to find a chief executive for the security group.

A consensus of racing officials said that The Jockey Club - which has aggressively expanded its influence in the racing industry over the past decade through the creation of several technology companies - would be the front-runner in any plan to design a new computer system for a security office.

Alan Marzelli, president of The Jockey Club, has long been a supporter of overhauling the wagering network, and on Sunday, in comments made just after the Round Table, Marzelli was critical of the technology used by racetracks and the industry's three major totalizator companies, calling it "woefully inadequate." Marzelli said one of the biggest drawbacks to the current wagering network is that it has very limited capacities for sending, sharing, and receiving data.

Tim Smith, the commissioner of the NTRA, said the deficiencies in the system's technology were not a factor in the security breach of the Breeders' Cup pick-six scandal. But he said that a new system would offer a number of benefits in addition to improved security.

"What we're saying is there are efficiency gains to the industry of upgrading the technology," Smith said after the Round Table. "Simulcast reconciliation will be more efficient and less costly. We can use the system as a marketing database. And there will also be security benefits."

Tom Meeker, the chairman of Churchill Downs Inc. - which owns six racetracks, including Churchill Downs, Hollywood Park, Arlington Park, and Calder Race Course - was also critical of the tote network, describing it as "dinosauric" and "pathetic" compared to technologies used by U.S. casinos.

Meeker said the most viable option for overhauling the wagering network would be to allow the industry to process all bets while contracting with tote companies to supply the machines that would be used to place the wagers. That would allow racing to have control over the security of the network, respond better to the needs of horseplayers, and wield more power over the direction tote companies would take in research and development.

"It's an idea we have to explore," Meeker said. "I've been kind of enamored with that concept for a long time. The question is whether competition [between the tote companies] improves the architecture. To date, it hasn't."

Tote companies derive the majority of their revenues from a share of the betting handle, typically between one-quarter and one-half of 1 percent. If Meeker's idea took hold, then the business relationship between the companies and the racing industry would likely have to change dramatically.

An overhaul also has the support of former New York City Mayor Rudolph Giuliani, the chairman of Giuliani Partners, which concurred with the recommendations that racing create the national security office, set minimum standards, and create a wagering-network monitoring system that would be similar to a security program used by the New York Stock Exchange.

"All we can do is to keep trying to anticipate [intrusions into the tote network], reduce the number of times it can occur, and try to offer state-of-the-art technology and state-of-the-art principles and best practices," Giuliani said.