08/15/2004 11:00PM

Rebate shops' give and take examined


SARATOGA SPRINGS, N.Y. - New data from a task force examining handle at offtrack betting sites has given new urgency to the question of whether the racing industry is better off with or without rebate shops.

The overall conclusion of the task force - a commission set up by the National Thoroughbred Racing Association to study why purses dropped last year despite a rise in handle - was that racing's revenues have fallen over the past year even though handle continues to rise. The impact of rebate shops has been a critical element in that phenomenon, members of the task force said, because of the relatively small contribution the rebate shops make to the racing industry's revenue streams.

Revenue streams to racing have been falling for at least a decade compared to rises in handle, because the racing industry is increasingly relying on offtrack betting and account wagering, operations that typically return a smaller percentage of the betting to the racing industry than bets at live racetracks. That began happening long before the rise of rebate shops.

In fact, according to the task force, handle has risen 45 percent over the past eight years, but purses have risen only 22 percent, according to Greg Avioli, the chief operating officer of the NTRA and the chairman of the task force, who gave a presentation on the task force's initial findings Sunday at the Jockey Club Round Table Conference in Saratoga. That purse figure does not include revenue from slot-machine operations.

Handle from rebate shops has soared in that time period. Last year, handle at rebate shops was $1.2 billion, an increase of 50 percent over rebate handle in 2002, Avioli said. The $1.2 billion figure was 8 percent of the $15 billion wagered last year on North American horse racing. In the mid-90's, handle from rebate shops was virtually nonexistent except for some small operations in Las Vegas.

Rebate shops use the difference between what they pay for racing signals - anywhere from 3 percent to 6 percent of handle - and what they receive from the takeout on bets - typically 20 percent - to give cash back to their high-rolling customers, many of whom are professionals. Racetracks must split the takeout with the horsemen in the form of purses, as well as with the state and breeding organizations. The shops have created a new class of horseplayers who are able to effectively reduce the price of betting on horses by getting cash rewards on every bet that is placed, win or lose.

The rebates are contributing to what are likely already profitable players. Avioli said that players at many rebate shops are beating the takeout by 10 to 25 points. In other words, for every $1 bet at a rebate shop, as much as $1.15 is being returned to the player. The industry average at any site in North America is approximately 80 cents - a rate that reflects the average blended takeout.

That winning rate, many times produced by sophisticated computer programs that are able to place hundreds of wagers just before the gates open, has had negative impacts on other players, Avioli said. In addition to creating dramatic odds changes, the rebate players are winning so much that other horseplayers are being quickly drained of their bankrolls.

"When program players with special access to the tote win at extraordinary rates, the life-and-blood players, the guys that are with you every day, they will lose more and win less," Avioli said.

But the industry has few options. If the rebate players were cut off, $1.2 billion in betting would most likely evaporate. Horseplayers who have relied on the rebates to move them into positive territory aren't likely to return to the game in order to play against the takeout rates offered to the rest of the horseplaying community.

Avioli said that racetracks need to take a closer look at the source of their betting dollars, while stressing their revenue numbers over their handle numbers. He also urged the racing industry to ask rebate shops to provide more information about their players, citing concerns, in separate comments from his Round Table presentation, about federal scrutiny of offshore wagers. Still, Avioli said that there has been no evidence that anything illegal is going on at rebate shops, although other officials have raised the possibility that offshore bookmakers are using rebate shops to lay off risky bets.

"There is a critical need for transparency in the North American wagering system," Avioli said, citing racing's status as the only form of legal Internet wagering in the U.S. "We must ensure that only lawful wagers are being accepted in our system."