01/21/2005 12:00AM

Rebaters merely scapegoats


NEW YORK - A week after three associates of the Gambino crime family were indicted for operating an illegal gambling operation, there are still nearly as many unanswered questions about its relevance to Thoroughbred racing as there are charges in the 88-count indictment.

Most of racing's top tracks have moved swiftly to stop accepting wagers from the offtrack betting concerns mentioned in the indictments. The operation allegedly funneled $200 million in racing and sports bets through those companies over the last four years in a money-laundering scheme that violates tax laws. Yet it remains murky to what extent this story really involves the integrity of horse racing beyond a single named case of the group's betting on a horse at Aqueduct in 2003 who had allegedly been given an unnamed performance-enhancing substance, possibly a "milkshake" cocktail.

Amid so much uncertainty, it is premature to rush to judgment about the real problems and lessons of this incident. Yet that is exactly what many people in the industry seem to be doing by saying that the real culprit here is the controversial practice of rebating. It is the equivalent of saying that banks should no longer be allowed to give customers free toasters and higher interest rates because criminals have been known to run their money through checking accounts.

"I'm very disappointed that the industry is positioning this case as an argument against rebating," said a senior executive at one of the country's largest tracks. "Of course we should be careful with the people named in the indictment for now, and of course we should all be testing for milkshakes. But there are lots of clean and responsible people offering rebates and getting rebates, and they are some of our best customers."

Rebating figures into this case because the offtrack betting concerns named in the indictments offered both their legitimate and their indicted customers up to 10 percent of their handle back, for the same reason that casinos give their whales suites and gourmet dinners and many racetracks and OTB's give cash-back awards and merchandise to big bettors: It's good business to provide volume discounts to your best customers.

Some industry officials have consistently demonized rebaters by saying they are somehow swallowing money that would otherwise be bet directly through the tracks. However, rebating has clearly created new handle by effectively lowering the takeout, turning small losers into small winners who now bet much more than they used to. Another canard is that rebaters contribute nothing to the racing industry. Most rebaters, in fact, pay from 6 to 8 percent of their handle back to host tracks, while racetracks and state-run OTB's typically pay only 2 to 4 percent.

"We were making real progress with the rebaters," said a simulcasting official at another track, "and the higher rates were a start at improving the economics of simulcasting industrywide. We need to know more about some of these shops but they're not all fronts for mobsters. If we cut them all off, we're going to have to cut purses in a month."

The National Thoroughbred Racing Associations reacted to the indictments by recommending that tracks obtain more information about the ownership and customer bases of their simulcast customers. That can only be a good thing, but the idea that bad guys can be deterred by shutting down rebaters and offshore OTB's is fiction.

The most anonymous way of laundering money through horse bets is to walk up to the window at any track with a bag full of money, and there's no practical way to regulate that. Under the idiotic current tax laws, a convicted murderer can bet $100,000 on a cinch to show at $2.10 and walk away anonymously with his $5,000 profit, but a kindly old lady who hits a $602 trifecta by boxing her grandchildren's ages has to fill out a W2-G form.

Until these indictments, there were hopeful signs that tracks were looking seriously at getting into the rebating business themselves and that the government might be receptive to reforming its gambling-tax laws. Those efforts are now in jeopardy amid a confusing and sensationalistic story that is unlikely to create a sympathetic climate for cutting financial breaks to people who bet on horses. However this all plays out, racing needs to remember that its only economic growth in recent years has been driven by the serious simulcast bettors who seek out rebates, which are no more inherently to blame than toasters for whatever criminal behavior has taken place.