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Where cream of crop bet, win, bet again
On a typical day in the tiny Caribbean island of St. Kitts, a dozen people will be working out of a small building not far from the beach, taking telephone bets on horse and dog races from the United States and Canada.
"We're the biggest single OTB in the world," boasted Kirk Brooks, the founder of Racing and Gaming Services.
Brooks is right.
In just over five years, RGS, which has an exclusive client list of only 120 people, has become one of the world's most lucrative handlers of parimutuel bets. In 2002 alone, RGS took in $564 million in bets, up $150 million from 2001. That's more than all the bets on all the races at Churchill Downs's spring meet in 2002 - including the Kentucky Derby - and a considerable chunk of the $15 billion handle on all Thoroughbred races in the United States in 2002.
RGS's players bet a lot, they bet often, and they are far more successful than any other group of horseplayers in the country. Through a rebate program that Brooks refers to as a "dividend policy," the players are rewarded for heavy action, which can lead to huge, last-minute bets that have dramatically altered the odds at many tracks in the past year.
For those reasons and others, the growth of RGS has not gone unnoticed, especially in light of the Breeders' Cup pick six scandal. Suspicions about late bets have intensified since the scandal, and racing officials and horseplayers have increasingly turned leery eyes toward racing operations that exist on the fringe of the business, including offshore race books like RGS.
"No one really knows a whole lot about them," said Ken Kirchner, the director of simulcasting for Breeders' Cup, referring to RGS. "What do I know? I know that they do a lot of handle, they give rebates, and their bettors lose a lot less than other places. But that's about it."
Several industry groups are becoming more concerned about offshore betting. One, the Thoroughbred Racing and Protective Bureau, recently prepared a confidential report on RGS and offshore sites that it distributed to its members in December. Another, the National Horsemen's Benevolent and Protective Association, has hired Stevenson and Associates, a simulcasting consultant, to prepare information about companies operating offshore and what these sites are contributing to the racing industry.
Per capita, clients of RGS - whose identities are closely guarded by Brooks - bet $4.7 million in 2002, which is likely the highest per capita in the nation. Of that $4.7 million, racing officials estimate, each bettor was given back as much as 10 percent in the form of rebates.
The clients also cash more often than normal players. According to racing officials, for every dollar bet through RGS, racetracks return about 90 cents to the company, meaning that RGS clients are beating the takeout by about 10 cents. Typically, a racetrack returns to an offtrack site only 80 cents of every dollar, which is the amount of money that is normally left to distribute to players after the state, horsemen, and track take their shares.
Adding to suspicions about the company, several enormous late bets were placed through RGS last year, and some RGS players had extraordinary runs of luck. One bet, a $110,000 win bet at Hollywood Park drove the eventual winner, Global Finance, from 9-2 to 2-5 in midrace. Also at Hollywood, during the
35-day fall meet, RGS bettors hit three pick sixes for almost $400,000 in winnings. At Gulfstream, RGS bettors were the sole winners of two closely spaced pick six bets, which paid out $194,357 and $100,391.
Brooks, a former race book manager in Las Vegas, said that RGS does not violate any betting regulations or cut any corners, either for the benefit of the company or its customers. He said that his clients are high-rolling bettors - the cream of the crop - and that their runs of luck are the residue of design.
"Everyone is always concerned that St. Kitts doesn't lose as much as anyone else loses," Brooks said. "So they say, 'They must be cheating.' But I turn on the TV, and I see these guys playing golf shooting 67 and 68. I can't even shoot 100. So are those guys cheating? No. They do that for a living.
"Those guys are my players. They are good at what they do."
The success of RGS and other offshore betting sites is a product of the emergence of simulcasting and account wagering as the dominant growth engines in racing. As bettors intensified their searches for more convenient ways to make offtrack bets at any time of day and on any day of the week, RGS and other offtrack sites stepped in to offer their services, which typically cover every betting signal in the U.S.
But RGS and other companies, such as Racing Services, an offtrack wagering company in North Dakota, brought a unique marketing tool to the table as well: rebates. Since RGS does not have to make contributions to purses, which racetracks are required to do, the company has a higher profit margin than racetracks. RGS gives part of that profit back to its customers as an incentive to bet.
With rebates, a large bettor can play against a takeout that is sometimes 10 points lower than an average player has to face. Where the average player needs to get one dollar back on every dollar bet to break even, a player that receives a 10 percent rebate needs to get only 90 cents back on every dollar bet.
Brooks said that 60 percent of his customers were not horseplayers before they came to RGS, although he declined to describe the players' backgrounds. He credited his dividend program, which pays out more to those who bet more, for giving players incentives to increase their wagering.
One customer of RGS, who spoke on the condition of anonymity, praised Brooks for his attention to customer service and said RGS had never bent any rules for him.
"He runs a great business," the customer said, "and the guys that are with him appreciate what he does." The customer, who was a professional gambler before RGS set up shop in 1997, also does business with a number of other rebate shops.
Brooks said he never recruited any players, a practice loathed by racetrack officials. When asked how he was able to sign up customers, he replied, "By referral."
"People ask how you get into RGS," Brooks said. "You don't. We do absolutely no marketing. We're not out soliciting customers. We don't go to racetracks. We don't want those problems." Brooks said that RGS's website could not be found using any Internet search engines.
While the racing industry has cast a wary eye toward RGS and other similar sites, racetracks appear unwilling to risk losing business by shutting off signals to rebate shops.
Bruce Garland, the vice president of the New Jersey Sports and Exposition Authority, which operates Monmouth Park and The Meadowlands, said his staff is conducting a review of the simulcast contracts held by RGS and other offshore sites. He said he was especially concerned that the settlement money paid to RGS consistently exceeded the percentage a site typically receives, meaning the bettors at RGS are cashing a comparatively large number of tickets.
"We have concerns in a number of areas," Garland said. "It's not just rebating, and it's not just settlements. And it's not just one specific site. We have these concerns with a lot of places."
In California, regulators continue to monitor RGS because simulcasting contracts for California tracks specifically prohibit rebates. The California Horse Racing Board has not acted against RGS, according to a board spokesman, because the board was unsure whether Brooks's dividend program qualified as a rebate under the board's definition.
"Do we have proof that they are specifically giving rebates?" said Mike Marten, a spokesman for the board. "No. We just don't have that."
RGS has its supporters, such as Churchill Downs. Officials at the company said RGS was one of their "top five" outlets, and they said Brooks always cooperated when any questions arose about specific bets.
"What do you need to know?" said Karl Schmitt, the president of Churchill Downs Simulcast Network, which oversees simulcasting at Churchill's six tracks. "We know their process is secure. We know the handle is significant, we know that there is significant churn, we know they play again on our signals, and we know they pay on time. That's pretty much a definition of a good customer."
Schmitt declined to comment on RGS's rebate policy. "We don't know what they are offering to their customers, and we can't speak to that because it's not our business," Schmitt said.
Racing officials said that questions surrounding offshore sites have become more urgent because of the Breeders' Cup pick six scandal, which revealed a number of security gaps in the electronic network that processes parimutuel wagers. Many racing officials are worried that those gaps could be exploited at betting sites separated geographically and philosophically from the rest of the racing industry.
Brooks scoffed at any suggestion that RGS has fewer security controls than racetracks or other OTB sites. Brooks said that RGS records every wager a client makes and has computer programs that allow racetracks to monitor some wagers placed by RGS customers.
Brooks said that RGS depends on reliable security systems because the company cannot afford to have any disputes with its customers.
"I can't have someone say that they placed a $10,000 bet on the 2 horse and that my teller punched in the 3 horse, so I should refund the money," Brooks said. "What am I supposed to do, believe him and pay him? I don't think so. We go to the tape."
In fact, Brooks said, the most notorious bet made through RGS in the past year was a mistake.
On April 24, 2002, an RGS bettor made a $110,000 win wager on Global Finance, a second-time starter in a maiden race at Hollywood Park. Global Finance was 9-2 at the time the bet was placed, one minute before post, and when the horses hit the stretch, she dropped to 2-5. Global Finance went on to win.
After the race, bettors vociferously called for an investigation. The CHRB traced the bet to a hub in Lewiston, Maine, where RGS's bets are commingled into the national pools, and verified that the bet was placed before the race had started. But that did little to satisfy most horseplayers, many of whom still wonder why someone would make a $110,000 win bet instead of accepting the nickel-on-the-dollar for a show bet.
Brooks said that the bettor intended to place an $11,000 wager on the horse, but instead punched in an extra zero. After noticing his mistake, he did not have enough time to cancel the bet.
After providing a password into the RGS system, Brooks demonstrated a program he developed that allows racetracks to view any pick six wager placed by an RGS bettor. On a recent Friday, the bets made by the players were complex, $1 denomination wagers that sometimes reached into the thousands of dollars, and many of the tickets had back-up bets that were equally complex. In short, the bets were similar to those placed by many professionals who specialize in multiple-leg bets.
Bill Nader, the vice president of the New York Racing Association, said that he did not believe that anything unethical or illegal was happening at RGS. He said that the fears of many racetracks had abated over the past several years because of a growing realization that rebate shops were contributing huge amounts of handle to racing.
The way tracks have countered the rebates, Nader said, is to raise their simulcast rates to RGS and other rebate shops. Nader would not be specific about what NYRA charged RGS.
Brooks said that RGS pays "the highest simulcast rates in the world," but he declined to be specific. Simulcast rates typically run anywhere from 2.5 percent to 3 percent of handle, depending on a site's betting volume. Rebate shops are believed to pay 5 percent or higher for many signals.
Brooks said that the money he pays for signals is adequate compensation to the racing industry.
"We're producing handle that wasn't there," Brooks said. "We're not taking handle away from anyone. We have to co-exist with racing. What's good for racing is good for RGS, and vice versa."