03/31/2005 12:00AM

Youbet starts rebate program; tracks upset


LEXINGTON, Ky. - Youbet.com, the online horse race wagering company, has quietly launched a program that will award rebates as high as 11 percent to a select group of customers. The program is being questioned by several racetrack officials who said Thursday that Youbet did not inform them of the program.

The program will award rebates on 75 different North American tracks, including those owned by Churchill Downs, the New York Racing Association, and Magna Entertainment Corp., according to an e-mail that Youbet has recently been distributing. Rebates are also being offered on races from Australia, Britain, and Hong Kong.

The rebate rates vary widely from track to track, but the majority of rates hit 11 percent for exotic wagers, according to the e-mail. Rebates on straight bets, with the exception of show wagers, start as low as 3 percent for Keeneland's races and reach as high as 11 percent on several small tracks.

Rebates are not being offered on any track in California, where state laws restrict rebates. Residents of 15 states, including California, Nevada, and New Jersey, cannot participate in the program, according to terms and conditions listed on a part of the Youbet website that is accessible by clicking on a link in the e-mail.

Chuck Champion, president and chief executive officer of Youbet, said late Thursday that the e-mail was sent to 46 current or previous customers of Youbet who are U.S. residents and who do not live within 25 miles of any racetrack. He said several of the customers have signed up for the program.

"This was done to increase their interest and wagering into the parimutuel pools in the United States," Champion said. He said roughly half of the recipients were former customers of Youbet that "we probably lost to entities offshore."

Addressing the complaints of the racetracks, some of which said they are considering revoking their simulcast agreements with Youbet, Champion said: "A lot of people encouraged us to do this. I do know that there is some confusion about this from people who don't really understand it, and we look forward to talking to them."

Champion also said the company would not offer rebates on any track that objected to the awards.

Youbet's foray into rebates comes after a recent announcement that it had reached an agreement in principle to purchase International Racing Group, an offshore wagering site based in Curacao that took in $210 million in wagers in 2004 and also offers rebates. Youbet has not yet completed the acquisition.

IRG was one of five sites mentioned in an indictment earlier this year connected with an illegal gambling ring that placed bets through offshore betting shops, including IRG. None of the shops has been charged with a crime.

In an earlier interview, Champion had said that IRG would be operated as a separate company from Youbet, reaching its own deals with racetracks and horsemen's groups. That arrangement would protect racetracks that did not want to deal with offshore sites but still wanted to offer their races through popular account-wagering companies.

Champion said the customers notified about Youbet's rebate program would not be steered to IRG if Youbet completed the acquisition.

"We are not looking to move Youbet money to IRG, and we are not looking to move IRG money to Youbet," Champion said.

Even before the indictment was released, rebates had become a controversial issue. Initially limited to high-rolling players at casinos in Nevada, rebates began to be adopted by more and more simulcast outlets in the late 1990's, contributing to double-digit handle gains annually while having little impact on the racing industry's revenue streams, according to a recent study paid for by the National Thoroughbred Racing Association. Rebated handle now accounts for at least 15 percent of all betting, according to racing officials.

Some racing officials and bettors have complained that rebates give a small group of people an unfair, higher return on handle. Other people have lauded the awards for allowing high-rolling customers to bet at a lower takeout, comparing the system to frequent-flyer programs and casino comps.

The money used for rebates comes from the difference between the takeout and what a simulcast outlet pays for signals. Champion said it was possible that Youbet may break even or lose money on some of the customers who are being offered the awards.

Earlier this year, NYRA cut off 10 rebate shops that had offered betting on its races, citing the indictment. On Thursday, Charles Hayward, the president of NYRA, said he had not been informed about Youbet's rebate program until he received the e-mail from an anonymous source over the weekend. Hayward said he met Thursday afternoon with a Youbet marketing official, who told Hayward that the program was being tested among a small group of customers.

The Youbet e-mail states that exotic wagers on NYRA's three tracks, Aqueduct, Belmont, and Saratoga, are eligible for an 8 percent rebate. No rebate is being offered on straight bets at NYRA's tracks.

"All I can say is that I'm mystified," Hayward said. "I would say that these are pretty distressing percentages."

Peter Berube, the general manager of Tampa Bay Downs, which has restricted betting from rebate shops on its signal, also said that he had received the promotional e-mail. He called the program "disturbing" and said that Tampa Bay's contract with Youbet contained clauses prohibiting rebates.

"It's one thing to have a winner's bonus or an occasional rebate on a big day, but to do this on a day-in or day-out basis is a cause for concern," Berube said. "It's something that is going to have some consequences, but I don't know what that will be at this time."

This year, Youbet has at times offered a 10 percent bonus on any winning wagers made by its customers on races from Tampa Bay Downs and other tracks. Youbet paid out the winner's bonus from its revenue.

Steve Mitchell, the vice president of wagering operations for Woodbine in Canada, said that Woodbine's contract with Youbet was being placed in jeopardy because of the rebate program. The rebates offered on Woodbine, according to the e-mail, are 6.5 percent on straight wagers and 11 percent on exotic bets.

"We are aware of what Youbet has put out, and we're certainly not happy about it," Mitchell said. "We have asked Youbet to explain their motives, and if we do not receive a satisfactory answer, we will be reviewing our wagering agreement."

Bobby Geiger, the simulcast coordinator of Oaklawn Park and an outspoken critic of some rebate shops, said that the program offered by Youbet did not run afoul of Oaklawn's policies because Youbet does not offer its players direct access to betting pools or the ability to use customized computer-wagering programs, as many offshore wagering sites do.

"If Youbet is willing to give up some of its profits to satisfy some of their better players, so be it," Geiger said. "At those lower levels, you are not affecting the integrity of the pools."