No bet exchange for now

Language that would have allowed an offtrack betting operator in North Dakota to set up a betting exchange was removed from a bill passed on Thursday afternoon in the state's Senate.

The legislation would have allowed Racing Services, a North Dakota OTB operator and account-wagering company, to set up a system to let horseplayers bet against each other on the outcome of races across the U.S. Without the bet-exchange language, the bill that passed in the Senate tweaks the percentages of money from parimutuel bets allotted to groups in the state.

So-called betting exchanges have been criticized by many in the racing industry for providing incentives for horses to lose and for potentially siphoning money out of parimutuel pools, which provide racetracks and horsemen with the vast majority of their revenues. Wagers made through betting exchanges are not commingled into national pools.

Susan Bala, the chief executive of Racing Services, said Friday that she had asked for the language to be added to the bill and had also asked for its removal. Bala said that she added the language "as a preliminary measure" because the bill had to get out of committee on Wednesday, when Racing Services was having "internal discussions" about the possibility of setting up an exchange.

"If we didn't add it then we wouldn't have been able to even consider it," Bala said. "After we reviewed it, we thought it was premature to go ahead." Bala said that any future implementation of a betting exchange would only go forward after "a lot of discussion with racetracks."

The legality of betting exchanges in the U.S. is a gray area, according to federal lobbyists and racing officials. The British company Betfair, the largest betting exchange in the world, recently cut off its U.S. customers because of concerns about the legality of accepting bets in the U.S., according to messages Betfair recently sent to its U.S. account holders.

Several racing officials said Friday that software companies have been shopping an "off-the-shelf" version of betting-exchange software to U.S. companies, including racetracks. The software would allow a U.S. company to readily set up an Internet site matching bettors across the U.S.

Bala said that Racing Services had received "no less than four offers" from companies over the past several years to set up a betting exchange. "It's extremely preliminary, very much in the early stages," Bala said. "This is something that is going to have to be understood, because it's out there."

Bala said she had considered opening the betting exchange because current wagering through offshore and foreign companies on U.S. races was not returning any money to the U.S racing industry. She said discussions about her own betting exchange did not reach the stage where splits for U.S. racetracks and horsemen had been considered.

On a betting exchange, account-holders can post odds on horses and accept bets from other customers. On Betfair, the company retains 2 to 5 percent of winning wagers as a fee for matching the bettors. The North Dakota legislation would have allowed any bet-exchange operator in the state to retain "up to 5 percent" of winning wagers.

Because one side is always betting that a horse will lose, regulators fear that bet exchanges could provide nearly limitless opportunities for corruption. For example, trainers or jockeys could decide to hold a horse to cash a bet, or collude with other trainers and jockeys to thwart a favorite's chances in a race.