Rebates: Big fringe benefit or evil force?

TUCSON, Ariz. - There may be no more polarizing issue in the racing industry right now than rebates, and the evidence was on display Friday morning during a panel discussion at the University of Arizona's Symposium on Racing.

Drew Couto, a consultant with the Thoroughbred Owners of California, and David Cuscuna, a Florida-based professional gambler who receives rebates, sparred continually throughout the 1 1/2-hour discussion, challenging each other's assumptions, facts, and data. The lively discussion illustrated the divergent viewpoints on whether rebates are helping or hurting the game, a question that does not seem to have a clear-cut answer.

Rebates are typically awarded to high rollers through specialized betting shops that have far fewer financial commitments to the racing industry than racetracks. The rebates are based on a player's handle, and allow big bettors to effectively lower the price at which they play the game.

Cuscuna continually attempted to convey that players who receive rebates would not be betting without the awards, and that the racing industry would lose hundreds of millions of dollars in revenues if rebates were prohibited. He cited figures showing that two rebate shops have paid $149.6 million in commissions to the racing industry since 2000, and estimated that rebate shops currently account for more than $1 billion in handle, or approximately 7 percent of the national total.

As another example, Cuscuna said that a computer program he uses to calculate the optimal size of a wager would tell him that he should bet $13,438 in trying to hit a fictional $50,000 carryover pool when he receives a 9 percent rebate. On the other hand, without the rebate, the program instructs him to bet $2,356.

"We're looking at new sources of dollars that would not have been there before" rebates, said Cuscuna, who has been a professional horseplayer for more than a decade.

Couto countered that Cuscuna had his figures wrong. Cuscuna then said, "This isn't some hearsay. This is a decision I make every day."

In several instances, Couto took issue with the price that rebate shops pay for a signal, which is generally higher than the 3 percent industry average. Couto argued that rebate shops do not have to pay horsemen or maintain a racetrack, and that the sites should be forced to pay far higher rates than counterparts in the betting network. He said it was the responsibility of sites that benefit from racing to pay for the sport's day-to-day operations and the investments other companies make to keep the game in business.

"I don't know any rebate shop that has a television station," Couto said, in reference to account-wagering companies in California that pay 13.5 percent to the racing industry while broadcasting races live, such as TVG and HorseRacing TV. "I don't know any rebate shop that pays purses."

The panel also included Jim Quinn, a horseplayer, author, and a member of the National Thoroughbred Racing Association's Wagering and Technology Working Group. Quinn said that he had become convinced after reviewing data from rebate shops that rebates were having a positive effect on the game by allowing price-sensitive players to dramatically increase the amount of money they wager.

"I'm not sure I would have had that opinion six months ago," Quinn said.

The debate over rebates spilled over to the next panel on Friday morning. On the panel were an array of international racing experts, including Ed Wray, the founder of the controversial betting exchange company Betfair. Based in England, Betfair is an Internet service that allows individual account holders to offer bets on sports and horse racing to other account holders. The company's business model has become a lightning rod for English racing interests because, like rebate shops, Betfair makes far less of a contribution to racing than its counterparts in the country.

Betfair also offers wagering on American races, but Wray said the company prohibits U.S. citizens from opening accounts with the service. He said efforts to strike deals with American racetracks that would give the tracks a percentage of the betting on the races have not been successful over the past 18 months.

Ian Hogg, the managing director of Attheraces, an English television service that broadcasts American races in prime time and commingles bets on the races into American pools, called Betfair a "parasite" during his presentation. He challenged American racetracks to fight Betfair by blocking access to their signals and data and enforcing intellectual property rights on their races.

In a question and answer session after the panel, Karl Schmitt, the president of Churchill Downs Simulcast Network, asked Wray what his response would be if an American racetrack asked the company to stop its customers from betting on the track's races. Wray said that he would ask the racetrack to discuss the decision and "offer a compelling case." A clearly dissatisfied Schmitt responded: "So I guess your answer would be, 'No.' "