Internet gambling expands - Company goes from illegal to legal on taking online horse racing bets

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Internet gambling expands
Company goes from illegal to legal on taking online horse racing bets

KENNETH P. VOGEL; The News Tribune
Published: May 13th, 2005


The state Horse Racing Commission agreed Thursday to license an Internet gambling company that for years had been illegally accepting millions of dollars in bets from Washington residents.

The license allows California-based Youbet.com to accept online bets on horse races around the country from Washingtonians and requires the company to give the state’s horse racing industry a cut of each bet. The company had been illegally taking roughly $12 million a year in bets from state residents, according to the commission.

As a condition of the license, Youbet. com must pay the state $400,000 to compensate for wagers it accepted illegally in 2004.

It’s new turf for the state, which had banned all Internet gambling until last year and is still feeling its way on who should be allowed to offer it and how to regulate it.

After the meeting, commission Chairman Gary Christenson rejected any notion that regulators were turning a blind eye to – or even rewarding – illegal gambling.

“It’s almost the opposite. By giving (Youbet.com) a license, we are insuring that the state of Washington is getting the money that’s due it. If we didn’t give them a license, it wouldn’t guarantee that they’d stop,” Christenson said.

“We didn’t turn a blind eye, because we did include their need to pay us back.”

Internet gambling has been going on illegally in the state for years. Last year, the Legislature legalized a form of online gambling called “advanced deposit wagering” on horse races. Youbet.com is the third company to get a state license since the law passed.

It’s likely there are other Internet gambling companies still illegally accepting bets on horse races from Washington residents.

But Robert Leichner, the Horse Racing Commission’s executive secretary, said it’s the job of the Washington State Gambling Commission, not his five-member racing commission, to enforce laws against illegal Internet gambling.

The racing commission hasn’t asked the Gambling Commission to investigate any companies illegally accepting online bets, according to Gambling Commission director Rick Day, who did not attend Thursday’s monthly meeting of the racing commission in Auburn.

He and Leichner said they’d wait for the racing commission to finish licensing Internet companies before beginning enforcement.

“If there were other companies that continue to bet illegally, then we will move forward with an investigation against those companies,” Day said.

But it was wrong for Youbet.com to take bets before it got its license, said Ron Crockett, owner of Auburn’s Emerald Downs, the state’s only top-tier horse track, who supported the license at Thursday’s meeting. The primary advocate – and one of the main beneficiaries – of the 2004 law, Emerald Downs has to sign a contract with Internet gambling companies before they become eligible for a racing commission license.

“We agree they should not have been taking bets in the state, period,” Crockett told commissioners of Youbet.com. “But they did.”


After the meeting, Youbet.com attorney Scott Solomon bristled at the suggestion that his company broke Washington state law.

“Any activity that we have or haven’t been doing has been with the full knowledge of everyone in that room,” he said. The racing commission never told the company to stop taking bets, he said, adding that scrutiny would be better directed at Internet gambling companies operating in Washington that have made no effort to obtain a racing commission license.

“If we weren’t bullish on the Washington market and the Washington horse racing industry, we wouldn’t be here today,” he said.

Solomon said the company applied for a license under the new law even though it believes the state doesn’t have the authority to regulate interstate Internet gambling. Sixteen other states have similar laws.

Washington’s law, the state’s first expansion of legal gambling outside of tribal casinos or the state lottery since 1997, also allowed bets placed by telephone and expanded betting on races broadcast at Emerald Downs and its 21 off-site betting parlors.

Critics predicted the law could prompt a vast expansion of gambling in Washington state, but advocates said it wouldn’t create new forms of gambling. And they said it was necessary to save the state’s struggling horse racing industry.

Thanks to the new online wagering law, Crockett said he expects Emerald Downs to post its first profitable year since he bought the track 10 years ago.

The $400,000 from Youbet.com – and all future payments to the state from the three companies – will be split among the racing commission, accounts for horse owners and breeders, and Emerald Downs.

The industry’s share is determined by a complex combination of factors related to the Internet company’s relationships with different states and tracks.

Emerald Downs gets 87.5 percent of the state’s take. Crockett said much of it will be used to boost purses for winning horses, which then attracts better horses and more fans.

Thursday’s 4-0 vote of the racing commission – one commissioner was absent – means that the racing commission has licensed the three Internet companies that accept the most horse racing bets from Washington state, according to Crockett and Leichner, the racing commission executive secretary.

The other two are Oregon-based TVG – which since being licensed last year has processed $5.7 million in bets from Washington, paying $542,000 to the state’s industry – and XpressBet – which processed $2.4 million in Washington bets last year, paying $178,000 to the industry.

After Emerald Downs decides it has contracted with a sufficient number of Internet gambling companies, Crockett said he figures the state will seek to prohibit unlicensed companies from accepting bets.

But he added: “I don’t know where you draw the line. Should you have three of them or should you have 20 of them?”


NOW, BET ALL YOU LIKE


What happened Thursday: The Washington State Horse Racing Commission licensed a California company to accept online bets on horse races from Washington residents.


Background: Internet gambling has gone on for years in Washington. But it had been illegal until last year, when a new law allowed online and telephone betting on horse races only. The commission licensed two companies last year.


What it means: Washingtonians can legally bet on horse races online or by phone through the three companies.


What’s next: The commission might license a few more companies, but then regulators are expected to clamp down on unlicensed companies.