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April-18-2007,
The Horse Racing Industry Should Support Repeal of UIGEA...By Jay Graziani

Horse racing in the U.S. is in a crisis. The number of races run per year in the US has been decreasing by about 2% annually since 1990, and while overall handle has increased slowly over the same period (a tepid increase of 2% per year, less than the rate of inflation), the on-track handles have decreased over 40% since 1996. Right now, a battle is brewing in California between tribal casinos and the horseracing industry. Tribes are lobbying for more slots, while the racing industry says it can't compete with slot machines for the public's gambling dollars.

While the horse racing industry has been struggling in California, they have also been battling on another front - to keep internet gambling largely illegal, while receiving an exemption for their own industry. That is a war they've won, at least for now, thanks to strong political connections.

The political manipulation has been apparent since the beginning. Back in the summer of 2003, Rep. John Conyers (D-MI) said of the Unlawful Internet Gambling Funding Prohibtion Act, "We're going to ban Internet gambling except for horse racing. Why? Well, it's because the horse-racing lobbyists and the dog-racing lobbyists say that's what we ought to do." The National Thoroughbred Racing Association (NTRA) PAC contributed over $300,000 to political campaigns in this past election cycle alone.

That political clout has come in handy, as the horse racing industry is at the heart of the current WTO dispute. The 1978 Interstate Horseracing Act is a major point of contention for Antigua, as it demonstrates that remote gambling is indeed permitted and thriving in the U.S., and specific legislative exemptions to the UIGEA for the horseracing industry don't help. The WTO problem could largely go away if Congress was willing to throw the racing industry under the bus. It is a testament to the political power of the NTRA that it has been able to negotiate its way through the minefield of UIGEA and WTO rulings relatively unscathed.

Regardless, politicians can only prop the racing game up for so long. The horse racing industry has historically relied on being the only gambling game in town, using its monopoly on gambling as a crutch in lieu of necessary improvements to its core business. Its natural instinct has been to oppose other gambling forms, and it has largely lost that battle to the proliferation of casinos and state lotteries. Even today, prohibiting other forms of gambling while retaining a carve-out for themselves seems to be racing's primary modus operandi. NTRA president Alex Waldop was recently quoted as saying that, as regards the WTO case, "the only logical solution, perhaps not a practical solution, is to withdraw gaming from GATS", the General Agreement on Trade in Services at the heart of the WTO case. In other words - forget open markets, just give us a monopoly and put an end to the debate.

This tactic has not served the racing industry well; now they realize that passage of the UIGEA was not the political miracle it first appeared to be. The "legal" wagering providers like Youbet are having just as much trouble processing money transfers as the offshore sites, according to industry sources. Essentially, the UIGEA has left horseracing worse off than it was before. If horseracing as a sport wants to survive, it needs to focus on its core business, which is not wagering, but (surprisingly) racing horses.

The racing industry needs paradigm-shifting thought to propel itself into modern times. Horseracing is actually custom built for today's society. We live in an information age, where news from around the globe is at our fingertips. We also live in a society with a very short attention span, an era of 60-second video clips and 10-second sound bites. Horseracing is one of the only sports that, from beginning to end, literally spans merely minutes. What better sports entertainment could there be for our rapid-fire culture?

Horse racing is in a position that many other industries have found themselves in over the past decade - adapt or die. Once among the nation's most popular sports, its decline over the past decades is largely blamed on the failure of the industry to adapt to new technology - television. Now the internet is threatening to drive racing into extinction. And while many might not think that offshore wagering is what can save the horseracing industry, it's easy to make an argument as to why it just might.

The problem is, of course, that there is a big potential market of gamblers out there who wouldn't go to an OTB facility or open a phone/internet account just to bet horseracing, especially if they don't already know anything about it. Why try to convert the uninitiated, when there are literally thousands of players already wagering online that represent a much simpler target? Tapping into the pool of offshore casino, sports, and poker players provides a very favorable target for racing growth, and a market that could be tapped into quite easily if offshore operators were allowed access to the U.S. racing pools.

The infrastructure for allowing offshore-based companies to commingle wagers into track pools is already present. The regulations are in place. All that is needed is to allow the offshores access to the market (as the WTO ruling demands). And since the track would still be receiving their cut, they are no longer in "competition" with the offshore industry; they are now in a partnership that can take advantage of the internet gambling boom. Actually this is already in place, as we can see by looking at a company like International Racing Group (www.betIRG.com), which is based in Curacao and redirects telephone wagers into the actual track pools.

While it can be argued that anyone playing offshore already has access to race wagering, its legal status prevents racetracks from publicizing it as an option. Furthermore, since the offshores do not commingle wagers, they can't guarantee big payouts like Pick 6, something that appeals to the "lottery mentality" of many recreational players. Regardless, the UIGEA has put enough roadblocks in the way that casual players won't bother betting horseracing offshore anyway, and few casual players will go through the hassle of setting up a special account at Youbet simply to wager on a few races on Derby Day or during the Breeder's Cup.

Such a move to "outsource" to offshore would certainly hurt a few companies like Youbet and other providers considered legal under existing law. Yet those companies could survive by evolving into their own niche, providing video archives, past performances, live tote board and other horseplayers benefits. That would give them a specialized market as opposed to the offshore books which would allow wagering but might not provide the extra level of amenities for the serious race fan.

The Horseracing industry could take 4 simple steps to dramatically increase their visibility and customer base if the UIGEA were to be repealed:

1. Legalize online race wagering for foreign operators and require offshore companies to commingle into track pools.

2. Lower the pari-mutuel takeout. You are not the only game in town anymore, and people aren't stupid. Lowering the takeout to levels in line with other legal gambling options will help draw in a smarter crowd and should significantly increase wagering handle.

3. Provide live streaming videos of all the races from every major track free on the internet every day. Add well-written software that allows viewing of the races as well as easy access to past performances or other data on one screen. It is time to face the reality that a sport cannot gain a substantial fan base in the modern age without broadcasting their events to the public.

4. Continue to work with media to keep horseracing stories on top of the sports page. There are plenty of great dramas in horseracing, we just never hear of them. NTRA has done well in promoting the Triple Crown, and continued expansion of racing's media presence will allow them to build a substantial fan base.

The horseracing industry has seen offshore internet gambling as its mortal enemy for the past decade. With some creative maneuvering, offshore gambling could actually serve as the biggest boon the industry has seen in years, as the synergy between the two is substantial. Considering the ill effects UIGEA has had on horseracing so far, maybe it is time for the racing industry lobbyists to come over to the other side of the aisle and start advocating for expansion of internet gambling rather than its abolishment.

04-18-07
Jay Graziani
MajorWager.com
graziani@majorwager.com



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