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Kentucky Lawmakers Hear About Fixed-Odds Race Wagering

2nd October, 18:04

Legislative committee appears open to fixed-odds wagering on horse racing.

The Thoroughbred Idea Foundation made its case for fixed-odds wagering to a group of Kentucky lawmakers who sounded largely receptive to further consideration of the idea during an Oct. 2 meeting in Frankfort, Ky.

Earlier this year the Thoroughbred Idea Foundation, an industry think tank group working to improve the sport for owners and bettors, issued a white paper that called on horse racing to offer fixed-odds wagering in order to compete and benefit in a changing United States gambling landscape currently seeing growth in sports betting.

At the Oct. 2 meeting, TIF executive director Pat Cummings outlined the potential for fixed-odds wagering to members of Kentucky's House and Senate during a meeting of the Interim Joint Committee on Licensing, Occupation, and Administrative Regulations. Cummings said allowing fixed-odds wagering on horse racing in Kentucky would provide a boost by modernizing the sport's business model, which is now limited to pari-mutuel wagering.

He noted there is demand for fixed-odds wagering but, without a legal option, bettors are turning to offshore bookmakers, which costs the industry.

"The benefits will be quite obvious. It will help modernize a struggling industry which is a tremendous source of jobs, agribusiness, and has a substantial economic impact," Cummings said. "It will domesticate a business which American racing operators are already tapping into internationally, and very importantly, it will serve as a legal volley against the growing, illicit, offshore operators who are poaching customers -- from Kentucky surely -- but hurting horse people and our industry nationwide."

It was a timely presentation as Kentucky has been considering allowing sports betting in the state. Committee member and Senate majority floor leader Sen. Damon Thayer, a Republican from Georgetown, said he would like to see sports wagering legislation approved soon with fixed-odds wagering on horse racing included. But he emphasized it's important to find a model that works for tracks and horsemen (purses) but also is attractive enough to pull horseplayers away from offshore bookmakers.

Thayer and Cummings said the commission (the amount retained by the bet taker) would likely be in the 10-11% range on losing wagers, which Thayer noted would be in line with previous sports wagering legislation considered in Kentucky. Thayer also noted the rake in the sports wagering bill was higher on mobile platform wagers. That retained money would support tracks and horsemen.

"We have to make sure this continues to drive purses," Thayer said. "While they do offer some really cool wagering opportunities in England, their model is broken. We want to make sure we get the funding model right."

Cummings acknowledged that his group doesn't speak for any Kentucky racetrack, or horsemen's group for that matter, and noted they would need to be included in shaping any model should lawmakers move forward on allowing fixed-odds wagering.

In pari-mutuel wagering, bettors compete against other bettors with the host removing a percentage of the pool -- takeout -- and distributing the rest of the pool to winning players. In this model, odds change as the pool fluctuates, until the race begins. Fixed-odds wagering allows bettors to compete against the "house" as a host would set fixed odds on horses that bettors could choose to lock in with a wager. In general, sports betting -- wagering on football, basketball, etc. -- is a fixed-odds venture.

Cummings said allowing fixed-odds wagering would allow horse racing to better compete in a changing gambling market.

"Over nearly the last 80 years, American Thoroughbred racing has been presented to betting customers as a pari-mutuel game -- meaning a centralized tote system combines all money to one pool for each bet type. There has been little innovation in this approach," Cummings said. "In February, our organization published a white paper advocating that lawmakers and regulators consider horse racing as part of this sports betting evolution -- embracing change, seeking growth for the industry, meeting the needs of present day customers."

Rep. Adam Koenig, an Erlanger Republican who co-chairs the committee, summed up one frustration with current pari-mutuel betting.

"For me, there's nothing more frustrating than betting a horse at 7-1 and seeing it leave the gate at 7-2," said Koenig, who in the 2019 regular session sponsored a bill on sports wagering.

Cummings noted that sports betting customers would be more likely to cross over to horse racing if racing offered the fixed-odds model that they're familiar with through wagering on sports like football or basketball. He said just as future wagers -- betting on the Super Bowl winner in September -- are popular in sports betting, they could be very popular in racing. Again, he noted that illegal bookmakers are currently filling that void in horse racing.

"With future bets, the actual result is days, weeks, or months in the offing, but customers would know exactly their return if they were correct. Applied to horse racing, the marketing value is compelling on its own. With its current pari-mutuel future bets on the Kentucky Derby, Churchill Downs offers wagering on the world's premier racing property for just about 10 days a year. Imagine a future where Derby betting was open for 10 months a year?" Cummings said. "All of the development of sports betting in America is on these types of wagers, and others similar to it."

Later Cummings noted that legislation would have to be carefully crafted to protect the interests of the industry, tracks and horsemen, on such future wagers.

Cummings noted that offshore bookmaking sites like US Racing, which Cummings said is based in Costa Rica and licensed in Curacao, actively recruit and market to American horseplayers. He noted that bets made by Americans through US Racing are illegal and no percentage of those wagers benefit American purses or horsemen.

"In other words, US Racing serves American customers with fixed-odds bets on racing, including future bets on the Breeders' Cup and Triple Crown races, but the industry gets nothing in return," Cummings said. "This is the opposite of the legal business model which we advocate, and that exists today."

Cummings called on Kentucky lawmakers to take the lead in modernizing wagering on the state's signature industry.

"The American market for sports betting is rather widely estimated to be between $80 billion and $150 billion a year. And all of it is on fixed-odds bets -- bets where customers know exactly what they'll get -- bets where customers will stay engaged in the sport or games if they know they still have a chance," Cummings said. "Horse racing in America, which again has experienced serious overall wagering declines over the last 15 years, does not have much in the way of fixed-odds betting at present. To meet this challenge, horse racing must be considered eligible for fixed-odds betting, a necessary modernization to keep pace with growing influence of fixed-odds sports betting.

"While Kentucky has an existing set of pari-mutuel regulations, enabling fixed-odds bets on horse racing would be different -- a different business model, different pricing to customers, and presenting the sport to modern audiences in a way in which the market is already meeting their expectations with other sports. As closely tied as Kentucky is to the thoroughbred, one major question comes to mind: If Kentucky does not take the lead on this, then where?"

Rep. Alan Gentry, a Louisville Democrat, said he sees potential for fixed-odds wagering to start as a small venture that would have tremendous growth potential. He said it would be important to get the structure right to ensure the industry benefits, but he sees potential to bring back money currently going offshore to the state and industry.

"I think this is a good idea to start talking about this moving forward," Gentry said. "People around here hear me talking all the time about how I get very frustrated with the discretionary spending of our residents that leaves the state, or in many cases leaves the country, when we're talking about issues like this.

"However, moving forward if the model moves totally toward fixed-odds wagering, we have to be careful with that because there is a situation here where that outcome could affect the license holder. We have to be careful on how we structure this."

Cummings hopes that if the state moves forward to allow sports wagering, horse racing will be included by allowing fixed-odds wagering. Cummings acknowledged it will be important to get the model right and he acknowledged that while the 10% range might be higher than some European countries, it would be needed to work for Kentucky racing. Thayer agreed that getting the model right will be important for all sides, including customers.

"I think this model would start slowly but really grow; not to replace pari-mutuel wagering but to be a supplement for it," Thayer said. "There are a lot of really good questions about taxation, and horsemen, and purses. We have to remember that just as we have in statutes on pari-mutuel wagering, really there are several constituencies to consider a taxation plan. We have to consider the operator, which is going to have to take on the liability, pay labor, pay bricks and mortar costs, and e-commerce and make a profit. We have to consider the state; pari-mutuel wagering does drive a significant amount of money to our general fund ... that's an important matter. And the purses -- the horsemen -- have to be a beneficiary of any type of wagering, pari-mutuel or fixed odds, on horse racing.

"We also have to remember that as we consider the operator, the horsemen, and tax rate, ultimately the customer has to be considered as well because if we tax it at too high a level, they won't wager on it. We have to keep it at a competitive level -- we're competing against people doing this illegally. We have to be able to tax it at a level that the customer will want to wager on these products and the operator will invest to attract people currently making these wager illegally and try to get them to bet legally."

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