by Frank Angst

After more than an hour of debate on a pair of proposed regulations concerning pari-mutuel wagering integrity, the Kentucky Horse Racing Commission (KHRC) tabled any decision until December 1.

Chairman Robert Beck instead requested that Kentucky Wagering Integrity Committee Chairman Tom Ludt schedule a November committee meeting that racetrack officials, tote officials, and all committee members can attend to receive more information on the two controversial proposals.

The first proposal would require Kentucky tracks to stop wagering at zero minutes to post. The committee explained that during the regular countdown to post, the final minute would be counted down in seconds with all wagering halted when the post-time clock reaches zero, which is typically a minute or two before the gates actually open. Currently, tracks accept wagers until the gates open.

The second proposal would require Kentucky tracks and off-track sites that accept bets on simulcast races to pay all tickets with the race winner, even if communications problems prevent that wager from being accepted by the host track.

Ludt expressed frustration that the commission did not take action on the two proposals.

“I could see if these had only passed the committee with a 3-2 vote or something, but these were passed unanimously,” Ludt said. “People have full-time jobs, and I know November is a very busy time for me. The committee members aren’t going to hear anything new at the next meeting. We’ve spent 18 months on this.”

Beck was not comfortable voting on either proposal without further information, and committee member Betsy Lavin agreed with his position. While no vote was conducted, committee member Frank Kling offered several comments opposed to the first proposal.

Committee members believe by halting wagering at zero minutes, a stop-wagering command automatically could be issued to prevent races from starting with the pools still opened. Mike Maloney, a professional bettor based at Keeneland Race Course, called attention to the issue when he documented his ability to continue wagering on a 2007 Fair Grounds race after it had started. Several other past-posting incidents have been reported since then, including this year, when stop-wagering procedures failed, typically because of human error. Maloney serves on the Kentucky committee.

 The committee did note that none of the races with stop-wagering problems occurred at a Kentucky host track.

Halting wagering earlier also is expected to ease in-race odds fluctuation caused by money wagered just before the gate opens flowing to the host track from various hubs. Also, automated batch wagers typically are sent just before the gate opens, which also can cause odds changes during a race.

The hub system was compromised in 2002 when a group of bettors were able to change their pick six tickets after four races had been run. Led by computer programmer Chris Harn, the bettors hit several pick six wagers before being discovered  when they were the only winners of the 2002 Breeders’ Cup pick six at Arlington Park.

Many experts say the hub system, in which money from simulcast outlets flows to a collection point before it is sent to the host track, creates potential for integrity problems. At the very least, the odds changes during a race create a perception problem with handicappers.

“I talk to people who come to Keeneland [Race Course] four or five times a year,” said KHRC Vice Chairman and Thoroughbred owner Tracy Farmer. “These are people who bet the races a few times a year and they think someone is messing with the pools and messing with their money. They really think that. That’s a problem.”

Racetrack representatives said their handle would be affected because most of the wagering typically is conducted in the final minutes before the gate opens. Churchill Downs put a similar policy in place after the 2002 pick six scandal. Kevin Flanery, Churchill racetrack president, said the policy change was unpopular with bettors and blamed the policy change for a 20% on-track handle drop and 10% off-track handle decline.

Flanery said  some expert players like to see every last detail—things like how a horse moves into the starting gate—before betting. And, more casual players are used to being able to wager until the gates open.

“One thing to keep in mind is that Churchill also would face added expense because we would have to retrain the customer,” Flanery said. “That is one of the hardest things to do in business.”

Flanery noted that when Churchill previously halted wagering early, the track had to employ more tellers because customers were getting shut out waiting in lines. He said the policy frustrated players.

Track officials also expressed concern about being the only circuit in the country that would have such a policy, a condition that could cause confusion with simulcast players throughout the country where 89.1% of U.S. wagering occurs.

“We would be out on an island,” Flanery said.

Ludt said the committee reached out to New York and California to follow Kentucky’s lead but those regulators expressed little interest in putting a similar policy in place. Noting ideally bettors would become familiar with the policy if it became the standard throughout the U.S., Ludt said he hopes other states would follow once Kentucky takes the lead.

Maloney said that while he understood the tracks’ concerns, the commission has a responsibility to protect bettors.

The other proposal also involves racing’s tote system. Because of the hubs, if a communication failure occurs, tracks may not receive wagers from a simulcast outlet before a race starts. In this situation, the host track may opt to cancel the bets.

But the outlet that issued the bets could have players with tickets they believe are winning tickets. In fact, the bets are not included in the pari-mutuel pool. Also, all “losing” tickets in this situation are in fact eligible for refunds because the wagers were not accepted by the host track.

The rule change would require Kentucky tracks and simulcast outlets to pay off winning tickets in this situation, essentially calling the ticket a contract.

Turfway Park President Bob Elliston said currently in this situation his track only issues refunds for wagers by players who think they hold winning tickets. He said players with the losing tickets also are eligible for refunds. Elliston said to pay out winners in this situation would effectively be bookmaking because the bets were not processed as part of a pari-mutuel pool. He said Turfway could face legal issues in paying out bets in this situation.

Elliston also pointed out that if a player were to hit for a massive jackpot, say a $400,000 pick four, the new rule would require the track to pay off that amount even though it would not receive the pari-mutuel payout from the host track. He said this could be financially devastating for Kentucky tracks.

Ludt said improved tote technology—an elimination of the hub system in favor of actual real-time wagering—is the solution. But in terms of what regulators can do now to protect integrity, the policy changes are needed. He said such policies would encourage tracks and tote companies to take steps to improve the tote system.

Lavin did not wish to cut into track revenues at a time they already are facing challenges from the poor economy. Rick Hiles, president of the Kentucky Horsemen’s Benevolent and Protective Association, said bettors could be especially frustrated before the Kentucky Derby presented by Yum! Brands (G1) if betting is stopped well before the large field is loaded.

“We’ve already seen our dates cut, we can’t afford a 20% loss in wagering. That would mean a 20% reduction to our purses,” Hiles said.

The commission did pass one of the integrity committee’s recommendations. As part of the licensing process, Kentucky tracks and off-track betting outlets will be required to notify the commission when a wagering anomaly occurs. The commission also will be required to receive information on any investigation conducted by the Thoroughbred Racing Protective Bureau, the investigative arm of the racetracks’ Thoroughbred Racing Associations.

Wagering anomalies would include any suspected instances of past posting, account-wagering fraud, suspected pool manipulation by computer-robotic wagering, odds manipulation, arbitrage, quick-pick malfunctions, and unusually large wagers, especially just before wagering closes.

Frank Angst is senior writer for Thoroughbred Times