Breaking from the Gate

If you talk to most serious handicappers, and even the “Athletes” group, you are going to hear something to the effect of “drugs are ruining the sport.” I believe this to be true now, but I can tell you my head was firmly buried in the sand until I had a conversation in 1999 with a friend who happens to be a very highly respected and prominent trainer.

I’m not going to tell you who he is, but a conversation we had at Keeneland in the fall of 1999 sticks with me to this day. I had not seen my friend for some time, and had just moved to Lexington. At the time I was consulting on simulcasting issues with the NTRA, and upon hearing that I was working for them he said to me “Bowk … can you get them to do something about the medication issue?” Not realizing that medication had become an “issue” I asked him to explain, and was told in no uncertain terms that he had to make the decision to race most of his best horses outside of his home base because medication abuse was so wide-spread at the time that he couldn’t compete with it, and he refused to join in.

Yes, there is an “issue” and heads can no longer be buried in the sand about it. So what can be done?

Let me start with a disclaimer here. I am not a veterinarian, nor have I ever trained a horse or a dog. I was a hotwalker for one horse, cooling her out after a race. I’d tell you the “whistle till she pees” story but Kris tells it so much better than I do … :o)

If the industry is going to get serious about the medication problem, then there are several areas that need to be addressed:

1. The List
2. Penalties
3. Thresholds
4. Testing

Let’s start with “The List.” Every major sport with rules about medications its athletes may or may not use has a banned substances list. Our industry needs one that covers EVERY jurisdiction. If it’s banned in Nebraska, it’s banned in California. I don’t know a lot of specifics about all the drugs that can be used in racing, but I do know this. If WADA can come up with a list for human athletes, someone can come up with one for animals. For our human athletes, we can just use the WADA list. This is where reform has to begin. Most of the jurisdictions where I have worked as a racing official have some rules about what medications are allowed on race day. This is the wrong approach. Don’t tell the participants what they can use … tell them what they can’t use.

As I mentioned, I’ve never trained a racing animal, nor am I a veterinarian. I don’t know what needs to be allowed on race day. Logic tells me if other countries can ban everything, the U.S. should be able to as well. I’m not going to make a case for allowing this or that drug here. In fact, in the grand scheme of things I don’t really care what drugs are allowed or are not allowed (within reason of course, I do care for the animal’s well being). I don’t think the customers really care either. Consistency is the key. Customers want to know what is being used, and whatever “it” is, there needs to be transparency. The industry must publish the information for public consumption, including the Veterinarian’s names that are treating each animal.

Personally, I think the penalties handed out for drug offences are a joke. Yes, I said it, they are a JOKE. Having said that, I am not a cold, heartless, bastard. 

I am for fair punishments.

“Fair” to me means EVERYONE associated with the drug positive gets penalized. The Vet that administered the drug, the owner of the animal, the trainer of the animal, and the animal itself. All get suspended the same amount of time. Don’t think that’s fair? Well, maybe I really am a cold, heartless, bastard … but when the judgement comes down, go sue each other … not me, not the Host Track, not the Racing Commissions.

Accountability goes a long way people. As does due process. Both should be championed to clean up this mess. The absolute insurer rule might be a little suspect in this regard, but we have to live with it. One thing that can, and should be done, is having better security on the backside, and better documentation of treatments by the veterinarian.

There is a big difference between performance enhancing drugs and non performance enhancing drugs, and penalties should reflect that. Penalties should be consistent, no matter where the infraction occurred. If violation “A” results in a 30-day suspension in Ohio, then it should be a 30-day suspension in Florida. At some point there also has to be a place for career ending sentences … where someone loses their ability to participate in our sport. Period. No more 50th chances for people that can’t figure out the rules. Oh, and one more thing …. no Eclipse Awards for ANYONE with a drug violation that contributed to the Eclipse.

Before we can intelligently talk about testing, I want to address thresholds. Testing becomes more sophisticated every year, and technology can find more things at lower levels than ever before. There has to be threshold levels established below which a violation is not deemed to have occurred. Also, establish formal withdrawal times for the therapeutic drugs on the list. Make the veterinarian training the animal keep detailed records, and if they can prove the medication was given outside the window, then it’s classified as a minor infraction, or none at all. As an example, if we can assume the facts that were reported are true, Brass Hat didn’t deserve his DQ in Dubai.

Testing needs to be done on every athlete that participates in the sport. Animals, every time they run. Humans, on a regular (and random) basis. Yes, I am saying that I believe that a sample should be taken from EVERY animal every time it races. If for time/money reasons they all can’t actually be tested, the deterrant is still there. Samples should be kept for longer periods of time and periodically tested for new drugs which are discovered later … not necessarily for penalty purposes, but at least to help advance the science.

And, yes, I have a way to pay for all the testing too.

I believe that the industry as a whole should set up ONE lab for testing, and all samples should go through the same testing procedures. Uniform medication rules and uniform testing. Let’s also fund it with 0.25% of simulcast handle. So you don’t have to go back to my previous posts, that number comes to about $32,742,500 based on 2006 simulcast handle.

Back to the revenue split, we are now looking at: Host Track-4.875%; Athletes-4.875%; Outlet-4.875%; Customer 4.875%. Don’t worry, I still have some more money to spend.

*** Since my original post on the subject a story was published in the New York Post which quoted a good friend and Hall Of Fame Trainer, Jack Van Berg on the subject of medication in racing. And just for the record, Jack was not the trainer I mentioned above.

“These horses, they can’t say no,” Van Berg told The Post from his barn at Hollywood Park. “They’re getting steroids from the time they are babies. They don’t have time to grow and mature like they should.

“Just open your eyes and look around. You know how many trainers would still be winning races if they couldn’t use medication? Some of them would starve to death. The veterinary bills are as big as the day money (training bills) for a lot of them. You watch and check how much these veterinarians are making on the backstretch now. They’re becoming wealthy.

“I don’t have that many horses, and people will say that’s sore eggs with him. But I’m telling you facts. Any horseman will tell you. You couldn’t get 10 percent of horses racing (in the U.S.) to pass a drug test in Hong Kong or Japan. We’re a laughing stock. It’s disgusting to think that the foreign countries don’t allow that stuff, but here in the United States, we’re supposed to be leaders, and they give them everything from soup to nuts.

“I think we should be racing with absolutely no medication whatsoever. Zero. Stop it all. If the horse ain’t right, turn him out instead of running (him) until he breaks his leg off.” If you want to read the whole story it’s here.

I believe him. It’s time to act.

If you want to start a heated discussion among regular Customers in the racing industry, all you have to do is tell one of them that the tote system is secure and no money is being bet late.

After they get done yelling about Chris Harn, the two recent examples of past-posting, and all the odds shifting they see on the television feeds, even I start to wonder. And for the record, I’ve been a Teller, a Mutuel Manager, run a large ADW company, consulted with tote companies, and currently sit on the TRA 2020 Committee, the industry group which deals with issues having to do with our tote systems. In short, I know a little bit about how tote systems operate.

Let me go on record now and say that I do not believe in the normal operation of the tote system that there is ANY past-posting going on that is not intentionally enabled by the system. I can hear people falling off their chairs everywhere.

Yes, there is a mechanism built into the system which allows for the possibility of past-posting (or past-cancelling) and it is called the “close cancel delay.” For those of you that don’t know what that means, the close cancel delay is enabled at some racetracks to protect the mutuel teller from someone walking away from a ticket at off time. At most tracks, tellers are responsible for their shortages at the end of the day. It gives the teller a chance to cancel the ticket, so they are not out the money.

The TRA 2020 Committee has been working with tracks and State regulators to eliminate the close cancel delays, but they still exist at some places. The TRA keeps a list online of the close cancel delays at tracks. It was last updated on 11/14/07, and there was still a track listed with a 10 second delay! Before you start throwing stones at the outlet, which I am not naming here, keep in mind the delay might be gone by now. However, another note to the National Council of Legislators from Gaming States … start working on regulations to mandate no close cancel delays if your State still allows them.

In addition to allowing the ability to cancel a ticket, there is one other problem the close cancel delay helps to create … the perception of there being money bet after off time due to the late odds shifts players see when watching TV monitors. A host track is not able to post “final” odds until all outlets are in the pools. This means that if the outlet with the 10 second close cancel delay is also wagering on a track you are playing, final odds could not even begin to be calculated until at least 10 seconds after the race begins.

The TRA 2020 Committee has done a couple of things to help in this area. First, at the urging of the 2020 Committee tote companies now send the win odds to the host track first when updating the pools (exacta, trifecta, pick n pools are sent following the win odds). Second, the tote companies at the host track now “force” a win odds calculation at 10 seconds after off time. By doing these two things, it has been reported back to the 2020 Committee that over 98% of the win pool is reflected at 10 seconds. Not perfect, but a lot better than it was even a year ago.

Unfortunately this only solves part of the problem with the display feed that is being shown on television screens world-wide. The main cause of seeing odds shifts while races are being run has to do with converting the output from the tote system into the graphics that get over-laid on the host track’s video signal. And it’s not just odds … the running numbers mid-race also suffer. When I worked as a placing judge, I was appalled at how long it took for a change I keyed into the infield toteboard display to actually show up on the television. I always thought it made me look bad as a placing judge because the display updated sometimes as long as 10 seconds after I made the change to the running numbers.

There is also one other thing we found out about display feeds. Sometimes the odds that show up with each “chicklet” don’t update during the course of the race until the placing judges actually update the running numbers. So if the 1-2-3-4 ran all the way around the track in that same order, the odds on TV would never be updated, even if the tote had passed along the proper odds! The 2020 Committee has also begun asking the video vendors if anything can be done to help in this area.

It’s a little ironic that with the advent of the graphics packages that performance has gotten worse. I remember my days at Ak-Sar-Ben when the running numbers were overlaid using a display board that was in the TV room that was identical to the infield toteboard. Instant updates! A small camera shot the display board and it was overlaid onto the video picture. Updates were actually in real-time back then. Of course, it looked a little ugly and there were no odds.

Obviously there are issues with the tote system, and they can all be addressed with a little application of technology by the industry. After all, if millions of stock transactions can be handled by Wall Street, then certainly there is a way to fix the tote system.

Enter WTP. I can already hear people asking, “What the heck is WTP?” In short, WTP is a new tote protocol being developed by the tote companies, and some racetracks, which essentially ships the individual bets off to the host track for validation before a ticket is issued. This is different from the current ITSP protocol which batches the wagers together and sends pool totals. WTP does a lot of good things to help fix the tote issues the industry is currently facing:

1. Eliminates the refunding of tickets when a communication link is lost.
2. Lets the host track know exactly where and at what time every wager was placed.
3. Allows for instant updating of odds.
4. Assures that no more wagers are accepted after the pool has been closed.

While all of these are certainly good things, I am going to advocate a different solution, because I don’t think WTP goes far enough. I think we need to have one national bet processing center.

Note, I am NOT saying we need one tote company.

I am saying we need to separate the system that processes the wager from the systems that collect the wagering data. My thought process takes it one step further. I want to see a centralized bet processing center (well, actually two for redundancy purposes) that is a separate entity which is specifically NOT owned or operated by anyone that accepts a wager, or develops equipment that accepts a wager. It must be independently operated, not beholden to anyone that accepts a wager, and above all, it must be a non-profit organization.

To use the stock market example, I have an online brokerage account and an account with a full service broker. I can use either to buy shares of Google, but they both have to enter my purchase into the (centralized) NASDAQ system to make the trade. It sounds a little like WTP, but it goes a few steps further:

1. It’s now easier to secure the bet processing system, since there are fewer locations where bets are processed, and fewer people with access to the system.
2. It’s easier to attach a transaction monitoring to proactively watch for irregularities.
3. An auditing system can be more easily put in place to insure bets are only being accepted from approved outlets.
4. Customers could establish accounts which would allow portability to every outlet, and device attached to the system. 
5. If an upgrade to the system needs to be made, or a new bet gets introduced, everyone gets it at the same time.

I am not looking to put the tote companies out of business. They are all moving towards building centralized datacenters for their own businesses anyway, and most outlets are actually sending bets “off-site” now. The industry needs the tote companies, and if they don’t have to worry about processing the bets, they can focus on producing better customer facing products, and providing better on-site services.

To do this will require a sizable investment by the industry. I have an idea for a way to pay for this, and once again, I am going to invoke the word “fair” here.

I am suggesting that to start, 0.25% off all simulcast handle be used to pay for it.  According to the Jockey Club, in 2006, Off-track pari-mutuel handle on Thoroughbred racing alone was $13,097,000,000. Using just that figure, there would have been $32,742,500 to fund the new bet processing center in 2006. Factor in Standardbred and dog racing handle also, and there is plenty of money available to do this, including paying for all of the telecommunications that needs to be put in place to support it. If it doesn’t cost that much in the long term, then a lower percentage can be applied later. This is supposed to be a non-profit organization after all.

And no, I don’t want to raise takeout. It should come off the top before dividing up the takeout. It’s only fair.

So now we have: Host Track-4.9375%; Athletes-4.9375%; Outlet-4.9375%; Customer 4.9375%.

Going through this exercise can be fun. It actually reminds me a little bit of the movie Dave. For those of you who haven’t seen it, Dave is “hired” by the President’s staff to impersonate the President who has had a massive stroke. There is a lot more to the plot than this, but in the movie, he tries to make sense of the Federal budget. He takes a look at how stupidly some of the money is spent and re-distributes it to a worthwhile cause. We have a few worthwhile causes, so let’s continue.

Much has been said recently about the simulcast pricing model being “out of whack” and that it needs to change. New “entities” have even been created, like TrackNet Media and the Thoroughbred Horsemen’s Group to address the issue. The National Council of Legislators from Gaming States even looked at the pricing model with a panel at their recent meeting, and the yearly gathering at the Racing Symposium in Tucson also featured a panel on the subject. Clearly there is traction for change … but how?

Let me begin by stating categorically, that I agree with the idea that the simulcast pricing model needs to be changed.

Probably the best concept I have heard recently came from Gary Sproule, CEO of YouBet.com. Mr. Sproule advocated dividing the simulcast takeout equally between the host track, the athletes (I am using “athletes” here to define the collective group of owners, trainers, jockeys, drivers, kennel operators, breeders, etc), and the outlet accepting the wager (in his case the ADW). In fact, at the Tucson Conference, he categorically said he’d sign that deal right now.

I’m going to be doing some math as we go through this, and just to make it easy on all of us, I am going to assume a blended takeout rate of 20%.

Under Mr. Sproule’s scenario, we get the following: Host Track-6.66%; Athletes-6.66% and Outlet-6.66% (forgive the rounding). Essentially this makes the new equivalent host fee rate rise to roughly 13.32% (Host Track + Athletes), which is a significant bump from the 3%-8% typically charged in the marketplace at the moment.

So if the goal is to change the pricing model to be more ”fair” for all the participants, then everybody’s happy now … next issue please.

Well almost … in my opinion he did get the concept right … he just forgot one of the stakeholders … the customers who generate the handle.

Adding the group that actually generates the simulcast revenue, it would look something like this: Host Track-5%; Athletes-5%; Outlet-5%; Customer 5%. This is still quite the raise of the equivalent host fee, which would be 10%.

Each group receiving the money gets to decide what to do with its share, and the other groups have no say in the matter. What to do with the customer’s share is a little tricky, so each outlet is going to have to set up some kind of “committee” that involves customers to make the decisions, publish a survey, or find some other way to get input from the players as to what should be done with its share. 

I would advocate that the Outlet receive the money, and be mandated to use it for the benefit of customers. Most importantly, there needs to be a auditable record of how the money is spent, which is also reviewed by someone other than the Outlet and its Customers to make sure it is properly distributed. Every outlet and it’s customers have different needs, so I don’t believe there is one blanket solution for all, and in fact, needs could change from year-to-year. Here are some ideas for using the funds:

1. Takeout Reduction - with net pool pricing, each outlet could set its own takeout.
2. Player Rewards Programs / Rebates
3. Improving facilities at the Outlet - updating furniture, TV’s, technology, lighting, smoke reduction, tote terminals.
4. Free Attendance - Admission, PP’s, video fees, credit card fees.

There are a few things that need to be said in addition to putting forth the model above.

The industry as a whole needs to stop thinking about themselves in little “fifedoms” if the pricing model is going to work. This means, for example, that no one outlet is more or less important than any other.  Some concepts to consider:

Host Tracks and Athletes have to stop thinking their racing is worth a higher host fee when taken by an Outlet that does not offer the same kind of racing, or any racing at all. Every Outlet supports live racing even if it does not conduct it, and should therefore be given credit for what it does provide, a place for a customer to wager. ALL Outlets have expenses, some have more and some have less. Even among Outlets that are of the same “type” there can be great differences.

A Host Track’s (or Event’s) signal is not worth a higher host fee just because of the name on its door. Sorry to those that would disagree, but what actually makes a signal “worth more” is that more Customers wager more money on it, which is what will bring the additional revenue. Host Tracks and Athletes should be thinking about how to get Customers to wager more on their products. The racing industry is a global marketplace now. A Host Track’s customers are no longer just the people who live nearby, and if they do not embrace this philosophy soon, the industry will not grow.

This concept brings up Source Market Fees. If one believes that customers are no longer just people who live nearby, then Source Market Fees for ADW’s is a dead issue. However, it does raise the current problem of everyone not being allowed to participate in ADW. Note to the National Council of Legislators from Gaming States … start working on regulations to allow every outlet to provide ADW services immediately. Part of fixing the pricing model is levelling the playing field.

Since we are talking about levelling the playing field, one more note to the National Council of Legislators from Gaming States … start working on regulations to allow every Outlet to take as many (or as few) signals as they want to, and be open at whichever days/times make economic sense. Simulcasting laws or rules that restrict an outlet’s ability to offer the best possible product to its customers are just wrong.

To close this section let me add one final thought. Being “fair” to the entire industry does not necessarily mean being “fair” to any one specific Outlet, or one specific Host Track, or any one Customer or Athlete. Unfortunately it might mean that some die off. Tracks might close, racing days might decline, the Customer who is used to getting an 11% rebate might play less (or not at all) because his rebate is now 5%, Athletes may have to find a new line of work.

I’m understanding of that, but not sorry. My first job in racing was at Ak-Sar-Ben, which is now closed because the economics it faced made it necessary to do so. Horsemen’s Park is now open in Omaha, under a different economic model. Things always change and the industry must adapt.

This also means the ENTIRE industry has to move together. Perhaps the leap doesn’t happen all at once, but it has to happen together. Taking revenue from one area and moving it to another is tricky business, and in order for this to work, revenue does have to move in all directions. The Host Track and Athletes can’t decide to use this model to sell, and not use it to buy.

It’s not even springtime yet, but change is in the air for the pari-mutuel industry. I am seeing it all around. So what’s a blogger to do? Throw out his two cents of course!

This is going to be a multi-part post. I would ask anyone reading it to wait until the end before throwing rocks at it. Also, I feel the need to insert the standard “these comments are my own, not attributed as being the position of anyone but me, including anyone I have worked for previously, or am working for now.”

A general warning, there may be controversial positions brought up. If you don’t like what you read, fine. Just remember, you only get to blame the writer. Of course, if you like what you read, I will accept the credit too.

Just for some background, I read several publications each day including the DRF, The Blood Horse, Thoroughbred Times, Yogonet, many Message Boards (Pace Advantage, DelMar, etc), the Derby List, other people’s blogs, and the list goes on.

And, for the record, I think it’s important for EVERY stakeholder in the pari-mutuel industry to read as many of them as they have time for. They can be very enlightening, and one certainly gets to know the pulse of what people think.

My topics moving forward are based on some of the things I have seen elsewhere, and my own ideas. Some of the concepts won’t be new, after all this is the pari-mutuel industry, and we do have a history of saying things over and over, but not acting.

The following topics seem to be high on the mind of everyone, so I’ll address them first.

1. The Pricing Model
2. Tote Systems and Security of the wagering pools
3. Medication
4. Exclusivity

Maybe now is the time when action can take place, and hopefully these thoughts will be helpful.