Horse Racing’s Big Bet

Posted July 12, 2005 at 5:48pm

Even before Afleet Alex tore through Belmont Park to take the third and final leg of horse racing’s Triple Crown, the Congressional Horse Caucus was kicking up dust on Capitol Hill.

After viewing a draft of a yet-to-be-introduced bill to ban credit card companies from processing Internet gambling charges, the group of lawmakers from horse racing states fired off a letter to Sen. Jon Kyl (R-Ariz.) expressing concerns that the bill did not exempt horse racing.

“Without carving out the exemptions, we are going to decimate an entire industry,” said Rep. John Sweeney (R-N.Y.), co-chairman of the Congressional Horse Caucus, in an interview after the May 31 letter was sent.

Kyl’s office declined to comment on the specifics of the draft, but spokesman Scott Montrey said it will be similar in mission to previous bills while addressing new concerns presented by the explosion of online gaming.

But opposition from the horse racing industry has dogged the most recent iteration of a nine-year-long effort by Kyl to produce legislation that eradicates online gambling.

As Kyl has learned, such legislation involves a combustible mix of powerful interests, including the gaming industry, American Indian tribes that operate casinos, conservative Christians and state lotteries, among others.

“I don’t think Sen. Kyl realized how difficult it was going to be to get a consensus” among the various interests, said one gaming industry source.

For the past several years, Kyl has introduced anti-online gambling bills similar to the one now being discussed. But unlike previous bills introduced by Kyl, which have not been enacted, the language of at least one draft drawn up this year did not exempt the horse racing industry from the prohibition.

As horse racing has become increasingly dependent on Internet revenue, the industry finds that it has a lot to lose if Internet-based gambling were to disappear.

“I think this is life and death for the horse racing industry,” said Eugene Christiansen, a gambling expert and chairman of Christiansen Capital Advisors.

Horse racing has witnessed a marked decline in popularity in the past half-century. In the 1950s, horse racing’s popularity as a spectator sport was rivaled by only baseball, Christiansen said, but the industry’s inability to capitalize on the television market has confined the “sport of kings” to the interior of the sports section.

The bulk of horse racing’s profits has always come from gambling. But today, the industry is undergoing a transition in how it processes such wagering.

Of the $15 billion in bets placed on horse races last year, roughly $1.5 billion was placed at race tracks on live races. But twice that figure — some $3 billion in wagers — was placed via personal accounts accessed through the Internet or by telephone.

Account wagering now totals roughly 20 percent of all bets placed and has been increasing by as much as 40 percent a year, said Greg Avioli, executive vice president of the National Thoroughbred Racing Association.

“We’ve gotten to the point where the success of the horse racing industry is directly tied to the success of account wagering,” said Anthony Cabot, a lawyer at the Las Vegas-based law firm Lewis and Roca who has had experience with online gambling.

“The only ray of hope that the industry has is the Internet,” Christiansen said. “If horse racing has a future, that’s it.”

Horse racing industry officials are adamant that the final version of Kyl’s bill include language specifically exempting horse racing from any prohibition on Internet-based gambling.

The Congressional Horse Caucus will fight hard against any anti-online gambling bill that does not include such exemptions, Sweeney said.

Sweeney said he believes Kyl excluded the exemptions from the draft hoping to expedite the bill through Congress without considering the detrimental impact that the latest draft of the bill would have on the horse racing industry.

“I think it’s reflective of an oversight,” Sweeney said.

But several sources familiar with the legislation say that Kyl intentionally excluded the exemptions to limit opposition to the bill. In the past, support for similar bills has been undercut by hostility to such exemptions.

“Religious and conservative organizations have opposed versions of the bill that they viewed as gambling-enabling legislation, and other groups have opposed exemptions because they want one for themselves,” said one gaming industry source.

Guy Clark, chairman of the board at the National Coalition Against Legalized Gambling, an anti-gambling organization with strong religious support, said that such exemptions are unwise. “It seems the best solution is to just draw the line and have no legalized gambling,” he said.

The National Indian Gaming Association would oppose any bill that treats one interest group different than another, said NIGA Executive Director Mark Van Norman.

“What we’re looking for is equal treatment,” Van Norman said. “If state licensees are going to have access to the Internet, tribal governments should have access too.”

But Avioli said that the horse racing industry is unlike other interest groups because it already is using the Internet to facilitate wagering.

“The difference is that we’re not looking for any enabling or expanding legislation,” Avioli said. “We’re only seeking to retain the current state of the law.”

The horse racing industry cites the Interstate Horseracing Act, which was amended in 2000 to specifically address the use of the Internet to facilitate horse race wagering, as justification for its use of the Internet to take bets. The Justice Department opposed that amendment and continues to argue against the legality of Internet-based horse race betting.

Sweeney said he does not think Kyl’s bill can pass without a provision that exempts the horse racing industry. He said he plans to meet with Kyl to discuss the issue.

Still, with or without exemptions, it remains to be seen whether Kyl’s bill can garner enough support to make it through Congress.

“Sen. Kyl has not been able to get this law passed in nine years, and it’s unlikely that he’ll be able to do it this time,” Cabot said. “But things have changed. Kyl is in a position of leadership, and the makeup of the House and the Senate has never been more favorable to his position.”