Balance Between CAW, Retail Market Sought in California

Speaking during an informational session during a June 20 California Horse Racing Board meeting, two horse racing executives gave an overview of computer-assisted wagering and what they believe is an equitable balance for CAW alongside the retail market.

The discussion was one of a dozen agenda items during the Thursday meeting, which was anchored by a decision related to CHRB funding.

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CAW and tracks allowing such betting have come under some criticism for the impact on pari-mutuel wagering. With CAW players betting vast sums in the final moments before a race’s start through sophisticated wagering technologies tied to computers and with access to tote systems while also enjoying massive rebates, these wagers contribute to late odds changes that can frustrate many gamblers.

Experts have noted that other types of traditional betting, including advance-deposit wagering, also play a role in late odds changes. Many bettors prefer to bet as close to post time as possible.

CAW players—using various strategies unique to the individual bettor or team of bettors—attempt to find value by spotting perceived wagering inefficiencies in betting markets within various pools, ranging from straight bets to exotics. While their wagers alone are often not enough to generate a profit, the large rebates they receive for their high volume of play can lead to profits for CAW bettors.

Some prominent track operators own the betting platforms these players use, with The Stronach Group and the New York Racing Association owning one such company, Elite Turf Club, and Churchill Downs Inc. owning another known as Velocity. Elite Turf Club is responsible for the bulk of CAW play on California racing, while Velocity is primarily focused on CDI-owned racetracks, said Scott Daruty, president of TSG’s Monarch Content Management and Elite Turf Club.

Daruty told commissioners that he has heard that this ownership presents a conflict, though he disputes that view. He said owning Elite Turf Club “gives us a direct relationship with our biggest customers and allows us an understanding that we wouldn’t have if there were middlemen conducting this activity. So it’s actually the right thing in my opinion through the tracks to own Elite.”

Speaking about this ownership, he acknowledged that “Elite’s gonna make a percent or a fraction of a percent on every bet,” though he noted that even an on-track wager would be split among entities such as the track and horsemen.

Tracks involved in CAW desire to see it sustained in the marketplace, though many traditional bettors are growing increasingly disenchanted by CAW’s presence, tote access, and impact on wagering.

Commissioners did not press the executives on why CAW players should have tote access that most of the general public does not.

If CAW bets comprise 20% of the pool and such players win at a rate of 90 cents on the dollar (before rebates), compared to the average bettor’s 80 cents on the dollar, “The math tells us that the other people in this room are going to walk away with 77 1/2 cents when they bet instead of 80 cents,” Daruty said.

Daruty noted that with pari-mutuel pools, there will always be some bettors that are more effective than the average player.

“So I think the important part is not that we look at it and say, ‘There’s winning players; they need to leave.’ But instead that we look at it and we say, ‘How do we make sure that these players are operating within parameters that we think are healthy for the pari-mutuel pools?'”

Host fees, the amounts tracks charge for wagering on their signals, “are sort of the knobs, the dials we turn to make sure that this business stays within the parameters that we feel is healthy for the pool,” Daruty said.

A hike in a host fee would reduce available rebates, cutting into CAW players’ profit margins.

Bill Nader, president and CEO of the Thoroughbred Owners of California, which is involved in negotiating wagering agreements in the state, said, “Now, over the past year, I’d say the TOC has taken a real hard look at CAW, and we’ve had long discussions with the track partners. And we’ve agreed to make pricing adjustments that will be implemented at the start of the summer meet at Del Mar.”

Nader recalled first seeing the impact of CAW play 20 years ago when he worked for NYRA. Then, the operator opted not to take late bets from a major CAW platform due to odds fluctuations.

“It still does irritate some customers, but to be fair to CAW, I think some of that has to do with a lag time in the tote,” he said.

Leading tote companies, much like CAW platforms, are owned by racetrack operators. CDI and NYRA own United Tote, while 1/ST Gaming and Technology, a division of TSG, owns AmTote.

Daruty believes the optimal percentage of CAW play in pools is around 20%, though he believes that figure could be debated. He said restrictions in France limit play to 11%, which, based on his view of how the market reacted, “is too much.”

When commissioner Oscar Gonzales asked if Elite Turf Club would be willing to open its books to the CHRB, as TSG suggested it would during an earlier board meeting, Daruty said it would if it is related to the business itself, though not to its customers’ private information. He suggested he would like Elite Turf Club evaluated and treated the same way the CHRB would treat retail ADW companies.

Daruty does not believe that cutting off access to pools is an effective mechanism for controlling CAW play and late odds changes. He regards that as more of a tool for altering public perception. With restrictions, he believes CAW bettors will simply wager through different channels.

Daruty said in California they have tried offering a financial incentive for wagering early by having higher rebates for CAW players that do not wait to bet close to post.

Nader said that finding the right level of CAW play next to more traditional betting is necessary.

“So what we’re trying to do is make sure that the core customers and the retail market is not feeling too much of a pinch because if they are and their money dries up too quickly, or their experience is not up to their expectation, then when we do run the risk they’ll go away,” Nader said. “And that’s not good for anyone, including CAW, because CAW needs a robust retail market to deliver them a sustainable business model. So even talking to CAW, they would agree that that balance has to be protected and preserved. Otherwise, everyone is going to be worse off, including them in the long run.”