View From The Eighth Pole: Marriage Of Online Sports And Horse Betting Is In Racing’s Best Interest by Ray Paulick|09.20.202209.21.2022|5:03pm12:02pm The stakes for sports betting across the country are sky high, but this is especially true in California, the most populous state in the nation with over 39 million residents. There are two ballot propositions concerning sports betting that Californians will have the opportunity to vote on this fall. Proposition 26, supported by California's horse industry, would permit sports betting only at brick and mortar facilities at four racetracks (Santa Anita, Del Mar, Los Alamitos, Golden Gate Fields) and at tribal casinos throughout the state. It also would allow the Native American tribes to expand their casino wagering menu to include roulette and craps. Proposition 27, supported by sports wagering giants FanDuel and DraftKings, among others, would permit online wagering on sports using cell phones, computers, etc. Supporters and proponents of both ballot initiatives are blanketing the airwaves with advertising that will cost an estimated $500 million before election day Nov. 8. During sports programming, pro-Prop 27 ads herald the excitement of betting on your phone. During non-sports programming, anti-Prop 27 ads warn that passage would turn every cell phone and computer into a gambling machine. Other ads point out that Prop 27 will help solve California's homeless crisis while opponents say 90 percent of profits will leave the state, leaving little for programs to assist the homeless. While California tracks and racing stand to gain if Prop 26 passes, there is nary a mention of the horse industry in any of the ads I've seen. In fact, tribes that support Prop 26 seem to be spending most of their ad dollars trying to defeat Prop 27, the online sports betting measure some believe eventually will lead to expansion into online poker and casino games. The latter would deal a serious blow to the monopoly the tribes currently enjoy at their California casinos. At this stage, if there is a consensus, it is that neither initiative will pass in 2022, but that the online betting Proposition 27 stands a better chance than the bricks and mortar initiative favored by the racing industry. No matter what happens at the ballot box this November, it's a sure bet that sports wagering before long will be back on the front burner in California and other states. It is inevitable. At least 25 states have jumped onto the sports betting bandwagon since the 2018 Supreme Court opinion striking down a federal law prohibiting states from offering such activities. The wagering numbers generated thus far are mind-boggling. According to Legal Sports Report, two states – New York and New Jersey – each topped $1 billion in sports betting handle in a single month during the past year. Another six states (Illinois, Pennsylvania, Arizona, Colorado, Michigan and Indiana) each recorded handle between $500 million and $1 billion in a month. Not far behind those states are Virginia, Tennessee, and Iowa, with between $300 million and $500 million wagered in a single month. Other states that have legalized sports betting include Delaware, Mississippi, Rhode Island, West Virginia, Arkansas, Oregon, New Hampshire, Montana, Wyoming, South Dakota, Connecticut, Louisiana, Maryland, and Massachusetts, plus Washington, D.C. Before the Supreme Court decision, the American Gaming Association estimated $150 billion was bet annually on sports in the U.S., yet only $5 billion of that – wagered in Nevada – was legal. Most recently, the AGA reports that legal sports bets totaled $57.7 billion in 2021, more than doubling from $21.6 billion in 2020. Now let's take a look at racing. A sport that once had its own near-monopoly on legal gambling, racing has seen its share of the wagering dollar decline with the arrival of state lotteries, tribal casinos, riverboat and land-based casinos, on-line poker, and now sports betting. This happened despite racing getting federal approval for internet wagering in states where it is legal and benefitting from unprecedented television coverage to accompany online betting. U.S. pari-mutuel handle on Thoroughbred racing topped out at $15.2 billion in 2003. As the chart below shows, in the last 10 years it's been as low as $10.6 billion in 2014 and rose to $12.2 billion in 2021. These numbers are not adjusted for inflation. Adding that component would make it look that much worse. From 2013 through 2021, U.S. pari-mutuel handle increased by 12.3 percent. Over the same period, advance deposit wagering increased by more than 173 percent. The so-called “big four” ADW companies – TwinSpires, TVG/FanDuel, Xpressbet/1ST Bet, and NYRA Bets (which launched in 2017) account for the vast majority of those bets. That said, there are some caveats in the data. The statistics in the accompanying chart are from the Oregon Racing Commission, which serves as a multi-state hub for nine ADW companies, including the “big four.” There's another $700 million or so wagered annually with a dozen, mostly smaller ADW companies through the North Dakota Racing Commission multi-state hub. The North Dakota Racing Commission does not supply individual ADW wagering totals. It reported $679 million in total ADW wagers for fiscal year 2021-22. The chart demonstrates ADW's share of all U.S. pari-mutuel wagering grew steadily from 22 percent in 2013 to 40 percent in 2019. It then skyrocketed to 61 percent market share in 2020, the first year of the coronavirus pandemic when most tracks were closed to on-track wagering and many other sports were temporarily shut down. With on-track attendance largely restored in 2021, the ADW market share declined to 54 percent, and it's at that same rate for the first six months of 2022. Looking at nearly 10 years of data, it appears that advance-deposit wagering hasn't attracted new players as much as it has made wagering more convenient for existing ones. It's moved brick-and-mortar players to bet on their phones or computers. Keep in mind, these ADW totals do not include the estimated $750 million wagered through North Dakota's ADW hub. It also does not reflect some of the game's biggest players – including computer-assisted wagering operations – who get substantial rebates through licensed, legal offshore shops like Elite Turf Club and Racing and Gaming Services. Add those unknown variables into the equation and the share of ADW bets as a percentage of total handle would be much greater. The computer-assisted rebate players are not going to help the game grow. If anything, their crushing last-second wagers that can dramatically change the odds are a growing frustration that may chase some of the existing players out of our game and into the sports betting landscape. Thoroughbred Idea Foundation executive director Patrick Cummings published his thoughts on that earlier this week suggesting that sports bettors will not find the pari-mutuel waters very inviting because of late odds changes. Cummings believes racing must embrace fixed-odds wagering. But that concern notwithstanding, there is a very good opportunity for horse racing to attract players from the sports betting world. Don't take my word for it. William Carstanjen, CEO of Churchill Downs Inc. (CDI), said as much with the company's recent announcement that it was entering into a multi-year agreement with its former nemesis, TVG/FanDuel. CDI owns TwinSpires, which for all but 2020 has been the leading ADW company over the last decade in terms of betting volume (based on Oregon Racing Commission hub data). TwinSpires and TVG/FanDuel have been battling for market share among existing horseplayers and, at times, the rivalry has gotten downright ugly. For the two companies to reach this kind of agreement on content, television, technology, and market access is a very big deal. In 2023, when the agreement goes into effect, Thoroughbred racing content from CDI's flagship track that hosts America's biggest race, the Kentucky Derby, will be in front of millions of FanDuel's sports betting customers. That is significant. Just as significant is FanDuel's plans to let sports bettors and horseplayers use a single wallet (betting account) for both sports and horse betting. Once that goes into effect, anyone with a sports betting account with FanDuel will be able to bet on the Kentucky Derby or any other race that TVG/FanDuel offers on its wagering platforms or FanDuel TV. This will provide a major betting lift to the Derby and should have a positive impact on all racing. Opposing the spread of sports betting is fruitless. It is here and isn't going away. A marriage between sports and horse betting can and should be in racing's best interest. That's my view from the eighth pole.