The Courier-Journal
Horse-racing site Youbet.com is treading into some of racing's murkiest waters to grow its account wagering business.
Youbet.com expects to close a deal this summer to buy International Racing Group, a Curacao wagering company that offers rebates to gamblers who bet large sums of money, win or lose.
These so-called rebate shops, which are typically outside the United States or on Native American reservations, have become one of racing's hot-button issues. While they contribute to the total handle, they are blamed for taking racetracks' customers and have even been cut off by some tracks.
Youbet.com hopes to bring a measure of credibility to the rebate shops, a fast-growing part of the pari-mutuel industry that Youbet.com CEO Chuck Champion believes is here to stay.
"The industry really didn't know who they were, who owned them and how they were operated," Champion said.
And, he said, if bettors question how the pari-mutuel pool is being calculated -- which relates directly to winning payouts -- the integrity of horse racing is being questioned.
"People have to believe that that pool has got a tremendous amount of integrity, security and is clean," he said.
Economics are driving some big bettors to rebate shops.
At Keeneland and Churchill Downs, for example, tracks typically keep about 18 cents of every dollar wagered.
This "takeout" is split among government, horsemen and the track to cover everything from purses to overhead.
Rebate shops pay tracks for their simulcast signals at a fee generally negotiated at about 5 cents of every dollar wagered -- fees in the same range as other racetracks pay.
In essence, the rebate shops are able to keep the remaining takeout and use that money to do something most tracks can't: offer hefty rebates.
The National Thoroughbred Racing Association estimates that some companies give big bettors rebates of 5 percent to 10 percent, sometimes more.
Greg Avioli, an executive vice president of the thoroughbred association, said one of the racetracks' concerns is that rebate shops are offering better deals on the tracks' products -- the races themselves -- because they don't have to worry about using takeout for other expenses.
Churchill Downs Inc. removed several rebate shops from its wagering pools this year and restored them only after receiving more information about who was placing bets.
Keeneland cut off five rebate shops at the start of its spring meet last month over security concerns.
"We have been too complacent about who we have let into our pools without proper oversight. We need to increase the priority that we're giving this," said Keeneland President Nick Nicholson.
International Racing Group, or IRG, was among several rebate shops mentioned in a federal gambling probe this year. No charges have been filed.
The company has between 125 and 150 customers but handles about $200 million a year, compared with Youbet.com, which has 140,000 customers and handles about $400 million annually.
The $1.2 billion in handle generated by the six largest rebate shops in 2003 represented more than half of all money bet through account wagering, according to research paid for by the NTRA.
Rebate shops have become a lightning rod for controversy. Because the offshore companies attract high-rolling bettors, the simulcast fees they pay pump money into the tracks.
Still, the tracks are wrestling with whether rebates are good or bad for racing.
A group appointed by the thoroughbred association has studied the issue but has not taken a stance.
"It's part of the business landscape," said Karl Schmitt, president of the Churchill Downs Simulcast Network.
David Willmot, head of Woodbine Entertainment, which operates Canada's Woodbine Racetrack, calls rebate shops "parasites."
He said one company came to Woodbine to lure away a customer with a Porsche.
"It is our own fault that the rebaters have margins large enough to be able to rebate simply because we have sold to them at prices far too low, prices that are commensurate with selling (signals) to other racetracks," Willmot said.
"But when you sell to other racetracks, you are selling to an organization that has the cost of purses, the cost of backstretch, the cost of racing surfaces, of processing the bets, the bricks and mortar. Rebaters have none of those costs."
