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State Takes Aim at Stopping Internet Horse Racing Wagering

18 April 2001

In the past week, two additional companies have announced plans to offer, or expand their offerings, of Internet wagering sites accepting bets on horse racing. Playboy.com together with Penn National, have announced that by the third quarter of this year, the companies plan to offer on-line pari-mutuel wagering on horse racing. Similarly, a company called "U.S. Off-Track" announced that it has technologically enhanced its site to extend account wagering services on harness and thoroughbred races to wireless Internet-ready phones, and hand-held computers. These companies join several others that have made serious in-roads into offering sites that are truly "off-track" betting sites.

Because it is not a legally recognized form of legitimate wagering in the State of Michigan, telephone and Internet wagering in Michigan are not regulated or, more importantly, taxed. With no taxation, these forms of wagering are clearly pulling revenue away from the State's tracks and purses. Analysts who watch the industry have suggested to Michigan officials that Michigan's total racing handle would increase by $320 million annually if these wagers properly flowed through the system.

Earlier this month, in an effort to stem the tide of this wagering, Racing Commissioner Annette Bacola announced that she is actively pursuing action through the Attorney General's office asking the Attorney General to seek injunctions against companies who accept wagers from Michigan residents via the telephone or Internet.

"The dynamics of the horse racing industry have evolved rapidly over recent years. With the advent of the Internet, pari-mutuel wagering has become a business of interactive data processing. In order to regulate this recent transformation, the Office of Racing Commissioner (ORC) is investigating a course of enforcement against the illegal use of telephone and Internet account wagering that is responsible for eroding racetrack revenues across the state," said Bacola.

The Attorney General's office has been looking into the matter and expects to be making an announcement very "soon" according to spokesperson Chris De Witt.

Complicating the picture, wagering by telephone and the Internet has been made legal in several states, including New York, Pennsylvania, Ohio, Kentucky, New Hampshire and Louisiana. Legislation to authorize the activity is also pending in several other states.

For an industry that is struggling to survive, which provides over 40 thousand jobs to our State, Internet wagering is creating a crisis that must be dealt with sooner rather than later. If wagering is occurring by Michigan residents on horse racing, it is only fair that the struggling horse owners, breeders, drivers and racetrack owners get their fair share to keep the industry alive.

Short of creating some sort of direct subsidy to the horse racing industry, there are very few solutions to this crisis. One solution that has worked with success in other places (including Windsor) is to allow slot machines at the tracks. In the past, Governor Engler has been opposed to this approach. Other approaches are to revisit the "off-track betting" parlor concept, or to take an "if you can't beat em - join em" approach and reconsider telephone and/or Internet account wagering at the State legislative level. Although none of these solutions may seem attractive to a legislator opposed to any expansion of gambling in the State, the alternative of losing this vital agricultural industry is far worse.

Legal or not, wagering is taking place via the Internet and telephone in Michigan. The sophistication of technology has outpaced the State's ability to control access. Several companies are directly soliciting Michigan residents, some by the Internet and others by direct mail. Just like the controversy over Napster, without any revenue stream to reward those who produce the form of entertainment (i.e., the breeders, trainers, drivers and track owners), it is hard to see how the industry will survive.

The time for burying our heads in the sand and hoping the problem will go away has come and gone. Although efforts by the State to curb the activity through legal action may help in the short term, the reality of the Internet and the availability of off-shore locations from which these businesses can operate suggest that a more comprehensive approach is necessary. The Legislature should think long and hard about letting another session go by without grappling with this issue.

David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com
David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com