Status of Advance Deposit Wagering in Illinois

          The legalization of internet betting on horse racing by residents of Illinois occurred on August 25, 2009 when the Illinois Advance Deposit Wagering law went into effect. Advance Deposit Wagering, or ADW, is a method of pari-mutuel wagering in which individuals may establish an account, deposit money into the account, and use the account balance to place pari-mutuel wagers. In order to conduct internet pari-mutuel wagering in Illinois, the ADW company is required to contract with an organization licensee - a racetrack in Illinois. Significantly, the Illinois Horsemen Associations (ITHA, IHHA & HBPA) are by law not parties to the ADW contracts. The contracts require the consent of the subject horsemen associations, and through the efforts of the ITHA, the Racing Board has determined that such consent must be received from the horsemen associations on an annual basis. This consent under the current law, however, comes after the tracks and ADW companies have already negotiated and signed their contracts. Under the current law, all monies retained by the tracks from ADW, not including monies retained by the ADW companies, are to be paid 50% to the track and 50% to the track's purse account. The ITHA has had success in minimizing certain costs retained by ADW companies prior to the remainder payment to the tracks/purses but our ability to withhold consent is limited to a good cause showing sufficient to potentially stop the flow of monies, including monies to the Racing Board that come from taxes on ADW wagering.

          The current ADW law was enacted with a three-year sunset provision which means that if the law is not amended or extended it will end on August 25, 2012. With three years of hindsight, the racetracks, horsemen groups and ADW companies have the opportunity to look back and see what worked and what didn't work. Originally, Arlington partnered with Twinspires and Xpressbet;  Hawthorne, Maywood and Balmoral partnered with YouBet; and Fairmount partnered with TVG. In 2010 Twinspires purchased YouBet leaving Hawthorne, Maywood and Balmoral with no ADW partner. Hawthorne quickly partnered with Xpressbet and Maywood/Balmoral eventually started their own ADW site called Betzotic. While Hawthorne waived its rights under the YouBet contract by signing with Xpressbet, the harness tracks and horsemen are involved in litigation with Twinspires regarding its purchase of YouBet. As a result, in 2011, of the $3.5 million earned to purses in Illinois from ADW, $1.2 million went to the Arlington purse account from Twinspires, $265 thousand went to the Hawthorne purse account from Xpressbet, $875 thousand went to the Fairmount purse account from TVG, $931 thousand was generated by YouBet and is tied up in litigation and the harness horsemen's purse account earned less than two thousand dollars from Betzotic.

          More significantly to horsemen, as ADW handle has increased since the law was enacted, the percentage of handle going to purses has decreased. In 2009, the percentage of total ADW handle in the state that went to purses was 3.46%.  In 2010 this figure was 3.41%. In 2011 this percentage fell to 3.03%. The percentages of purses earned from handle by ADW provider in 2011 was 4.4% from YouBet, 2.9% from Twinspires, 2.7% from Xpressbet and 2.4% from TVG. If the YouBet figures are removed, since those monies are in litigation and have not been received and YouBet customers are being absorbed by Twinspires, the effective rate from ADW to purses in 2011 was 2.7%.

          While all other sources of handle have been down year after year, ADW handle has increased year to year and is the growth market of our industry. Percentages to the purse accounts and to the tracks should be higher, and certainly not steadily decreasing. As of March 16, 2012 there is pending legislation to continue the current law as is for another year. Arlington Park, Fairmount Park and the Fairmount horsemen, HBPA, are in favor of continuing the law as is. This is understandable since the amounts paid to Fairmount and its horsemen are approximately 25% of the whole. Arlington is in a very good position with the current law as its sister Churchill Downs Inc. company Twinspires captured nearly 35% of the market in 2011, and Twinspires owns YouBet which had 26% of the market in 2011. Maywood/Balmoral and the harness horsemen understandably do not want the current law to be continued as is since they had essentially zero percent of the market in 2011. They expect other options to be available to the industry during this Spring legislative session other than letting the law sunset or continuing it as is. Hawthorne Racecourse, as of March 16, 2012,  is neutral on extending the law as is.

          The ITHA's official position as of March 16, 2012 is neutral on the extension of the ADW law as is. The purse account at Arlington is doing very well compared to the rest of the industry as the law currently reads. The purse account at Hawthorne is not doing as well as it should be under the current law. Purses generated to the Hawthorne purse account from ADW in 2011 were approximately the same as what was given to quarter horse purses in 2011 as a subsidy, and was less than one-third of what was earned to the Fairmount purse account. While this issue is looming, the Illinois horse racing industry is working together to pass a slots at the tracks bill. The ITHA has stated that it favors extending the ADW law for one year if the rest of the industry agrees so that we can focus on being united on slots legislation this year. The ITHA also recognizes that the current construction of the ADW law will have to be addressed either now or a year from now.  ITHA, overall, is happy with its share of the purse market currently generated by ADW but believes that receiving 2.7% of ADW handle to purses is way too low, especially considering the fact that approximately 8% of other sources of handle goes to purses. In 2012, 12.6% of ADW handle was paid to three groups - ADW companies, tracks and purses. Half of this went to the ADW companies, one quarter went to the tracks and one quarter went to purses. This third partner, the ADW companies, is getting too large a piece of the pie. The original contract with YouBet resulted in one-third each going to the ADW company, the track and the purse account. That is why YouBet caused 4.4% of its handle to go to purses - and this was pursuant to a contract where the horsemen were not a party.

          Horsemen have historically suffered in the past and continue to suffer the consequences of legislation that contains language that is not in the best interest of the horsemen and the purse account. The recapture law, different splits between on-track and off-track, impact fees delayed or not received, and the current ADW law that doesn't provide appropriate revenue sharing are examples of this. An ADW bill that has larger, more equitable percentages of ADW handle going to purses and the tracks is what the ITHA ultimately will support so that the tracks and horsemen get their fair share of this growing market.

Glen Berman, ITHA Executive Director