Letter to the Editor: Paul Berube

I took great notice of Bill Nader's recent observations in TDN about the state of parimutuel wagering in the U.S. Paramount in the salient issues he raises is that of liquidity in wagering pools. Current business practices related to Computer Robotic Wagering (CRW) are, in my opinion, a significant factor as to why handle has stagnated and will continue to do so or get worse in the years ahead.

CRW is conducted through well-organized and capitalized teams that look to parimutuel pools as a form of arbitrage that seeks to capture perceived value in the pools through application of handicapping platforms and mathematical algorithms. Profit is their ultimate goal. Some teams are highly successful and can turn a profit on wagering activity alone, but all teams look to rebates to put them over the top.

It is well-known within the industry that CRW teams are responsible for $2.5-billion (approximately 23%) of annual U.S. handle. This is significant liquidity in itself, but the question is

whether it is good liquidity over the long term. To answer the question, one needs to understand that CRW is a strictly controlled exercise. CRW does not behave like “regular” players who, upon winning a wager, will generally increase and churn their winnings. The amount of CRW is proportionate to the

money in any given parimutuel pool that comes from all other players. If, for any reason, these other players have less money to wager and pools are smaller, CRW reacts accordingly by also betting less.

As we all know, winning payouts are determined by final odds and takeout percentages. But in the current wagering environment, CRW also has an effect on payouts. As noted, CRW is geared to capturing perceived value or imbalances in parimutuel pools. Thus, when these teams land on a winner, payouts are lower than what they would ordinarily be without CRW. These smaller payouts directly affect how much money is going back into the pockets of regular players. This money shift amounts to tens of millions in liquidity over the past 15 years, as evidenced by the negative settlements host tracks and off-track

wagering venues have been paying to the locations that serve CRW teams. The bottom line is that an untold amount of churn has been and continues to be lost.

So the bottom line is that, short term, CRW adds liquidity to parimutuel pools, but long term it is detracting from this metric. Adding insult to injury is the fact that CRW teams are receiving the highest rebates possible, thus increasing the effective takeout for all other bettors. How fair is that?

Bill Nader's call for a full evaluation of this nation's current parimutuel business practices is on point. Will host track stakeholders undertake an in-depth examination of CRW and all other factors that are adversely affecting parimutuel wagering? Who will step up to the plate and lead the way? Stay tuned.