“I Think We’ve Got A Problem”: What’s Next In The World Of CAW?

[Wandering Eyes]

With what feels like the culmination from years of mounting pressure, the volcano of opprobrium over Computer Assisted Wagering (CAW) erupted this summer, spilling all over the industry.

The debate around CAW players typically surrounds the edge they wield over regular gamblers thanks to their use of sophisticated technologies that allow them to precisely read the markets and to place massive wagers across many pools in the final seconds of betting-sometimes leading to extreme late odds changes-as well as the attractive rates and rebates offered to them which are unavailable to the average punter.

Collective pushback by rank-and-file gamblers led to actionable change at Del Mar during its summer meet, when outcry over a spate of glaring late-odds drops led to the track closing CAW access to its win pools at two minutes before the off-a move that mirrored prior action by the New York Racing Association (NYRA).

Santa Anita followed suit. Despite a spate of late odds drops during its recently concluded fall meet, however, Keeneland resisted the call to similarly cut off CAW access in its win pool-but changes might be on the way (more on that in a bit).

Then there's the recent class action lawsuit against several CAW-related wagering entities under the under the Racketeering Influenced and Corrupt Organizations Act (“RICO”) and under state law. The suit alleges they have “organized and participated in the corruption of the betting system” to the detriment of the plaintiffs.

“This just snowballs,” said Marshall Gramm, Rhodes College economics professor. “It has become the central issue for rank-and-file horseplayers.”

(Read the TDN's extensive coverage of CAW which includes a CAW 101, a look under the hood at how deals are made between tracks and individual teams, as well as a review of global approaches to the issue)

Click here for panel discussion on CAWs in horse racing which was presented at the 2024 National HBPA Conference.

“We've reached a tipping point,” agreed Damon Thayer, a veteran lawmaker with 22 years serving the Kentucky State Senate and now a senior advisor to the Thoroughbred Racing Initiative (TRI). “Horseplayers are pretty upset about this.”

Which is why, he said, some lawmakers in the Kentucky state legislature are considering introducing legislation to manage CAW play.

“I'm not suggesting legislation. I'm not encouraging legislation,” stressed Thayer (a remark he repeated). “But I happened to run into [a Kentucky lawmaker] at Keeneland two weeks ago, and he told me he's very concerned about the situation with the CAWs and that he's considering introducing legislation.”

Betting slip | Sarah Andrew

As to the nature of any such possible legislation, “it could be a very simple requirement that the racetracks cut off betting from the CAWs at a certain point in time-two minutes to post. Five minutes to post,” said Thayer.

Kentucky state representative Matt Lehman (D) is one of the lawmakers considering legislative intervention.

“I've followed horse racing all my life,” said Lehman. “It is very difficult for the average person to even compete against what's happening in some of these pools.”

He added, “I was recently at Keeneland. I thought I had a nice long shot, 21-1 going into the gate. Across the wire first and the odds were 8-1. When a pretty reliable fan or better in the game feels like he lost with an 8-1 horse winning, I think we've got a problem.”

With the state legislature not set to return to session until the start of next year, bipartisan discussions of possible legislation are currently “informal,” said Lehman.

“This isn't something you would usually ask legislators to really get involved in, micro-managing how these businesses run,” said Lehman. “Our preference would be to have these track operators figure something out that is important for their own health as well as the Kentucky industry going forward.”

But Lehman floated possible ways in which these talks could play out.

“The things you'd have to look at are: what is pari-mutuel racing? How is that defined? And what does it mean to have some level of equitability among the different players in the pools, along with transparency of information available to legislators and the public?” said Lehman.

“There's not a real clear picture of just how much CAW money are in the pools at any given time,” he added.

Windows at Santa Anita | Horsephotos

This last point isn't just a Kentucky problem, however.

The California Horse Racing Board (CHRB) used to annually report the handle wagered by individual CAW teams but stopped doing so in 2022, choosing to instead report wagering totals from individual CAW platforms (like Elite Turf Club).

And yet, even with the steps the CHRB has taken to shield from public view CAW play in the pools, California remains arguably the most transparent of any jurisdiction in how it reports the impacts of CAW wagering on the pools.

 

Lawsuit Timeframes

A legal development that has garnered considerable attention is the class action lawsuit filed last month by former horse racing gambler Ryan Dickey.

The defendants comprise several entities under the The Stronach Group (TSG) umbrella (who last week issued a response to the lawsuit).

This includes Elite Turf Club, a CAW wagering platform 80% owned by Stronach Group and 20% owned by the New York Racing Association (NYRA), and AmTote International, the dominant totalizator service provider for North American racetracks described in the lawsuit as the “clearing house of U.S. pari-mutuel wagering.”

The other defendants comprise Churchill Downs Inc. (which owns CAW wagering platform Velocity), NYRA, United Tote Company and Racing & Gaming Services, another CAW wagering platform.

The lawsuit–filed in the U.S. District Court for the Eastern District of New York–could play out between as little as six months to two to three years, said attorney Drew Couto, a former president of the Thoroughbred Owners of California (TOC).

Tote board at Fair Grounds | Hodges Photography

One of the quicker ways the case could be resolved within months is through a settlement. First, however, is an important procedural hurdle called a motion to certify the class.

“And there's a risk on both sides, obviously,” said Couto about the class certification process. “The plaintiff believes that the case warrants certification as a class. The defendants are going to argue that it doesn't.”

Even if class certification is granted, the defendants can appeal that decision–another potential spoke in the legal wheel that can stretch out the lawsuit's timeline.

During the process leading to whether or not class certification is granted, there's a period of discovery on both sides.

“That process can take up a fair amount of time,” explained Couto. “It's not a simple case of filing the complaint and then you immediately schedule a motion for certification, which is a complex motion in itself. But it is, generally speaking, an expedited process.”

If, however, class certification is ultimately granted, “then from the defendants' standpoint, your liability exposure goes up significantly,” said Couto.

“At first, defendants take a very hard line–'yes, we're going to fight certification.' If they lose at the certification level, however, then the calculations, from a defense standpoint, change,” said Couto. “A defendant must then assess what are the future risks, and that's why, when one is looking at the length of time, and costs, associated with a class action case, certification is the first pivotal point.”

 

Industry Next Steps

While the legal machinations of the lawsuit play out, what steps should tracks take to seriously tackle the problem?

According to Marshall Gramm, they need to focus on two key areas: price stability and price differences between the teams and the retail bettors.

More pointedly, they need to cut off CAW access two minutes to post in “all the visible pools,” he said. “This means the double, the exacta and the win pool.”

The second area concerns reducing the price differences between what the CAW teams pay and what the recreational players pay, said Gramm. “You need to fix those two things.”

Gramm repeated a remark made by others–that the issue has reached a tipping point, and that observed inaction in the face of late odds swings won't be met quietly.

“One of the dominant stories of this Keeneland meet was the public outcry that has kept this to the forefront,” said Gramm. “I'm curious to know what they [Keeneland] do in the future,” he added.

“Nothing's outside of the realm of possibility of what we may or may not do in the spring. It's not like we're just vehemently opposed to doing X or Y,” responded Keeneland's vice president of racing, Gatewood Bell, when asked what changes the track might make in its approach to managing CAW play going forward.

“We also have to consider the track and the horsemen's accounts,” Bell said, stressing that Keeneland doesn't have an interest in any CAW platform or tote company, and therefore, not the entity offering rebates. “We're just trying to balance and keep all stakeholders in mind when we're making decisions like this.”

Though Keeneland didn't cut off CAW play minutes before the off, the track each meet “evaluates and adjusts” the way it manages the CAW teams accessing their pools, said Bell.

Keeneland during the Fall meet | Coady Media

“To encourage balanced participation, Keeneland charges CAW players equivalent to or higher than those charged to retail bettors across all pools,” he added.

The tweaks Keeneland made this last meet led to the total win pool handle going up 5% (comparing this year's meet to last year's), but CAW activity in that pool going down 9%, said Bell.

Another is a slight reduction in the percentage of overall handle from CAW play, to around 24%. “I think we'd like it to go a little bit lower, to be honest,” said Bell, when asked if this is the percentage sweet spot.

Nevertheless, they didn't impact the last-minute odds changes that garnered such withering criticism. Bell said that through the first 13 days of the meet, 57% of the winners went up in price or stayed the same, while 43% went down in price.

“Do I think it's the final answer? No,” said Bell. “We're going to review it all,” he added. “Usually when the most profound change or positivity comes out of something, it's when there's a tipping point.”

And what about the recently concluded Breeders' Cup?

Before the meet, the Breeders' Cup stated it would not impose a two-minute win pool cutoff to CAW play (as its host track did this summer).

“Fortunately, due to the substantial liquidity in our multi-million-dollar wagering pools, the late odds fluctuations that frustrate horseplayers have not been an issue at the World Championships, including last year at Del Mar,” the organization argued.

With the meet now wrapped, has the organization reevaluated its approach to managing CAW play?

“Breeders' Cup continues to evaluate all aspects related to wagering on the recently concluded World Championships,” a Breeders' Cup spokesperson wrote.

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