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Faraldo Calls Out Meadowlands On "Cartel Wagering", Big M Responds

Published: March 21, 2013 9:10 am ET

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Over the past few months, Meadowlands Racetrack has been the envy of the racing world with its resurgence in pari-mutuel handle numbers. Are those figures as noteworthy as they appear? One prominent horseman doesn't think so.

On Tuesday, Joe Faraldo, president of the Standardbred Owners Association of New York, penned an editorial on why he thinks the numbers touted by the Meadowlands aren't all that special. One day later, the Meadowlands responded.

On Monday, March 25, handicapper Eric Cherry let his feelings on the topic be known. Cherry's comments are listed below the Meadowlands release.

Joe Faraldo - Betting Against Cartel Wagering

The “loss leader” is a concept that has been used in business forever. Basically, a product is offered at a price that generates no profit for the sake of generating increased activity. So, if you make a million dollars in sales, but your production costs are a million, you really haven’t accomplished a whole heck of a lot.

It is only against this backdrop that one may appropriately consider the purported spike in handle at the New Meadowlands Racetrack. In this regard, there is a legitimate concern posed by the phenomenon referred to as “cartel wagering.”

The accommodation of the cartel at the New Meadowlands was recently exposed in an insightful Daily Racing Form article penned by Jay Bergman. Again, while everyone wants to see handle increase, the fundamental question that must be asked is at what cost?

The typical cartel represents a small group of sophisticated, moneyed players that have developed an elaborate, highly structured computer analysis handicapping and wagering system. The cartel then invests huge sums of money into track pools. Because of their level of investment, track management treats the cartel like an Advanced Deposit Wagering System. Unlike an ADW, however, the cartel doesn't take action from players like you or I; rather, it is the player.

Here’s how it works. The track that wants to increase handle sells its signal to the cartel just like it was an ADW, but at a cheaper rate. Why? Well the cartel is expected or obligated to guarantee a certain level of play at a track. For example, let's say the cartel commits to $300,000 in wagers per night on New Meadowlands races. To entice that level of play, the track sells its signal to the cartel for one-third the usual rate. Thus, while the New Meadowlands sells its signal to everybody else at a premium of around six percent, the Cartel is charged only two percent. Other tracks and ADWs still pay the higher rates.

So, how does the reality of this loss leader play out? Simply, even if handle is tripled, since the price charged to those responsible for a large component of that handle is a third of what it “sells” to other bettors, both the track and horsemen are still in the same position economically. The addition of gross handle in this fashion produces a zero-sum effect, resulting in no additional revenue being generated to increase purses or add a race day. Sadly, it has done nothing for increasing on-track wagering heralded as a major accomplishment at the New Meadowlands. If the strategy has any positive ramification at all, it is that added handle generates more handle from other entities, like ADWs or other tracks whose rate was not lowered. Presumably, this bump in activity could at some point produce some increase in retained revenue for enhanced purses, but at the cost of other fellow racetracks, their horsemen and ADWs who pay the premium rate.

What does it all mean? Thanks to crackerjack computer software, coupled with the benefit of being afforded bargain basement pricing by the track, the cartel make a profit at the expense of the other bettors. Meanwhile, the New Meadowlands makes a little extra money, but nowhere near the benefit it should be realizing from what is daily touted as harness racing’s largest handle. In effect, the high handle number is an illusion: Yes, there are a lot more dollars passing through the tote system, but very little of it produces a retained amount beneficial to the horsemen, the track or its investors who are played for more support.

The economic illusion serves as an excellent device to get more investors to contribute to track management.

It gets tiresome reading the daily pats on the back of growing handle because of all the smart things going on at the Meadowlands -- yet the truth is that there will be no additional race dates and no meaningful purse increases because, the truth be known, on-track handle is flat.

Then there is the potential for danger with these cartels. For example, an entity betting that $300,000 per card into pools via computer technology has the ability to manipulate those pools. A cartel certainly has the ability to, for example, create false favorites by pumping money into the win pool on an entrant/s in the first flashes of the tote board. It’s even more dangerous if, like ADWs, it can later cancel those wagers. Other bettors will be influenced to follow the early money.

The DRF article did glimpse at this when it discussed some early favorites that didn't really figure from a handicapping point of view. Was this the cartel, the big fish, placing money on a horse, sucking in others to believe that there was a reason for making the no apparent form horse the choice?

Sound crazy? Well there have been instances at the New Meadowlands where at the start of a race three or four horses open up with large win bets in equal denominations -- $2,000 to win on different horses in a race -- which distorts and skews the pool odds significantly. While the cartel may not be at the root of the Saturday (Feb. 16) late double at the New Meadowlands, the $17 horse and a $56 horse combined for a mere payoff of $133.00 in a $32,000 pool. Results like this are quite hard to ignore, much less justify to the non-cartel type bettor.

The bottom line is that while a steadily increasing handle sure looks good, and maybe lures more investment money to management’s pocket, it is not at all efficacious to the purse account. The cartel wagering entities come with risks that can produce more harm than good. The SOA of NY thought about dealing with cartels or, even worse, exchange wagering that NJ has authorized (where you can bet on a horse to lose). It’s just too huge a risk to integrity, and makes the payoff a bad bet, both long and short term.

Response From The Meadowlands

While it is unfortunate that Mr. Faraldo has targeted The Meadowlands in another public outburst that would have been better left to a private discussion, due to the vast inaccuracies in his “editorial,” The Meadowlands Racetrack feels compelled to respond.

Yes, The Meadowlands Racetrack, like many other racetracks with larger-sized pools has players that bet through a computer-assisted wagering system. The notion that these players are a “cartel” is erroneous. Contrary to Mr. Faraldo’s beliefs, The Meadowlands Racetrack has not been made any guarantees from a wagering prospective by these players.

For full disclosure, prior to the start of our meet, The Meadowlands has amended an existing simulcast agreement with one of our present customers which would likely result in their increased wagering. We did this mainly to see if by their added handle it would encourage others to wager into the larger pools. To protect ourselves and our customers that if there was a problem, we intentionally added a clause that would allow us to cancel the agreement on three days-notice. Fortunately the results are better than expected. That increase has been nearly $7 million, or 29-percent of our overall handle increase. However, there has been additional 71 percent in increases from other sources, just as we had hoped. Therefore, the idea that these bettors are creating “the illusion of beneficial revenue” is false.

The simple truth is these players bet more than the average customer, thus receive a larger rebate. This is a concept that has existed since the opening of casinos in this country. A $1,000 per hand blackjack player is going to receive a larger rebate than a $10 per hand player.

The allegation that New Jersey horsemen are not seeing “beneficial revenue” is also false. By the end of this racing season, the S.B.O.A.N.J. will receive additional revenue well into six-figures directly from these larger players. The agreement was made with the full support of the S.B.O.A.N.J. and its leader, Tom Luchento had this to say:

“The Meadowlands Racetrack and the SBOANJ have an outstanding relationship. We support each other in everything we do. The Meadowlands Racetrack is an industry leader in moving this sport in the right direction and utilizing new ideas to make The Meadowlands successful. The idea that the management at The Meadowlands and Jeff Gural would ever do something that would harm the horsemen of New Jersey is utterly ridiculous and offensive to both The Meadowlands and the horsemen of New Jersey.”

Mr. Faraldo also questions the revenue earned by The Meadowlands on these bettors in relation to the purse account. For full disclosure, The Meadowlands has carried an overpayment into the purse account for 2013 of nearly $300,000. Thanks to our game plan for 2013, we are on track to wipe out that overpayment by years-end. It is impossible to raise purses until it is proven that we will continue to have full fields since the Pennsylvania tracks have opened and a total handle that continues to perform at the same consistent level it has all year.

Furthermore, the allegation that The Meadowlands is misleading its investors and “playing them for more support” is both erroneous and defamatory. The Meadowlands Racetrack is in constant communication with our investors as they are given daily updates of how our business is doing. They have been extremely pleased with the progress we have made in 2013 at both The Meadowlands Racetrack and Winners Bayonne.

It comes as quite a shock that Mr. Faraldo would grow “tiresome” of reading about The Meadowlands success. The national handle figures published on the USTA website, show an increase of over $50 Million in industry-wide betting handle in 2013. The Meadowlands Racetrack is responsible for 45 percent of that increase. Thus, The Meadowlands is literally driving the industry in the right direction. But rather than supporting The Meadowlands, since the industry is clearly so dependent upon its success, he tries to tear it down. This is one of the major problems within our industry today.

In his editorial, Mr. Faraldo touches upon the subject of integrity. With all due respect, no racetrack in this sport has done more to promote integrity than The Meadowlands. No person in this sport has done more to promote integrity than Jeff Gural. When a trainer is suspended, The Meadowlands does not allow that trainers horses to be raced under an “assistant's” name for the duration of that suspension. We believe our customers appreciate the stand we have taken in this regard and it is reflected in our handle.

Additionally, Mr. Faraldo cites two examples that could represent the danger of these larger players and the potential for pool manipulation. Let’s put this to rest right now. Neither of his two examples have anything to do with larger computer-assisted wagers. The individual that wagers $2,000 to win on multiple horses does so at a simulcast facility at a teller window. Furthermore, the $2,000 win bets are never cancelled, so where is the pool manipulation? The daily double made reference to was also predominantly due to an individual who placed a large daily double wager at The Meadowlands. After looking into the wager, there was nothing suspicious or “manipulative” about the wager. Neither incident stemmed from large computer bettors at all.

We apologize that this editorial required a public response and we hope to have clarified the issues raised by Mr. Faraldo to our betting customers as they are what matters the most to us. Lastly, if Mr. Faraldo took issue with a business decision The Meadowlands Racetrack made, he should have contacted us privately and professionally. Quite frankly, his concerns should focus on the standardbred horsemen of New York and he should leave The Meadowlands to us. After all, despite boasting large purses thanks to an approximate $50 Million casino-subsidized purse account, The Meadowlands consistently handles five times more wagering dollars than Yonkers on Saturday night. This is because large purses alone do not make for a great betting product. However, the integrity-driven, quality racing that The Meadowlands presents does make for that great betting product.

Cartel Wagering by Eric Cherry

The recent article about cartel wagering and how The Meadowlands is secretly fostering this practice to the detriment of horsemen in order to artificially raise the handle is missing the boat on many levels.

The goal should be to create as many dollars as possible to distribute between the horsemen through purses and the tracks. The actual handle is secondary. If the amount that is allowed to be wagered were capped then the margin earned per dollar bet would be material in this discussion, but that is not the case. A large handle is required to allow all bettors to bet the maximum they desire without destroying the odds. That is worth repeating. A large handle is required to allow all bettors to bet the maximum they desire without destroying the odds.

The current fee, otherwise known as takeout, is extremely high. After 12 races with a 20% takeout (many tracks aggregate rate is higher), the bettors are left with just 7 cents while the track and horsemen split 93 cents. It is no wonder that revenue is dropping. This model worked when there was considerably less competition, but is struggling today with the expansion of many forms of wagering. Our sport faces many challenges, but it is in all of our best interest to evolve with the times.

I am certain that most people remember that before the days of the Internet that the cost of buying and selling stocks made the cost of day trading prohibitive, except for professionals. Today for a transaction fee of about $10 you can buy or sell virtually any quantity of a given stock. I proposed in a past article moving to a transaction fee for the larger bettors. We don't want to discourage or stop the smaller bettors from participating so, for them we can leave the current system in play. The cost structure of accepting wagers has been reduced dramatically. Many of the bets today are paperless and a significant number of bettors bet online without the cost of human interaction as well. We need to encourage more players to "invest" in our betting pools. To accomplish this, we need to offer an enticing product. Large pools with a small takeout, whatever the method, does just that.

Let's not forget that takeout is a FEE! We don't pay our bills in percentages, we pay them in dollars. It costs the same to put on our show, the races, no matter how much is bet. Our main concern should be how much money is available to convert into purses and not the percentage of takeout! If The Meadowlands rise in handle is the result of them giving a "break" to the cartels, then I commend them for proving that basic economic principles work in our industry and we should embrace that idea instead of criticizing it. Our other choice is to depend on politicians to help us. How is that working out?

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