RIDING HIGH ON THE EXEMPTION ADVANTAGE

18 May 2007

With the US Congress along for the ride, the horse racing industry is betting that online gambling will pay off handsomely

The US publication The Politico carried an insightful article this week on the impact of online betting carve-outs for the horse racing business, predicting that the new gambling channels the Internet affords will pay off handsomely.

Politico explains that in 18 US states, fans are placing bets via the Internet on major races but that the sector is beset with regulatory issues that span Congress, the US Justice Department, the courts and even the World Trade Organisation.

"On the last score, the Bush administration effectively blew off a WTO ruling this month that accused the United States of engaging in unfair practices by carving out an exemption for online wagering on horse races," the article comments.

"Key members of Congress say that the White House's decision to neither comply with nor appeal a WTO decision upholding an unfair trade practices complaint against the United States by Antigua, an offshore gambling center, could end up hurting far larger U.S. trade interests around the world."

Politico goes on to highlight the big money at stake in the US racing industry - in the first quarter of 2007 wagers on U.S. horse races amounted to more than $3.5 billion, and over the years, the industry has cultivated strong ties with Congress, it reveals.

The National Thoroughbred Racing Association's Horse PAC disbursed a record $360 000 to legislators in 2006, according to the article....and growth over the Internet presents the next major goal, assuming the industry surmounts its legal and marketing problems.

Politico studies the political history of the carve-outs in US anti-online gambling legislation and reviews current initiatives to roll back the UIGEA, quoting experts who feel that the many contradictions in the laws and enforcement opinions will ultimately require a defining decision by the US Supreme Court.

In the meantime, the horse race business will apparently continue to pursue Internet gambling with enthusiasm.

"The leading growth area for this sport is Internet wagering," said Gregory Avioli, CEO of Breeders' Cup, a partner of the NTRA based in Lexington, Ky. Formed in 1997, the NTRA combines the functions of a traditional trade association and a major sports league. Records show the group spent $400 000 in 2006 on its federal lobbying activities, disbursed through four providers.

Politico reveals that NTRA's lead lobbying firm is the Alpine Group, which collected $240 000 in fees last year. Alpine recently hired Bob Brooks, former chief of staff to Rep. Jim McCrery (R-La.), the ranking member on the House Ways and Means Committee, who pushed through legislation that wiped out a 30 percent withholding tax on international wagers.

Avioli (42) was a key player on the legislative scene for the horse industry before taking his current post this year, the article claims.

He worked closely with McCrery to abolish the withholding tax, and insiders also credit him with getting Congress to carve out a "tactical" online betting exemption for the industry, through an amendment in 2000 to the 1978 Interstate Horseracing Act - itself a broadly permissive law that could not envision the Internet. (The 1978 act allowed interstate simulcasting, which accounts for an estimated 85 percent of the wagering at tracks such as Churchill Downs, home of the Kentucky Derby.)

Then US president Bill Clinton signed the Avioli-engineered amendment into law. At the same time, however, he appended a contradictory signing statement stressing that the Justice Department continues to hold that online wagering on horses violates the law, says Politico.

Avioli has long been aware of the value of Internet betting for the horse racing industry. In an interview with the trade magazine The Blood Horse last year he told editor in chief Ray Paulick: "Imagine if we had something like 'iHorse,' in the same vein as the popular iTunes music download website, where every racetrack would send its content and the tracks would compete for the customer dollar based on the quality of their races."

Politico dissects the opinions and legislation surrounding the Wire Act and the 1992 Professional and Amateur Sports Protection Act, often quoted by US enforcement authorities as a case against online gambling, but points out that in 2002, the U.S. Circuit Court of Appeals for the Fifth Circuit ruled that under the 1961 act - which bars companies from accepting bets over state and foreign phone lines - all sports wagers are illegal.

The court said, however, that casino games are legal, since the statute refers only to "bets or wagers on any sporting event or contest."

It goes on to examine more contemporary legislative problems such as the WTO dispute and the advent of the UIGEA last October, which kept the Internet door open for the horse racing business by exempting it from provisions designed to disrupt US transactions with online gambling sites.

The WTO situation has more serious implications for the US than was at first surmised, because the ruling by the 150-member Geneva-based organisation holds that the United States violated its free trade commitments by barring firms in Antigua from offering Internet gambling services; such a move amounted to government-sanctioned discrimination, since the Horse Racing Act permits online gambling.

Whether the United States will escape compensation demands by seeking to withdraw its allegedly mistaken original obligations regarding online gambling remains to be seen.

Online Casino News courtesy of InfoPowa