Testimony of Doug Donn from the American Horse Council

10 February 1998

Testimony of Douglas Donn
President & Chief Executive Officer
Gulfstream Park Racing Association
Hallandale, Florida
to the
House Judiciary Committee's
Subcommittee on Crime

American Horse Council
Suite 300
1700 K Street, NW
Washington, DC 20006


February 4, 1998

I appreciate this opportunity to present the views of the horse industry on H.R. 2380, the "Internet Gambling Prohibition Act of 1997."

I am testifying today on behalf of the American Horse Council, which includes 185 equine organizations representing several hundred thousand individual horse owners and breeders, involved with all breeds of horses and all activities, and the National Thoroughbred Racing Association, which was recently organized by the Thoroughbred racing family to increase Thoroughbred racing's public awareness, fan base, total handle and purses.

Included among the associations represented by both organizations are the major associations of race tracks, breeders groups and horsemen's organizations which collectively comprise the pari-mutuel horse racing and breeding industry. The individual members include owners, breeders, jockeys, drivers, trainers, veterinarians, farriers and other professionals whose livelihood depends on racing and the horse.

It is on behalf of this pari-mutuel sport and business, a major segment of the American horse community, that we present our views on the issues surrounding this bill.


Pari-mutuel horse racing, including off-track and inter-track wagering is legal in 43 states and involves the racing of Thoroughbreds, Standardbreds, Quarter Horses, Arabians, Appaloosas and Paints. There are over 175 racetracks in the U.S. Racing and race horse breeding is a widespread and diverse industry that includes gambling, sport, recreation and entertainment and is built upon an agricultural base that involves the breeding and training of the horses.

Economic Impact

According to the study of the Economic Impact of the Horse Industry in the United States done by Barents Group, LLC, the economic and fiscal consulting unit of KPMG Peat Marwick LLP, for the American Horse Council Foundation, racing and race horse breeding have a total economic impact in the U.S. of $34 billion and generate 472,800 total Full-Time-Equivalent jobs. There are 941,000 people and 725,000 horses involved in the racing industry.

Wagering on horse racing is permitted in 43 states and there is an active horse breeding and training business in all 50 states. In many, the economic contribution of the racing and breeding industry to state and local economies is substantial and the industry ranks among the state's most significant economic entities. For example, in Florida, it involves 37,000 horses, has a $2.1 billion economic impact and generates 27,300 full-time equivalent jobs; in California it involves 69,000 horses, has a $4.1 billion economic impact and generates 52,000 FTE jobs; in Illinois, it involves 52,000 horses, has a $2 billion economic impact and generates 30,700 FTE jobs; in Ohio, it involves 40,000 horses, has a $1.3 billion economic impact and generates 17,000 FTE jobs; and in Texas, it involves 74,000 horses, has a $1.8 billion economic impact and generates 27,900 jobs.

In 1996, pari-mutuel racing generated over $500 million in direct state and local revenue from pari-mutuel taxes, track licenses, occupational licenses, admission taxes and miscellaneous fees.

Racing as a Sport

Racing is an activity that attracts many fans who appreciate it and follow it as a sport and who enjoy the excitement of the race and the athletic ability of the horses. The Triple Crown races in the spring of each year are shown on national television and widely-reported in the sports media. Individual stakes races are broadcast during the year and the Breeders Cup, Breeders' Crown and the Racing Challenge are covered by television and the media as the championships of Thoroughbred, Standardbred and Quarter Horse racing, respectively. In addition, most major U.S. newspapers cover racing and print the results of the races at their local tracks, much like they print the box scores of other sports.

As other sports and entertainment have expanded in the U.S., racing has been affected. Attendance is no longer expanding, as it once was, although last spring's exciting pursuit of the Triple Crown by Silver Charm certainly piqued the interest of a broader base of fans and shows there is a continuing interest in racing in America. Racing is working hard to attract back the fans lost and make new fans.

The Pari-Mutuel System

While horse racing is a sport on which one can gamble, it would be erroneous to assume that pari-mutuel wagering is the same as other forms of gambling. Unlike most other forms of gambling, horse racing uses the parimutuel system in which bettors wager against one another instead of against the "house." Of the total amount wagered on a particular race, approximately 80% is returned to winning bettors. The other 20%, called the "takeout," is shared between the state government, the race track and the horsemen who race at the track. Takeout rates, which vary from state to state, are published in track programs, which are available at race tracks and at simulcast wagering sites away from the track, so that fans know the rates and how they might affect their wagering.

Wagering computations are accomplished by a totalisator machine, a computer, which adds bets over and over again during the course of betting. Every 30 to 60 seconds the "tote" flashes new betting totals and odds for each horse. The machines contain a number of features designed to minimize the potential for pari-mutuel fraud or machine malfunction. These features include coded ticket paper and duplication of all critical functions by two computers working independently of one another.

We point this out because the pari-mutuel system and the published information available ensures that the public has easy access to data regarding their true chances of winning. There is little chance of manipulating the odds and therefore the payouts. The use of the tote machine allows bettors to detern-dne their chances of winning every 30 to 60 seconds. In addition, the race upon which the wager is made, and paid, is a public event, watched by fans at the track or off-track facility, often viewed by others on television or cable, and always overseen by the stewards at the track itself and the state racing commission to ensure the integrity of the race.

In 1996, tens of millions of people attended the races and wagered over $14.7 billion, 80% of which was returned to the winning players.


Gambling, including that conducted on horse racing, has always been of concern to the federal and state governments. Throughout American history, the prohibition or legalization and regulation of gambling has primarily been a function of the states. The only time that the federal government has become involved has been when a state could not solve a problem by itself. But even in these instances, for the reasons discussed above and others, pari-mutuel racing has often been either treated differently or specifically considered under federal gambling laws. (See, for example, 18 U.S.C. Section 1953(b), the companion legislation to the Wire Act.)

The racing industry has developed to its current status under a regulatory framework of state law and regulation, the Federal Wire Statute, Section 1084 of Title 18 of the U.S. Code and the Interstate Horseracing Act of 1978. If racing and breeding hopes to expand and develop a broader base, it must be able to do so under these same statutes.

State Regulation - A Long History

Pari-mutuel racing has been conducted in the United States under state authority and regulation for over 75 years. In every state that has allowed legalized wagering on horse racing, strict state oversight and regulation has accompanied its introduction and growth. In each state the pari-mutuel industry is regulated by an agency most commonly known as the state racing commission. Among commission prerogatives are the licensing of track and horse owners, trainers, jockeys, drivers and all others involved in the pari-mutuel sport, and the promulgation and enforcement of the specific regulations under which the industry must operate. All matters pertaining to the operation of pari-mutuel racing are regulated by these agencies on behalf of the governors and state legislatures.

Over the years the states have consistently acted on the perceived need to closely regulate legal wagering and protect the public's interest in pari-mutuel sports. The actions of state legislatures and the racing commissions which carry out their policies have been predicated on the desire to: (1) maintain the integrity of the events on which the public is allowed to wager; (2) oversee the state's tax-related and economic interest in that wagering; (3) ensure that licensees meet specific standards of qualification; and (4) control any unsavory elements which may attempt to associate with the wagering aspects of the sport.

The Federal Wire Statute

The industry has had to comply with the Federal Wire Statute, which was adopted in 1961 to regulate interstate betting. 18 U.S.C. Section 1084(a) provides federal criminal penalties on anyone "engaged in the business of betting or wagering" who knowingly uses a "wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest."

Section 1084(b) includes exceptions for wagering activities "from a state or foreign country where betting on that sporting event or contest is legal into a state or foreign country in which such betting is legal."

H.R. 2380 would amend the Wire Statute.
The Interstate Horseracing Act of 1978

In 1978, Congress enacted a federal statute that specifically deals with interstate gambling on horse racing. The Interstate Horseracing Act of 1978 (IHA) made clear that a race track controlled wagering on its races in interstate and international commerce and provided for industry and regulatory approvals before betting was permitted between jurisdictions where the wagering was legal.

In the findings to the IHA, Congress said that states have the primary responsibility for determining what forms of gambling may take place within their borders, but that the Federal government should prevent interference by one state with the gambling policies of another. This is one of the expressed purposes of H.R. 2380.

In the IHA Congress suggested that with respect to the limited area of interstate off-track wagering on horse racing:

There is a need for Federal action to ensure that States will continue to cooperate with one another in the acceptance of legal interstate wagers. Congress also stated that the purpose of the IHA was:
  • To regulate interstate commerce with respect to wagering on horse racing in order to further the horse racing and legal off-track betting industries in the United States.

The IHA has provided the racing industry with interstate control over its product and allowed the industry to develop its current activities within clear parameters and guidelines.


The dissemination of information about racing, simulcasting, off-track and intertrack wagering, common pool wagering and account wagering have been initiated, operated and expanded under these statutes and state approval, licensing and regulation.


Communication today is very complicated in the highly-complex and ever-changing technological world. In this environment new industries have sprung up whole-cloth forcing existing industries to adapt and change practices in order to compete for the public's support. This is particularly true in the areas of wagering and entertainment.

Like others, the horse racing industry has had to adapt and change dramatically in the face of exploding competition and new technology. An example of that is that many race tracks, horse associations and private businesses are advertising and offering information on the sport through various media, both traditional and more technological state-of-the-art, including the Internet.

The process of betting on horse racing and selecting the winner is called "handicapping." It is a cerebral process for serious bettors who spend a great deal of time at the track, and elsewhere, pouring over information that will help them select the winners of races. This is not a random selection for students of the sport. The "handicapping" information used in this process has been available in written forms since racing began and is similar to the statistical information available for other sports.

The racing industry is presently offering a great deal of this type of "handicapping" information in publications, on-the-wire, over 800 and 900 numbers and over the Internet in the way of advertisements for state-licensed and regulated race tracks, information and "how-to" sites, "tout" sheets, past performance information, betting lines and similar information, that will market the racing product to new fans and allows existing patrons to participate more successfully.

This information cannot be considered a bet or wager, is not necessary to place a bet or wager and is not prohibited by the present statute and we believe should not be affected by any changes to current law.

Simulcasting and Common Pool Wagering

Prior to 1970, legal pari-mutuel wagering on racing was limited to those at the track where the race was run. In 1970, the New York legislature approved off-track wagering. As an aside, at that time the computerized system operated by New York OTB (Off-Track-Betting) was one of the first real-time, on-line computer systems in the U.S. Since then, many states, and the federal government under the Interstate Horseracing Act, have authorized race tracks to simulcast or transmit signals of their races off-track into other states and jurisdictions under applicable law.

With the continued development of technology, by the early 1980s racing was able to make its product better for its patrons again. Additional technological changes allowed the linking of pari-mutuel wagering pools among tracks in separate jurisdictions, called "commingled pools," so that payouts could better reflect the size and wagering behavior of the entire betting public.

The racing industry's continuing utilization of state-of-the-art technology has resulted in the ability of the industry to survive and offer its patrons a better product. In fact, today over two-thirds of money wagered on racing is bet at facilities or locations other than where the race itself is run. Again, all with the approval and regulation of the states involved.

Account Wagering

Another form of pari-mutuel wagering on racing that has expanded over the two last decades is account wagering, primarily telephone betting. It is presently legal, and operating to varying degrees, in eight states, including Connecticut, Kentucky, Maryland (authorized but not implemented), Nevada, Ohio, Oregon, Pennsylvania and New York without problems. For example, telephone betting has been offered in New York for over 25 years by New York City Off Track Betting and upstate New York Off Track Betting entities, all state agencies. All of this has been approved and regulated by the state authorities involved.

Other states are presently considering this form of wagering on racing. They include California, Illinois, New Hampshire, Washington, Maryland and New Jersey. In fact, in the latter two, recently-concluded studies of the racing industry specifically recommended that racing be allowed to expand into account wagering. This is the natural result of a state's exercising its traditional authority in the area of wagering.

The industry wants to be able to continue these activities and expand them, provided that a state specifically approves such activity, licenses it and regulates it.

The Interstate Horseracing Act, the Federal Wire Statute, individual state statutes and regulations, state racing commissions and the race tracks themselves all combine to form a very capable regulatory system for pari-mutuel racing.


The Internet Gambling Prohibition Act of 1997, H.R. 2380, is a natural response to the current changes in technology. The regulated and licensed parimutuel horse racing industry agrees with the intent of this legislation, as characterized by Congressman Bob Goodlatte when he introduced the bill:

... this legislation does not preempt any state laws, does not cover online news reporting about gambling, and does not apply to transactions that are legal in both the State in which they originate and the state in which they are received.

The regulation of gambling is essential to protect state policies and revenues, the racing industry's ability to control its own product and the integrity of racing. Our industry is opposed to any unregulated or unauthorized gambling, particularly on racing.

Nonetheless, this legislation involves very complicated legal and technical issues and we are concerned that any changes to Section 1084 might adversely impact what racing is doing now under state regulation and what it hopes to do in the future with respect to the dissemination of information, common pooling and account wagering.

We are also concerned that this legislation will be difficult to enforce. If the only entities that obey it are the legitimate, state-licensed pari-mutuel operators, which they will, while others outside the jurisdictions of the federal and state authorities do not, then you have the worst of both worlds. Those who wish to wager will be forced to deal with the unlicensed and unregulated vendors. This could lead to more consumer fraud and not produce any revenues for the federal government, state governments or the racing industry itself.

It is critical to the future of the racing industry, the agribusiness it supports, the state revenue and employment it generates, the sporting and the entertainment benefits it provides to countless fans, that all distribution mechanisms of racing information and its product be available, so long as they continue to meet regulatory criteria established by state goverru-nents. It is also critical that the racing industry have the opportunity to take advantage of any and all technological advancements in the future distribution of its information and products in order to successfully compete against other forms of gambling, sport and entertainment.

Because of the unique status of pari-mutuel racing and the present regulatory structure applicable to it, we believe that the purposes of this legislation and the particular needs of racing can both be accommodated without infringing on federal or state public policies, abrogating strict regulation or lessening the current protections of the public. We look forward to working with the Chairman of the Subconunittee, the sponsors of the bill, the members of the conu-nittee and the staff to accomplish this.

We appreciate the opportunity to present these comments on this important legislation and would be happy to respond to any questions.

Other testimonies:

  • Testimony of Sue Schneider from the Interactive Gaming Council and Rolling Good Times

  • Testimony of Frank J. Fahrenkopf, Jr., President & CEO of the American Gaming Association

  • Testimony of Doug Donn, from the American Horse Council

  • Testimony of Frank Miller, former state gaming regulator

  • Testimony of Bill Saum, of the NCAA

  • Testimony of Bernard P. Horn, from the National Coalition Against Gambling Expansion

  • While the Coeur d'Alene tribe was not able to testify at the House hearings,they did submit a written testimony.