Colorado considers allowing fixed odds wagering on horse racing

A gambler in Colorado can open a sports betting app on a smartphone to place wagers on any pro sports team in the United States, British soccer games, Russian table tennis, European rugby and even Pakistan’s cricket team.

But they can’t place a bet on a horse race. Not even the Kentucky Derby.

That’s led horse racing to fall behind in popularity and in the amount of money it handles through betting. Now, Colorado officials are considering a change to how people bet on horse races — a move being driven by sportsbooks but one that the state’s sole race track is tentatively supporting — in hopes of boosting the sport’s popularity and financial standing.

“Horse racing has become very stagnant,” Michele Fischer, a vice president at Sports Information Services, a United Kingdom-based company that provides services to the gambling industry, said during a recent Colorado Department of Revenue meeting. “As sports betting has proliferated around the country, including in Colorado, horse racing is getting left behind. When you’re not on the list of sports on a sports betting site are you still a sport?”

Colorado’s Department of Revenue, which regulates horse racing and sports betting, is considering a change this month through a series of meetings that have drawn international attention. And if state officials decide to make the change it would become just the second state to do so, after New Jersey’s legislature adopted new rules earlier this year.

The change would allow for fixed odds wagering on horse racing in addition to parimutuel betting, which is used in the United States by animal racing tracks such as Bally’s at Arapahoe Park, Churchill Downs in Kentucky and Santa Anita in California.

In parimutuel betting, all bets on a race are placed into a single pool. The track that hosts the race takes a cut, and all of the payoffs are made from that single pool no matter where the race is held or where the bet is placed. Someone who puts money on a horse knows the odds can change after placing the bet, based on how other gamblers wager.

For example, if a person puts $10 on a horse at 10-1 odds and the odds change to 5-1 before the race starts, then the gambler would receive a payout based on the 5-1 odds. That payout would be less money than if the odds had not changed.

Under fixed odds wagering, the same gambler’s $10 wager would stay on the 10-1 odds, no matter which way the odds moved before the race started. And individual sportsbooks and betting apps would be able to set their own odds and make payments from their own take rather than from a national pool, opening horse racing to online sports betting.

No model for Colorado to follow

The idea is in its infancy in Colorado and the rest of the United States.

Cory Amend, senior director of specialized business groups at the Colorado Department of Revenue, said the gaming industry approached him with the idea of allowing online horse racing bets. Amend’s group, which oversees the revenue department’s gaming and horse racing divisions, is open to the idea.

But because fixed odds wagering on horses in the United States is so new, there’s no model to follow.

Fixed odds wagering is popular in Australia and New Zealand. In the United States, New Jersey is the only state to allow it but officials there are still sorting out the rules.

“Yet again it’s Colorado getting out in front of everybody. Sometimes in these situations we are moving without a lot of examples out there,” said Peggi O’Keefe, executive director of the Colorado Gaming Association, which represents the state’s casinos and some online sportsbooks.

The gaming industry approached Colorado because insiders believe it would serve as a good test market for the concept, said Chris McErlean, vice president of racing for Penn National Gaming, a Pennsylvania company that owns the Ameristar Black Hawk casino and operates BarStool Sportsbook in Colorado.

“Colorado in a short time has been a fairly progressive state when it comes to sports betting,” McErlean said. “It’s shown flexibility and a willingness to work with the operators on a sports betting side. You need a friendly jurisdiction that’s willing to work with the various entities.”

Sports gambling has proven to be big business in the state. During the first year of legalized sports betting between May 1, 2020, and April 30 this year, wagers totaled $2.3 billion in Colorado.

Bets on horse racing placed in Colorado in the first 10 months of this year totaled just over $75 million, according to data from the revenue department’s racing division. A little more than $2.2 million was bet in 2020 — a year severely impacted by the pandemic when tracks and off-track betting sites were closed and major races were moved from their traditional starts.

Bruce Seymore, executive director of Bally’s Arapahoe Park, the state’s only race track, initially objected to the idea of fixed odds wagering. But he’s keeping an open mind after learning more about it.

“The horse guys are on board with it, but it’s more the people with the betting apps that want it to happen,” Seymore said. “They want it so you can sit at home and play on your computer rather than come to a brick and mortar facility.”

In Colorado, Bally’s owns Arapahoe Park and 13 off-track betting parlors where people can bet on races across the world. But the only bets placed there are through parimutuel wagering. This year’s meet at Arapahoe Park, which ran from Aug. 11 to Oct. 16, brought in $9.5 million through wagers, with about $423,000 of that amount bet at the track, according to data from the Colorado Racing Division.

Threat to local track and racehorse owners?

The concern for Arapahoe Park and Colorado’s racehorse owners is the sportsbooks could cut into their piece of the gambling pie if fixed odds wagering is approved. Rather than place parimutuel wagers at the track, they can spend their gaming dollars with the sports betting companies.

Seymore said he worries that horse racing fans will stay home to bet rather than visit his track, and that would cut into his revenue through lost admission ticket sales and reduced food and beverage sales.

“I’m trying to get on board because my biggest fear is it hurting my live handle, which is the amount of money coming into the track,” Seymore said. “The concern is what is the compensation for the track for lost activity and the compensation for the horsemen.”

During a stakeholders meeting on Wednesday, Jim Mulvihill, interim director of the Colorado Horseman’s Association, said he didn’t trust a lot of the other people in the room to look out for horse owners.

If the race track loses revenue because the sports betting apps start taking wagers on the races, then the prize money paid out to the horse owners would drop, Mulvihill said.

“I would argue the horsemen would take the biggest risk,” he said. “If it wrecks our purse account, it could be detrimental to Colorado racing. Everyone knows Colorado racing is hanging on by a thread.”

But others in the meeting argued that allowing sportsbooks and betting apps to offer horse racing would grow the sport. Right now, younger people don’t follow horse racing except when the Triple Crown races take place in May and June each year. And even then most young people at the tracks are there for the party rather to watch the races.

“Things haven’t gone well in the internet era for horse racing,” said Pat Cummings, executive director of the Thoroughbred Idea Foundation, a Kentucky-based think tank looking to modernize the industry.

The amount bet on horse racing in 2003, adjusted for inflation, was $21 billion, Cummings said. Today, about $11 billion is bet annually on thoroughbred horse racing.

“By reaching mainstream customers through existing sports betting platforms we can’t deny the tremendous opportunity this places as the horse industry’s door step,” Cummings said.

Amend, the revenue department official hosting the meetings about fixed odds wagering, said the last thing he wants to do is hurt any of the businesses in the betting industry. It’s why he is hosting four meetings this month to hear from everyone who might have an interest in it.

There’s no timeline for making fixed odds wagering an option in Colorado, Amend said, because there are big questions that need to be answered. No one is sure at the moment if the revenue department can create a path for it to happen through regulatory changes or whether the state legislature would need to approve the move or a ballot question would need to go to Colorado voters.

Questions also remain about which agency would oversee fixed odds wagering — the racing division, which regulates horse betting, or the gaming division, which regulates casinos, sportsbooks and betting apps.

The stakeholder’s group meets again Wednesday to hear more ideas on how to make it work. Then the revenue department staff, along with lawyers from the Colorado Attorney General’s Office, will begin drafting a proposal, Amend said.

“It’s a blank sheet of paper right now.” Amend said. “There’s no reason to be aggressive. I’d rather get it right than get it fast.”