by Joseph A. Faraldo

Editor’s Note: Joseph A. Faraldo is an attorney and president of the Standardbred Owners Association of New York, representing the over 1,000 owners, trainers and drivers regularly competing at Yonkers Raceway, New York. He is a Director and past Chairman of the Board of the United States Trotting Association. The views contained in this column are that of the author alone, and do not necessarily represent the opinions or views of the United States Trotting Association.

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.