Ogden Mills Phipps: Before we get started on the second part of our program, I just want to briefly acknowledge someone in our audience. Buddy Bishop spent his entire career in our sport and the last 20 years of it as Registrar of The Jockey Club. Throughout those two decades, he fiercely enforced our rules in order to maintain the integrity of the American Stud Book. In the process, he earned the universal respect and admiration of owners, breeders, horsemen and racing officials both here and abroad. Buddy retired this past December but he is here today and I'd like him to stand up so that we can give him a round of applause. He did a wonderful, wonderful job.

Going on, wagering is the lifeblood of our industry and as everybody in this room realizes, the wagering landscape has changed dramatically in recent years. We read and hear a great deal about piracy, rebating, leakage and betting exchanges because they threaten our business both domestically and internationally. We are feeling their effects on a daily basis. Greg Avioli and Maurits Bruggink are here today to recommend some methods of dealing with these issues, and we'll start with Greg.

Greg Avioli: Thank you Dinny. Good morning everybody.

For the past four years, I have been privileged to provide the NTRA's legislative report at the Round Table. Each year, a primary focus of this report has been the state of federal law regarding interstate betting and account wagering. For the most part, the news has been good.

Due to stepped up legislative efforts by the industry - including the formation of the NTRA PAC that Bill Farish discussed earlier - our industry remains the only form of Internet wagering allowed under federal law. Coupled with recent passage of account wagering legislation in 18 states, the ability of racing fans to place wagers using modern technology has been a driving force behind the wagering growth we've experienced in recent years.

But since last year's Round Table, we have come to better understand both sides of the electronic wagering equation. This knowledge has come primarily from the work of the NTRA Wagering Systems Task Force, which represents more than 20 North American racing organizations.

Formed in early 2004, the Task Force is the latest example of the NTRA serving as (what one of our Board members has called) the Convening Authority for the industry. In the year prior to the Task Force's formation, there had been widespread questions raised within the industry about the growth and activities of unregulated betting sites, many of them located off shore; poaching of the best racetrack customers; and apparent piracy of racing signals and intellectual property. The concern was heightened earlier this year when Equibase released 2003 data showing a one percent increase in total U.S. handle along with a one percent decrease in purses. Historically those two indicators had grown in tandem, so people started wondering exactly what was going on.

When the NTRA Board met in February of this year, the directors unanimously agreed that addressing this "handle up, purses down" phenomenon and related issues should become the NTRA's number one priority. To emphasize the importance of this, the Board authorized a $500,000 contribution in seed money to fund this effort from the NTRA reserves.

As part of its fact-finding mission, the Task Force commissioned a study from National Economic Research Associates into wagering activity into U.S. pools over the past five years. No study using data from all the racetracks from around the country had ever been done in this level of detail. The fellow who conducted the study - Lou Guth - is a nationally and internationally renowned economist who actually has addressed this group before. Based on the NERA research, we now understand that electronic wagering is both our greatest strategic advantage and -- potentially - our greatest threat.

The same characteristics that have resulted in the dramatic growth of domestic simulcasting and account wagering - convenience, access to real-time data, and high-quality video streaming - have also led to exponential growth of wagering though off-shore and Native American betting sites that traditionally were not part of our system.

The six largest of these entities accounted for $1.2 billion of wagering in 2003 or nearly eight percent of total U.S. handle. That number was up by 50 percent from 2002 - it went from $800 million to $1.2 billion -- and we expect similar growth this year. It's clearly the fastest part of growth in wagering in our country.

Now you may ask, "if these off-shore entities are betting more money on U.S. races and they're betting into U.S. pools, what's the problem? Isn't all handle 'good' handle?" The simple answer is, "no."

The dramatic growth of wagering though off-shore account wagering sites over the past few years has fundamentally changed the way in which pari-mutuel handle is returned to the industry in the form of purses and track commissions.

By way of example, in traditional on-track wagering or track-to-track simulcasting, approximately 17 percent of each dollar wagered goes to support racetrack operations and purses. Contrast that with the economics of a site where only 4 percent to 5 percent of each dollar wagered goes back to U.S. tracks and purses.

The result is that, for every wagering dollar that shifts this way, 12 cents is lost from commissions and purses. That means for every billion dollar that shifts off-shore, $120 million "leaves our system." As I noted earlier, our data show that six wagering sites alone generated approximately $1.2 billion in wagering. So that's hundreds of millions of dollars that we know just from these six entities no longer go to tracks and purses.

While arguments have been made that these sites provide additional wagering handle for the industry, the Task Force reviewed data suggesting that the increase in handle has not produced sufficient "new gross revenue" to offset the loss in net revenue - or commissions and purses -- caused by the shift in wagering.

This point is best illustrated by the Task Force showing that, since 1995, handle actually grew by 45 percent but purses derived from handle grew by only 22 percent -- a far cry from the historical one-to-one growth ratio. So the "handle up, purses down" phenomenon has been going on for a number of years.

A related issue addressed by the Task Force was computerized wagering. This is a phenomenon similar to program traders on the stock exchange or card counters in Las Vegas. This type of sophisticated betting program has been used by a number of professional handicappers, who rely on algorithms and computer access to make multiple large bets into the system from remote locations, sometimes in the final seconds before a race.

While the Task Force found no evidence that these bettors violate any laws, we did learn that wagering sites they bet through consistently have extraordinarily high win rates.

Again, you may ask, "Isn't it OK for the better players to win, and aren't all technology improvements good?" I think the Task Force answer would be, "not necessarily."

Because our wagering is pari-mutuel, players who win at extraordinarily high rates necessarily do so at the expense of other players, such as regular daily players at the track or OTB who are the lifeblood of the sport. If those players have a reduced win rate, they are likely to bet less, further reducing track revenues and purses.

Computerized wagering also is a major factor in late odds changes that cause many fans to question the very integrity of the sport itself. Large amounts of bets can be "batched" or "streamed" in the final seconds before a race to achieve the highest level of efficiency in the computer trading program. As a result, the odds displayed on the tote board often do not reflect the effect of the late wagers until well after the start of the race.

To combat this problem here in New York, NYRA instituted a policy in January of not accepting wagers from certain sites believed to conduct computer betting at "zero minutes to post," or about one minute before the start of the race. So they cut them off one minute before all the other sites.

What they found was that this change resulted in a substantial reduction in late odds changes over the next six months. They also found that this resulted in significant reduction in the win rate for those sites - providing further evidence of the effectiveness of computerized wagering and the importance for those conducting that wagering to have last-second access into the pools.

A third issue identified by the Task Force - that Alan Marzelli referenced earlier -- is the need for transparency within the wagering system. U.S. tracks and regulators need the same level of disclosure and information access from operators and customers of off-shore and Native American sites as we now have from domestic operators. Currently that's just not the case. This information is not fully accessible today due in part to technology limitations and in part to the reluctance of tote operators and wagering sites to provide the information in the face of claims of competitive concerns and contractual restrictions.

However, to preserve the confidence of both regulators and the public in the integrity of our game and to manage it efficiently, we must have greater transparency of the source of wagers coming into the pari-mutuel pools.

The last major issue addressed by the Task Force - also mentioned by Dinny -- was the dramatic growth of a new wagering platform known as betting exchanges. You will hear more about these exchanges from our next speaker, so I'll give you only a brief description.

Betting exchanges allow customers to bet directly against other bettors and to establish their own betting terms. Unlike pari-mutuel betting however, these exchanges also allow wagers on a horse to lose. Think about that. That poses a serious potential integrity issue for our game. In fact, in England, where betting exhanges have flourished, there are currently 150 different investigations into races where there was a significant bet on a horse to lose and then that horse did lose under suspicious circumstances.

To give you an idea of the rise of betting exchanges, one of them, Betfair in the U.K., has only been around for a few years. Last year Betfair handled $3.6 billion, much of it on U.S. horseracing. U.S. tracks and horsemen received nary a cent from any of that.

In the next month, the Task Force will publish a final report that will have a lot of interesting details, statistics and, most importantly, some specific recommendations to address the complex issues that I've discussed this morning. In general, the Task Force believes that the industry can in fact manage solutions to each of the issues that I've mentioned. The three basic things we need to do to get to where we need to be, we believe, are:

First and foremost - and I can't overemphasize what Alan Marzelli said - we must make our number one priority improvements to the wagering system. Without significant technology improvements, we will not be able to meet the needs of this industry.

The second is activation of the strong national Office of Wagering Security that you heard talked about a lot in detail last year when Mr. Giuliani was here. We've been working on that for the last year and hope to be able to come out with a formal plan early in 2005.

And the last, and maybe the most important, is a renewed focus on the impact on track revenues - on net revenues -- and on purses for every wager that is allowed into our wagering pool. We need to change the metric from how much handle we have to what is our net income and how much of that net income is going to purses.

Now to give you a perspective on what the international community is doing to address this issue is Maurits Bruggink.

Thank you.