WAGERING SYSTEMS TASK FORCE REPORT
AN INTERNATIONAL PERSPECTIVE
  Maurits Bruggink - Director of Public Affairs, International Federation of Horseracing Authorities

Maurits Bruggink: Ladies and gentlemen, it is good to be here today at this wonderful place and to talk about the international action program on wagering. The International Federation of Horseracing Authorities launched this program earlier this year in response to what Greg [Avioli] already mentioned: the increasing amount of cross-border betting made possible via new betting technologies.

I hope that, after I have finished my presentation, you will have a better understanding of the problems with cross-border betting and I also hope to have convinced you that international action is essential to ensure that horseracing maximizes its intellectual property rights.

Let me first explain a little more about the International Federation of Horseracing Authorities - the organization I represent. In brief, it is the single representative body for racing authorities in over 50 countries. It was formally established in 1993 and has until now been mostly known for the harmonization of rules on wagering, movement for horses and the use of medical substances.

But with the rapidly evolving new betting technologies, we have now created a global office to deal with wagering issues.

I am the Director of Public Affairs for the Federation and report directly to a Steering Committee on Wagering which has a representative of each of the three main racing regions. The Steering Committee members were appointed by, and report to, the Federation's Executive Council consisting of 12 representatives from - again -- the same three regions. My office is located in what the staff of The Jockey Club's New York office has pointed out to me is the second most beautiful city after New York, and that is Paris.

Trying to agree internationally on betting rules is not very easy. There are great differences between national rules. They include total prohibitions on betting in Islamic countries; liberalized regimes like in the U.K. and Ireland; state monopolies, like in Japan; a single licence system, like in Hong Kong and France; or a federalized system, like the U.S. or in Australia. Then again there are differences between regimes for pari-mutuel wagering, which still represents an estimated 90 percent of world betting and bookmaking and, in some places, betting exchanges.

Whatever the regime, we must try to reach some common understanding on what is in the best interest of horseracing and the protection of its intellectual property rights on a global level.

For now there are two common principles on which each of the racing authorities globally seem to be able to agree. They are:

One: That no one should be permitted to offer wagering possibilities on races without having the express consent of the racing authority staging the event or, in some cases, the rights holder of the racing data and pictures;

And the second rule being that no one should be permitted to offer wagering possibilities to citizens of countries where it is forbidden by law.

How do these principles work in practice? I will try to elaborate on this by giving some examples.

First, each country will have to stop illegal betting activities in its home markets. The U.S., Japan and Hong Kong have already been successful to some degree in banning financial transactions with off-shore betting web sites.

In Turkey, the national Jockey Club has been successful in persuading Internet Service Providers (ISP's) to stop Internet traffic with off-shore betting sites. Now for those ISP's who did not want to cooperate voluntarily, they were able to enforce it through court orders. In France, a law has just been passed which will impose similar restrictions on Internet Service Providers.

Unfortunately, this success is not shared in Ireland. The largest bookmaker in Ireland takes telephone bets in a call centre from Irish citizens on Irish races. But because the bets are actually processed by a computer server in the U.K., it doesn't pay the levies to the racing authorities in Ireland.

I would like to illustrate the global dimension of Internet betting piracy by taking a typical example. MrBookmaker.com is a Malta-based web site that today will offer bets on The West Point Handicap here at Saratoga. It also offers the possibility to any punter with an account in Europe to bet each day in the week on U.S. races. It also offers bets on races from other countries.

MrBookmaker.com actively promotes that it can offer better returns to punters, which we all know is possible because it doesn't pay contributions to the racing jurisdictions whose intellectual property it is basing its business model on. The potential loss in revenues for U.S. racing will only increase with the growing international simulcasting of U.S. races.

So what should be our response? We must take all necessary steps to protect our intellectual property rights on a worldwide basis, and only allow betting sites like MrBookmaker.com and others to operate within the law and with appropriate compensation to the racing authority that hosts the event. Because MrBookmaker.com hasn't done so in the past and is not willing to do so, we are now talking to the Maltese authorities to act. If this doesn't work, we will consider taking legal action.

In other parts of the world, agreement on minimal rules on cross-border betting already exists. Under the umbrella of the Asian Racing Federation, which includes countries like Hong Kong, Japan, Australia and South Africa, they have agreed on a Good Neighbour Policy, which calls for the same mutual respect of each other's jurisdictions and the use of racing data only with consent of the organizing racing authority. The International Federation is now considering adopting a similar kind of Good Neighbour Policy.

Some words about betting exchanges. They have been allowed to operate freely in the U.K. and Ireland with the blessing of the governments in those countries, despite the fact that their entire business model is dependant on the appropriation of the intellectual property rights that are owned by others. In the case of its races, U.S. racetracks suffer leakage every day that their races are legally simulcast to Great Britain. Although those races are available to U.K. citizens to bet into commingled U.S.A. pools, the separation of the three components of your intellectual property - being the video signal, the data and the wagering -- provides the opportunity for betting exchanges to legally offer wagering to U.K. citizens without any commissions being paid to the tracks.

The U.S. racing community is going to be faced with the choice of deciding whether to try and better protect its intellectual property rights or try to reach a reasonable business agreement with the betting exchanges that provides compensation back to the racing authority that hosts the event.

In trying to negotiate business agreements with betting exchanges, there are a few issues that each jurisdiction must consider:

First of all is the concern about integrity already mentioned before. The effects of betting exchanges on British racing over the past two years have provided ample evidence of that...I'm referring to the betting on losing horses and the integrity and corruption.

Secondly, in England, the contributions of betting exchanges to the racing authorities are considerably lower - by as much as 90 percent - than those received through traditional wagering arrangements. Given this precedent, is it reasonable to think that another jurisdiction can reach an acceptable economic arrangement with the betting exchanges when the U.K. could not?

Finally, do you undermine your possible principle objections against betting exchanges taking a business agreement with them abroad?

The threat of betting exchanges and other forms of remote betting - what is now $100 billion bet worldwide -- is a real threat, and there are no simple answers to these questions. The member countries of the International Federation have recognized this, and through its executive council and my office in Paris will seek to develop a uniform response consistent with the principles that I outlined before.

Here are just a few elements of our action plan:

First of all we have to promote that gambling, including betting, is not an economic activity like any other and it should not be made subject to the principles of free trade.

We have to develop and enforce globally the concept of "Pay for Play" the same way that music and software industries already have done.

We have to develop and promote "best practices" as I mentioned before with credit card issuers or with Internet Service Providers.

We have to lobby our governments and international organizations for a better regulatory environment that enables us to protect our intellectual property rights.

Finally we have to launch and maintain an aggressive global communications campaign to educate our politicians and the media about our concerns.

For now, I thank you for your attention and hope to soon present the results of our action program.

Thank you.

Ogden Mills Phipps: Thank you, Maurits and Greg. We appreciate it.

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