Kentucky to Require ADW Companies be Bonded

In a special meeting Nov. 22 in Lexington, the Kentucky Horse Racing Commission (KHRC) approved a rule that will require advance-deposit wagering (ADW) companies that operate in the state acquire a bond of up to $500,000 as a condition of licensing.

The new requirement was recommended by the KHRC's pari-mutuel committee, which views the requirement as a way to provide added protection for Kentucky ADW customers—as well as the state—should an ADW declare bankruptcy.

Under the plan, ADW companies will be required to secure a bond that would cover the average daily account holdings of its Kentucky players as well as an average month's worth of state taxes.

Kentucky will require each ADW operator to acquire a surety bond equal to 125% of the average daily money held by Kentucky players in accounts at the ADW and four weeks of average state taxes paid by the outlet, up to $500,000. The KHRC will examine a six-month period to determine those averages.

As further protection of customer accounts, Kentucky requires player accounts be separate from an ADW's operational accounts. But members of the KHRC pari-mutuel committee said the bond provides further protection should a bankruptcy court not see such a difference. The rule is designed to ensure there will be enough money from the bond to pay account holders and the state.

Under the rule as outlined, should an ADW go bankrupt, money from the bond would go to the KHRC to be distributed to players, and for state taxes. Committee members expressed confidence that such money would not be available to creditors in a bankruptcy.

Committee members said such bonds are in place in states like California and Minnesota. KHRC pari-mutuel wagering and compliance supervisor Steve May said the requirement will begin at a date to be determined in 2017.

Committee member Mike Ziegler, executive director of racing at Churchill Downs Inc., abstained from voting on the issue as Churchill owns the large ADW company TwinSpires.com. Ziegler said he would be concerned that the bond requirement could lead to some ADW companies choosing to no longer pursue licensing in Kentucky but continue to operate in the state. He said such a scenario would reduce protections for players.

Later speaking on behalf of Churchill and TwinSpires, Ziegler also suggested that ADW companies that can demonstrate solid financial footing should not be required to acquire the waiver. Committee member Frank Kling, who is the KHRC chairman, said that idea could be an option down the line, but encouraged the committee to move forward on the current bond requirement, as is.

At the committee level the new bond requirement passed by a 4-0 vote, with Ziegler abstaining. Later Tuesday afternoon the KHRC approved the requirement.

For consideration at the Dec. 13 KHRC meeting, the Pari-Mutuel Committee recommended licensure of eight ADW companies, including two newcomers in NewCo Ventures (which operates as NYRABets.com) and Watch and Wager. NYRA Bets had initially allowed only New York customers but this year launched nationally. Watch and Wager is a subsidiary of Webis Holdings, which is publically traded on the London Stock Exchange. Since 2012, Watch and Wager has operated the Cal Expo Harness Racing meet.

May said in the coming year he will work with ADWs to put rules in place that will ensure that each ADW outlet has current address listings of players. He outlined a plan that would see customers who log-in to a site occasionally be asked if their current address listing is correct, and require an update if it's not. He envisioned such checks to take place two or three times a year.

Also at Tuesday's special KHRC meeting, PariMax was approved for historical racing games in the state. That isn't a big change as the commission had previously approved RaceTech to operate the games. Earlier this year PariMax, which is owned by The Stronach Group, purchased 100% of the RaceTech historical gaming operation.