As it now stands, it looks like either California or New Jersey will be first state in the U.S. to offer legal exchange wagering on horse races.

California will roll out the system in May 2012. New Jersey is poised to do the same, but may actually offer the bets first. In a third scenario, internet gaming could be legalized at the federal level, overthrowing the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA).

No one is watching this race more closely than Laurie Itkin, vice president of government affairs for Betfair TVG, the country’s second-largest legal internet wagering operator.

For Itkin, exchange wagering and other forms of legal online gambling are a matter of simple horse sense. Governments desperately need revenue. The horse industry, teetering on the edge of obsolescence, desperately needs revenue and patronage. By bringing legal exchange betting on real-time races to tech-savvy players, then regulating and taxing it, everybody wins.

“Horse racing cannot survive without wagering, as a significant portion of every dollar wagered goes back to tracks, horse owners, breeders, and state and local governments,” says Itkin. “Betfair and TVG believe that if we can introduce exchange wagering on horse racing in the United States, we can use that technology to attract younger bettors.”

Betfair has already performed that miracle in the U.K. Founded in 2000, the betting exchange now processes more than 5 million transactions a day, primarily to younger, tech-savvy bettors. In 2009, the company acquired TVG, one of the largest legal online wagering businesses in the United States. When exchange wagering finally comes to the U.S., Itkin believes the company’s experience, infrastructure and “white hat” reputation could make it first out of the gate as a provider.

According to government data, legal internet gambling could yield as much as $42 billion in tax revenue in the first decade.

“If I put myself in the shoes of state legislators,” says Itkin, “I’d see this as low-hanging fruit to solve state budget deficits.”

Not everyone is sold, however, and that’s Itkin’s job—to educate lawmakers about the industry’s potential, and reassure them that safeguards are already in place to keep the games secure. She knows the resistance will not evaporate overnight.

“There’s still a fear by some policymakers about internet gaming,” she says, “that although we have a huge industry of brick-and-mortar casinos, we should be afraid of the internet.”

In the meantime, the U.S. offshore internet gambling market climbed to about $5.7 billion in 2010. And as legislators at the federal and state levels debate the issue, the numbers will continue to grow and the dollars lost to offshore operators will as well.

“The message to lawmakers is that a very large black market exists and continues to grow,” says Itkin. “Americans will continue to gamble online. By legalizing, regulating and taxing it, lawmakers can ensure that consumers have more protection than they do today, and state and federal governments can obtain needed revenue to help reduce budget deficits.”

By Marjorie Preston

Marjorie Preston is a contributing editor of Global Gaming Business magazine and managing editor of Casino Connection Atlantic City.

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