The thoroughbred racing industry was warned two years ago that the technology underlying its electronic wagering was inadequate but balked at forming a more sophisticated, unified system.
A review by International Business Machines Corp. concluded that broad-based upgrades - including technology to safeguard bets - were needed. However, segments of the racing industry feared a single "tote" firm, under IBM auspices, would stifle competition.
Some racing officials think the idea should get a second look in the wake of revelations that a computer technician had the ability to tamper with a Breeders' Cup wager that is potentially worth $3.1 million. The man has been fired by the tote company.
A Baltimore man, who attended college with and belonged to the same fraternity as the fired worker, holds the winning tickets on that bet. Both the bettor, Derrick Davis, and the computer technician, Christopher Harn of Newark, Del., deny any wrongdoing. No charges have been filed.
The New York State Racing and Wagering Board and the New York State Police are investigating the bets, as well as those of a third fraternity brother who attended Drexel University in Philadelphia with Harn and Davis.
The third man won bets on earlier races through the same phone betting service. He was identified yesterday as Glen M. DaSilva, 29, of New York, according to a source involved in the investigation who spoke on the condition of anonymity. Calls to DaSilva's home and work phone numbers were not returned yesterday.
The payoff on the Breeders' Cup bet has been frozen pending the outcome of the inquiry. Investigators also are searching track records around the country to see if other wagers were compromised by security breaches.
If someone had the capability to manipulate bets in a computer system, that would confirm the worst fears raised in the IBM review.
"One of the things they told us was that we were a sitting duck for a tote problem," said Alan Foreman, a Baltimore attorney and founding board member of the National Thoroughbred Racing Association.
"I can't tell you that if IBM had been engaged that this would have been prevented," said Foreman, who supported the idea. However, he added, the tote companies that currently tally and process wagers are poorly capitalized.
"It's still pretty much of an archaic system."
Three firms dominate the business of processing wagers, the largest of which is Autotote of Newark, Del. Autotote fired Harn last week, saying it found evidence he may have used the company's computer system to alter bets on the Oct. 26 Breeders' Cup before they were forwarded to the host track - but after the races had been run.
Davis made his bets through the phone-betting service of Catskill Off-Track Betting Corp. of Pomona, N.Y. , which used Autotote to process its bets.
Meanwhile, the NTRA has formed a task force on security and yesterday announced that it had hired the Technology and Security Risk Services practice of Ernst & Young to test tote systems.
One of the things racing officials are looking at is the practice of tote companies to transmit data on multi-race bets in two phases. For a Pick Six bet, like the one Davis won, the specific wagers are held in the computers of the company taking the bet until after most of the races have been run. Then, only information on the bettors who correctly picked the completed races is transmitted. That prevents the central computers from being inundated - and slowed - by irrelevant data.
Investigators are trying to find out if Davis' bets on the first four races were changed before being forwarded to the central hub computer tallying the Breeders' Cup races in Chicago. The wagers attracted suspicion because they consisted of the winning horse in each of the first four races - including several long shots - and the entire field in the last two races. Bets made on the account of DaSilva followed the same pattern.
Harn possessed the necessary passwords to change the bets prior to their transmittal, according to Autotote.
In 1999, the NTRA hired IBM to conduct a technology review of racing as a precursor for wider involvement by the computer giant. The results included a harsh assessment by Mark Elliott, then general manager of IBM's Global Services Business, who told racing leaders in 2000 that "as an industry, you are as far behind in the use of technology to improve your business as any I have ever seen."
IBM offered to establish and finance an NTRA-owned company. But the proposed, multimillion-dollar partnership was shelved as the fledgling NTRA defended itself against complaints by some track owners who felt its consolidation efforts were going too far.
Foreman said the tote companies feared being put out of business by the venture. The idea may be brought back to life in the wake of the betting scandal, he said. A spokesman for IBM could not offer immediate comment on whether it would be interested in the work.
Catskill OTB president Donald Groth said the IBM proposal was "fraught with controversy."
"The cost would have been enormous and the people who owned the racetracks did not want to have a situation where they pay for it and lost the control they have now," Groth said.
The current system of competitive bidding puts a squeeze on tote companies to keep costs down, said Jim Snow, a spokesman for International Lottery and Totalizator System Inc., of Carlsbad, Calif., which no longer operates racing systems in the United States.
"There's not been a lot of R&D and system upgrades over the years and that can lead to problems like this," Snow said.
His company - which briefly employed Harn - contends its racing systems are secure. It only sells abroad. The reason: foreign tracks generally buy tote systems, while their American counterparts contract with tote companies that install and maintain the equipment in exchange for a percentage of the revenue. This consumes a lot of capital for the tote companies.
Among the NTRA members who was wary of an IBM-led tote operation was Joseph De Francis, president of the Maryland Jockey Club, which operates Laurel Park and Pimlico Race Course. De Francis, who is also an NTRA board member, said he recognizes the need for greater research and development, but worries about lessening competition among vendors.
"We don't have a whole lot of competition now with just three suppliers," he said.
In addition to Autotote, tote services are provided by AmTote of Hunt Valley, Md., and United Tote, which was once based in Timonium but has moved to Pennsylvania.
Even if the IBM deal had gone forward, it probably would not have resulted in wholesale changes in tote operations in time to have prevented the alleged Breeders' Cup security breach, De Francis said. Also, there are limits to how much can be done to guard against theft by an employee, he said.
A spokeswoman for Autotote declined to comment, and a spokesman for United Tote did not respond to requests for comment.
Alex Corcoran, a vice president of Amtote, was unavailable yesterday but said last week that his company is cooperating in the security review. The practice of transmitting data in phases was approved by regulators, he said.
But the lack of a recording system for phone bets at Catskill, and the apparently slow pace of the investigation, has some observers concerned that the system may not have adequate safeguards to prevent, or even track, tampering.
A review by International Business Machines Corp. concluded that broad-based upgrades - including technology to safeguard bets - were needed. However, segments of the racing industry feared a single "tote" firm, under IBM auspices, would stifle competition.
Some racing officials think the idea should get a second look in the wake of revelations that a computer technician had the ability to tamper with a Breeders' Cup wager that is potentially worth $3.1 million. The man has been fired by the tote company.
A Baltimore man, who attended college with and belonged to the same fraternity as the fired worker, holds the winning tickets on that bet. Both the bettor, Derrick Davis, and the computer technician, Christopher Harn of Newark, Del., deny any wrongdoing. No charges have been filed.
The New York State Racing and Wagering Board and the New York State Police are investigating the bets, as well as those of a third fraternity brother who attended Drexel University in Philadelphia with Harn and Davis.
The third man won bets on earlier races through the same phone betting service. He was identified yesterday as Glen M. DaSilva, 29, of New York, according to a source involved in the investigation who spoke on the condition of anonymity. Calls to DaSilva's home and work phone numbers were not returned yesterday.
The payoff on the Breeders' Cup bet has been frozen pending the outcome of the inquiry. Investigators also are searching track records around the country to see if other wagers were compromised by security breaches.
If someone had the capability to manipulate bets in a computer system, that would confirm the worst fears raised in the IBM review.
"One of the things they told us was that we were a sitting duck for a tote problem," said Alan Foreman, a Baltimore attorney and founding board member of the National Thoroughbred Racing Association.
"I can't tell you that if IBM had been engaged that this would have been prevented," said Foreman, who supported the idea. However, he added, the tote companies that currently tally and process wagers are poorly capitalized.
"It's still pretty much of an archaic system."
Three firms dominate the business of processing wagers, the largest of which is Autotote of Newark, Del. Autotote fired Harn last week, saying it found evidence he may have used the company's computer system to alter bets on the Oct. 26 Breeders' Cup before they were forwarded to the host track - but after the races had been run.
Davis made his bets through the phone-betting service of Catskill Off-Track Betting Corp. of Pomona, N.Y. , which used Autotote to process its bets.
Meanwhile, the NTRA has formed a task force on security and yesterday announced that it had hired the Technology and Security Risk Services practice of Ernst & Young to test tote systems.
One of the things racing officials are looking at is the practice of tote companies to transmit data on multi-race bets in two phases. For a Pick Six bet, like the one Davis won, the specific wagers are held in the computers of the company taking the bet until after most of the races have been run. Then, only information on the bettors who correctly picked the completed races is transmitted. That prevents the central computers from being inundated - and slowed - by irrelevant data.
Investigators are trying to find out if Davis' bets on the first four races were changed before being forwarded to the central hub computer tallying the Breeders' Cup races in Chicago. The wagers attracted suspicion because they consisted of the winning horse in each of the first four races - including several long shots - and the entire field in the last two races. Bets made on the account of DaSilva followed the same pattern.
Harn possessed the necessary passwords to change the bets prior to their transmittal, according to Autotote.
In 1999, the NTRA hired IBM to conduct a technology review of racing as a precursor for wider involvement by the computer giant. The results included a harsh assessment by Mark Elliott, then general manager of IBM's Global Services Business, who told racing leaders in 2000 that "as an industry, you are as far behind in the use of technology to improve your business as any I have ever seen."
IBM offered to establish and finance an NTRA-owned company. But the proposed, multimillion-dollar partnership was shelved as the fledgling NTRA defended itself against complaints by some track owners who felt its consolidation efforts were going too far.
Foreman said the tote companies feared being put out of business by the venture. The idea may be brought back to life in the wake of the betting scandal, he said. A spokesman for IBM could not offer immediate comment on whether it would be interested in the work.
Catskill OTB president Donald Groth said the IBM proposal was "fraught with controversy."
"The cost would have been enormous and the people who owned the racetracks did not want to have a situation where they pay for it and lost the control they have now," Groth said.
The current system of competitive bidding puts a squeeze on tote companies to keep costs down, said Jim Snow, a spokesman for International Lottery and Totalizator System Inc., of Carlsbad, Calif., which no longer operates racing systems in the United States.
"There's not been a lot of R&D and system upgrades over the years and that can lead to problems like this," Snow said.
His company - which briefly employed Harn - contends its racing systems are secure. It only sells abroad. The reason: foreign tracks generally buy tote systems, while their American counterparts contract with tote companies that install and maintain the equipment in exchange for a percentage of the revenue. This consumes a lot of capital for the tote companies.
Among the NTRA members who was wary of an IBM-led tote operation was Joseph De Francis, president of the Maryland Jockey Club, which operates Laurel Park and Pimlico Race Course. De Francis, who is also an NTRA board member, said he recognizes the need for greater research and development, but worries about lessening competition among vendors.
"We don't have a whole lot of competition now with just three suppliers," he said.
In addition to Autotote, tote services are provided by AmTote of Hunt Valley, Md., and United Tote, which was once based in Timonium but has moved to Pennsylvania.
Even if the IBM deal had gone forward, it probably would not have resulted in wholesale changes in tote operations in time to have prevented the alleged Breeders' Cup security breach, De Francis said. Also, there are limits to how much can be done to guard against theft by an employee, he said.
A spokeswoman for Autotote declined to comment, and a spokesman for United Tote did not respond to requests for comment.
Alex Corcoran, a vice president of Amtote, was unavailable yesterday but said last week that his company is cooperating in the security review. The practice of transmitting data in phases was approved by regulators, he said.
But the lack of a recording system for phone bets at Catskill, and the apparently slow pace of the investigation, has some observers concerned that the system may not have adequate safeguards to prevent, or even track, tampering.