Minnesota Racing

The Minnesota Racing Commission provides thorough and
multi-layered oversight of horse racing but needs to do more to
effectively oversee card club activities. The commission, through its
stewards, veterinarians, barn technicians, investigators, and other
staff, adequately protects the integrity of horse racing in the state. In
contrast, the commission relies heavily on Canterbury Park to oversee
card club activities. The commission uses significant resources to
license personnel associated with the racetrack and card club.
However, due to timing delays inherent in processing fingerprint
information, ineligible applicants can be licensed for as much as six
weeks before complete criminal history information is available.
Finally, the commission would benefit from increased use of
technology and should take a more active role in reviewing
Canterbury Park’s purse allocations and the card club’s players’ pool.

The Minnesota Racing Commission, a nine-member citizen board supported
by seven staff members, oversees all horse racing in the state and any card The Racing
clubs that are located at Minnesota racetracks. Currently, Canterbury Park in Commission
Shakopee is the only state-authorized card club and pari-mutuel racetrack in regulates horse
Minnesota. Overseeing horse racing and card club activities includes ensuringthat (1) only eligible applicants are licensed; (2) races are conducted fairly and in racing and the
accordance with statutes and rules; (3) the card club operates according to the card club at
card club plan of operations;1 and (4) proceeds from horse racing and the card Canterbury
club are distributed properly to racing purses, breeders’ fund awards, and taxes.
To examine how well the commission oversees racing and card club activities, thischapter addresses the following questions: To what extent does the Racing Commission ensure the integrity of
horse racing and card club activities?

To what extent does the Racing Commission ensure that proceeds
from horse racing and card club activities are allocated correctly?

To answer these questions, we interviewed Racing Commission members andstaff and Canterbury Park personnel; reviewed Minnesota statutes and rules;examined Canterbury Park surveillance, security, and financial documents; As required by statutes, the Canterbury Park card club’s plan of operation governs card club GAMBLING REGULATION AND OVERSIGHT
evaluated commission procedures, documents, and databases; and attendedcommission and subcommittee meetings.
This chapter is divided into two sections: game integrity and allocation of racingand card club proceeds. The discussion of game integrity focuses on threeprimary areas—licensing, which relates to both horse racing and card cluboversight; responsibilities specific to horse racing; and oversight specific to thecard club. The chapter ends with our overall conclusions and recommendationsfor improvement.
Minnesota statutes empower the Racing Commission to “take all necessary stepsto ensure the integrity of racing in Minnesota.”2 This includes licensing personnelassociated with the racetrack, enforcing all laws and rules governing horse racing,and conducting necessary investigations and inquiries.3 Protecting the integrity ofhorse racing also includes overseeing card club activities. As Minnesota statutesstate: “Card club activities are deemed to be relevant to the integrity of horseracing activities in Minnesota.”4 Licensing
In effect, licensing is the “gateway” to the racetrack and card club. Licensing isthe means by which the commission controls who has access to the racetrack’s“backside” (the stables, barns, practice areas, and dormitories at the racetrack) The Racing
during the 17-week racing season, and who can work at Canterbury Park.5 By Commission
law, the Racing Commission screens and licenses all personnel working at and for licenses all
the racetrack, including jockeys, owners, trainers, grooms, card club dealers, chip personnel that
runners, vendor employees, and others.
work at or for

Statutes require that all licensees: (1) not have a felony conviction of record or felony charges pending; (2) are not and never have been connected with an illegalbusiness; (3) have never been found guilty of fraud or misrepresentation inconnection with racing or breeding; (4) have never been found guilty of aviolation of law or rule relating to horse racing, pari-mutuel betting, or any otherform of gambling; and (5) have never knowingly violated a rule or order of thecommission or a law of Minnesota relating to racing.6 Minn. Stat. (2004), §240.03 (9).
Minn. Stat. (2004), §240.03.
Minn. Stat. (2004), §240.30, subd. 7(b).
In 2005, Canterbury Park plans to have an 18-week racing season.
Minn. Stat. (2004), §§240.06, subd. 1(d); 240.07, subd. 1(d); and 240.08, subd. 2.
Racing Commission licensing procedures are designed to ensure that
only eligible applicants are licensed. However, timing delays inherent
in the system mean that ineligible licensees can work at the racetrack
for a substantial portion of the racing season.

The Racing Commission uses significant resources to ensure that applicants areeligible for licensing and has issued an average of 3,650 licenses each year sincefiscal year 2000. Commission staff estimated that they spend 25 percent of theirseven staff resources on licensing-related activities, including reviewingapplications, obtaining fingerprints, and meeting with applicants. Most applicantswith arrest records must meet with the commission’s security personnel to discussthe nature and disposition of the arrests.7 In addition, applicants with a history ofracing-related problems at Canterbury Park or other racetracks must also meet with the commission’s security personnel and indicate how past problems have commission's
been resolved. We agree with the Racing Commission that it is important to have security staff
ongoing oversight of applicants and licensees to ensure that only eligible interview most
personnel are employed at Canterbury Park and that rules are being followed.
license applicants
The Racing Commission may give applicants a provisional license to work at with arrest
Canterbury Park while awaiting the results of criminal history checks, which take records.
approximately six weeks. First-time applicants are required to submit fingerprintsto the commission, and returning applicants every five years thereafter.8Applicants are given a provisional license upon submission of their fingerprints,which are subsequently sent to the Federal Bureau of Investigation (FBI).
However, it generally takes six weeks for the FBI to return the results of thecriminal history check to the commission. Because the racing season is relativelyshort (17 weeks in 2004), an ineligible person who is provisionally licensed canwork at the track for a significant portion of the racing season. The delay inreceiving the results of criminal history checks is of particular concern when anapplicant applies for a license midway through the racing season, as the FBIinformation may not be available until the racing season is over and the applicanthas already left Canterbury Park. This is also true for dealers or other card clubemployees who are hired only for short-term special events, such as a two-weekpoker tournament. In fiscal year 2004, the Racing Commission provisionallylicensed 38 people who did not disclose an arrest record but whose FBI checksindicated a criminal history.
In addition to obtaining background checks from the FBI, commission staffconduct an average of 162 investigations each year. A large portion of theseinvestigations focuses on verifying applicants’ eligibility for a license.
Specifically, in fiscal year 2004, 25 percent of the commission’s investigationsstemmed from FBI reports indicating a criminal history for applicants who hadnot disclosed an arrest record on their license applications. As discussed earlier,another 13 percent of the investigations involved meeting with applicants who haddisclosed an arrest record on their applications, and 11 percent involved applicant Applicants with only “minor” previous infractions, such as one arrest due to driving under the influence of alcohol, do not have to meet with Racing Commission security personnel.
For license renewals, applicants can submit fingerprints or an affidavit stating that they have submitted fingerprints to one of nine “reciprocity” states in the last five years.
or licensee immigration issues. Most of the remaining investigations relate tocurrent licensees’ compliance with commission rules. These investigationsinclude reviewing financial complaints, allegations of drug or alcohol abuse, andincidents of illegal wagering.
Horse Racing
Horse racing is heavily regulated across the country and state regulatory agenciesplay an accepted role in ensuring its integrity. Regulation includes evaluating thehealth of horses, monitoring the use of allowed medications, protecting againstillegal drug use, and ensuring a fair race. We found that: The Racing Commission provides adequate and multi-layered
oversight of horse racing at Canterbury Park.

Regulatory agencies across the country, including the Minnesota RacingCommission, employ various personnel to oversee racing, including stewards,veterinarians, and barn technicians. Each person has a specific role in ensuringthe integrity of horse racing, as discussed below.
Specialized staff,
The commission hires three stewards each year who are responsible for ensuring including racing
that races are run in accordance with commission rules. In essence, the stewards stewards and
act as a panel of judges for a variety of issues involving the integrity of horseracing. Among other things, stewards determine the official order of finish in a veterinarians,
race, resolve problems that occur on the track during a race, hold hearings to resolve alleged license violations, and issue suspensions and fines for these and commission
protect the
integrity of horse

Stewards’ hearings cover a wide range of issues, and their decisions are rarely appealed. The issues that come before the stewards originate from many sources,including the stewards’ own observations of conduct on the racetrack, laboratorytest results indicating the use of illegal drugs or unauthorized amounts ofmedication in a horse, and reports from Canterbury Park security or thecommission’s investigation personnel regarding violations of commission rules.
Between fiscal years 2000 and 2004, the stewards made an average of 90 rulingseach racing season. Table 3.1 illustrates the types of infractions the stewards haveaddressed over the past five fiscal years. Fourteen percent of the rulings regardedpeople who failed to complete license requirements within an allotted period oftime, almost 13 percent regarded horses with elevated or disallowed levels ofmedication, and over 9 percent regarded applicants who falsified theirapplications. Between fiscal years 2000 and 2004, only 11 of the 449 stewards’rulings were appealed to a commission appeal panel. The appeal panel, which iscomposed of three Racing Commissioners, upheld all 11 of the rulings. Given thelow number of appeals and the absence of reversals in the last five years, itappears that the stewards make reasonable rulings.
Racing Commission veterinarians help to ensure that the horses scheduled to raceare healthy and physically able to run in a race through their pre-race exams,observations of the horses in the paddock, and observations on the track prior toand during each race. For a race to be fair, the horses must be healthy and in thecondition “advertised” to the betting public, and pre-race exams help meet this MINNESOTA RACING COMMISSION
Table 3.1: Steward Rulings, FY 2000-04
Horse found to have a medication violation Stewards act as a
Licensee restored to good standing after complying panel of judges
to resolve
Licensee demonstrated improper conduct, such as problems related
misusing alcohol or participating in altercations to racing,
Licensee conducted business in an improper manner, licensing, and
including jockeys failing to fulfill riding obligations other rule
and trainers not having horses on the grounds atthe required times infractions.
Licensee conducted riding-related infractions, including jockeys allowing a horse to impede otherhorses during a race and misusing a whip during arace Licensee possessed unauthorized paraphernalia, including needles, syringes, and electrical devices License suspended or terminated for a variety of reasons, including not submitting fingerprints andfailing to complete a license application Licensee entered an ineligible horse in a race Licensee failed to meet financial obligations, including not paying Racing Commission fines orracing-related expenses NOTE: “Other” includes a variety of racing-related incidents, including not having a horse in adesignated place (such as the paddock barn), employing unlicensed help, and a licensee failing topass a drug test.
SOURCE: Office of the Legislative Auditor analysis of Minnesota Racing Commission licensingdatabase for fiscal years 2000-04.
Very few horses
goal. These examinations and observations of the horses prior to a race also helpthe veterinarians minimize the number of race-related horse injuries at Canterbury racing at
Park. (Veterinarians are able to disqualify, or “scratch,” a horse at any time up to Canterbury Park
the start of a race.) In the period we reviewed (fiscal years 2000 through 2004), the annual incidence of catastrophic race-related injuries at Canterbury Park was catastrophic
below the accepted range of 0.15 to 0.5 percent of racing starts.9 In 2003, only 4 race-related
of the 5,254 horses that entered and started a race had a catastrophic race-related injuries.
Generally accepted industry rates of breakdown injuries range from 0.22 to 2.1 percent of horses that entered and started a race. The commission holds itself to a more stringent standard. See J.G.
Peloso, DVM, MS; G.D. Mundy, DVM; and N.D. Cohen, VMD, PhD; “Prevalence of, and FactorsAssociated with, Musculoskeletal Racing Injuries of Thoroughbreds,” JAVMA 204, no. 4 (February1994): 620-626.
injury, yielding an incidence rate of 0.076 percent; in 2004, the incidence rate was0.056 percent.
Commission test barn technicians provide another layer of oversight by ensuringthat horses receive the proper amount of allowable medication prior to a race,another component of a “fair” race. The test barn technicians oversee and controlthe administration of one medication in particular, furosemide (also called Lasix),because it can mask the presence of other drugs in the horse’s system.
Specifically, all Lasix medication, syringes, and other supplies are stored in alocked container in the “Lasix Barn,” under the control of the commission’s barntechnicians. Each horse that races with Lasix is scheduled to receive the drug fourhours prior to the race. Although private veterinarians actually administer theLasix to the horse, a commission technician accompanies the veterinarian toensure that the correct horse is receiving the permitted amount of medication.
While it is still possible for a veterinarian to administer Lasix outside of thesecontrolled circumstances, post-race drug tests on the winners would likelydisclose unauthorized use of the drug.
Drug violations are an industry problem nationwide, and Racing Commissiondrug testing procedures have detected drug-related violations at Canterbury Park.
After each race, horses that finish first, and generally those that finish second, aresubject to blood and urinedrug tests.10 One of the state 2 percent of
horses tested at
Canterbury Park
had positive tests
2004, 2 percent of 1,446horses tested had positive for either an
unallowed drug
amount of a
test can have the samplere-tested at another laboratory. If the sample again yields a positive result, thetrainer must go before the stewards. Between fiscal years 2000 and 2004, thestewards ruled on 58 medication violations (13 percent of all hearings in this timeperiod); 3 resulted in 30-day suspensions and 55 resulted in a fine (generallybetween $100 and $300).11 Finally, Racing Commission investigation and Canterbury Park security personnelhave a presence on the backside of the racetrack to help detect and deterproblems. Specifically, security personnel patrol the barns to ensure that licenseescomply with Canterbury Park’s and the commission’s rules and procedures. Inaddition, commission investigative staff circulate among the various racing venues 10 The stewards or commission veterinarians may also request that other horses be tested.
11 Trainers with small first-time medication offenses involving specific medications(phenylbutazone or oxyphenbutazone) generally received warnings and were therefore neithersuspended nor fined. These offenses are not included in the 58 medication violation rulingsdiscussed above.
(the backside, paddock, winners’ circle, test barn, etc.) to ensure that nounauthorized people are present. Commission staff also work with the stewards todetermine if licensees have violated commission rules and conduct spot checks ofthe jockeys’ room, barns, and equipment rooms to ensure that all rules are beingfollowed.
Card Club
Because the Canterbury Park card club is located at the racetrack and wasauthorized to help support horse racing, the Minnesota Racing Commission hasstatutory oversight of it. As outlined in Minnesota statutes, “a racetrack may The detailed
operate a card club at the racetrack…only if the commission has authorized the rules governing
licensee to operate a card club operation and the commission has approved the Canterbury's
licensee’s plan of operation.”12 Statutes also state that the commission may card club are
withdraw its authorization for the card club “at any time for a violation of a law or defined in a
rule governing card club operation.”13 In addition, the Canterbury Park cardclub’s plan of operation, which governs card club activities, gives the Racing commission-
Commission the ability to “deny, suspend, revoke or refuse to renew the Plan of approved "plan
Operation [or] the authorization to conduct a card club” for a variety of reasons, of operation."
including if Canterbury Park or its management have “engaged in conduct that iscontrary to the public health, welfare, or safety or to the integrity of card clubactivities.”14 Statutes hold the authorized licensee (Canterbury Park) responsiblefor “conducting and supervising the card games, providing all necessaryequipment, services, and personnel, and reimbursing the commission for costsrelated to card club regulation and enforcement.”15 As evidenced by the legislative history that led to the card club’s legalauthorization, the state has determined that it is important for the RacingCommission to oversee the card club. However, we found that: The Racing Commission does not adequately oversee Canterbury
Park card club activities.

The Racing Commission is overly reliant on Canterbury Park surveillance anddoes little to independently verify Canterbury Park compliance with the card In overseeing the
card club, the

The Racing Commission relies too heavily upon Canterbury Park surveillance Commission
personnel for card club oversight. Commission staff have access to CanterburyPark’s surveillance room and records, but do not actively participate in relies too heavily
surveillance operations.16 According to commission staff, they do not regularly on Canterbury's
oversee surveillance activities during live racing months, although they spend surveillance
more time on the card club during the winter months. Instead, Canterbury Park personnel.
surveillance and security staff notify the commission of problems as they arise.
12 Minn. Stat. (2004), §240.30, subd. 1.
14 Canterbury Park, Card Club Operations Manual (Shakopee, MN, 2004), Section C.10.A.
15 Minn. Stat. (2004), §240.30, subd. 2.
16 The surveillance room is where Canterbury Park surveillance personnel observe card clubactivities through the use of cameras, video monitors, and video recording devices.
The majority of Canterbury Park surveillance activity does not involve incidentsthat concern the commission. We reviewed Canterbury Park’s February and June2004 surveillance logs and, as detailed in Table 3.2, identified surveillanceactivities that involved the play of the game, card club oversight, or potentialcheating.17 These included verifying jackpots, resolving pot disputes, ensuringproper collections or chip purchases, and reviewing instances of player oremployee theft. For the two months we reviewed, Canterbury Park surveillancewas involved in an average of 245 of these types of incidents each month. Whileat first glance this seemed like a large number of incidents, Canterbury Parkofficials indicated that there are likely over 1 million card game hands dealt each Canterbury Park
month. In that context, 245 surveillance incidents a month represent only 0.02percent of all hands dealt. Commission staff did not think it was necessary for may not be
notifying the
commission of all
relevant card
club incidents
involving rule

sufficiently aware of all relevantsurveillance observations. Commission cheating, and
notify them of incidents that occur, andthey are especially interested in thosethat involve rules, security, cheating, andtheft. To determine the extent to whichthis communication takes place, wereviewed Canterbury Park’s surveillancelogs for all of fiscal year 2004. Wefound five non-routine incidents aboutwhich commission staff did notremember being notified, but should have been. These five incidents includedpotential employee theft and dealers violating procedures. According tocommission staff, it is possible that Canterbury Park notified them about theseincidents, but neither their records nor personal recollections could substantiatewhether the communication had taken place. Still, the Racing Commissionbelieves that Canterbury Park staff would notify them of all serious incidents.
In addition to over-relying on Canterbury Park surveillance staff, the RacingCommission does not regularly review card club compliance with the club's planof operation. For example, commission staff do not routinely observe card club The commission
dealers to see if they follow procedures or systematically check that Canterbury Park does not exceed the statutorily set maximum number of card tables. The regularly review
executive director periodically observes dealers during the winter, but has less card club
time to do so in the summer when live racing occurs. Similarly, commission staff compliance with
have never analyzed the number or type of surveillance incidents that have the club's
occurred since the card club has opened, nor have commission staff systematically approved plan of

17 We selected one month to represent surveillance activity during live racing (June) and a secondmonth to represent surveillance activity when there is no live racing (February).
Table 3.2: Canterbury Park Surveillance Activity of
Interest to the Racing Commission, February and
June 2004

Explanation of Surveillance Staff’s Role Verifying that proper play is conducted, includingensuring proper shuffling, verifying the winner of ahand, and verifying that the dealer offered“insurance” to players when appropriate Ensuring that players are paid the proper amountand resolving pot disputes (when two players bothclaim they won a hand) Resolving problems with security cameras andrecording devices Identifying instances in which dealers or otheremployees do not follow commission rules,including handling tips at the card tables and notproperly displaying Racing Commission licenses Verifying that players receive the proper amount ofchips Verifying that dealers charged, and patrons paid,the proper fee to play a hand of cards Monitoring patrons that wager over $10,000 and ensuring that they report these transactions to theInternal Revenue Service Observing and tracking patrons engaged insuspicious behavior that resembles book makingor side wagers Addressing problems with playing cards, includinglost and found cards Investigating claims of missing or stolen chips Investigating claims of employee theft of chips Investigating incidents of counterfeit currency orcheck cashing fraud Addressing miscellaneous problems includingissues with jockeys and underage patrons NOTE: The table includes only those activities related to the Racing Commission's regulation of thecard club. It excludes other activities, such as patron exclusion from the card club, employee andpatron medical problems, and overuse of alcohol by patrons.
aThe United States Internal Revenue Service (IRS) requires that every cash-in or cash-out transactioninvolving more than $10,000 be reported to the IRS through a currency transaction report.
SOURCE: Office of the Legislative Auditor analysis of Canterbury Park surveillance logs for Februaryand June 2004.
reviewed surveillance logs to ensure that they are being notified of all relevantincidents.
Commission staff
have limited

Finally, the Racing Commission has not paid sufficient attention to card club expertise to
activities given the dollar value of gambling conducted in the card club. In 2003, identify cheating
card club activities generated approximately 53 percent of Canterbury Park’s and improper
gambling revenues, compared with approximately 47 percent from horse racingactivities. However, commission staff estimated that only about 20 percent of play in the card
their time is spent on card club related activities while over 80 percent is spent on racing related activities. Perhaps even more important than allocation of time isstaff expertise. Commission staff indicated that they have limited expertise toidentify cheating and improper play in the card room.

The allocation of racing and card club revenues is complicated. Table 3.3provides definitions for many of the terms used when discussing racing and cardclub revenues. In addition to returning money to bettors in the form of prizes,revenues are allocated to horse race purses, the breeders’ fund, the state, and theplayers’ pool. Each of these allocations is described below.
Table 3.3: Racing Commission Terms and Definitions
The cents not paid to winning pari-mutuel bettors due torounding down to the nearest 10 cents Total amount wagered at a licensed racetrack on horseracing The system of betting on horse races where those withwinning bets share in the total amount bet, less deductionsrequired or permitted by law The amount of money to be paid the participants of a race The fee that patrons pay to play a hand in the card club The televised display, for pari-mutuel wagering purposes, ofone or more horse races conducted at another locationwherein the televised display occurs simultaneously with therace being televised Total amount bet in all pari-mutuel pools less prizes returnedto bettors. That is, the handle minus prizes.
The system by which pari-mutuel activity, including sellingand cashing of tickets, compiling of wagers, and displayingof pari-mutuel information, is accomplished. The toteprovider is the company that calculates and reports thisinformation.
SOURCES: Minn. Stat. (2004), §240.01; Minn. Rules (2003), ch. 7869.0100; and Office of theLegislative Auditor.
Purse Allocation. Purses for live racing at Canterbury Park are funded
through a variety of sources, including pari-mutuel wagers placed at
Canterbury Park on live and simulcast races and the per-hand fee patrons
pay to play in the card club (the “collection” or “rake”). By law, 8.4
percent of the handle wagered on live races at Canterbury Park or on
simulcast races that are concurrent with live races is allocated to purses.18
A portion of wagers placed on simulcast races that are not concurrent with
live races is also allocated to purses through a complicated formula
outlined in statute.19 Canterbury Park and the horsepersons’ organization
agreed to set aside 15 percent of the card club “rake” for purse payments
and the breeders’ fund in 2004.20 Statutes require that 90 percent of the
agreed upon amount be allocated to purse payments.
Breeders’ Fund. The purpose of the breeders’ fund is to “provide
The Racing
incentive monies to enhance the horse racing industry in the State of Commission
Minnesota and to encourage Minnesotans to participate in the racing and oversees the
breeding industry.”21 The breeders’ fund receives 5.5 percent of simulcast complicated
takeout, 1 percent of live racing handle, and 10 percent of the set-aside for allocations of
purses and breeders’ fund from the card club rake.22 While exact racing and card
percentages vary by breed of horse, breeders’ fund revenues must be club revenues.
allocated to equine research, purse supplements for Minnesota-bred horses,breeders’ and stallion awards, and other financial incentives to encouragethe horse breeding industry in Minnesota.23 Pari-Mutuel Tax. Canterbury Park must pay a 6 percent pari-mutuel tax
to the state on takeout in excess of $12 million.24 In fiscal year 2004, the
total pari-mutuel takeout was almost $16.2 million. Canterbury Park
started paying fiscal year 2004 pari-mutuel tax in April and paid the state
just over $260,000. Canterbury Park does not pay taxes on its largest
source of revenue—the card club rake—which totaled over $25 million in
fiscal year 2004.
Players’ Pool. The players’ pool is a fund generated from players’ losses
at card club casino games tables, such as blackjack and pai gow poker.
Canterbury Park can only use the players’ pool for promotions and
incentives for card game players.25
18 Minn. Stat. (2004), §240.13. subds. 4-5.
19 Ibid.
The horsepersons’ organization is the organization that represents the majority of horsepersonsracing the breed of horse involved at the licensee’s facility. Minn. Stat. (2004), §240.135(a), requiresthe set-aside for purse payments and breeders’ fund to be 10 percent of the first $6 million of rakeand 14 percent thereafter. However, the statutes allow the licensee and the horsepersons’organization to negotiate a different percentage, which they did for 2004.
21 Minnesota Racing Commission, 2003 Annual Report (Shakopee, MN, February 2004), 17.
22 Minn. Stat. (2004), §§240.13, subd. 5; 240.135; and 240.15, subd. 1.
23 Minn. Stat. (2004), §§240.15, subd. 6 and 240.18; and Minn. Rules (2003 and 2004 SupplementNumber 1), chaps. 7895.0110, 7895.0250, 7895.0300, and 7895.0400.
24 Once this $12 million takeout threshold has been met, Canterbury Park must also paypari-mutuel tax on any breakage it subsequently receives.
25 Minn. Stat. (2004), §240.01, subd. 27.
The Racing Commission has the statutory authority to administer and enforce theallocation of pari-mutuel revenues to purses, administer the breeders’ fund, collectand distribute all taxes, and ensure that players’ pool revenues are used properly.26At the very least, we think it is important that the commission actively monitorCanterbury Park’s allocation of racing revenues to its various purposes. We foundthat: For the most part, the Racing Commission has adequate procedures in
place to ensure that horse racing and card club proceeds are properly
distributed. However, there are some shortcomings in how it exercises
its responsibilities.

The Racing Commission monitors Canterbury Park’s revenues to determine whenpari-mutuel taxes are due and administers the breeders’ fund to ensure that theproper amount is collected and distributed to each breed. However, thecommission does not regularly verify that the proper amount of revenue isallocated to purses for live races at Canterbury Park or that players’ pool funds areused appropriately.
Racing Commission staff monitor and enforce the proper allocation of revenue topari-mutuel taxes and also actively administer distribution of revenue to thebreeders’ fund. Commission staff regularly monitor Canterbury Park revenues todetermine when and how much pari-mutuel tax must be paid. To administerbreeders’ fund distributions, commission staff obtain daily reports containingrace-specific wager information for all races (live and simulcast) at CanterburyPark. Staff review these data to determine which type of breed ran in each race,calculate the breeders’ fund contributions for each breed of horse, and verify thecalculations with data from Canterbury Park. Commission staff also ensureeligibility for and oversee distribution of breeders’ fund awards. Every spring,commission staff conduct farm inspections to ensure that Minnesota horsesregistered as intending to produce offspring (broodmares) actually give birth inMinnesota. Every fall, commission staff determine the distribution of breeders’funds awards, which are based on the percentage of total Minnesota-bred pursemoney each horse earned.
On the other hand, the Racing Commission has not paid sufficient attention to theallocation of revenue to purses. The commission relies on Canterbury Park to The commission
ensure that funds are properly allocated to purses for live races held at Canterbury needs to pay
Park. Canterbury Park provides a weekly report to the commission detailing more attention to
contributions to the “escrow purse fund” account, but commission staff do not review the report or verify that the proper amount is distributed.
and expenditures

The Racing Commission also does not closely monitor Canterbury Parkexpenditures from the players’ pool. We found three Canterbury Park card club from the card
promotions in which players’ pool money could have been given to non-card club players’
playing patrons, a violation of Minnesota statutes. We reviewed all player pool transactions since the inception of the card club and found problems withpromotions that were for both racing and card club patrons. In general, thesepromotions were funded in part by the players’ pool and in part by Canterbury 26 Minn. Stat. (2004), §§240.03 (3), (4), and (6); 240.13 subd. 5(3); 240.135; 240.18; and 240.30,subd. 7(b).
Park’s general marketing funds. In these promotions, it was possible thatnon-card playing patrons could receive prizes funded by the players’ pool.27Although Canterbury Park officials often ask the Racing Commission to reviewupcoming promotions funded by the players’ pool, the commission does notrequire this. In addition, commission staff have never reviewed player poolexpenditures to verify that the players’ pool funds are used only for card clubpurposes, even though the commission’s responsibility includes ensuring thatplayers’ pool funds are properly used.
Finally, neither the Racing Commission nor Canterbury Park has requiredAutotote, the tote service provider at Canterbury Park, to provide assurances thatits systems operate properly. The Neither the
commission nor
many things, including verifying bettorpayout, monitoring Canterbury Park Canterbury Park
has required an
security audit of
the pari-mutuel
tote system.
assurance that the system is accurate,secure, and reliable. In 2002, Autototewas involved in a scandal in which oneof its computer programmersmanipulated a ticket on a major horserace. If the fraud had not beendiscovered, it would have netted over$3 million to the perpetrators. As aresult of this incident, the IllinoisRacing Board required a security auditof Autotote’s information technologysystems as a condition of its 2004Illinois license. The Illinois Board hasnot determined its future auditrequirements for Autotote, but a board representative anticipates a periodicinformation systems audit becoming a condition of licensure.
While assessing the extent to which the Racing Commission ensures properallocation of proceeds, we observed that: The lack of automation for some Racing Commission procedures
causes inefficiencies in accounting for and monitoring the distribution
of gambling proceeds.

The Racing Commission relies on too many manual procedures to do its work.
Unlike Canterbury Park, which receives an automatic download of pari-mutuelwager information from Autotote, commission staff manually enter all wagerinformation into their systems. For example, to determine the amount of revenueto be allocated to the different breeders’ fund accounts, commission staff request a 27 In response to our questions about this, Canterbury Park has already made some changes in howthey handle these promotions.
paper report from Canterbury Park, which it generates from automaticallydownloaded data from Autotote. Commission staff then manually enter thetakeout data from the report into the commission’s computer system for all of theraces at Canterbury Park on a given day. From these data, commission staffcalculate the proper breeders’ fund contribution amounts. Once the breeders’ fundallocations are determined, another commission staff member re-enters thebreeders’ fund allocations into the commission’s breeders’ fund database.
The Racing Commission needs to do a better job balancing its responsibilities forhorse racing and the card club. The commission focuses its regulatory resourcesprimarily on racing oversight, and does a good job overseeing racing activities.
However, since its inception in 2000, the card club has become an increasingly Overall, horse
large presence at Canterbury Park. It makes sense for the Racing Commission to racing is well
focus more regulatory resources on the card club due to the nature of card club regulated, but
activities, including the use of cash, opportunities for cheating, the lack of the commission
automated controls, and the amount of dollars gambled. This will likely requirean additional staff person with appropriate card club oversight expertise.
needs to improve
its oversight of

Overall, Racing Commission oversight relies too heavily on relationships with the card club.
Canterbury Park personnel. Commission staff do not independently oversee cardclub activities, ensure that the proper amount of revenue is allocated to purses, ormonitor players’ pool expenditures. While there is no evidence of large-scaleproblems as a result of this reliance on Canterbury Park, we think that thecommission should rely more on systems and automatic procedures to maintainan arms-length distance from the industry it regulates.
Streamline Licensing Procedures
To ensure that the Racing Commission licenses only eligible applicants, the
commission should consider obtaining an electronic fingerprinting system to
shorten the turn-around time for receiving criminal history information.

Having the ability to submit electronic fingerprints to the Department of PublicSafety and the Federal Bureau of Investigation would reduce the turn-around timefor receiving criminal history information from six weeks to approximately threedays. With criminal history information in its hands sooner, the commissioncould better ensure that only eligible applicants are licensed. This would proveespecially useful for screening applicants that apply for a license toward the endof the racing season or for short-term assignments during card club tournaments.
Racing Commission officials would like to purchase an electronic fingerprint MINNESOTA RACING COMMISSION
system, although they worry that the cost is prohibitive. However, thecommission may have little choice in the matter. The Department of PublicSafety has indicated that it will require electronic submission of fingerprints as ofAugust 2005, so the commission will need to make obtaining an electronicfingerprinting device a priority.
Expand Card Club Oversight
To improve oversight of the card club, the Racing Commission should:
Have a trained, knowledgeable, and regular presence in the
surveillance room;
Conduct routine compliance checks of card club activities;
Regularly review players’ pool expenditures; and
Review all promotions using players’ pool funds.
The Racing Commission relies too heavily on Canterbury Park to providesurveillance and other daily oversight of the card club, in part becausecommission staff do not have the expertise to do so directly. While thecommission and Canterbury Park staff have a good working relationship, wefound several instances in which the commission may not have been informed ofincidents that could affect the integrity of the card club. Conversations withcommission staff revealed that they have considered increasing their presence inthe card club, but have been reluctant to incur additional costs. Ourrecommendation to expand card club oversight would likely require thecommission to hire an additional staff person, resulting in increased expenses.
However, by law, the licensee (in this case, Canterbury Park) is responsible forreimbursing the commission for any costs related to card club regulation andenforcement. As a result, if the commission hired a staff person for card cluboversight, Canterbury Park, not the Racing Commission, would bear the cost.
In addition to direct card club oversight, the Racing Commission should provideadditional oversight of the card club players’ pool. The commission shouldreview all players’ pool expenditures and any questionable promotions should bereviewed with the Minnesota Attorney General’s Office. In response to ourquestioning of certain players’ pool expenditures, Canterbury Park has alreadymade some changes in how they use the players’ pool for promotions that areopen to all patrons. As a result of these changes, Canterbury Park’s practicesbetter conform to the laws governing the use of the players’ pool funds.
Verify Purse Contributions
To ensure that the proper amount is allocated to horseracing purses, the
Racing Commission should conduct periodic reviews of Canterbury Park’s
purse contributions.

In its annual report, Canterbury Park states that the purse expense is one of its“largest single expense items,” totaling over $7.4 million in 2003.28 However,Racing Commission staff do not verify that Canterbury Park is contributing theproper amount to horseracing purses. As outlined earlier, statutes specify thepercentage of total amount wagered that must be allocated to purses and give thecommission the authority to enforce the laws governing purse contributions.
Using information the commission already receives on a weekly basis, staffshould periodically verify that Canterbury Park is contributing the proper amountto purses.
Monitor Autotote Reliability and Improve
Technology Use

To ensure that it can comfortably rely on information provided by Autotote,
the Racing Commission should require regular and comprehensive audits of
Autotote’s information systems that meet industry standards for information
technology security audits.

To more efficiently use its resources, the Racing Commission should make
the necessary investments to automatically download the pari-mutuel wager
information from Autotote.

In addition, the Racing Commission should revise its current technology
systems so staff do not manually enter the same data into the system more
than once.

The Racing Commission relies heavily on Autotote information to monitorCanterbury Park, allocate revenue to the breeders’ fund, and determinepari-mutuel tax obligations. However, the commission has never requiredAutotote to provide assurance that its systems are accurate and reliable. In 2004,as a condition of licensure, the Illinois Racing Board required Autotote to conducta comprehensive information systems technology audit of its Chicago huboperation, which is the same data hub that serves Canterbury Park. TheMinnesota Racing Commission should work with its Illinois counterpart (andothers) to require a regular audit of Autotote’s information technology systems asa condition for licensure.
28 Canterbury Park Holding Corporation, 2003 Annual Report (Shakopee, MN, 2004), 18 and 28.
The Racing Commission should also improve its own use of technology.
Canterbury Park uses software that enables it to receive daily electronicdownloads of the Autotote information. Commission staff manually enter thesedata into the commission’s system to perform some calculations, and then re-enterthese calculated data into a different part of the system. The commission couldachieve some efficiencies if it better used technology. Commission staff wouldlike to update the commission’s technology systems, but do not feel that they havethe expertise or funding to implement these improvements.

Source: http://www.auditor.leg.state.mn.us/Ped/pedrep/0502ch3.pdf


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