And they're off!

Horse-racing betting fraud

By Richard Hurley, Ph.D., J.D., CFE, CPA;William Mosher

 Three former frat brothers devised a high-tech scheme to win $3 million at the Breeders' Cup. Here's how they did it and how investigators quickly caught them.

Owners of racing horses and bettors all know that before the track announcer shouts, "And they're off!" that all wagering has ceased for that race. However, some of our older readers might recall the 1973 Academy Award-winning movie "The Sting" with Paul Newman and Robert Redford. The main characters set up a phony off-track betting (OTB) parlor to convince a "mark" they could delay the horse racing results long enough to place a wager before those results would be communicated over the telegraph wire. The movie was based on a scam, known as "the wire," perpetrated by Charley and Fred Gondroff on an Englishman in New York City in 1914. (See "The Big Con," by David W. Mauer.) 

Three former frat brothers kept the scam alive by using 21st-century technology to outsmart the system and steal $3 million in winnings from the 2002 Breeders' Cup World Thoroughbred Championships races. We'll describe how the fraudsters pulled it off, and how investigators quickly caught them.


For thoroughbred owners, horse trainers and racing fans the yearly Breeders' Cup (the more common name for the race) is akin to the Olympics. In the words of Jim Gluckson, director of event communications for the Breeders' Cup, "The Breeders' Cup is the most prestigious global event in thoroughbred racing. Since its inception in 1984, the event has grown from one day and seven races worth $10 million to its current format of two days, 15 races and total purses exceeding $25 million."1

On Oct. 26, 2002, approximately 46,000 horse-racing fans were at Arlington Park Race Track, in a suburb of Chicago, for the Breeders' Cup.2Exactas, Exacta Box, Trifectas, Trifecta Box and Pick Six were just some of the exotic wagering options offered at the race track and OTB parlors nationwide that Saturday. In other words, there were lots of ways to bet and lose money. (See definitions of racing and betting terms. Learn more about the world of thoroughbred racing.)

When a horse named Volponi (Sly Old Fox in Italian), a 42 to 1 shot, won the Classic (the major race of the Breeders' Cup and the last leg of the Pick Six) at Arlington Park, it almost assured few winners would be in the Pick Six betting pool that day.3 (Pick Six means picking the winning horse in six consecutive races.) In fact, there was only one winning wager: a bet telephoned to an OTB parlor in the Catskills region of New York State. This "lucky" person now had more than $2 million credited to his or her betting account. (The OTB parlor had to withhold $1 million from the $3 million winnings for income taxes.) 

Picking one winner for the occasional racing fan is hard, but picking six consecutive winning horses is akin to a million-to-one shot.4 This rare winning bet would certainly bring with it excitement, notoriety, scrutiny and, perhaps as they say in the racing industry, a "stewards' inquiry." (The stewards are race officials who are responsible for enforcing the rules.) In this case, the red flags of fraud were waving all along the path to the winners' circle. 


At about 9:15 a.m. on Oct. 27, an unknown tipster called James Gallagher, the vice president of Pari-Mutual Operations for the New York Racing Association (NYRA), to ask him if he was aware that "all Breeders' Cup Pick 6 winners came from the Catskill OTB" and they were "getting into the tote system [or electronic betting]," according to supporting deposition signed by Gallagher on Oct. 30, 2002. (The tote system collects all betting data and calculates odds for the racing industry.) 

The tipster comments, if true, could have had devastating repercussions for the integrity of the gaming industry. Gallagher contacted technicians for Autotote — the company that collects electronic betting data from OTB corporations through which the winning bet was placed — to verify the tipster's allegations. Their investigation revealed that there was one $12 winning wager on the Pick Six; the bettor had picked the first four races correctly and then played all the horses correctly in the final two races. (On the betting ticket this is listed as "all/all" and is commonly referred to as a "wheel.") This entire bet consisted of 96 possible combinations at $12 per bet for a total wager of $1,152.

To veteran race officials like Gallagher and Bill Nader, NYRA senior vice president, the probability of someone winning this type of bet was highly unlikely. Why would a bettor spend so much money covering the last two races when one wrong pick in races one through four could have lost the entire wager? If the bettor was going to spend that much money covering 96 combinations, it's more likely he would spread out his picks in earlier races.

NYRA immediately notified Breeders' Cup and Arlington Park officials so they could freeze the wire transfer of funds until a thorough review could be conducted. 

Each industry has its own fraud indicators; for the horse-racing industry, analysis on the vast amount of betting pattern data can detect unusual bets. When the bettor picked the winners of the first four races individually and then "wheeled" the remaining horses in the last two races, it guaranteed he or she would pick the Classic winner but only if the first four selections were correct. 


Investigators determined that the bet had been placed through the Catskill (N. Y.) Off-Track Betting Corp. system via its Integrated Voice Response (IVR) system. The IVR system allows bettors to place wagers via a telephone  

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