Pay TV: NTRA Channels Energies Into Controlling Small Picture
by Lenny Shulman
Date Posted: 7/9/2002 3:20:25 PM

Published in the July 13 issue of The Blood-Horse
The Thoroughbred industry today is still paying for a bad decision made more than 40 years ago. Not only did its popularity plummet as a result of being off television during that medium's original boom time, but more recently the struggle to get possession of the sport's archives and control and coordinate its television presence has cost the industry millions of dollars.

While savvy league commissioners like football's Pete Rozelle embraced television as an important vehicle to mass-market their sports, racing looked at the rabbit-ear box as if it was sent by an Evil Empire to drain live attendance from the nation's racetracks. You don't need a psychic hotline to tell which sport made the right call.

In the four years since its creation in 1998, the National Thoroughbred Racing Association has had the unenviable task of creating order from a chaotic industry and extinguishing more blazes than a fire crew in drought conditions. At its start-up, the NTRA was an admittedly weak league office dependent upon disparate and often warring factions for its solvency. The perception of the organization as an inefficient, top-heavy bureaucracy exacerbated its tenuous hold. Against this backdrop, the NTRA in 1999 realized it needed to control the production and presentation of its product, racing, on television.

The problem was, that product, so long neglected, had slipped into the hands of an independent vendor, Winner Communications, which had been presenting horse racing on ESPN since 1985. Its head, Jim Wilburn, had a long-standing relationship with the premier national sports network, which sold him airtime at very favorable rates. When the NTRA attempted to get into the televised racing business, it found Wilburn already doing it for less money than it could.

"I'm very close to ESPN," noted Wilburn, "and I knew the league (NTRA) had talked to them about televising racing. But ESPN was very loyal to me and the great relationship we had, and they wanted to continue that."

So the NTRA was faced with a decision: make an end run around Wilburn, or join forces with him. In June 1999, the newly formed NTRA Investments purchased Winner's five years of programming contracts with ESPN's family of channels along with its horse racing archives for $27.5 million. NTRA Productions was created to oversee which races to televise, coordinate advertising and sponsorships, brand the sport, and establish race series and divisions to make it easier for viewers to understand the significance of each race.

"If we had gone to ESPN trying to put races on, we couldn't have gotten as good a deal as Winner had," said NTRA chief operating officer Greg Avioli. "ESPN already had horse racing, and weren't looking for a lot more hours anyway. The relationship between Wilburn and ESPN was established, and the only way to take control of the product was through a business deal."

While the NTRA received no bricks and mortar in the agreement, it did get Winner's production capabilities as well as the horse racing archives Winner had built up through the years. Under the deal, Wilburn continues to sell the advertising time and do the production work for a fee. Under the current contract, he pays back to the NTRA about $2.5 million per year from the ads he sells.

At the time of the deal, the NTRA was under withering criticism for spending money faster than it was collected, and dues-paying members were quick to skewer the organization. However, the television deal might well turn out to be the most significant accomplishment of the league's infancy.

"Television is absolutely crucial," said Alan Marzelli, chief financial officer and executive vice president of The Jockey Club. "If we don't have network broadcasts of key events, combined with interactivity, we're never going to grow this sport. If you look at the programming quality and quantity, and the exposure racing is getting on television, you know the acquisition of these assets was on point with what we have to achieve."

Marzelli helped craft the buyout of the horse racing division of Winner Communications (now WinnerComm), but concedes that, economically, the deal hasn't worked out the way he planned. To fund the purchase, the NTRA approached the industry's major non-profits--the Breeders' Cup, The Jockey Club, Keeneland, and Oak Tree Racing Association, and received loans of $5 million from each of the first three and $1 million from Oak Tree. Avioli stated that none of the money to craft the buyout came from dues. However, Breeders' Cup money includes nomination fees from breeders and owners. And while the non-profits were promised their loans would be repaid within seven years, that projection will not be met.

The NTRA pegged repayment of the loans to money it would receive through its share of revenue from the Television Games Network, money that is dripping instead of flowing in. Because the NTRA did not foresee its members balking at the exclusivity agreements mandated by TVG and the birth of various alternative interactive wagering outlets, its projections were skewed way too high. As of now, it estimates that it will be 2011 at the earliest before the loans are repaid.

"The non-profits lent the money in large part to support the NTRA and for the good of the game," maintained Avioli. "Sure, they want to be paid back, but they put up all the money and we took 75% ownership of NTRA Productions, so it was clear this was not the best economic investment."

"It was the appropriate thing for Keeneland to do," said president and chief executive officer Nick Nicholson. "Was it the best financial investment Keeneland will ever make? No, but that's not why Keeneland did it. We're interested in getting the product out there, getting more television time. This industry cannot reach the level it needs to until it has a national television strategy and a national sponsorship strategy, and we can't do either without the ability to plan and control our own future."

Oak Tree executive vice president Sherwood Chillingworth added, "This was not a gift. I'm sure the loan will be paid back, eventually. But we needed to bring the TV in-house so the industry controlled it. And the images from the past should be part of our library."

One longtime industry executive who has worked in television wondered if the NTRA could have forged a better deal than the one it cut with Wilburn. "It comes down to whether Wilburn was the right person to be the conduit into ESPN, or could the NTRA have gotten a better deal on their own. They had to pay top dollar because Wilburn is a great businessman and never leaves anything on the table. Nobody believes this was a great deal, but it was a deal they felt they had to make."

Said the NTRA's Avioli, "The concern that we paid too much money to Wilburn? The answer is, 'By what standards?' Look what we got."

ESPN recently agreed to renew through 2008 its live racing and digest shows, making a longer commitment to horse racing than it has to any other sport outside football. With Disney now in control of ESPN, the rates paid by the NTRA to air its programming will go up under the new deal, but still remain well below the network's rate card. All agree that televised racing turns a solid profit. And in 2002, the ESPN family of channels will televise 164.5 hours of horse racing, up from just over 100 hours in 1997, before the formation of the NTRA.

"(NTRA commissioner) Tim Smith kids me that for 14 years, I didn't realize it, but I was the commissioner of racing," Wilburn said. "If the league can't control its rights and its media, there is no league. This has absolutely been a good deal for both sides."

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