IBM, NTRA Move Technology Venture Forward

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A simple fact-finding mission that began about 10 months ago could result in a capital investment of more than $100 million—perhaps up to $200 million—for the Thoroughbred industry should the National Thoroughbred Racing Association and International Business Machines' Global Services move ahead with a broad technology venture.

Unveiled to the NTRA's general membership at a meeting in Dallas on Monday, the proposal calls for creation of a subsidiary called NTRA Technologies that would improve infrastructure and efficiencies for everything from simulcasting to racing office functions. In addition, the NTRA subsidiary would implement direct marketing programs through the Internet, and acquire or build a totalizator system.

The NTRA was scheduled to receive the preliminary business proposal later in the day.

“Clearly there needs to be a round two,” said NTRA commissioner Tim Smith.

For services rendered, IBM would receive a “reasonable interest rate” on the money loaned to the subsidiary, a percentage of handle that flows through the tote system used, and “performance incentives” based on reduced costs and growth in handle. Total compensation will depend largely on the success of the venture.

“We're willing to place a bet” on the Thoroughbred industry, said Mark Elliott, general manager of IBM Global Services. “I started out as interested, but now I'm a passionate believer in what can be done here. We're prepared to invest a fair amount of capital.”

A question was raised at the meeting regarding how the Thoroughbred racing industry compares to other industries in regard to technology.

“I don't want to be overly abusive,” Elliott said. “But as an industry, you are as far behind in the use of technology to improve your business than any I have ever seen.”

The venture has far-reaching ramifications, not the least of which is a switch to a broadband network that would streamline transmission of information and racing signals. As for the tote function, many questions remain. The company with the largest market share in the pari-mutuel industry is Autotote Corp., with about 65% of the business. Meanwhile, AmTote Corp. provides the tote function for NTRA Services' Oregon wagering hub, which is used by TV Games Network, a marketing partner of the NTRA.

“All scenarios will be looked at,” Smith said. “There probably is a slight preference for acquisition of an existing company which is up and running and has inherited customers. But an acquisition takes willing buyers and sellers.”

Smith said the NTRA hasn't guaranteed customers for IBM; in fact, the proposed NTRA Technologies would compete for customers. There could be “preferred” pricing for NTRA members, but services would be made available to all members of the industry, Smith said. One of the benefits of a uniform tote system is that any wagering outlet can take any wager offered by any facility if state law permits.

When asked what IBM expects from the deal, Elliott said, “The company has no intentions of raising rates concerning fees.”

In 1999, North American handle rose 4.4% from the previous year to a record $14.4 billion. Elliott said single-digit handle growth would make IBM's investment “acceptable,” and that a 10% annual increase is possible.

Central Kentucky horseman John Gaines inquired exactly how the proposal would be affected should there be a move in regard to the Internet prohibition act in Washington, and what the ramifications would be if the pari-mutuel industry was impacted by legislative activity.

“We believe that as long as the current state-of-the-art exists, there is still ample room to grow the fan base,” Elliott said. “Of course, we would be more excited if we could grow the fan base.”

Thus far, the IBM investment in the industry is valued at about $2 million, including a $750,000 business-partner hosting program at major events. Final recommendations on the project are expected by early July, though issues such as cost-sharing could take months to iron out. It is expected to be a topic of discussion when the NTRA board of directors meets Aug. 10 in Saratoga Springs, N.Y.

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