Horsemen: Fix Account Wagering Mess Now
by Tom LaMarra
Date Posted: 7/21/2007 8:24:09 PM
Last Updated: 7/23/2007 10:40:06 AM

They drew “post positions” to see which one would get the inside track. But after a race that lasted two hours and 45 minutes, the inquiry sign was posted. This one might not be official for a long time.

In by far the most enlightening panel discussion the industry has seen on account wagering, representatives of four entities discussed their business models July 20 at the National Horsemen’s Benevolent and Protective Association summer convention in Colonial Williamsburg, Va. In the end, there was no resolution to ongoing conflicts over exclusivity and the sharing of content, but they did get a clear message: Horsemen want the system fixed.

“The fragmentation of this industry is not more present right here, right now,” said Sean Alfortish, president of the Louisiana HBPA. “I’d weld these doors shut if you guys would come up with a solution. We’ve got a great opportunity on our hands. I’d work all night to get it done. This is the single-most important issue for the industry today.”

Alfortish’s comments were directed to Charles Champion, president and chief executive officer of Youbet.com; Scott Daruty, president of TrackNet Media Group; and David Nathanson, senior vice president and general manager of TVG. Steven Mitchell, senior vice president and chief financial officer for Woodbine Entertainment Group, also was on the panel to discuss the Canadian model in which there are no third-party account wagering providers.

To perhaps ease anticipated tension and lighten the proceedings, the National HBPA drew post positions--numbers from a hat--to determine the order of presentation. Champion had a technological edge--his own computer--so he went first, followed by Nathanson, Mitchell, and Daruty.

The following is an overview of each presentation:

Youbet.com

Champion said Youbet.com believes there are “questionable business models” in the marketplace, and that sub-license fees such as the ones he pays to TVG and Magna Entertainment Corp. for content hinder promotion, investment, and profit. He said the customer is suffering under the current structure that forces multiple wagering accounts.

Champion outlined “economic examples” for Youbet.com. When all fees are totaled, the company gets about 10.7% net revenue from a signal from an independent racetrack, 5.9% from a track operated by MEC, 3.1% from TVG-exclusive products, and 1.82% from TrackNet Media, which is now buying and selling signals.

Champion proposed a model calling for higher host fees to reward live racing operations; “demographic and geographic incentives” for Youbet.com; longer content contracts; and no statewide source-market fees.

“Paying 10% host fees would not be unconscionable to us,” he said.

TVG

Nathanson said exclusive racetrack partners benefit from television exposure as evidenced by the fact that 90% of TVG handle comes from races that are broadcast on the network. The average handle, he said, is 900% higher on a race on TV.

Based on the average pari-mutuel takeout of 20%, TVG returns 14% (3% in host fees and 11% in source-market fees) to the industry, Nathanson said. The company has returned $250 million to the racing industry thus far, he said.

“I don’t believe any other (advance deposit wagering) provider has returned more to the racing industry,” Nathanson said.

As for having a reputation of not participating in discussions with horsemen, he said: “We’ve working very diligently with horsemen across the country on a partnership we believe is best for the future of racing.”

WEG

Mitchell said the company, which offers Thoroughbred and Standardbred racing, had a total handle last year of $1.3 billion, or half the Canadian market. The largest chunk of handle comes from export of the signal--$457 million--but local-market wagering is huge for the company.

WEG operates 27 teletheaters, or off-track betting centers, that generated $439 million in handle last year. On-track handle was $258 million, and Internet wagering through HorsePlayer Interactive was $132 million.

Mitchell said many WEG patrons use all three outlets for wagering.

Because WEG owns the account wagering system, the revenue stays with the racetrack and horsemen. For Thoroughbred racing, Mitchell said the track gets 6.9% and horsemen 9.35%. In Ontario, each track has a designated “home market area” and keeps the revenue generated in that market.

Mitchell agreed with Nathanson that TV coverage is important. WEG has about 475,000 subscribers to its live horse racing broadcasts.

“If you get the signal in front of customers, they will wager more,” he said.

TrackNet Media

Daruty said the company, a partnership between Churchill Downs Inc. and MEC, “wants to help customers by establishing a non-exclusive ADW environment.” The primary objective, he said, is to “return more money to the producers of the show--the horsemen and the tracks.”

Daruty said host fees should run from 4%-8%, with a “limited number of high-quality tracks” getting 8%, and the remaining tracks 5%-7%. He said an appropriate source-market fee is 7% within a 25-mile radius of a wagering facility.

Daruty said the recent Churchill Downs spring meet was a perfect example of how the TrackNet Media structure can work. The Churchill product this year wasn’t available through TVG and Youbet.com, so average daily account wagering handle was down 37.7%. But revenue, he said, increased 1.7% because host fees went from 3% to 8%.

As handle grows, revenue will grow with it, Daruty indicated.

“If horsemen want to set up an account wagering platform, that’s great,” Daruty said. “You can have the content as well.”

Horsemen who heard the presentations expressed dismay at the fact they’ve had little say in the pricing of signals even though they have protections under the Interstate Horseracing Act of 1978.

Nick Coukos, executive director of the Ontario HBPA, took offense with Daruty’s comment given the fact horsemen provide and ultimately control the content. He said MEC chairman Frank Stronach has repeatedly said “partnership, partnership, partnership” when it comes to relations between racetracks and horsemen’s groups. Yet horsemen, he said, have no say in signal pricing.

“Of course they have a say,” Daruty responded. “We all know how the IHA works. We’ve always made it clear when we cut deals with account wagering companies there is an express provision that the agreement is subject to the consent of horsemen. Technically under the IHA, horsemen don’t have a say in pricing.”

On the topic of exclusivity, horsemen, led by Alfortish, requested that exclusivity tied to wagering contracts be eliminated. Daruty said TrackNet would be willing to deal with TVG’s need for exclusive television rights as long as the wagering aspect isn’t exclusive.

“Are you willing to drop the portion of exclusivity related to betting?” Alfortish asked the account wagering representatives. “Is there any room for compromise? As horsemen, we have to take action. And don’t think as horsemen, we won’t. This is evolving.”

Nathanson said exclusivity has several meanings. He said TVG technically has no exclusivity because it licenses its content to account wagering providers and doesn’t restrict those companies from giving it to others. “We’re not limiting that content,” he said.

Nathanson also questioned the TrackNet Media business model. He said only the major racetracks would end up with the ultimate return of 15% revenue (8% host fee and 7% source-market fee). With TVG, he said, all tracks get the 14% (3% host fee and 11% source-market fee).

“The cream of the crop will get the 15%,” Nathanson said. “That’s 1% more than we’re offering everybody.”

Alfortish said that in Louisiana, horsemen plan to take action. Fair Grounds is owned by Churchill Downs Inc., so its signal will fall under TrackNet Media. Alfortish, however, wants broad distribution for the signal. Youbet.com has a partnership with Harrah’s Louisiana Downs that led to a 60% spike in Youbet.com handle on the track’s races.

“I’m going to do something with Youbet.com at Fair Grounds,” Alfortish said. “I don’t want our state to be stifled by this foolishness. So what if (Youbet.com) has everybody’s signal. Isn’t that the ultimate goal? The content belongs to the people. You have even deprived horsemen of watching their own product.”

The dispute over account wagering has put the Claiming Crown, which is partly owned by the National HBPA, in the crosshairs. The event, to be held Aug. 4 at Ellis Park in Kentucky, will be available only on HRTV, which is owned by CDI and MEC. Currently, it won’t be available through TVG or Youbet.com.

“If you truly believe in sharing content, I’m asking you on behalf of our affiliates to share the Claiming Crown,” National HBPA president Joe Santanna said.

Tom Metzen Sr., president of the Minnesota HBPA, said the only other time the Claiming Crown was on HRTV, handle dropped 50%. In other years, it had been broadcast on TVG.

“Unfortunately, it’s true that the Claiming Crown won’t be available for account wagering through TVG or Youbet.com,” Daruty said. “Horsemen can’t force us to sell it to somebody we don’t want to sell it to. That’s a true partnership.”

CDI controls the Claiming Crown signal through a contract provision it has with Ellis Park, which it sold to local businessman Ron Geary last year. Geary has attempted to maximize exposure of Ellis Park locally and through export of the track’s signal, and horsemen believe the Claiming Crown offers an ideal opportunity for that.

Champion, who was said by Daruty to be “skating down the middle” in an attempt to be the only account wagering provider with all the product, said after the meeting that he just wants to satisfy his customers. He also said the discussion could be masking a more serious issue.

“Where is the true money in this industry?” Champion said. “It’s in OTBs and simulcasting. That’s still 90% of the handle. So what are we going to do with the 90%?”

 

 


Copyright © 2014 The Blood-Horse, Inc. All Rights Reserved.

SUBSCRIBE to The Blood-Horse magazine TODAY!