No Joke: Pricing Changes Planned

No Joke: Pricing Changes Planned
Photo: Race Track Industry Program
Scott Daruty of TrackNet Media

Despite their oftentimes dry, complicated, and repetitive subject matter, pari-mutuel industry conferences and conventions can be entertaining and informative. The recent meeting of the National Council of Legislators from Gaming States was no exception.

On Jan. 5, officials gathered in Arizona focused on pari-mutuel pricing but ventured into other areas. Stalled or failed efforts to find solutions have become a running joke.

“The racing industry has a habit of setting fire to its hair and trying to put it out with a hammer,” said Ed Martin, president of the Association of Racing Commissioners International.

“We are dysfunctional,” said Nick Coukos, executive director of the Ontario Horsemen’s Benevolent and Protective Association and secretary/treasurer of the National HBPA. “We have been for a long time and probably will continue to be. For whatever reason, we can’t get our act together.”

“My experience in 20 years is the worst enemy of the pari-mutuel industry is the pari-mutuel industry,” said Florida Sen. Steven Geller, who suggested the legislature could give the industry a $100-million tax break, and its factions would do nothing but fight over how to split the money.

The zingers drew laughs and chuckles. But they did nothing to hide the fact the pari-mutuel industry--mainly its politics and policies--is hard to comprehend.

“I was taking lots of notes and getting cards so I can contact people later,” said Rep. Ruth Ann Palumbo of Kentucky, where casino gambling at racetracks is expected to be addressed by lawmakers this year. “It’s even more complicated than I thought. And to hear that on-track betting makes up only 10% (of total handle) is frightening.”

With 85% to 90% of handle now generated “off” track, the industry is attempting to bring its pricing model up to date. And though the system is in disarray, there are hints some racetracks and horsemen’s groups have a new model in mind and plan to implement it at least track by track or state by state.

Scott Daruty, president of TrackNet Media Group, a signal-buying and -selling entity formed by Churchill Downs Inc. and Magna Entertainment Corp., said the exchange of signals between racetracks still accounts for most of the handle in North America. That model--at least when signals are exchanged between Thoroughbred tracks--probably won’t change much, he said.

Based on a blended takeout rate of 20%, the host track gets 3% and the receiving track 17%. When signals are exchanged, the percentages are reversed, though the track with the superior product and larger handle may be shortchanged in the deal.

“It may be the wrong price, but it’s cutting both ways,” Daruty said.

So the focus will be on “non-track simulcast outlets,” Daruty said. TrackNet Media has placed more than 1,000 wagering outlets into five or six categories for the purpose of establishing tiered pricing, he said.

It goes beyond account wagering services, casino race books, and off-track betting parlors operated by entities other than racetracks. There is a desire to charge non-Thoroughbred outlets such as Standardbred, Quarter Horse, and Greyhound tracks higher host fees.

“We believe host fees need to be increased,” said Daruty, who predicted such outlets could end up paying host fees of 5% to 8% for Thoroughbred signals. He suggested a resulting drop in revenue from 17% to roughly 12% per dollar wouldn’t damage them that greatly.

Coukos, who is involved in wagering issues for the National HBPA, said the revenue contribution that comes from the $8 billion bet on Thoroughbred races at other Thoroughbred tracks is considered fair. “We can live with it,” he said.

But the $5 billion wagered on Thoroughbred racing at “NTBAs”--non-Thoroughbred betting agencies--isn’t producing the desired revenue, Coukos said. Of the about $1 billion in revenue produced by NTBAs, only about $175 million is returned to Thoroughbred racing; more than $877 million in revenue could be generated through pricing changes, he said.

Such changes could prove unpopular and difficult to make given the fact some states such as Ohio and New Jersey have laws that basically protect other breeds or control rates.

“Thoroughbred tracks need to change their fees,” Coukos said. “And no less than one-third of total takeout should go to purses.”

Daruty said pricing isn’t the only issue. He said if pricing is tied to total handle, revenue is being lost because of differences in pari-mutuel takeout rates in various states. For instance, a track currently is charged a standard host fee even though its takeout rate on win wagers is 17% and takeout rate on trifecta bets is 30%.

A new model would base host fees on takeout. “We should create a model based on takeout where the host fee expands or contracts based on takeout,” Daruty said.

He also suggested different ways of calculating state pari-mutuel taxes could increase revenue for tracks and horsemen.

Gary Sproule, chief executive officer of account wagering provider Youbet.com, again offered his company’s pricing template of one-third for the host track, one-third for horsemen, and one-third for the account wagering company. He also said failure to see the big picture is a concern.

“There is very little growth in handle,” Sproule said. “The model needs to ensure growth of the pie, not just a percentage of the pie. We don’t have alignment of key interest groups. We’re just fighting over the same pie.”

Legislators for the most part advocate a hands-off approach when it comes to pari-mutuel pricing. Horsemen’s associations, meanwhile, have formed a coalition called the Thoroughbred Horsemen’s Group, which is attempting to improve the economic model in the industry.

 

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