Fair Grounds ADW Deal: Good or Bad?
by Ryan Conley
Date Posted: 11/18/2008 3:53:54 PM
Last Updated: 11/19/2008 1:20:04 PM

Slot machine revenue has fueled purses at Fair Grounds Racetrack.
Photo: Lou Hodges, Jr.

A recent deal that allowed expanded distribution of the Fair Grounds racing signal was hailed by some as a step forward in the months-long nationwide dispute between horsemen, racetracks, and advance deposit wagering entities. But some horsemen's groups are categorizing the development as a step backwards in an overall plan to secure higher revenue shares for purses from a growing wagering segment.

The Louisiana Horsemen’s Benevolent and Protective Association recently granted consent for the Fair Grounds signal to go to several national ADW outlets, including Twinspires.com, XpressBet.com, and Youbet.com, and are believed to still be in negotiations with TVG on an agreement. Deals of some sort were also cut over the course of the last several months for in-state tracks Delta Downs Racetrack & Casino, Evangeline Downs Racetrack & Casino, and Harrah's Louisiana Downs, agreements that have been called progressive by Sean Alfortish, president of the Louisiana HBPA.

But some member associations of the Thoroughbred Horsemen’s Group, which is serving as a national negotiating agent for about 20 state organizations, believe the actions in Louisiana work against the greater goal of securing what they see as a fairer share of revenue from wagers placed through the Internet, telephone, and mobile devices.

“To say I am deeply disappointed is an understatement,” said Kent Stirling, executive director of the Florida HBPA, whose 5,000-plus members have withheld ADW signal consent for Calder Race Course since the meet opened April 21. “This is monumental greed. I’m really upset with Louisiana; they’ve thrown the rest of the country under the bus.”

Stirling claims the Louisiana HBPA, which is a member group of the THG, “rode in on the coattails” of progress made by the agent group, and signed off on a deal for lesser revenue in a show of “me-mentality” thinking.

“They want the THG to go away,” Stirling said of certain racetracks and ADWs. “They think the way to make them go away is to make individual deals. They want to break us up.”

According to some horsemen’s groups, the significance of the Fair Grounds deal is that it involves the track’s parent company, Churchill Downs Inc. CDI, which also owns Twinspires.com, has since April been stalemated in negotiations with horsemen’s groups covering the company’s signature track, Churchill Downs, as well as Calder. CDI also is the lead plaintiff in an antitrust lawsuit against several horsemen’s groups and officials, including the THG.

“For a member of (the THG) to step out and do this, particularly when it involves Churchill Downs, and with what is happening in Kentucky and Florida, it weakens the link,” said Bessie Gruwell, executive director of the Delaware Thoroughbred Horsemen’s Association. “What it suggests is that horsemen are going to cave. Florida and Kentucky (horsemen) have had it tough, and they have stood firm. With the Louisiana HBPA making this move, it is showing that there is a sign of weakness.”

Dave Basler, executive director of the Ohio HBPA, said while he recognizes the right of the Louisiana horsemen to make an independent decision apart from the THG proposal, his group is also disappointed by what has taken place.

“While I don’t know the specifics of the deal cut between the Louisiana HBPA and the various ADW companies in regards to the Fair Grounds, I’m confident the terms were greatly enhanced by the efforts of other horsemen’s organizations around the country,” said Basler, whose organization has withheld signal consent from several Ohio tracks this year.

Other leaders of horsemen's groups declined to talk specifically about the Louisiana deal, but said they had unyielding support for the THG, which was formed in December 2007.

“We in Pennsylvania will always support equitable distribution,” said Todd Mostoller, executive director of the Pennsylvania HBPA, which in May withheld consent for the Presque Isle Downs signal. “As THG is our agent, we will always support the THG.”

Breaking a logjam

Alfortish defended the actions of the Louisiana HBPA, claiming the undisclosed terms of the agreement were close to the one-third proposal touted by the THG, and that something needed to be done to break the logjams present in many negotiations.

“I agree wholeheartedly with the goals of THG,” he said. “We are all in harmony that we would like to get the purses up and want broad-based distribution of content. I have however, from day one, informed the members of THG that I disagree in the means of how we try to carry this out.”

Alfortish claims the THG’s steadfast one-third proposal, which in theory seeks 7% of all ADW wagers based on a blended 21% pari-mutuel takeout rate, was a “quantum leap” in expectations.

“There is no way that you can jump up and say we are going from this to this overnight,” he said of ADW revenue sharing, which historically has contributed less than 3% to racing purses. “What happened is not a compromise of anything. It’s another huge step in the process of trying to resolve the issue.

“Everyday that a wager isn’t allowed to be taken on an ADW is one more day that we start to lose a bettor, and start to alienate our product. Everybody has gotten to a level of frustration where they know they have to do something.”

THG president Bob Reeves declined to discuss the Louisiana deal, citing issues resulting from the antitrust litigation, which includes as defendants the Kentucky HBPA, the Kentucky Thoroughbred Association, and related officials.

Stuck in neutral?

ADW providers have long argued the economics of the one-third model won’t work for a variety of reasons, not the least of which is the potential for losing money. States where laws mandate a 50-50 split of revenue would necessitate at least a 14% share for racetracks and horsemen, based on the one-third model applying to blended takeout, leaving 7% for ADWs. Whether that ADW slice is too much, too little, or just enough, is hotly-debated among the principals.

Other laws restrict the amount of revenue that can leave the state, Alfortish said, or aren’t uniform in defining source-market fee coverage, which is designed to compensate for lost wagers made on track. But he believes there is still some wiggle room for higher splits for both the racetrack and horsemen, but not at the blanket one-third rate backed by the THG.

“The problem is, there isn’t a whole heck of a lot to give,” said Alfortish, who has a background both as a lawyer and a judge. “If we can bring back the product to the bettors, and the bettors respond to that, and it continues to increase, there’s nothing to ask for an extra percentage when that company is making another $20 million to $30 million in handle.”

To a person, the horsemen interviewed are also concerned about the betting public. But they claim now is the time to fight, particularly against racetrack companies that also operate ADWs, such as CDI and MEC, which in theory end up with the balance of revenue from such wagers after paying into purses.

“You have bettors upset over this, and the last thing we want to do is alienate our bettors,” Gruwell said. “But at the same time, you have to make a stand at some point.”

Stirling said the Florida horsemen under his watch have been making a stand for 140-plus days, enduring multiple purse cuts implemented by CDI, which conversely has lost significant handle revenue.

“We couldn’t be more proud of our horsemen,” Stirling said. "They know the numbers. They understand what’s trying to be done. What we have been offered is not a fair deal.”

But Alfortish claims there are fair enough deals to be had, and whether his horsemen brethren agree with him or not, he said he has acted on the behalf of the racing industry and bettors, as well as his first priority, Louisiana horsemen.

“I’m just saying that we have a recipe for something that works,” he said, noting increases in handle at certain Louisiana tracks in the midst of a nationwide wagering downturn. “I hope the THG members understand we are trying to push forward. We all understand that the model is broken, but I feel we can’t fix it overnight. But that doesn’t mean we can’t cure the problem over the next two or three years and still keep everyone happy.”
 



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

SUBSCRIBE to The Blood-Horse magazine TODAY!