Words of Warning for California Satellites

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California's aging satellite wagering network got a wake-up call from the new chairman of the state's horse racing board during its meeting Feb. 19 at Santa Anita Park.

Keith Brackpool, chairing the CHRB for the first time since replacing John Harris, told a representative of the organization that oversees the off-track facilities in Southern California that "it doesn't appear to be a sustainable business model any longer."

Tom Verela, general manager of Southern California Off-Track Wagering, Inc., told the board that the satellite facilities in his region have been operating at a loss since 2005. The system, which was established in 1988 and is said to number 32 wagering sites, mainly at county fair locations, has experienced "serious deficits" since 2007, he said.

Bettors have shunned the brick-and-mortar facilities and wager from home via computer or telephone, Verela explained. He said wagering at satellite locations is off 40% since advance deposit wagering was approved in the state. He projected a $4 million deficit for 2010.

Brackpool, though, wasn't sympathetic. Informed that there are currently no customer complaints outstanding even though attendance is dwindling, he retorted, "I believe the complaint is that people aren't going to the satellites. They are speaking with their feet."

Among the suggestions made during the meeting was a potential expansion of the so-called "mini-satellite" system. Simulcasting at facilities such as card clubs and restaurants has resulted in some success. The Commerce Club near Los Angeles recently expanded its facility and is reportedly handling from $60,000 to $80,000 per day. Legislation that would reduce certain restrictions on establishing new locations could come later this year, according to a lobbyist who spoke to the board.

Verela said his group, which includes representation from the Thoroughbred Owners of California and racing associations from the entire region, is currently evaluating its satellite facilities to determine what can be done to improve the situation.

He said a "five-year-plan" would be ready for presentation by June 30.

But Brackpool and board vice chairman David Israel said that wasn't soon enough. Brackpool said the board's marketing committee would be expecting to hear some detailed proposals from SCOTWINC much sooner than that.

Revenues from satellite wagering fund several racing-related programs, including off-site stabling and vanning in each half of the state. As a result of the shortfall, funding is no longer available for training facilities at San Luis Rey Downs and Fairplex Park. Officials recently announced that San Luis Rey Downs, in northern San Diego County, is to close March 15.

Jack Liebau, president of Hollywood Park, said both SCOTWINC and the Northern California off-track wagering system, NCOTWINC, "have problems as far as solvency is concerned." He said the deficit in Southern California "is a staggering amount" at $24,000 a day. But he also noted that revenues from off-site facilities generate significant revenue daily for purses and commissions.

Labor costs for clerks are a big part of the problem, Liebau said, and negotiations with their local are progressing.

The TOC recently assisted SCOTWINC by agreeing to shift some of its ADW revenue from purses. Marsha Naify, the TOC's chair, said the satellite wagering system "is sort of a quagmire," but said that after its current memorandum of understanding expires on June 30, there must be improvements.

"Otherwise, we will no longer support a failed business model," she said, concurring with Brackpool.

The situation in the north isn't much better. A NCOTWINC report estimated its deficit at $2.7 million from 2005 to 2009, an amount that has been carried so far by Golden Gate Fields.

Robert Hartman, general manager at Golden Gate Fields, noted that the loss of the satellite facility at Bay Meadows was a big blow since it was the largest in the region. He said the facility in San Jose, the area with the greatest potential for development, is an "embarrassment."

Christopher Korby, executive director of the California Authority for Racing Fairs, told the board, "Two satellites have closed in the last year and several others are on the threshold."

Funding for the simulcast organization's operational expenses were previously capped at 2.5% of its handle for Thoroughbred meets. A law approved by the state legislature last year allows the off-track system to seek an amount not to exceed 4% with the CHRB's approval, and could not be in effect for no more than 12 months at a time.

But without improvement in how they do business over the long term, Brackpool said, the board would not be very receptive.

"Don't come here after July 1 thinking we will rubber-stamp a new agreement," he said.

Brackpool, a native of London, England, who owns a few Thoroughbreds and lives in Santa Monica, brought a crispness to the CHRB meeting that has been missing with board chairmen during the past decade. This was just his third meeting since being appointed by Gov. Arnold Schwarzenegger last fall.

He admonished several speakers for straying from the focus of agenda topics and said that the detailed discussions that have previously dominated meetings would instead be handled by board committees. The result was immediately noticeable. A meeting that would have routinely lasted five hours was over in less than half that time.

And he said the usual excuses for California racing's decline would no longer be acceptable.

"I'm hearing that we've tried everything and nothing works. I just don't get it," he said. "I refuse to believe we've tried everything. I refuse to believe that we are dealing with a shrinking pie."