Magna Statement on ADW (Cont.)
Date Posted: 1/23/2002 2:39:44 PM
Last Updated: 1/23/2002 2:40:19 PM

Content:
MEC has been a major investor in content. We own/operate ten pari-mutuel operations today and expect to expand further in the years ahead. XpressBet also has relationships with over 40 other racetracks to enable customers to wager on such tracks via the telephone. These relationships have been extended to include XpressBet‰ on-line and to permit the broadcast of races from these racetracks via television and the Internet.

MEC has developed a new Host and Territorial fee structure that it will communicate to its content partners over the next week or so. Our goal is to provide the broadest possible distribution of races from MEC tracks and its content partners tracks.


Competition and Customers:
MEC believes strongly in free enterprise. The application of free enterprise principles would, in our opinion, lead to the creation of a dynamic horse racing industry – an industry where operators are free to invest knowing that the ones who put on the best show, who attract the most customers and who operate most efficiently and creatively, will be the ones who succeed over the long-term. These are the governing principles in virtually every other business in America, and they are responsible for making America the greatest country in the world in which to do business.

TVG, in a press release dated December 7, 2001, has claimed that content exclusivity is necessary to get television coverage of horse racing. In the same press release, TVG accused MEC of being naïve in thinking any differently and advised the industry to look to the NBA, NFL, MLB, NHL, PGA, NASCAR and the Olympics as examples to support its position of the need for exclusivity. MEC disagrees with the view expressed by TVG for the reasons outlined below.

Consider the need for exclusivity. Traditional TV programming models have a revenue source that is based on advertising dollars, not on revenues derived from wagers placed on the content being broadcast. In fact, the leagues and organizations cited by TVG as examples of the need for content exclusivity are forced to distance themselves from betting because wagering on their sports or activities is illegal in most states. When the revenue source is primarily advertising, exclusivity is important because it allows the broadcaster to be the only entity, which offers an advertising opportunity to reach the persons watching the event. However, the primary motivating factor for television coverage of horse races other than the premier races is maximizing the dollars wagered. To do this, you need broadcast coverage that is as extensive as possible. The greater the TV distribution, the greater the wagers that will be placed, which in turn results in greater revenues that will be realized for the benefit of stakeholders in the horse racing industry. The economics of horse racing TV, being dependent primarily upon wagering, call for broad TV coverage – "If they can see it, they will bet."

Furthermore, all of the leagues and organizations cited by TVG have broad distribution over multiple TV channels. Under its model TVG is acting as the aggregator of tracks and track content. In other words, TVG is cutting individual deals with individual tracks and then aggregating them into a collective broadcast undertaking. For the other leagues, it is the teams themselves who aggregate in the form of a league and then use the league office to negotiate on their collective behalf. It is obvious which negotiating scenario will yield a greater return to the tracks. MEC, as the owner of live racetracks, is sensitive to this issue, and to the needs of the individual tracks. That is why MEC has developed its business model the way it has, including the significant increase to the host fee that will be paid. The track that puts on the "show" should get a greater share of the revenue. Further, MEC would be prepared to spearhead an aggregation of all racetracks to form an account wagering company owned by the industry that would be able, in future, to negotiate a fair return to the industry from all account wagering operators, particularly those offering TV distribution. This initiative should also include an industry approach to offshore rebating services.

MEC is committed to make its tracks' races available to other account wagering services both for wagering and broadcast. MEC does not seek any special privileges. Nor do we seek to dominate any other industry participant. Nor do we wish to be dominated by anyone else. To this end we have developed what we believe are reasonable guidelines under which we will transact business with other account wagering operators. These guidelines will be spelled out in an industry letter to be distributed next week. We regret the interruption in service caused by the cessation of business by TRN and our failure to reach satisfactory arrangements with TVG. Over the next few weeks we will launch our new direct-to-home satellite service. As well we are actively negotiating with cable operators for broader distribution of our racing product.

ADW represents an opportunity for our industry to dramatically expand its customer base. The combination of modern interactive technology and 21st century media technology provides new methods for us to reach out to our existing and new customers at home, in their offices and on the road. We need to get ADW up and running in California as soon as possible. Also, at this stage in the development of a new era for horse racing and wagering it's too early to predetermine the winners. We need to permit multiple licensees to invest in capital assets and innovation as they strive to grow this new segment of our business. We must let free market forces and the entrepreneurs in our industry pursue new business opportunities. If we stifle free market forces and the innovation they foster, we will deprive our industry and all its stakeholders of a significant growth opportunity.

We must not let the old structures, attitudes and beliefs of our industry destroy the golden opportunity presented by ADW to grow new customers.

The truth is many people see the interactive and broadcast sides of our business as the most profitable components and they want to participate in those portions only, without making any meaningful investment in live racing. MEC is different. We have invested heavily in live racing because it is central to our entire vision. If we don't grow live racing there won't be any business or profits for the interactive and broadcast services to participate in. It would be like watching football or basketball on television with no one in the stands. Horseracing has been a live spectator sport for more than 5,000 years. With investment and innovation we can continue to grow customers for years to come.

It's time to encourage our industry to combine capital, bricks and mortar, technology and innovation to bring about a revival of a sport and an industry that has been a major contributor to communities and provided a livelihood to millions of people across America for generations. MEC looks forward to playing a major and constructive role in such a revival.

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