One old betting axiom -- “shut out at the window” -- has taken on a whole new meaning when paired with a relatively new one in the racing industry lexicon: “signal wars.”
Disputes between horsemen, racetracks, and advance deposit wagering entities have dominated racing news in 2008, and threaten to continue into 2009, as the primary parties scrap over revenue from wagers made via the Internet, telephone, or mobile devices. The fallout has contributed to declining handle and purses at many tracks, as horsemen exercise their right to withhold consent for signal distribution.
It started in the spring, with certain ADW signal curtailments evident at such tracks as Calder Race Course, Churchill Downs, Presque Isle Downs, and Lone Star Park, among others. It has continued into the fall with Calder still without ADW signal approvals, and shut-outs again at Churchill and, most recently, Hollywood Park.
Left in the wake of the battles are ADW customers, who while sometimes sympathetic to one side or the other, are often left without favored tracks upon which to bet.
“They are very frustrated, and discouraged; some are outraged, that the signals aren’t going out,” said Jeff Platt, a Southern California computer programmer who is president of the new bettors’ advocacy group, Horseplayers Association of North America. “The level of frustration is an eye-opener to us. And a lot of players are telling me they are going to play something else.”
Frustrations aside, what’s also confusing to many players is this: Why are signals going out to some ADWs, but not others? The so-called “Big Four” – TVG, TwinSpires.com, XpressBet.com, and Youbet.com – are regular non-consent targets of horsemen, but so are certain other smaller venues, such as AmWest Entertainment, BetAmerica, Betpad, Premier Turf Club, and the Racing Channel.
On the “have” side are a group that includes New York City Off-Track Betting Corp., Philadelphia Park PhoneBet, Penn National’s EbetUSA, Connecticut OTB, certain entities offered via the Las Vegas Dissemination Co., and several high-volume offshore entities such as Elite Turf Club and Racing and Gaming Services.
The answer to the apparent discrepancy is not so simple, said Bob Reeves, president of the Thoroughbred Horsemen’s Group. The THG, which burst upon the scene this year as a national negotiating agent for a roster of horsemen’s groups that now number 19, is for now primarily targeting ADWs that operate in multiple states, including the Big Four, as well as those that are seemingly less regulated than others, and those it deems not giving enough support to live racing.
“I’m not going to say it is a black-and-white situation,” Reeves said. “I’m going to say it’s a complex situation.”
TVG, TwinSpires.com, XpressBet.com, and Youbet.com are estimated by the THG to control 90% of the domestic ADW account-holders. The four entities, which operate through hubs in Oregon, combined for more than $700 million in handle through the first six months of the year, according to data published by the state’s racing commission, or about 10% of the total $7.2 billion wagered during that period on North American racing.
“The Big Four is who our members have asked us to negotiate with,” Reeves said. “There are a lot of reasons why others may or may not be getting it: Are they dealing with high-volume players? Are they doing business on a multi-jurisdictional basis? Do they contribute to live horse racing in their state? Are they properly regulated? Those are the types of things we look at.”
As an example, New York City OTB, which has customers in multiple states, contributes heavily to live racing in the state, Reeves said, and charges players residing outside of the state a higher fee. With about $1 billion in collective handle across all of its platforms, New York City OTB is regarded as the largest single wagering entity in the United States. All of the various entities incorporated in the New York state off-track betting system, which include six separate companies, handle about $2 billion in annual wagers.
“I’m not blowing smoke in talking about the complexity,” Reeves said. “People ask us, ‘Why are you charging this guy 8% and this guy 3%?’ You can’t just look at what a sending site is getting paid, and not look at how the receiving part is supporting live racing. This is not horsemen being greedy, this is horsemen and racetracks trying to support live horse racing so that it will be around."
“The (Interstate Horse Racing Act) was put into place to protect live horse racing,” Reeves said, noting the federal law that gives horsemen the right to withhold signal consent. “And who better to protect live horse racing than the people that own the horses that put them out on the track?”
Then there's the offshores
But some wonder why offshore entities such as Elite Turf Club and RGS aren't THG targets. Earlier in the year, Reeves simply said offshores are something the THG still needed to figure out what to do with. But now he says Elite and RGS deserve preferential treatment because of their volume.
The two offshores alone are estimated by some to process up to 15% of all North American handle. Players are given cash rewards, or rebates, on their wagers, often to the tune of 10% or more.
“Do you believe that businesses dealing with big customers should get a discount?” Reeves asked. “I happen to be in that school: that high-volume players betting over $1 million or more should get a discount. If these guys had to bet at a racetrack, or at the same takeout at the racetrack, would they still bet? And at the volume at which they are betting? I don’t think they would.”
Conversely, Reeves asked, why don’t TVG, TwinSpires.com, XpressBet.com, and Youbet.com offer discounts to its top-volume players?
“Why should we tell high-volume players through which platforms they should place their wagers?” he asked. “I think a high-volume player ought to be able to choose a platform with what he perceives as to be the best service.”
Leaving the game?
Platt, who has penned a critical open letter to the horseracing industry on behalf of HANA, believes availability should be made to all bettors, regardless of the level. And he said players in the HANA organization and elsewhere could really care less how it happens, as long as it happens quickly.
“You don’t walk into a casino and have someone tell you the craps tables are closed, or the blackjack dealers are on strike,” Platt said. “Racing is making it difficult on its players. Players are leaving the game. They are spending their money elsewhere. And many of them are not coming back.”
HANA, which was launched this summer, has just fewer than 300 members that combined wager about $25 million a year, Platt said. “We don’t have enough members yet to stage a public demonstration (such as a wagering boycott), but the day may come when there will be several thousand members. And then we will be able to coordinate some sort of an effort.”
Reeves said the THG sympathizes with the horseplayers’ community, including the average $2 bettor.
“I am asking for patience and support,” he said. “My goals are parallel to the guy you are talking about. If you blow the smoke away, and understand the economics of how little horse owners and racetracks get when a wager shifts from on track to an account wagering company, he would be banging on the table with his shoe for us to negotiate harder.”
Hope on the horizon?
Reeves is hopeful a breakthrough can be realized with at least one of the Big Four -- Magna Entertainment Corp.’s XpressBet.com. Frank Stronach, founder and chairman of MEC, in August said in a statement he was working with the THG, and was hopeful “we will develop a new framework which will improve the economics of the horseracing industry for both racetracks and horse owners."
Stronach, while attending the Keeneland November breeding stock sale, told the Louisville Courier-Journal Nov. 5 he was “confident we will arrive (at) an agreement with the horsemen.”
But complicating matters is MEC’s involvement with Churchill Downs Inc. in TrackNet Media Group, which the two companies formed in March 2007 as a racing content venture. CDI owns TwinSpires.com, and both are plaintiffs in an antitrust lawsuit against several defendants that include the THG, alleging the latter group is “the hub of the conspiracy” of a “price-fixing” scheme, according to court filings.
“As far as I am concerned, I have Frank Stronach’s word on what we are doing, and that is good as having an agreement with Magna Entertainment,” Reeves said while acknowledging the contractual issues between MEC and CDI. “It gets pretty bleak in January when you are looking for signals to wager on and you don’t have Santa Anita and Gulfstream Park (which are both owned by MEC).”
Things aren’t as cozy with TVG and Youbet.com. TVG, which is offered for sale by parent company Macrovision Solutions Corp., criticized the decision of the Thoroughbred Owners of California to withhold the Hollywood Park signal. The TOC is headed by Drew Couto, who is executive vice president of the THG. And the president of Hollywood Park is Jack Liebau, who is also the chairman of Youbet.com.
“Hollywood Park is closing, so who really are they representing?” Reeves asked, referencing eventual redevelopment plans slated for the Southern California racetrack. “Don’t forget the fact that Jack Liebau is the chairman of Youbet. They are not fighting to keep Hollywood Park open. They are fighting for the future of the ADW company, as far as I am concerned.”
In a recent interview, Liebau said he was “not as active” with Youbet.com as he is with the affairs of Hollywood Park. “But we are interested in getting the highest possible fee for our signal,” he said.
Liebau was critical of the THG proposal for a one-third revenue share of blended takeout, which is about 21 cents of every dollar wagered, or 7%. Other fees, such as television fees, can make that figure higher for ADW operators. Liebau said he doesn’t understand why deals made with other groups, such as New York OTB parlors, casinos, and offshores are much less, setting fees for them from 2.75% to 6%.
“The ADW providers are paying more than what these other get for some reason,” he said. “It doesn’t make a lot of sense to me.”