Wanted: A Better Pari-Mutuel Model

Racing signals and revenue derived from them were the focus of a symposium forum.

The head of the National Horsemen’s Benevolent and Protective Association has suggested the horseracing industry create an entity to assist in the marketing and distribution of its product, in this case racing signals.

National HBPA president Joe Santanna made the comments during a Dec. 5 forum at the University of Arizona Symposium on Racing & Gaming. The session, titled “Consolidation--What Does It Mean?” focused on the pros and cons of horizontal and vertical integration in the pari-mutuel industry.

Santanna, also president of the Pennsylvania HBPA, said during his presentation horsemen haven’t taken advantage of their place in the market, namely their ownership of the product and rights to distribution and pricing under the Interstate Horseracing Act of 1978. He said the goal is to increase purses derived from pari-mutuel revenue.

Without offering specifics, Santanna called for “intra-industry strategic alliances” to work toward a structure whereby horsemen, racetracks, and third-party operators such as account wagering companies would benefit.

“It’s a simple approach,” Santanna said. “Once the strategy is complete, I’m sure we’ll have the structure in place to put it in motion.”

When asked after the meeting the nature of the proposed “entity,” Santanna said: “I don’t know what it is yet, but I think horsemen and the National HBPA are sharing ideas. I’m being suggestive, not predictive. We have to narrow that gap (between pari-mutuel handle and revenue for purses). If each of our guys can do it at the state level, that’s fine.”

Santanna said that as president of the Pennsylvania HBPA, he personally supports a business model floated by Youbet.com, one of the country’s top account wagering providers, which calls for a basic three-party agreement: Pari-mutuel revenue would be divvied up one-third each to horsemen, racetracks, and the account wagering company.

Gary Sproule, who just took over from Charles Champion as Youbet.com president and chief executive officer, said during the forum there are opportunities for the industry to “remove inefficiencies” and return more money to the industry; ensure all content is available to all providers; create an environment that encourages competition, not eliminates competitors; and protect the interests of customers.

Sproule said sub-license fees, which are paid to third-party operators for rights to content, take revenue away from purses and product development. He said the proposed business model would eliminate the need for sub-license and source-market fees.

Sproule said Youbet.com, which does about everything except own a racetrack and racehorses, has grown “horizontally” through its purchase of the offshore rebate shop International Racing Group, and “vertically” through its purchase of United Tote.

Scott Daruty, president of TrackNet Media Group, a partnership between Churchill Downs Inc. and Magna Entertainment Corp., said there are three “driving forces” behind vertical integration in the racing industry: a desire by tracks to gain better control of their product, a need by tracks to maintain relationships with customers, and to support the racing industry.

He said investment by MEC in the HRTV racing network and AmTote, and by CDI in the television and data business wasn’t done to make lots of money.

“They are by no means economic home runs,” Daruty said. “TV is a critical component, but are they in and of themselves widely profitable business ventures? Absolutely not. Vertical integration is done not so much for the economics of new business but the overall health of the racing industry.”

Daruty used Latin America as an example of how the distribution process has changed. He said companies had found a partner to distribute United States racing in Latin America, but there was no control over signals, no contact with betting outlets, and weak economics. The tracks, he said, have found they can get higher host fees for signals as well as have control.

“It’s an area in which TrackNet is going to focus on in the coming months,” Daruty said.