Kentucky Tracks Need New Source-Market Fee Deal

Kentucky racetracks and horsemen’s groups will have to hammer out a new agreement on source-market fees now that Churchill Downs Inc. no longer has an exclusive agreement with account wagering provider TVG.

Through March, all five Thoroughbred tracks in Kentucky had agreements with TVG, and they have operated under an agreement that divvies up revenue from bets made through TVG. When CDI and TVG failed to renew their agreement this year, the Churchill signal was removed from TVG. Ellis Park, which operates in the summer, has a deal with CDI to sell its simulcast product; it was made when CDI sold the western Kentucky track last summer.

(CDI and Magna Entertainment Corp. joined forces to form TrackNet Media Group, which buys and sells simulcast signals. Both companies have a half-interest in HRTV, a TVG competitor.)

That leaves Keeneland, Kentucky Downs, and Turfway Park as the only Kentucky tracks with exclusive TVG contracts when the five-track agreement expires July 1. Thus, all source-market fees--designed to protect a track from cannibalization of on-track handle by account wagering in their market--would go to them pending a new deal that must be made between the Kentucky tracks and horsemen’s groups.

Turfway president Bob Elliston said the assumption is the three tracks with exclusives would get all the source-market fees. Keeneland has a TVG exclusive contract through 2008; Turfway’s is up after its winter/spring meet of 2009.

John Hindman, vice president of communications and general counsel for TVG, said the network last year returned $6,387,314 in source-market fees to Kentucky. That number could drop this year given the absence of the Churchill product; however, handle may shift to other products and help offset any decline.

“We don’t have exact numbers, because wagering levels could be a factor,” Elliston said of revenue from source-market fees. “But it’s safe to say (source-market fees) have been good for purses. I would not be surprised if it’s a significant six-figure number for Turfway this year.”

For the record, in 2006 Keeneland averaged $643,079 in purses per day for 32 days; Kentucky Downs $277,000 for four days; and Turfway $139,953 for 117 days of racing.

Source-market fees are split 50-50 by racetracks and horsemen in Kentucky. For instance, if a track were to receive $1.5 million in source-market fees, horsemen would get $750,000 for purses and the track $750,000 assuming there is no revenue-sharing agreement between all the tracks in the state.

Since its inception in the late 1990s through the first quarter of 2007, TVG has paid more than $33.2 million in source-market fees to Kentucky, Hindman said. Nationwide through the first quarter of 2007, the figure is $188 million, he said.