Willmot Sees Dark Future Without Cooperation on Simulcasting

David Willmot didn’t paint a very pretty picture of the North American pari-mutuel business in his remarks at the 31st Asian Racing Conference in Dubai Tuesday, but the chief executive officer of Canada's Woodbine Entertainment Group has never been one to mince words.

Unless things change from the current structure, the outspoken Willmot said, "My belief is that there will not be a stand-alone racetrack in North America in 10 years."

Woodbine is one of a growing number of tracks that rely heavily on revenue from slot machines or other forms of gambling. Willmot, who said the pari-mutuel system is disappearing because of leakage to third-party operators, said "we cannot rely on slot machines alone."

Willmot outlined the various challenges in North American to the 700-plus delegates attending the second day of the four-day conference. "The New York Racing Association is in bankruptcy and its future is in doubt," he said. "Magna has lost $100 million per year for the last three years, and Churchill Downs Inc.’s numbers have been static."

Compounding the problem, Willmot said, is inaccurate tabulation of total annual pari-mutuel handle in North America. Willmot said he is convinced as much as $3 billion of annual handle (nearly 20% of the total) is being double-counted.

"The (National Thoroughbred Racing Association) numbers are highly misrepresented," he said. "There is a lot of double-counting going on that is skewing the statistics." Willmot referred to simulcast handle he thinks is being counted at both the sending and receiving sites.

As a result, Willmot said, he believes handle has decreased in recent years, but "the biggest single threat is the erosion of our margins and leakage out of our pari-mutuel system."

Margins were hurt when simulcasting began and tracks priced the product too low, Willmot said, but the leakage occurred as a result of the Internet, when "we lost all control" to third-party operators with no investment in the business.

Willmot said animals in the wild begin to look at themselves differently when water in the watering holes is getting lower and lower. "We in racing are beginning to look at each other differently now," he said. "The day of racetracks looking at each other as competitors is over. We are one family."

That family must work together to stop the leakage and erosion of margins, Willmot suggested, by forming a single entity to sell simulcast signals—not unlike Equibase, which was formed by racetracks and The Jockey Club to collect racing statistics.

Willmot called the proposed company Simulco, which he said could set separate simulcast signal prices for racetracks and for third-party operators who currently are getting a discounted rate that allows them to offer rebates to customers. Willmot said some tracks, including public companies like Magna and Churchill, are considering higher prices for their premier simulcast signals, but he said that will only cause receiving tracks to replace those high-priced/low margin signals with low-priced/higher margin tracks.

"This will result in an interruption of the product to our customers, which will drive them further to the Internet," he said.

The third-party operators will cry that a company like Simulco would violate anti-trust laws, Willmot said, but the former attorney said his interpretation of anti-trust laws is that they are geared toward price-fixing that generates excessive profits. "No racetracks are getting excessive profits," he said.

"We are in a fight for our lives and we have to take control of our business," Willmot said. "I say let's bring it on and let’s have the fight. If we don’t, we are looking at death by a thousand cuts.

"If we don’t take this problem seriously and deal with it right now, we have a very, very dark future."

Revenue challenges also were cited as troubling British racing, with Sir Tristram Ricketts, chief executive of the Horserace Betting Levy Board, reporting estimated levy yields to support racing during 2006-07 are flat. He noted market erosion as a factor and conceded that “challenges, as we know, abound, but solutions are not in great supply.”

In Hong Kong, government reform of the taxation system from a percentage of handle to a percentage of gross profits and the Hong Kong Jockey Club’s new ability to offer rebates and a variety of exotic wagers have sparked the first increase in turnover in years, said Henry Chan, HKJC executive director of betting. The club is considering offering new forms of betting, including fixed-odds wagering, but still faces considerable constraints as it seeks growth, including an inability to commingle with foreign pools and high taxation rates assessed to foreign outlets commingling with Hong Kong pools.

 Some information from Asian Racing Conference press release