TVG, California Horsemen Deadlock Over Hub Fees

Account wagering in California remains mired in a dispute between horsemen and TVG over setting hub fees, officials from both sides told the California Horse Racing Board on Aug. 17, with no guarantee the stalemate will be resolved soon.

The CHRB gave them 30 days -– or until the next board meeting Sept. 14 --to iron out their differences, which concern what the television racing network can charge for the service they provide. If not worked out by then, board chairman Richard Shapiro said the commission would step in.

Drew Couto, president of the Thoroughbred Owners of California, complained that TVG is setting hub fees – and essentially withholding funds that would otherwise go to track commissions and purses – and has refused to negotiate with horsemen since October. He said TVG has not had a contract with the TOC since Santa Anita opened Dec. 26.

"This year, we've had a unique situation," Couto said, noting that TVG has had an agreement with the horsemen every year since ADW became law in 2002. "We have not been allowed a place at the table. For whatever reason, that meeting has not taken place going back to October."

John Hindman, TVG vice president and general counsel, said the Southern California ADW provider would negotiate in "good faith" with the TOC. Under prompting from Shapiro, he said TVG general manager David Nathanson, who has thus far declined to take part in talks with the horsemen, would be involved.

When Shapiro said he felt such a meeting was a positive step toward ending the stalemate, Hindman responded, "I hope we can at least make progress."

"Say you will solve this," retorted Shapiro.

TVG has questioned how much of a role the horsemen are to play in negotiations over setting hub fees under California legislation authorizing ADW. Under the law, account wagering providers can charge as much as 6.5% for its hub fee, plus a 3.5% host fee if they contract with an out-of-state track to use that track's signal for California customers. Couto and leading owner Jess Jackson, who also addressed the board, contend that the Interstate Horse Racing Act gives horse owners control over the use of the sport's signal and they must sign off on any agreement between racing associations and carriers.

Couto pointed to some of his TOC directors and representatives of horsemen's groups in Illinois, Ohio, Kentucky, Florida, Arkansas and Virginia at the meeting. "This is not simply a TOC and TVG issue. This matter affects horsemen across the country," he said.

Hindman warned, though, that any reduction in hub fee rates would come at the expense of programming.

"We've invested a lot of money into that (business model)," he said. "It's important to the quality of the programming. Please remember there's a direct correlation to what we are able to put on the screen every day and how that model operates."

Shapiro noted that California legislation authorizing ADW expires at the end of 2007 and that it is important that the issue of setting hub fees be resolved before others can be addressed.

"Unfortunately, we've seen cannibalization of our fans and more revenue streaming through ADW providers and less flowing through our racetracks," Shapiro said. "We have to find a way to make it work for everyone."

Commissioner John Amerman, a leading owner in the state, said, "It strikes me that (ADW) isn't working at all.

"TVG, God bless you. You've really invested and we, at least I, really appreciate it. But without the tracks, without the horses, you have nothing. A breakdown of 3 to 15% (hub and host fees) makes absolutely no sense. We are not going in the right direction."

In other action, the board backed off rule changes that would have eliminated the coupling of horses with common ownership after a strong response from the public in opposition to the plan during a 45-day comment period. The vote was 5-0 with Commissioner John Harris abstaining.

"I feel personally that it borders too close on the integrity of the game," Shapiro said. "If we did not have a shortage of horses, I don't think we would be having this discussion."

Harris said afterward that he favored the proposal after seeing the results of a trial period at the most recent Bay Meadows and Hollywood Park meetings. Figures provided by the Bay Meadows Land Company, which owns both tracks, showed a 26% jump at Bay Meadows and a 13% hike at Hollywood Park in wagering on comparable races as a result of eliminating the entry rules.

"The data clearly shows that when you get more entries you get more handle," said Harris.