Tote Reconstruction Could Take Several Years

Reconstruction of the pari-mutuel industry's tote infrastructure is ready to begin, but the project may not be completed for two to three years, Churchill Downs Inc. president Tom Meeker said.

Meeker, who spoke during a May 11 teleconference on the company's first-quarter earnings, said the tote system--currently different systems linked for the purpose of processing wagers--needs better security, "open architecture on the front end," and a "black box" that would store all wagering information in one location.

CDI has joined Magna Entertainment Corp., the New Jersey Sports and Exposition Authority, the New York Racing Association, and Woodbine Entertainment Group in developing a request for proposals for the project. The racing companies already have contracts with various tote providers.

Under the current system, a tote contractor basically guarantees vendors exclusivity at a track, a network of tracks, or even in a state. Meeker envisions a system whereby there could be multiple vendors under one roof, much like casinos have slot machines designed by multiple vendors.

Some industry leaders have long sought to develop a single repository to store all wagering data for security purposes. Meeker said there are 52 hubs that now collect bets and send information to host facilities; he called for one black box and one backup location for wagering information that would be monitored by a proposed Office of Wagering Security.

The "open architecture" would allow different interfaces to meet customer demand and allow for technological growth. Meeker said it would take about a year to build the system, but there also are tote contracts that need to be addressed.

"That's probably a good thing," he said, "because in an orderly way, we can begin moving the industry to a common system."

CDI reported a net loss of $13.9 million for the first quarter of 2005--up from $11.7 million a year earlier--even though net revenue increased 49.1% because of the addition of 61 live racing dates at Fair Grounds, which the company purchased last year. The company said it spent $2.8 million on legislative endeavors in Florida, and also lost $1.8 million in net revenue in Illinois because Arlington Park wasn't awarded host status for simulcasts in the state in February.

CDI chief financial officer Mike Miller the overall pari-mutuel industry took a 6% handle hit in the first quarter of 2005 compared with a year earlier. "All of us felt the impact of this softness," he said.

In Louisiana, Meeker said slot machines could be operating at Fair Grounds next summer or fall. CDI is in the final stages of obtaining a conditional use permit to build a slots parlor, he said.

The New Orleans Planning Commission has recommended CDI be permitted to operate slots for 14 hours a day during the week, and 16 hours a day on a weekends. The New Orleans City Council must now vote on the recommendation.

Of the CDI Louisiana operations, racing at Fair Grounds produced 86% of total revenue, while video poker machines generated 14%. In financial statements, CDI noted a bill filed in the state legislature would hike the video poker tax by 4%. The company said Video Services Inc., which it purchased in a separate deal, would "oppose this and other bills that could have an adverse effect on its operations."

CDI also said it has concerns in Indiana, where the company is majority owner of Hoosier Park. A new law makes it a Class D felony for an "operator to use the Internet to engage in unlawful gambling in Indiana or with a person located in Indiana," the company said. An "operator" is defined as a person who owns, maintains, or operates an Internet site used for interactive gambling.

The law could impact account-wagering providers that take bets on Indiana races.

"We receive source-market fees from various in-home wagering providers for the licensing of our live racing products in their distribution of such products through broadcast mediums such as television or the Internet," the financial statement said. "In the event these in-home wagering providers are determined to be operators, and the activities engaged in by such persons are determined to be unlawful gambling under (the law), the distribution of our products through in-home wagering in Indiana could cease or be seriously curtailed, which could have a material, adverse impact on our consolidated results of operations."