Wagering on the Future

The recent agreement between the TV Games Network and Youbet.com, described in detail by Eric Mitchell on page 3234, looks like a win-win-win-win situation for the racing industry.

Owners and racetracks win because Youbet.com is adopting TVG's source market fee program, which distributes revenue equitably among horsemen and racetracks in the region where the bettor resides and where the race he wagers on originates. In other words, horsemen and tracks will get a fair slice of a pie that, through this agreement, should grow in size.

Racing fans win because they now have more choices. Previously, a "Catch-22" situation existed in that many premier tracks were available for online wagering only through TVG, but TVG accounts could only be opened in a handful of states. Within a couple of months, Youbet.com will offer wagering on TVG partner tracks to subscribers in up to 39 states.

TVG and Youbet.com win because each company realizes it can accomplish more by working together than through prolonged competition and potential legal battles over patents and technology.

The National Thoroughbred Racing Association wins because 0.75% of Youbet.com wagers made on TVG partner tracks will go to the NTRA, giving that organization a much-needed financial boost.

If the TVG/Youbet.com agreement blossoms, there is every reason to believe interactive wagering will see sustained growth. Youbet.com customers will be able to wager on races from TVG partner tracks, and they also may be able to view those races on their computer screens. If Youbet.com is marketed on TVG telecasts, it should be able to sign up thousands of new account holders from states where TVG currently is not available for account wagering.

Application of the source market fee program to Youbet.com wagers is very significant, from both a practical and symbolic standpoint. The agreement will add substantial funds to purse accounts and racetrack ledgers where bettors reside; it also draws a deeper line in the sand separating the account wagering companies that pay source market fees from those that do not.

From the outset, TVG has been the company wearing a "white hat" because its executives understood the importance of an equitable revenue-sharing program. TVG's source market fee structure should be the standard by which all other account wagering companies are judged. Unfortunately, the racing landscape--both offshore and within our country's borders--is littered by a number of bad guys in black hats. Their businesses depend on poaching bettors from other regions without returning an equitable amount of money.

One of the biggest battles the industry faces over source market fees is that most fans could care less whether any money is returned to horsemen or racetracks. Like any consumer, a fan's No. 1 priority is getting the best deal possible, which is why the operations offering rebates to big bettors have grown in popularity. Racetracks and horsemen's groups must deal with those competitors by either negotiating tougher simulcast contracts or figuring out ways to compete -- in other words, lowering the takeout or giving volume discounts to the best customers.

That challenge aside, the agreement between Youbet.com and TVG is a major step forward. Many view interactive wagering as the savior for an industry that, in the last decade, has been deluged by competition from casino gambling on riverboats and Indian reservations, expanded lottery games, and Internet sports and casino gambling run by offshore companies. With Youbet.com and TVG working together under conditions that are good for the industry, we'll have a chance to see how big a role this new technology will play in racing's future.