A continuing national conversation over the legality and viability of daily fantasy sports was at the forefront of the California Horse Racing Board Pari-Mutuel, ADW, and Simulcast Committee meeting Oct. 21 at Santa Anita Park, with concerns over how the industry is affecting horse racing the hottest topic.
With almost every industry stakeholder in the state represented at the Arcadia, Calif., track, several voiced concerns over not only daily fantasy wagering on football, baseball, and basketball, but also horseracing contest websites.
The most emphatic was Scott Daruty, who represented Monarch Content Management, an arm of The Stronach Group that controls simulcasts of 11 racetracks, including Santa Anita, Gulfstream Park, Laurel Park, and Golden Gate Fields. His specific target was DerbyWars, a horseracing site that runs contests based on racing results, but does not have to pay host fees.
"I view fantasy horse racing as a very significant threat to our existing business model," Daruty said. "There is at least one business out there—DerbyWars is the name—they're effectively running an online ADW company without paying anything back to the industry. They don't pay host fees. They don't contribute to purses.
"This is an online business that every day, on every race—including races from Santa Anita and Del Mar, or Golden Gate Fields or any other track in California—they're offering their players to bet money and win. Effectively what they're doing, in my opinion, is stealing our product. They're stealing our product and they're not paying the tracks running the races. They're not paying the horsemen putting on the show. I think we need to take a very hard look at that, and Monarch is in the process of doing some legal analysis. It is not a simple matter to get them shut down."
DerbyWars does not stream broadcasts of Monarch tracks, or any tracks for that matter, but uses public information through entries, results, and payoffs to determine their contests. Though DerbyWars representatives were not present at the meeting, company chief executive officer Mark Midland issued a written response to Daruty's comments.
DerbyWars "was designed and built by the team behind" Horse Racing Nation, according to its website.
"Horseracing contests are an excellent vehicle for generating more interest in racing from current fans while also re-engaging dormant fans," Midland said in the statement. "The interactive game format is easy to play and attractive to younger fans and newcomers to horse racing. With both DerbyWars and Horse Racing Nation, we are committed to developing and educating new horseplayers, and growing the sport in new ways.
"DerbyWars is currently working with several tracks to help grow their product, and the results have been excellent. We welcome the opportunity to establish more track partnerships in the future."
John Ford, CEO of the advance deposit wagering system BetAmerica, also contended that daily fantasy sports and horseracing contests can not only enhance overall pari-mutuel handle but could potentially create new fans for horse racing. BetAmerica has been offering daily fantasy sports since 2013, though Ford admitted the company "hasn't made a dime off fantasy yet," and just launched horseracing contests in recent weeks.
"Those 51 million (fantasy sports) players are the same type of players we have in horse racing, they're just a lot younger," Ford said. "They're analytical, they study information, they make informed entries, they're a target-rich audience for pari-mutuel wagering. Our commitment to fantasy sports is to utilize fantasy sports to bring that younger generation into pari-mutuel wagering on horse racing."
CHRB commissioner George Krikorian also weighed in on the potential opportunity daily fantasy and contests could present to the racing industry.
"By now it's maybe a $20 billion industry—and growing," Krikorian said. "So, maybe instead of fighting it, we should look at a way it can benefit our own industry, if it's possible."
The double-edged issue of gaining horseplayers and potentially losing players to fantasy games, however, is also under consideration.
"All of the sudden we're looking at significant cannibalization," CHRB executive director RicK Baedeker said. "Those dollars have to come from some place. If I've got 'X' amount I can spend on racing and all the sudden—'Oh, this is kinda fun, I think I'll siphon off some (money).' Hopefully it's not too late. Now might be the time (to look at the opportunity), but I wouldn't take it for granted that this might become a problem."
Daruty, also representing Santa Anita for The Stronach Group, said the the track would be interested in participating in fantasy sports if the current legal hurdles are overcome.
"We view it as a competitive threat, because it's another form of wagering, but also view it as an opportunity," Daruty said. "If it is determined, after the investigation that's going on, (to) scale it back, regulate it, or tax it—if they do anything other than outright outlaw it—we would intend to participate in some way, shape, or form, ideally using our bricks-and-mortar facility to attract people to come play fantasy sports."
Also discussed during the meeting Wednesday was pari-mutuel takeout in the state.
Del Mar chief operating officer Josh Rubenstein brought up 2014 "experiments" with reducing takeout on daily doubles, which he said brought "mixed results," but that high-takeout Pick 4 wagers continue to be the most popular.
"In comparison, the Pick 4, which is our highest takeout wager in the state—23.68 %—continues to thrive," Rubenstein said. "In 2015, the Pick 4 takeout pool averaged $700,000 a day. That's the highest of any wager we offer. Since 2012, the Pick 4 pool has increased over 25%."
Daruty explained that takeout reductions would cost "middle-man" partners—who he said provide Santa Anita more than 65% of its overall handle—the most money.
"The reduction of takeout—while most players say they would like lower takeout—creates a bigger challenge, because what that means, effectively, for out-of-state wagers, is that the middle man, who is presenting that product to the patron, is going to make less money," Daruty said.
Daruty also pointed to a takeout reduction experiment at Laurel Park.
"Laurel Park tried an experiment a number of years ago, where they cut their takeout in half on every bet," Daruty said. "What they found, for that meet, was that their total handle declined 15%. When you think about it from a revenue standpoint, it was an absolute disaster."
Daruty supported an industry-wide takeout decrease, but immediately dismissed any potential of that happening.
"My personal view is that, overall, it would be a healthy thing if the industry could all reduce its takeout," Daruty said. "But because it's impossible to act in unison in our industry. For one track on its own—or one market, like California, on its own—to reduce takeout, we've seen the experiments. Why (should) we have a study to tell us what I believe we already know?"
California Thoroughbred Trainers executive director Alan Balch bristled at the idea of not studying the potential impact of low-takeout wagers.
"It's amazing to me to hear people talk about how complicated something is—that it's so complicated that we shouldn't study it," Balch said. "It's akin to me to people saying, 'Well, it's too complicated to send a man to the moon and bring him back alive. Let's not study it.' This is an extremely challenging econometric proposition. To me, it cries out to be studied, because until we study it, we don't know what we can learn about it."
Daruty responded by saying potential studies were not of value from his perspective.
"In my mind, it's a cost issue," Daruty said. "You had asked earlier if we see the value in it. The answer is, 'I don't see the value in it if it's our money.' I see value in it if (Balch) wants to spend his money on it."
The committee eventually settled on a course of action that included further discussion outside of CHRB meetings regarding takeout, which would be addressed again at a later meeting.
"As a board, on a weekly basis, we're being asked 'Why can't something be done about takeout?' " Krikorian said. "We don't really have a good answer. We don't have an answer as to why action hasn't been taken by someone with the expertise to look at it and maybe come up with some suggestions that would be beneficial to the industry."