Archive for the ‘Account Wagering’ Category

NO ONE PREDICTED KEENELAND’S SEPTEMBER YEARLING SALE WOULD BE UP, so it’s not that surprising to see a 13% drop in the gross receipts through the first six sessions of the 15-day marathon. That 13% equates to a $41-million decline in revenue that will not go into the pockets of breeders this year, and that red number only figures to increase as the sale reaches the second half.  The drop in revenue will ripple throughout all kinds of Thoroughbred-related businesses.

Gill, who was recently in the news because of some regulatory problems at his mortgage company, said he was getting out of the horse industry in 2006 when he accepted his Eclipse Award as outstanding owner. Many people had two words for him: good riddance.

THE PHILADELPHIA INQUIRER WON’T BE COVERING GILL’S EXPLOITS since it accepted the early retirement of Turf writer Craig Donnelly only a month after the paper, the nation’s eighth largest, dramatically reduced the space allotted racing in its sports section. At that time, Inquirer editors told the Paulick Report it was keeping Donnelly but obviously they had a change of heart.

Newspapers may be an endangered species in the near future. Turf writers at daily newspapers already are.

Copyright © 2008, The Paulick Report

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By Ray Paulick

TVG, the horse racing channel sold earlier this year when parent Gemstar-TV Guide was purchased by the digital technology company Macrovision (MVSN) , is now being shopped around to potential buyers by Swiss-based financial services company UBS, the Paulick Report has learned.

The auction of TVG gives the horse racing industry a tremendous opportunity to consolidate its convoluted and contentious cable television and account wagering system platforms that frustrate and anger horseplayers who are often required to hold multiple online or telephone wagering accounts to bet on their preferred tracks.

To seize this opportunity a group hug would be required among the major players, including Churchill Downs, Magna Entertainment and the Thoroughbred Horsemen’s Group that now negotiates account wagering contracts for most state horsemen’s organizations. With ongoing litigation by Churchill Downs against the Thoroughbred Horsemen’s Group and rumblings of a divide between Churchill and Magna on their TrackNet Media simulcast business joint venture, a deal seems unlikely at this time.

But what if logic prevailed?

The merging of two unprofitable racing channels into one could lend truth to that overused business cliché of one plus one equaling three. There is just one Golf Channel for that popular sport and one Speedtv channel to cover all motorsports. It is not logical for a struggling industry like horse racing to have two full-time cable channels, with separate management teams, productions staffs, and on-air talent.

Churchill and Magna are partners in HRTV, which was launched solely by Magna in 2003 and has been the No. 2 network behind TVG in distribution. Both TVG and HRTV are on the Dish Network and HRTV is on some cable companies, but TVG has broader cable distribution and is also on DirecTV. TVG, which launched in 1999, was owned by TV Guide before being purchased by Gemstar. Macrovision’s purchase of Gemstar-TV Guide was valued at $2.8 billion, with TVG’s value estimated at roughly $112 million, according to a report in Multichannel News, which quoted SNL Kagan analyst Derk Baine. The deal, announced last December, closed the first week of May 2008. 

With credit markets tight, it seems unlikely any outside media companies would be interested in buying TVG, especially given the declining number of exclusive contracts TVG holds with racetracks and the shaky state of the racing industry. Even with the number of exclusive tracks in decline, TVG remains the market leader, both in distribution of its signal and dollars handled through its wagering platform. TVG handled $479 million in 2007 through a wagering hub in Oregon, compared with $177 million for Magna’s XpressBet and $215 million for Churchill Downs’ TwinSpires.com and affiliated companies Churchill purchased midway through the year. 

Negotiations between account wagering companies have become far more contentious with the recent formation of the Thoroughbred Horsemen’s Group, which negotiates on behalf of nearly every major state horsemen’s organization. Churchill was unable to reach an agreement with the Thoroughbred Horsemen’s Group this spring and as a result could not offer online wagering on any races other than a handful of stakes, including the Kentucky Derby. That led to a significant decline in handle during Churchill’s spring-summer meeting. Account wagering on other tracks, including Churchill Downs-owned Calder in Florida and Magna-owned Lone Star Park in Texas, was shut down when the two sides failed to reach an agreement on how revenue should be distributed.

Doesn’t it make sense for the two major companies that own so many tracks (Magna and Churchill) and the Thoroughbred Horsemen’s Group to quickly come to terms on a broad-based revenue distribution formula for account wagering, then put their previous differences aside and think in terms of working together to grow this part of the pari-mutuel horse racing business.

The best way to achieve growth would be through a single cable network that carries all of the best simulcast signals and a powerful wagering platform that offers virtually every racetrack with live racing. The cable network and wagering platform could be owned by industry stakeholders, including racetracks and horsemen’s representatives, and be more widely promoted than the current patchwork of television channels and account wagering.

There would be concerns, of course, principally from owners of small racetracks who fear their simulcast signals would not get the exposure they currently get with two full-time racing networks. Other independent account-wagering companies might find it hard to compete, but anti-trust laws should prevent them from being monopolized.

It’s a long shot that industry organizations accustomed to fighting at the table over a dwindling pile of scraps can think in terms of growth and cooperation, so we can only hope that logic will someday prevail. The pending sale of TVG provides that opportunity. 

Copyright © 2008, The Paulick Report

(The Paulick Report was contacted by the recently formed Horseplayers Association of North America (HANA) with a response to our recent article on the Thoroughbred Horsemen’s Group and its approach to negotiations with account wagering or advance deposit wagering companies (ADWs). The following commentary does not reflect the views of the Paulick Report but is published in the interest of advancing the discussions on this subject. — Ray Paulick)

It was announced a few weeks ago that Ellis Park in Henderson, Kentucky struck a last hour compromise between Ellis and the KHBPA, allowing for racing to begin in 2008. With it, close to 6% of ADW handle will be going to purses this summer. It appears that Ellis is charging Advance Deposit Wagering (ADS) companies up to 8% signal fees for the right to broadcast Ellis races.

The Thoroughbred Horsemen’s Group’s Bob Reeves said this recently about the deal as reported by Ray Paulick of The Paulick Report: "We are trying to save racing."

We think deals like this will do the exact opposite. And we’ll tell you why.

An ADW normally pays about 5% (which is about what the current free market dictates) for the right to broadcast a signal and sell it to their customers. It is like a web-affiliate bookseller selling a book and keeping a commission. Then the ADW pays expenses, keeps some of the generated handle for themselves to run their businesses, and returns the rest to the player in a few ways:

1) Player Rewards - A video game, maybe a hat, trinkets of some sort, what have you. We all have received these perks.

2) Innovations and Customer-centric Benefits - An improved betting interface, R and D (like Twin Spires TV), free handicapping information (like Ian Meyers’ paddock reports at Premier Turf Club, his deal with Woodsideassociates.com, or partnerships with Thorograph at betfair), free past performances, free video. Things to encourage the player to up their handles.

3) Cash Rewards Through Rebating - Churn baby churn.

This model of giving something back to the player and delivering it in a customer-centric way has resulted in a rise in handles for ADW. Up over 17% last year - our only true blue growth segment.

If ADW’s are charged a higher fee, things like free rewards, hats and shirts; or the interesting innovations we have seen like race replays, and conditional wagering and paddock reports can all be cut. This hurts us in attracting new fans to our Internet platform, as well it alienates our existing customers (ask Vegas how they’d do without comps or adding a concert as an attraction; and ask them now what would happen if they took them away!). All those rewards and incentives are very important, but the most important point however to us as a business: It effectively increases takeouts. If 3% more is charged for a signal, 0.5% might be absorbed by the ADW. Where does the other 2.5% come from? Yes, the customer’s pocket - the customer that already pays for purses to the tune of 21% blended rakes.

When the signal fee is raised 3%, more than likely 2-2.5% will be taken from the cash rewards from certain ADW’s. If you were receiving a rebate of 5% on win wagers at track ‘A’ and they are cut in half you know, we all know what happens, you bet less. With these price sensitive players, where 2.5% can mean a huge difference, it can kill their handle. As Dan, a professional player, said recently to us "Even miniscule reductions of 2 points can make a HUGE impact on a player’s bottom line. The intelligence of the modern player is frankly overlooked by those in positions of decision."

With a conservative elasticity of demand of 4 for rebated high volume players, this takeout increase could result in a 10% drop in handle (many would argue it would be much more). Not to mention any new players (especially the younger demographic we covet) that are attracted to some of the perks like free past performances, or innovations, will find they are not there any longer, and it makes the customer experience deficient in a demanding 21st century business model. Online poker anyone?

It’s like going to McDonald’s and finding out that yes, the price of a Big Mac was raised 30 cents, so you might eat one less a month now; or maybe go to Wendy’s instead, but not only that: Now your more expensive Big Mac is served not complete in a nice wrapper, but in a do it yourself kit. When sales of Big Macs go into the tank, it would not surprise any executive at McDonald’s, they would know they cut their own throat.

Increasing takeouts, poor customer service and an absence of both soft and hard innovation through reinvestment is something we should have learned has helped kill this business by now. Year after year the evidence is overwhelming. In fact, this study written several years ago by a gambling expert and reported to racing, stressed the takeout point and making sure these players are taken care of.

Racing has lived with rising rates of takeout for so long that they have become a way of life. They are the line of least resistance whenever the industry needs money. It is all too easy for the industry to see that if we have a constant $100 in handle, and we raise the takeout by one percent, we’ll make a dollar more. It is much less easy to see that handle is not constant and, over the longer term if not the short, we won’t have that $100 any more.

If we don’t offer a low takeout (via rebate) to customers, we’re going to lose them, or at least a significant portion of their money. Hence the efficacy of rebates: they target reductions in the takeout to the customers who would respond the most to them.. (Analysis of the Data and Fundamental Economics Behind Recent Trends in the Thoroughbred Racing Industry, 2004)

Sometimes I wonder. I really do. Do we actually want racing to lose market share? If we do, we are certainly doing a good job at it.

Everyone needs to work together in the current ADW impasse and the business must know where players stand. If players are not heard from and respected, we will not grow the pie, we will simply end up having less of a pie to split.

This opinion piece was submitted by a HANA member at Pull the Pocket blog spot. We will be discussing the ADW situation and offering solutions over the next few weeks; including a white paper. The paper will show what we think ADW should look like for the 21st century and beyond - it will include, but it is not limited to, open access, fair prices for all players (not just whales), and fairness to the producers - the track and horsepeople. The overall goal is one thing and one thing only - to grow the sport. This is an opinion to kick off the discussion - players matter. We matter. If you would like to join HANA click here. It’s free.

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UPDATE: On Thursday morning, according to sources, TVG exercised its exclusivity and told the Thoroughbred Owners of California that it would not allow some of the other account-wagering companies to offer online betting on Del Mar. As a result, TwinSpires.com and XpressBet customers in certain states may only bet on Del Mar using their telephone, and not via the Internet as previously allowed.

 A last-minute deal between several account-wagering companies and the Thoroughbred Owners of California gave the companies permission to offer on-line and telephone betting on Del Mar, which launched its summer meeting Wednesday.

Drew Couto, president of the owners’ organization, said several account-wagering companies agreed to terms just prior to the 2 p.m. (Pacific) first post, but that things "went sideways" with TrackNet Media, which negotiates on behalf of Churchill Downs’ TwinSpires.com and Magna Entertainment’s XpressBet. A little over two hours later, Couto said, TrackNet Media also agreed to the conditions sought by the TOC. The Paulick Report heard from horseplayers who said they were able to watch and wager on Del Mar throughTwinSpires.com midway through the opening-day card.

The deal, Couto said, calls for the same undisclosed rate structure that was in place in 2007, but requires the account-wagering companies to enter into non-binding discussions with the Thoroughbred Horsemen’s Group, which represents TOC and other horsemen’s organizations throughout the country in contract negotiations with account-wagering companies.

The deal essentially says "let’s begin a dialogue" between the wagering companies and the Thoroughbred Horsemen’s Group, Couto said.

The Del Mar Thoroughbred Club is in the final year of its contract with TVG, which has the exclusive rights to televise Del Mar’s races. Until Wednesday, it appeared horseplayers wanting to bet on Del Mar would have to wager through TVG or its sub-licensee, Youbet.com. The deal now allows horseplayers in many (but not all) states to bet on Del Mar through most of the account-wagering platforms. Couto said the companies representing approximately 90% of the 2007 account wagering handle are on board for the 2008 meeting.

The agreement continues a program pushed by the California Horse Racing Board, which gives fans the opportunity to wager on all California tracks through their preferred account-wagering company and not have to hold multiple accounts.

By Ray Paulick

Copyright ©2008, The Paulick Report

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The racing industry is like a three-legged stool with the horseplayers and fans, owners and breeders, and racetracks and wagering companies comprising each of the three legs. Take one away and the stool collapses.

Horseplayers, as we all know, are the least organized, though some individuals from that group bet massive sums of money and can inflict economic punishment or rewards by shifting their action from one track to another.

Tracks are more organized than ever, largely because of the consolidation by Magna Entertainment and Churchill Downs, their respective wagering companies, ExpressBet and TwinSpires.com, and their joint venture simulcasting consolidator TrackMedia.

Owners and breeders are somewhere in between. Negotiation of purse and simulcast contracts with racetracks are negotiated by local horsemen’s groups (state division of the Horsemen’s Benevolent and Protective Association, Thoroughbred Horsemen’s Association, the Texas Horsemen’s Partnership, and Thoroughbred Owners of California).

Following the startup of TVG and other account wagering companies during the past decade, some of these horsemen’s groups began to notice a troubling trend. Increases in handle were being accompanied by a decrease in purses. The terms "leakage" was entering the racing vernacular and it was not the kind of leakage a package of Depends could help control.

This leakage of purse revenue was caused by multiple factors: more money was being bet off-track, with off-shore rebate betting shops and with fully licensed and state-regulated account wagering or advance deposit wagering (ADW) companies.

The economic pie (wagering on horse racing) was previously cut up with the biggest slice going to horseplayers, and the next largest divided equally between tracks and purse money for horse owners, and a smaller slice going to state and local governments.

A new player began bellying up to the table and demanding its own slice: account wagering companies.

The promise was that these companies were going to help bake a bigger pie and fatten everyone up. In truth, there has been only small growth in handle and more redistribution of wagering from on-track and inter-track to telephone and internet bets through account wagering companies. The net result is a reduction in the percentage of each dollar wagered ending up in purses for horse owners.

Some people think horse owners get enough in purse money already. I guess if you think a dollar invested should be rewarded with a half-dollar in return, you’re right. Horse owners put over $2 billion into the game each year so they can fight over $1 billion in purses. That’s not a very sound investment strategy.

Tracks were hurt by this trend, too, at least in the beginning and until they realized the need to operate the account wagering companies themselves.

State horsemen’s groups started talking to each other about this "handle up, purses down" phenomenon and formed a study group to seek solutions. Late last year, after determining that the economic business model for distribution of account wagering dollars wasn’t working, they decided to form a company, the Thoroughbred Horsemen’s Group, in an attempt to change the model.

Thoroughbred Horsemen’s Group counts 18 horsemen’s organizations among its members in 16 jurisdictions (California, Kentucky, Florida, Texas, Pennsylvania, Ohio, Louisiana, Maryland, Delaware, Arkansas, Virginia, West Virginia, Oklahoma, Minnesota, Indiana and Ontario).Collectively these groups negotiate contracts with 52 North American tracks.

Bob Reeves, a third generation horseman with decades of executive experience in the health, insurance and venture capital fields, is president of the TGH. He’s been head of the Ohio HBPA and that state Thoroughbred Owners and Breeders Association. TGH’s sole employee is Wilson Shirley, a consultant who formerly worked for the national Thoroughbred Owners and Breeders Association and Thoroughbred Owners of California.

Reeves and Shirley, on behalf of their member organizations, are negotiating with account-wagering companies to reshape the distribution formula from one that favors the wagering companies to one that puts more money into purse money, which will strengthen live racing and, ultimately, the racetracks themselves. "We are a shared resource," Reeves told the Paulick Report, in reference to the Thoroughbred Horsemen’s Group, which he called an "intermediary" in negotiations.

Sort of like William Shatner and Priceline negotiating with hotels for the best deals on behalf of consumers.

"We are trying to change the model to one that distributes the account wagering revenue based on a percentage of takeout instead of a percentage of handle," Reeves said.

Reeves said the Thoroughbred Horsemen’s Group has hired attorneys intimately familiar with anti-trust issues and is confident the organization is not in violation of the Sherman Anti-Trust Act. Churchill Downs Inc. has sued the Thoroughbred Horsemen’s Group, alleging violations of the Act.

The formulas for distribution of account wagering revenues are complicated. Account wagering companies first pay a host fee to the track and horsemen where the live race is being run on which a bet is placed. There sometimes is a source market fee, if the bet is made by someone who lives in a racetrack market. That fee is divided between the local track and purse accounts for that track. But more often than not, a bettor does not live within 25 miles, so the account wagering company pays no source market fee and retains the money as profit. That is where a big part of the leakage occurs. The net result is that the company handling the bet is getting more money than the horse owners who are putting on the live race on which the bet is made.

That’s like a retail store making more on a product than the manufacturer of the product. It’s backwards.

Naturally, the account wagering companies - especially those owned by the racetracks - don’t want to change the formula. The wagering companies see greater profits for themselves as more people stay home and bet rather than drive to a track or OTB. (And with $4-plus per gallon gas, that number could soar.) There have been stalemates in negotiations involving account wagering, which is why horseplayers were not able to bet by phone or computer on Churchill Downs, Lone Star Park, Calder and other tracks. Churchill reported large declines in handle and purses at their spring-summer meeting.

Horsemen won in their negotiations with Ellis Park owner Ron Geary, who threatened to close his track rather than change the previous account wagering structures. That victory should inspire the local horsemen’s organizations to stay the course in the current and upcoming negotiations. There may be short-term pain but remaining firm in their position will result in long-term gain.

"I am delighted with the resolve the different horsemen’s groups have shown," Reeves said. "We are trying to save racing." 

By Ray Paulick

Copyright ©2008, The Paulick Report