Archive for the ‘Simulcasting’ Category

Ray Paulick: Bill, can you briefly describe your responsibilities at the Hong Kong Jockey Club?
Bill Nader: As executive director, I oversee all racing operations, and that extends to the laboratories, veterinarians, farriers, grooms, work riders, handicappers, racing stewards, racing registry, marketing, public affairs and also the international races. It’s a big operation. There are about 1,800 people reporting directly or indirectly to me, and we have tremendous people in the key positions from all over the world, from Hong Kong, Great Britain, Australia and New Zealand.

What’s the best part of your job?
The popularity of the sport makes it contagious and gives you a reason to want to get up every day. There’s never a dull day. It’s the major sport in Hong Kong. There are single events that may be bigger, but in terms of something sustainable over the course of the year racing is the only game in town. One example: circulation of a daily newspaper increases by 30% on a race day.

Your biggest challenge?
The ability for us to grow. It’s one thing to get where we are and sustain our position, but to take it to the next level. We think we can do that, but we need government support. We have 78 race meetings and we have to guarantee HK$8 billion (about US$1 billion) in revenue to the government. My two years have been lucky, we’ve been up in turnover. We’ve been able to grow from HK$60 billion in handle to HK$68 billion last year. Tax rate effectively is 73% of gross margin, before we pay prize money or overhead. We can only simulcast 10 single races per season and want to expand that but have been unsuccessful so far. There’s limited stabling and no breeding industry, so no room to expand. We have an active population of just over 1,100 horses. To get through 735 races, 90% of the races on turf, with those horses, it’s a challenging process.

What is the major difference between working at NYRA and working for the Hong Kong Jockey Club?
Resources. Not just money but the depth of personnel at top levels all the way down. The Hong Kong Jockey Club is arguably the most professionally run racing organization in the world. It’s a finely tuned machine. Its can-do spirit is really evident day by day taking tough assignments and meeting the challenge, whether it’s working on the Olympic Games or the international races. The work ethic here, too, is amazing. Our employees work 11 or 12 hour days and won’t go home until they feel their job is done.

What do you miss the most about the U.S.?
I miss a lot. Italian restaurants, sports, Broadway shows. There are no major league sports here. Overall there’s a lot of good things about Hong Kong, so it’s a trade-off.

What do you know today you didn’t know before you came to Hong Kong?
It’s been amazing. It opens your eyes to come and see racing presented in a different system. The whole approach is different. You learn by just opening your eyes. I learned early on not to jump to any conclusions and get a feel for the methodology that’s employed in this part of the world. A lot of things done here we can’t duplicate back in America.

The challenges that confront racing seem to be the sport’s universal language, and potential solutions, it seems, are similar from one continent to another. Winfried Englebrecht-Bresges, CEO of the Hong Kong Jockey Club and chairman of the Asian Racing Federation, outlined those challenges and proposed some solutions during his opening address of the 32^nd Asian Racing Conference in Tokyo on Tuesday morning.

Among the hurdles are laws in some countries, most notably Hong Kong and Japan, that prohibit or restrict commingled betting; double taxation on commingled bets; marketing and sponsorship issues; TV and data rights questions, and software challenges among tote companies that will require investment and commitment by the various stakeholders. “We will struggle if we won’t change,” he said.

Englebrecht-Bresges outlined what he called “three guiding principles” to address the challenges. Racing must exert influence on the regulatory side, he said, because “the integrity of the sport is a fundamental issue. Drugs will bring the sport to its knees if we don’t proactively fight this problem.” He referenced cycling and how the burden of doping could cost the sport dearly in lost television rights if not addressed.

Secondly, Englebrecht-Bresges said, the industry must facilitate the sharing of best practices in racing and in other outside industries by bringing together stakeholders who have common interests.

Finally, he said, bigger organizations must mentor smaller organizations, especially those countries who are in the early stages of expanding their racing and/or breeding industries.

While some countries are in that early stage, Englebrecht-Bresges said, overall there is stagnancy for the Asian Racing Federation members, with six-year projections that show pari-mutuel wagering turnover declining while other forms of gambling enjoy moderate growth. “We will be a dinosaur,” he said, adding, “it’s not that we are unattractive. But we have to offer different value propositions.”

Not surprisingly, those value propositions are predicated on knowing what customers want, especially new customers that racing needs if it is to survive. He called for all jurisdictions to conduct strategic assessments, and outlined some of the findings the Hong Kong Jockey Club discovered in its own research. Non-racing fans see no relevance in the current racing schedule/fixtures, programs and bet types; much of the activities are not appealing to young people, women, families, and the middle class. Racing lacks innovation, and has a poor approach to its “channel strategy” and customer loyalty programs. Furthermore, he said, industry fragmentation is a key reason for slow response to the challenges.

Regarding channel strategy, Englebrecht-Bresges said racing is “catering to its current customers” through its web sites, where new customers “get lost. We need an integrated channel strategy” that will appeal to existing, new and potential customers, he added.

Englebrecht-Bresges said racing must reach the next generation, but that the strategy of attack must be powered by customers, especially the new customers with which the industry must learn how to better communicate.

“We are in a race,” said the German native who has been with the Hong Kong Jockey Club for 10 years. “Is it a race we can win?” 

Englebrecht-Bresges then showed a slide of America’s new president-elect, Barack Obama, featuring the campaign theme of change that stated “Yes, we can.”

“I say," Englebrecht-Bresges concluded, "‘Yes, we must.’"

THE REST OF TUESDAY MORNING’S conference program was baffling. Following Engelbrecht-Bresges was Hiroshi Okuda, who rose through the ranks of the Toyota Motor Corporation to become president and later chairman and is now chairman of the board of governors for the Japan Racing Association.

It’s possible Okuda brought the wrong speech to the Asian Racing Conference, for he devoted his entire talk to "global warming issues." I guess if we all rode horses instead of automobiles, we could help develop a low carbon society, as Okuda said is necessary. But I’m not sure what major impact racing executives could have on global warming.

If that talk didn’t cause the conference focus to jump the tracks, the next two certainly did. Robyn Williams (no, not that one), described as a "mad cap science presenter" from Australia, enlightened (?) the audience about how the world will be changing due to technology. You know, robotics, energy and transportation. Hell, I learned that from watching too many episodes of "The Jetsons" as a kid. In truth, Williams was at least entertaining, and would have made a good lunch-time speaker. But he added little to the serious issues at hand among the Asian Racing Federation delegates.

Andrew Main, the morning’s final speaker, likewise, had little to say linking racing to his area of expertise as business editor of The Australian newspaper.

Filling the opening morning with three speakers who had little relevance to racing left many in the audience scratching their heads and wondering who thought this was a good idea.

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The dispute that’s prevented out-of-state horseplayers from betting on Hollywood Park races through account wagering or advance deposit wagering (ADW) companies is about money, of course. Isn’t it always? The same issues shut down account wagering on Churchill Downs, Calder Race Course and other tracks earlier this year.

No one who’s been paying attention to the hot-button issue of revenue distribution of account wagering dollars can say they didn’t see this coming.

Thoroughbred Owners of California has drawn a line in the sand against the ADWs, saying they deserve a more equitable share of ADW revenue from wagers made both in California and out-of-state. As more dollars shift from on-track or traditional simulcast locations to ADWs, the TOC claims, horsemen are getting a smaller slice of the action to fund purses. “We’ve been saying it for years, and the time is finally here,” said TOC president Drew Couto. “We’re not going to consent (to previous agreements).”

Horsemen’s associations have the contractual right through the federal Interstate Horse Racing Act to withhold simulcast or account wagering. However, it wasn’t until the creation last year of the Thoroughbred Horsemen’s Group, which assists local horsemen’s organizations with ADW contract negotiations in at least 17 states, that horsemen began to aggressively exercise that right. TOC helped create THG and Couto serves as vice president of the new organization. THG acts in a similar capacity to the American Society of Composers, Authors and Publishers (ASCAP), which negotiates and collects licensing fees on the use of copyrighted music created by its members.

While the dispute involves four ADW companies, the most vocal critic of TOC and THG is David Nathanson, president of TVG, the leading horse racing cable channel and largest ADW company. Since the Hollywood Park fall meeting began Wednesday, TVG has used its television and online platforms to urge fans to contact TOC with their complaints.

“The TOC decision is bad for everyone involved in horseracing,” TVG president David Nathanson said in a statement. “Purses are being cut. Horsemen will lose money. Hollywood Park will lose revenue. Worst of all, this action hurts the fans when the industry needs them the most.”

Hollywood Park already has announced purse cuts.

Couto sees it differently. “We’re trying to build a model where everyone can prosper,” he said. “(TVG) didn’t listen to us for seven years because we weren’t working with other groups. Now they are listening because they don’t have a choice.”

Couto presented a detailed report on ADW wagering and revenue distribution during a meeting of the California Horse Racing Board in mid-October that showed how revenue to both in- and out-of-state horsemen and tracks is being squeezed with the growth of account wagering. “Up to about 72% of ADW revenues are retained by ADW companies, and overall about 50% is retained by those four companies,” Couto said. “We don’t believe that’s equitable or in the best long-term interest of the industry.”

TVG disagrees with Couto’s assessment of the distribution share that TVG has been paying, saying that it paid 67% to tracks and horsemen on wagers made during the 2008 Hollywood Park spring meeting.

Complicating matters in the current ADW dispute is what many see as a conflict of interest with Hollywood Park president Jack Liebau, who also serves as chairman of the board of Youbet, one of the four ADW companies involved in contract talks. Hollywood Park is expected to close next year, so some question whether or not Liebau is concerned more with the profitability of Youbet than he is with Hollywood Park. However, Couto has said Youbet and Magna Entertainment’s Xpressbet have engaged in good-faith negotiations. TVG and TwinSpires, the ADW platform owned by Churchill Downs, have not, he said.

“We are on our seventh version of a model that would assure ADW companies of content for the next three years at slightly higher rates than they currently pay,” said Couto “The rates do escalate if ADW handle grows by 20% over three consecutive quarters. That recognizes that the ADWs incur no incremental cost in growth.”

Nathanson insists that TOC is turning down a deal that would bring horsemen and the tracks $500,000 more in revenue than they received in 2007. “The only reason they are withholding the signal,” he said, “is to benefit this out-of-state horsemen’s consortium (THG). It doesn’t make economic sense. We are ready and willing to sit side by side and face to face any time to resolve these issues. Ultimately these need to be rational decisions as opposed to decisions that aren’t in the best interest of their own constituency.”

Couto flatly rejects Nathanson’s contention. In a letter to TOC members posted on the organization’s Web site, Couto wrote: “To the contrary, CA Thoroughbred interests would have received over $165,000 more from TVG alone, and over $633,000 from all four licensed ADW providers during the spring meet alone! Over the entire calendar year, North and South, that adds up to millions more in purse revenues for California owners! “

“We have cut back on our Hollywood Park coverage,” Nathanson said. “We are showing 100% of Hollywood Park’s races, but when you are cutting off a large chunk of the revenue we can’t afford to send a full-fledged crew down there to do special shows. We had to eliminate the popular All-Access show because of this.”

“Nathanson is misleading people,” Couto said. “He’s saying let’s make one group happy and screw the rest. We had no success getting higher rates with the TVGs of the world. We got together, shared information, took it back to our boards and said, ‘Here’s what we’ve learned.’ Our boards individually said, ‘We’re getting screwed.’ The only way we can get the TVGs of the world to change is for us to say,’Enough is enough.’

“These guys have had seven years to work with each of the horsemen’s associations,” Couto added. “They created the situation, and yes, horsemen are saying we are going to solve this once and for all for everybody, so we can move on, so this industry can get healthy again.”

 Copyright © 2008, The Paulick Report

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Investors haven’t been wild about Churchill Downs stock (CHDN), which closed at $46.45 Friday and hasn’t seen $50 a share since May 1. It’s 52-week high, $57.55, was achieved last December.

CEO Bob Evans and the TrackNet Media Group that was formed with Magna Entertainment to broker simulcast deals has refused to talk seriously with the Thoroughbred Horsemen’s Group, which is negotiating account wagering contracts with racetracks on behalf of local horsemen’s groups such as the Kentucky or Florida Horsemen’s Benevolent and Protective Associations. In fact, Churchill has filed anti-trust lawsuits against the organizations. Evans may be hoping that the longer he puts off dealing with the THG, the less resolve the horsemen will have to stick together in attempting to forge a better contract on account wagering.

That strategy doesn’t appear to be working. To the contrary, it looks more like Churchill Downs’ partner in TrackNet Media is bailing. Frank Stronach, the chairman and acting CEO of Magna Entertainment, sent out a press release a couple of weeks ago saying that Magna recognizes the THG as a beneficial national organization and is negotiating with THG.

SPEAKING OF WAGERING, hats off to Bloodhorse editor Dan Liebman for calling out the Jockey Club after it capitulated to Evans and to Churchill Downs’ biggest shareholder, Dick Duchossois, and decided to no longer provide the trade magazine with meet ending pari-mutuel handle figures. Churchill tracks under Evans and Duchossois have said that handle is no longer a meaningful statistic. Oh, really?

The decision by the Jockey Club to no longer provide this key economic indicator was disgraceful, but I wouldn’t hold out any hope the poobahs there will change their mind.

Fred Pope just won’t give up.

For more than 16 years, since he first used advertising space in Bloodhorse magazine to publish an article entitled “Whose Game Is it?” Pope has been trying to convince Thoroughbred owners that they can control their own destiny in racing.

Pope is a Lexington, Ky., advertising agent who for many years was closely associated with Gainesway Farm and its founding owner, John Gaines. Both men loved the power of ideas and both wanted to see Thoroughbred racing grow out of a parochial, tradition-steeped existence that encouraged inertia over creativity. Gaines started the Breeders’ Cup, which he had hoped would become a vehicle to market the sport to a wide audience that currently does not participate in racing. He went to his grave disappointed that his big dream was not fulfilled, even though the Breeders’ Cup has been widely hailed as racing’s best innovation of the 20^th century.
 
Pope saw the power of the event, which at the very least gave racing the championship day it never had. The Breeders’ Cup has evolved from a one-day on-track experience with a relatively large television viewing audience to a two-day event in which racing fans throughout the country can participate through simulcast betting at their local track, OTB or via account wagering. The television audience has plunged in numbers over the 25-year history of the Breeders’ Cup, even as handle has grown substantially.

The bottom line is that the Breeders’ Cup may capture the attention of most racing fans for a weekend, but it isn’t creating very many new enthusiasts for the sport.

Pope believed racing needed more than just one big weekend in the fall to help the sport grow, so he began trying to find ways to define a “major leagues” for racing. He kept going back to the fact that the racehorse owners, the people who own the “talent,” should be in control of the game. “Control” means licensing, scheduling of major races, marketing regulations, contractual agreements over distribution and revenue. It’s the kind of control defined by the most successful major league sports, including the National Football League (controlled by the team owners) or the PGA Tour (controlled by the players).

After studying various sports and how the team owners or players exert control, Pope formed the National Thoroughbred Association, which would create a major league for horse racing by, among other things, reversing what he called the upside-down revenue model currently in place for simulcasting, which now accounts for nearly 90% of wagering. The upside-down model, in brief, pays five times more to the business handling a wager (the simulcast outlet or account wagering company where a bet is made) than it pays to the track and horsemen who puts on the race on which the wager is made.

One of the first people Pope convinced that his idea would work was John Gaines, who along with Pope started convincing some of the most powerful owners in the business to get on-board. Eventually more than 100 owners signed up, each contributing $50,000 to the NTA as seed money, and the NTA was off and running in the summer of 1996. A board of directors was formed and Robert Clay was elected president of the NTA.

In early 1997, as the NTA’s plans continued to be formulated, Jockey Club chairman Dinny Phipps got involved and called Clay and a few others to a private meeting in Palm Beach, Fla. Neither Phipps nor William S Farish, the Jockey Club’s vice chairman, supported the NTA. Farish was also the chairman of the board of publicly traded Churchill Downs and a major consignor of yearlings at Keeneland. The latter role led Farish to have ambivalent feelings about the NTA, he told Gaines privately, because “I have to sell yearlings” to many of the people who had signed up in support of the NTA or who sat on its board of directors.

Clay was almost breathless in his enthusiasm for the “all hands together” approach that Phipps proposed during the Palm Beach meeting, that called for the Jockey Club, Breeders’ Cup and Keeneland to get involved. Other groups eventually were also brought in, including racetracks, and what had been an owner-driven initiative was now, for lack of a better term, a fustercluck of industry organizations which, by their nature, could never paddle in the same direction.

As Pope said during a talk he gave to a group of equine attorneys last year, “The NTRA looked like the NTA, sounded like the NTA, and promoted itself with the terms such as ‘Commissioner’ and ‘league office’ but without the basic elements of a Major League. It was a fake major league.

“The NTRA could not package, price, or distribute the sport. It did not have the rights from the racehorse owners, it did not have rights from the racetracks, nor did it seek to change simulcast pricing. Instead of the proven Major League sports structure, the NTRA tried to include not just all of Thoroughbred racing, but also included all of the Thoroughbred industry, as well as other horse breeds and dog racing industries.

“Instead of a real Major League structure, the NTRA presented a fantasy structure selling the premise that if everyone would close their eyes, join hands and sing Koombaya, then Thoroughbred racing would be restored The political operators had everyone drinking the NTRA Kool-aid.

“If Mr. Phipps thought stopping the major league NTA, to start another trade association, then in my opinion he is incompetent. If he did it only to stop the NTA, then he and people who helped him are guilty of something more sinister and owe the industry an apology. Although Mr. Phipps is the acknowledged head of the industry, I have never read about his vision for Thoroughbred racing. Every time someone else has put forward an idea, he has moved to stop it. To the point now, no one has offered anything new in the last ten years.”

Pope made those comments in May 2007. Since then, the industry’s prognosis has gone from bad to worse. This year alone we’ve we had the death of Eight Belles at the Kentucky Derby, the admission by trainer Rick Dutrow that Kentucky Derby winner Big Brown raced on anabolic steroids, medication positives for the trainers of the Horse of the Year, the Kentucky Derby winner and the Kentucky Oaks winner, the possible implosion of Magna Entertainment (the largest racetrack owner in the country), ongoing disputes over simulcasting and account wagering, and Congressional hearings that made the industry’s leaders look incompetent.

I think we are right next to a calamity,” Pope told the Paulick Report.

For that reason, he’s not giving up on the same basic premise that started in 1992 with the question “Whose Game Is It?”

Last month, Pope published an op-ed piece in the Thoroughbred Daily News discussing racing’s upside-down distribution model and the need for owners to get involved. That article got a lot of horse owners talking about the need for change.

I’m afraid we are seeing the total collapse of the economic model that’s in place right now,” Pope told the Paulick Report. “The objective of the NTA was to change from a simulcast buyer’s market to a seller’s market. It’s finally coming to fruition in some very bad ways, and it’s only a matter of how much damage has been done.

In the Aug. 16 issue of Bloodhorse magazine, Pope has repeated that message and has called for Congress to change one word in the Interstate Horseracing Act that will empower owners across the nation.

We have a long list of national organizations, but not a national racehorse owners association,” Pope wrote in a magazine that, coincidentally, is owned by the national Thoroughbred Owners and Breeders Association. Several organizations say they speak for racehorse owners; however, they are actually controlled by breeders, tracks, or trainers. It seems everyone wants to speak for racehorse owners, except racehorse owners.

Currently, the Interstate Horseracing Act gives simulcast approval to what it calls “horsemen,” which has been defined as owners and trainers. Pope wants the word “horsemen” to be changed to “racehorse owners,” mandating that the owners step and get involved in key decisions relating to simulcasting contracts.

One problem is that horse owners, to paraphrase what Robert Clay said many years ago, didn’t join the country club to cut the grass. They joined so they could play golf

Jess Jackson is one owner who believes in Pope’s idea, and that can be viewed as a blessing or as a curse. Jackson is a powerful individual whose written testimony before the Congressional hearing in June included a lengthy article written by Pope. He has access to members of Congress that many others might not have. He is respected and appreciated by some in the industry for what he has done in the area of auction reform, but there are others who may automatically get on the other side of the fence from Jackson on any given issue because they don’t like his tactics.

That shouldn’t be the case. This issue is too important. Racing is in far worse shape than it was in 1996 when Pope and more than 100 owners stepped up to make a difference, only to be shot down by Dinny Phipps and his sycophantic followers.

The idea then was to grow the business by having owners take control of the sport and create a new business model for simulcast distribution. The reality today is that the various parties are fighting over scraps. The focus needs to return to growth, and there is only way for that to occur.

Racehorse owners must support change to the status quo.

Copyright © 2008, The Paulick Report

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Churchill Downs Inc. and the Florida Horsemen’s Benevolent and Protective Association came to terms on a 2008 purse contract for Calder Race Course and on a contract for slot machines whenever the gambling machines begin operations at the Miami-area track.

The agreement means simulcast will once again be available on Calder’s races, effective this Thursday. The agreement is for simulcasting but not account wagering.  

 A statement from CDI said negotiations will continue to resolve issues related to the distribution of revenue from account wagering.

 According to a press release, Florida horsemen are guaranteed $14.375 million for purses in the first three full years of the slots operation and 6.75% of slot revenue for the remainder of the 10-year term. Additional provisions provide for the horsemen to share in the upside should the Calder slot facility generate specified slot revenue minimums in the second and third full years of operations.

CDI said it has agreed to drop without prejudice its lawsuit filed April 24 against the FHBPA and its officers.  The suit, which alleged violations under the Sherman Antitrust Act, will continue against the remaining parties, including the Thoroughbred Horsemen’s Group, a newly formed company that is negotiating purse contracts on behalf of numerous state horsemen’s organizations.

By Ray Paulick

Copyright ©2008, The Paulick Report