CHURCHILL AND THE ADW WARS
Is anyone really surprised to see Churchill Downs Inc. involved in yet another dispute with horsemen’s organizations over contractual terms for account wagering or advance deposit wagering? The incident in California involving TrackNet Media, the company CDI owns in partnership with Magna Entertainment, is the latest in a series of contractual and legal disputes between the Louisville, Ky.-based company and horsemen’s organizations in several states.
The common thread in all of the disagreements is an effort by Churchill Downs to squeeze as high a percentage as possible for its TwinSpires ADW platform. In so doing, purses and state breeding programs, and in some cases racetracks, will get a smaller slice from account wagering dollars.
The formation with Magna of TrackNet Media in 2007, along with the subsequent launch of TwinSpires and the purchase of the AmericaTAB account wagering company, Bloodstock Research Information Services and an interest in the Horse Racing TV cable network, has made Churchill Downs a major player in the ADW world. The company can offer content (through its racetracks), wagering services (TwinSpires, which absorbed many of the AmericaTAB customers), television distribution (HRTV) and past performance information used by horseplayers (Bloodstock Research).
CDI is also rumored to be the leading candidate to buy TVG, the largest ADW company in terms of customers and pari-mutuel handle, and with much greater distribution on cable and satellite television than HRTV. TVG is believed to be getting a larger share of account wagering revenue than any of the other ADW companies, at least in California, in part because of their investment in programming and distribution. If CDI ends up owning TVG and keeping its customers, it will be the leading ADW company in the U.S. It also may put an end to a lawsuit filed by TVG’s owners against HRTV for alleged infringement of company patents.
TrackNet Media negotiates ADW contracts with racetracks, including those owned by Churchill or Magna, which is what happened in the current California dispute. In essence, then, a company owned by Churchill and Magna may be negotiating on behalf of ADW companies owned by Churchill and Magna with racetracks owned by Churchill and Magna – an interesting scenario, to say the least. In some cases, as in California, those negotiations do not include representatives of horse owners.
Many industry participants who have been following CDI’s activities over the last 18 months are convinced the company is intent on moving wagers made on track or at simulcast facilities – including those owned by Churchill Downs – to its TwinSpires ADW platform. The reason? Churchill is positioning itself to make more from each dollar wagered through TwinSpires than it does from a dollar wagered on-track or at one of its off-track betting facilities.
The company has refused to negotiate with the Thoroughbred Horsemen’s Group, a company formed in November 2007 to act as an agent on behalf of its members (local horsemen’s organizations throughout the United States) on ADW contracts. In fact, last year, when horsemen in Kentucky and Florida exercised their rights under the Interstate Horseracing Act to cut off signals for simulcasting or account wagering, CDI sued several local horsemen’s organizations and the Thoroughbred Horsemen’s Group, alleging anti-trust violations.
Some parties were dropped from the suits when CDI and local horsemen’s organizations reached contractual agreements on ADW revenue splits (in some cases, very short-term agreements). But at least one of the defendants, the Kentucky Horsemen’s Benevolent and Protective Association, which countersued CDI, opted not to have the legal action dropped after CDI and the horsemen reached an agreement on account wagering for the 2009 Churchill Downs spring meeting.
It’s an interesting case. In its counterclaim, the Kentucky HBPA pointed out a clause in the purse contract between Churchill and Kentucky horsemen that dealt specifically with possible future ownership of an account wagering company by CDI. The contract, said to be written by the Kentucky HBPA’s longtime counsel, the late Don Sturgill, with Sturgill, Turner, Barker & Maloney, was executed before CDI got into the account wagering business and is effective through the end of 2009.
The counterclaim (click here for a copy) against CDI reads: “Section 4E of the contract clarifies that wagers made on races through an ADW owned by CDI, i.e. TwinSpires, are to be treated as if made physically at Churchill Downs racetrack for purposes of determining the percentage of monies to be paid into the Horsemen’s Account for horsemen’s purses. Section 4E specifically states:
The HBPA claims that Churchill Downs has not paid horsemen in accordance with that clause in its purse contract, and estimates a $3 million shortfall in purses.
Judge John Heyburn II of the U.S. District Court for the Western District of Kentucky at Louisville has ordered a Feb. 19 conference to discuss and argue the pending motions in the case. Judge Henburn also wrote a draft (which can be seen by clicking here) containing “a statement of the relevant facts and Plaintiff’s (Churchill Downs) legal theory as well as discussion of the standing, statutory immunity and contract issues.”
The HBPA must feel as though they are on solid ground with their counterclaim against CDI. Otherwise, why wouldn’t they have agreed with CDI to have the legal action dropped?
Account wagering has brought about many changes in the pari-mutuel industry. It’s clear that what is decided now on the division of revenue, either in the courts or among horsemen, tracks and ADW companies, will have a major bearing on the future economics for horse owners, tracks and the wagering companies, as well as on the horseplayers who fuel the game.
Let’s hope these issues are resolved while we still have people interested in betting on our sport.
The Paulick Report is interested in what you think about this issue. Write a publilc comment in the section below, and take the Daily Paulick Poll (located on the left-hand column of the home page) about whether you think it’s in the best interests of horsemen and fans for Churchill Downs Inc. to purchase TVG.
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Tags: Account Wagering, advance deposit wagering, ADW, americatab, ameritab, anti-trust laws, bloodstock research, bris, CDI, churchill downs, don sturgill, hbpa horsemen's benevolent and protective association, Horse Racing, horseplayers, HRTV, judge john heyburn, kentucky HBPA, Magna Entertainment, pari-mutuel wagering, Paulick Report, Ray Paulick, sturgill turner barker & maloney, Thoroughbred Horsemen's Group, tracknet media, tvg
January 22nd, 2009 at 8:13 am
CDI is also using TrackNet to shutout other, smaller, ADW companies from the signals that it controls. Companies like Premier Turf Club, which was “vetted” by the Louisiana HBPA, and approved to take bets at Louisiana Downs, have ben shutout from taking the Fairgrounds’ signal simply because TrackNet refuses to negotiate with them. That behavior is clearly restraint of trade in interstate commerce and a coninuting examle that the monopoly mentality is alive and well in horse racing.
January 22nd, 2009 at 8:59 am
I don’t know anything about Churchill Downs but what do you expect from someone who hooks up with Magna. Monopolies are a terrible thing in racing. Please don’t let them take over TVG
January 22nd, 2009 at 9:15 am
The reason Premiere Turf Club is shut off is because their platform is 100% rebate. The difference continues whethter rebates are good or bad for the industry. PTC should have thought this model through before launching. It is public information that CDI has a relationship with RGS in St Kitts to settle their books for a FAT annual fee. CDI will never endorse another “domestic” shop. The on track bet aspect of the track owned ADWs is legitimate. Similar to an outlet store for a manufacturer. Cuts out the middle man so certainly the horsemen are due the splits. It is time to revisit the virtualtote bet so all tracks get the electronic based wagers on track. good for the public, good for the horsemen, good for the tracks. Bad for the middle men. Only way this deal will turn around, Stay tuned.
January 22nd, 2009 at 10:15 am
Ghostzapper,
Loved your Breeders’ Cup Classic win but as I have posted here before, RGS no longer has the relationship that you referenced for at least a year.
Dick Powell, RGS
January 22nd, 2009 at 10:26 am
Ghostzapper, tell me what the difference is between Youbet and Premiere Turf Club from the perspective of the track selling the signal.
January 22nd, 2009 at 10:57 am
I may be wrong but it seems to me back in the 1910’s, 1920’s, Churchill Downs bought many racetracks (I think they owned a Washington Park, Douglas Park, and even the Old Latonia in Northern Kentucky). I think they all ended up going out of business (except Churchill). Perhaps there’s a connection, but my fear is that CDI seems to hurt tracks and the business in general because they seem to forget the most important client: the bettor and fan. The high roller obviously should be catered to, but the casual fan is ignored. That’s the only way to harvest fans in the future. CDI seems determined to be concerned about the online bettor and securing casino’s. At least from my perspective (the rabid fan and $100 a visit bettor) Churchill has no use for me. At other gaming venue’s I’m treated so much better. I’m wondering how CDI who seems to run their flagship with very little customer service, can run gaming where the return person is key.
January 22nd, 2009 at 11:44 am
Ray … Just to clarify a couple of things:
1) The name of the ADW company Churchill bought was AmericaTab, not AmeriTAB.
2) Tracks make the most money when an on-track patron bets on the on-track race. Horsemen do too. They have both been telling us that for years. It would therefore be illogical for CDI to try to force on-track handle to its ADW platforms as you are suggesting they want to accomplish. Also, as has been widely reported the host fees being charged to even its TwinSpires ADW are significantly higher than what is charged to other tracks, so it also doesn’t pay to move on-track simulcast handle to the ADW either.
3) I have reviewed the IHA several times to prepare blog posts and responses such as this and there is nothing in the IHA that requires the horsemen’s group to be part of the contract negotiations with simulcast outlets. The fact that Churchill isn’t including the horsemen in those negotiations seems on its face to be nothing out of the ordinary. Don’t get me wrong, under the IHA the horsemen do have approval rights for the contracts after the agreements have been reached, but there is nothing that requires them to be a party to the agreement, or allows them to negotiate it. The THG was trying to get there, but they failed. I saw a document posted online somewhere in the early days of the THG where they were actually trying to be the contracted party, with the host fees being paid directly to the THG.
4) The IHA also specifies that the ‘local’ horsemen’s group is the one with approval rights, not a third party organization. I’m not saying that it was in TrackNet’s best interest to snub the THG (clearly it wasn’t), and I’ve seen several published reports that they have held talks (productive or not) so I’m not sure you can claim they ‘refused to negotiate’ with them. However, when I see all of the contracts involving tracks where horsemen withheld signals get resolved by the local horsemen as opposed to the THG, that should tell you something. How many stories did we see where the THG expressed displeasure over a deal?
Your last sentence is very important as much for what is missing, as it is for what it states.
“Let’s hope these issues are resolved while we still have people interested in betting on our sport.”
As a couple of people have hinted here, and as I and many folks clearly stated during your Fred Pope series, it is very clear to the customers that the tracks and horsemen have completely forgotten about us when trying to resolve these issues.
The issues can be ’solved’ to the satisfaction of the tracks and horsemen, but if the solution doesn’t have some benefit for the customers it simply won’t matter. You won’t get us back.
January 22nd, 2009 at 2:02 pm
Just noticed an error in my previous post … in #3 above the final part of the last line should read ‘with the horsemen’s share of the host fees being paid directly to the THG.”
January 22nd, 2009 at 5:44 pm
TwinSpires pays rebates. YouBet pays rebates. I have accounts with both and get cash rebates from both. So why Mr./Ms. Ghostzapper is PTC doing anything different than those outfits except being more effiicient? The fact that their model is less constrained by the bloated cost structures that the other ADW’s have, shouldn’t penalize them. CDI and TrackNet need to get introduced to the free market system. The fact that the industry looks the other way and allows monopolistic business practices, high levels of taxation and customer robbery in the form of payout breakage along with presenting a crummy product will bring nothing but declining handle back to its coffers.