Posts Tagged ‘david nathanson’

By Ray Paulick

Are betting exchanges a possible solution to the problems facing the U.S. Thoroughbred industry, which in 2008 saw its annual pari-mutuel handle fall for the fourth time in six years, dropping over 7% to a 10-year low? The Thoroughbred Owners of California thinks they may be, having recently signed a letter of agreement with betting exchange giant Betfair to have the UK-based company promote California racing abroad while TOC helps BetFair obtain statutory and regulatory approval to operate a betting exchange in California.

Betfair, which has been trying for several years to gain access to the U.S. market, is also believed to be a leading candidate to buy TVG, whose parent company, Macrovision, announced its intention to sell TVG last year. Though there are no confirmed suitors, others rumored to be potential buyers of the racing network and Advance Deposit Wagering platform include Churchill Downs Inc.; Marc Nathanson, a cable TV industry billionaire and father of TVG president David Nathanson; and an industry consortium that could include Keeneland, the New York Racing Association, former Hollywood Park chairman R.D. Hubbard, and Los Alamitos racetrack owner Edward Allred.

Betfair, a privately held company, was founded in June of 2000, using a technologically advanced platform permitting individuals to go online and bet against one another on a wide range of events, including horse racing, sports, politics and even reality television shows. By taking commissions of 2%-5% from winning bets, the company offers extremely low takeout and has built enormous volume: it claims to have over one million customers from 140 countries, with 100,000 or more active players in a given week. (UPDATE: Betfair said in October 2008 that it signed up its two millionth customer; see comments section, below) Its wagering platform handles over five million bets per day. In 2007, Betfair had 42 million English pounds in earnings before interest, depreciation, taxes and amortization on revenue of 240 million pounds. According to its annual report (which can be seen here), Betfair has 110 million pounds cash on hand.

CONCERNS ABOUT BETFAIR

The problem many see with Betfair is that the company pays a small percentage for the rights to races on which it handles wagers. In England, for example, it pays a bit over 10% of gross profits on racing wagers. In some cases, however, it pays no fees at all, as is currently the case with racing from the U.S. Betfair currently accepts bets on American racing, but only from customers outside of the U.S., and it does not have rights to any video signals. Betfair is acutely aware of concerns from racing interests in the U.S. who believe betting exchanges would cannibalize pari-mutuel betting and decrease revenue to tracks and purses. It addresses some of those fears in this pamphlet, which was designed to appease the racing industry in the United Kingdom.

Another concern raised about Betfair centers on wagers it accepts that a specific horse will lose, prompting worries about race-fixing. But Betfair has cooperated in several investigations involving horse racing and sports betting, giving authorities access to detailed betting information as part of its memorandum of understanding. 

Drew Couto, the president of TOC, said the letter of agreement with BetFair was signed last month. He believes wagering will continue to suffer unless the industry distances itself from Albert Einstein’s definition of insanity: doing the same thing time after time and expecting a different result.  “That really describes our industry’s approach to this sport and business over the last decade,” Couto said. 

“Going forward,” he added, “we have to face two very important realities. “First, we have allowed the sport to basically disappear. It’s no longer a sport, but simply a justification to gamble and wager, and as a wagering proposition we know it’s not the most attractive. We have to go back and make it a sport. We have to give the sport some structure to have it make sense for the fans, make some very serious fundamental changes to focus on the sporting aspect of racing. We have left it largely to the tracks to be the stewards of the sport, and they only care about the financial side. 

“Second,” Couto said, “we have to adopt new ways our fans can participate. New wagers, betting exchanges. We have to embrace these new ways of playing as ancillary to the way we currently operate, so it’s new and fresh. That includes tournament-style wagering that was approved by the RCI (Association of Racing Commissioners International) last summer. If we don’t begin to do things differently and find new ways to operate, we are bound to be the definitive example of what Einstein said.”

CAN RACING DEVELOP ITS OWN BETTING EXCHANGE?

Chris Scherf, executive vice president of the Thoroughbred Racing Associations of North America, a racetrack trade organization, for years has advocated that North American tracks consider developing their own betting exchange. He sees the trend in downward handle as a serious crisis. 

“We’ve got to look into pricing (the takeout charge on pari-mutuel bets), the product that’s being provided and the convenience factor for wagering,” Scherf said. “We need to make the same kind of concerted effort on handle that is currently being made to improve the safety and welfare issues. Track by track, you can get swamped in a million problems, but this has to be at the top of the pile. We are losing bettors. What do we have to do to change that aspect of the business, the part that provides us revenue? Of course, the entire debacle of cutting off signals in the last year (due to contractual disagreements between tracks and horsemen over ADW splits) was extremely detrimental to any kind of sustained gambling business. 

“The problem,” Scherf said, “is we’ve got tracks and horsemen both saying they need more money in this economy. But the first thing we need is an engaged gambling public, and they should be at the top of the list.”

Scherf said he is “somewhere in between fear and welcoming” Betfair into the industry. “We had no master plan for how ADW would fit in and now we are trying to retrofit it, which is causing a lot of angst and problems. We need to spend more time developing a strategy (for exchange betting), though it’s difficult to do that when you have a wide disparity throughout the industry in resources and markets.” 

Lonny Powell, an industry consultant based in Lexington, Ky., who previously served in executive positions with racetracks (including head of Santa Anita Park), the ADW company Youbet.com and as president of the Association of Racing Commissioners International, said BetFair has done a good job of “mainstreaming themselves” in recent years by sharing more of its profits with the racing industry in Europe. 

“It’s here to stay,” Powell said of Betfair and exchange betting. “When I was in the ADW world, I wished they would just go away, but I don’t feel that way anymore. We’re like an ice cream store that only sells vanilla, but you can go over to Baskin Robbins and get 33 flavors. We need variety.” 

Powell, who said he is optimistic the industry will find a solution to its present challenges, believes racing interests should look at developing their own betting exchange. “If the industry could somehow take this wagering crisis a little more seriously and rather than find ways to kill something, find ways to make it work, we can grow the gambling dollar,” he said. “A Betfair type of platform can be operated by U.S. racing interests. The economic model that Betfair offers is flawed, but we all agree our current model is flawed, too. I’ve got to believe a Betfair type of platform would work. Our product is stale, and our wagering levels are stale.”

INTEGRITY ISSUES REMAIN A CONCERN

The reason for declines in handle go beyond a limited product line, said Mike Maloney, a professional gambler in Kentucky who has become an outspoken advocate for horseplayers at industry conferences and who served as an ad hoc member of a Kentucky Horse Racing Commission Task Force. “We are at a very significant crossroads in racing,” Maloney said, “probably the biggest one in my lifetime. The financial crisis is magnifying our problems, but the problems have to be dealt with before racing can recover. The economy may improve, but racing’s problems will still be there.

“Our customer base is aging, and they’ve lost a lot of their faith in the integrity of racing,” he said. “As they age, they aren’t being replaced. The second problem is the takeout is too high. We can’t attract new players and are having a hard time holding on to existing ones. It’s exacerbated because the takeout keeps going up. With competition from other gambling opportunities, you can’t get away with that any more. It’s roughly 5% in other forms of gambling – sports, table games, trading options – but it’s 20% for us. New York just raised takeouts; trifectas are 26% now, and I just refuse to play it. Kentucky wants to raise takeout. What other business in this economic climate would consider racing prices? 

“Third,” Maloney said, “racing integrity problems are real, and they are not exaggerated. If anything, they probably are underplayed. Trainers who use drugs to cheat; unsecured wagering pools with outdated technology; unregulated participants allowed access into those pools. People are just beginning to learn about some of the problems in these areas. In the last couple of years the light is being shined on them. These are serious problems that need to be dealt with. Big players realize they can’t trust the pools they are playing money into.”

Finally, Maloney said, the corporate mentality of many racetracks has hurt the game. “There is a disconnect with customers with some of these racetrack holding companies. They don’t really understand their business, and there’s too much short-term bottom line thinking; cutting costs, worrying about the next quarterly report, and too little thought about long-term improvement of the product.”

Maloney, who called betting exchanges a “two-edged sword” because of how they would cannibalize pari-mutuel betting, said the industry has had a wake-up call after being “rocked by betting and drug scandals and threatened” by the federal government. “This crossroad we’re at, what we do from here, will determine the fate of racing.”  

(Do you have an opinion on how the industry reverses the trend in declining handle? We’re interested in your comments below and in your thoughts about betting exchanges, the subject of the Daily Paulick Poll, which can be found on the left-hand column of the Paulick Report home page.)

Copyright © 2009, The Paulick Report 

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By Ray Paulick

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.

Meanwhile, negotiations continue…sort of.

“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! “

“Why they would attack the only source of revenue that’s growing when the industry is in a state of decline across the board doesn’t make sense,” Nathanson said. “ It just doesn’t seem to be in the best interests of the racing industry.

“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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