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.)
Though Tom Meeker hasn’t been directly involved with the Thoroughbred industry since stepping down as CEO of Churchill Downs Inc. in August 2006 after 22 years at the helm, he has been an interested sidelines observer. Never one to mince words, Meeker said he doesn’t like what he sees right now, particularly the battle going on between racetracks and horsemen over advance deposit wagering. At the center of the fight on the racetrack side is the man who replaced him at Churchill Downs, Bob Evans.
“The squabbling that is going on right now could not have occurred at a more inopportune time,” Meeker told the Paulick Report. “Throwing grenades back and forth while the industry is crumbling around them does no one any good.”
Meeker said he doesn’t side with either party in the dispute. “In the cold light of day I side with horsemen on a couple of things, but track management is investing their capital and trying to put together a system. I’m not sure there’s a whole lot of money in the ADW business, and the margins can’t be great. I don’t think TVG and Youbet have done that well.
“Racing needs to get much more aggressive about marketing, and there needs to be a consolidation of racetracks and a number of functions so you can run the business in a more orderly manner. With the economic downturn and the squabbling that’s going on, it’s not a good thing. Everyone is just trying to whack up a smaller and smaller pie.
“The fighting makes no sense. There may be irrational people on the racetrack side or among the horsemen, but at some point even the most ill-informed or most radical will have to realize that we can’t keep doing this.
“And I don’t see any sense of urgency on anybody’s part,” he added. “I could think of 10 different things that can be done. Let’s agree that we don’t know the answer today, but let’s come to an agreement and have a reopener in a year or two years. We can’t afford not to have this thing out in the marketplace right now because we are losing customers. It takes five times as much energy and money to regain customers that you’ve lost than it does to keep them.”
Meeker said it’s important for racetracks to get into the ADW business . “They will use it as their primary marketing tool, whether it’s ADW or the various deployment devices – interactive television, telephone , the internet, whatever. That’s going to be the marketing arm of racing.”
Meeker sees other issues that have plagued the industry for decades. “We need consolidation in so many areas,” he said. “We have all these racing commissions, horsemen’s groups, what have you. There’s no sense of coordination at all on racing programs among different tracks. If Churchill were to cut out a few days of racing, somebody else would jump in and add more days. We need to cut back on the number of racing days."
He seems happy to let someone else deal with those issues. “For the last few years I’ve just been a mere mortal. I get online now and then and read the racing rags and other things, but I haven’t spoke to Evans since the day I left.”
Teruya Yoshida’s Screen Hero pulled off a huge upset in the 2,400-meter Japan Cup at Tokyo Racecourse on Sunday, taking the lead in the final 100 meters and holding off a fast-closing Deep Sky, winner of this year’s Japanese Derby. The 4-year-old filly Vodka, winner of the Japanese Derby of 2007 and the wagering favorite in the North American pool, was third. A third Japanese Derby winner, Meisho Samson, battled for the lead into midstretch but faded late.
A 4-year-old son of the Silver Hawk stallion Grass Wonder out of Running Heroine, by Sunday Silence, Screen Hero was bred in Japan by his owner’s Shadai Farm. He is trained by Yuichi Shikato and was ridden by Italian jockey Mirco Demuro, who one day earlier was issued a 30-day license to ride in Japan. Demuro has ridden at Japan Racing Association tracks on a temporary license every year since 1999.
The win was the fifth in 17 starts for Screen Hero and his first in a Grade 1 race. He was coming off a victory in the Grade 2 Copa Republica Argentino over the same Tokyo grass course. Click here to see past performances for the race.
Screen Hero covered the distance (about 1 ½ miles) in 2:25.50 and paid $122.80 to win in the North American pools. The race was televised in North America by TVG.
There were no North American horses in the race following the scratch by trainer Neil Drysdale of Canadian International winner Marsh Side due to a fever.
After 48 hours of being told horse racing needs newer and younger and more female fans, Ray Paulick is mad as hell and he isn’t going to take it anymore. He wants to know, among other things: Why does racing hate us old men? Ray’s gavel to snooze button coverage of the 32nd Asian Racing Conference takes a diversion today as he offers stream of consciousness (when conscious) coverage of the final programs from Tokyo, which touch on television, wagering, and the dreaded S.S. (synthetic surfaces).
CONFESSION: I’M AN OLD (55) MAN and am feeling a bit lonely. Racing doesn’t want me anymore. It seems more interested in younger people, men with fulls heads of hair, and women who giggle and love horses but have never bet more than $2 to show on a race. What have I done, to borrow from the Aussies, to hack you off? All I and my fellow old men do is go to your tracks, buy your lousy food, bet till our pockets are empty, and fall asleep on the train on the way home. Yet you would rather cater to people who don’t even like your product. Where’s the love, racing?
It’s not just an American problem, this fixation racing has on replacing the dead with people with a heartbeat. It’s going on in Australia, Hong Kong, Japan. Everywhere horses race, the marketers hate us old men.
Just yesterday, a producer from Fuji television, which broadcasts into 90% of Japanese homes, was lamenting that his Sunday racing telecasts have a demographic that is so old that he can only sell advertising time to rocking chair and walking stick manufacturers. Actually, it isn’t quite that bad, but old men were making up such an increasing percentage of the Sunday racing programs’ audience over the past 10 years (from 47% to 63%) to the point that producers decided to shake up the broadcast and bring in people who knew nothing about racing but had some connection with celebrity. There’s hope for David Hasselhoff over here in Japan!
Worse yet, Fuji’s racing telecast ratings declined over those 10 years, from 7.7 (about 3 million households) to 5.0 (about 2 million). Fuji’s metrics people are very clever, measuring their audience segments into eight categories (two youth, and three each by age group for male and female). The "old man" portion of the audience remained the same over those 10 years, with losses coming in the younger and female segment. So Fuji decided to take it out on the old men by providing programming that was irrelevant or irritating to them.
But wait. The Fuji TV producer, Masanari Funaki, said the younger generation is watching all of television less, not just racing telecasts. They have discovered the Internet, video games and mobile phone networking. Nevertheless, Fuji opted to ignore the old men and provide less information about handicapping and gambling (which us old guys like) and show more personality features, make the program more entertaining and focus more on "the sporting aspects of horse racing."
His reason? "We wanted to catch some of those sports fans who might be channel surfing," Funaki said. "We think it’s very important for viewers to see horse racing programs in the same way they see other sports programs, so we don’t overpromote the gambling aspect and get viewers to see the human element. We show more about jockeys, their histories and their background."
What a fool, I thought.
Not so fast, my friend. "This year’s racing telecast ratings are up," Funaki said.
Fuji TV also developed a Saturday night midnight racing telecast that focuses on handicapping the Sunday race, using well-known handicappers from six Tokyo newspapers who scream at each other about how stupid they are.Kind of like the three talking heads on TVG. "Those programs are very popular with younger men," Funaki said.
In my country, Mr. Funaki, old men are asleep by midnight.
SOMEONE ELSE ON THE TELEVISION PANEL SET UP A HORSEY PINATA representing the American racing industry and people took turns whacking it and reminding us of how stupid we are in the United States.
Those guys from the United Kingdom and Australia are so smart, just because they know how to tell time. Smug. They have a 3 o’clock race at Ascot and a 3;15 at Lingfield in the UK, and in Australia (where the clocks are upside down), they manage to televise about 12,000 horse races every day without having any post times overlapping with one another. The reason? Apparently, they can maximize wagering by coordinating post times for the races.
In America, experience has shown that it’s much better to have three races from major tracks all start at exactly the same time, so that simulcast or account wagering customers have to choose between races rather than bet on all three. It’s called maximizing stupidity, or something like that. "America’s most famous racetracks have races going off right on top of each other," said Brendan Parnell, chief operating officer for Australia’s Tabcorp. "They are cannibalizing or eating each other’s lunch and missing great opportunities. People are getting shut out."
Whack! Take that, you damned Yankees.
OLD MEN AREN’T THE ONLY ENEMIES OF RACING. So are governments, who set and enforce ominous hurdles that keep the sport from seizing on some great opportunities, such as a "global bet." (Aren’t most governments and racing regulatory bodies run by old men? Yes!)
John Stuart, who carries the creative title "director of international marketing and operations" for the make-believe Phumelela Gaming and Leisure Co. (what, there really is a place called Phumelela?), presented a science fiction video about a global horse bet called the "Universal," where fans in any country pick the first eight finishers of a big international race like the Japan Cup and create a betting pool in excess of a billion dollars. "Had Barack Obama been watching that," Stuart said, "he’d be shouting ‘yes, we can,’ ‘yes, we can.’ So should we be."
Of course, that will never happen because too many governments have protectionist laws prohibiting commingling of betting pools from one country to another. Plus, the American totalizator companies would still be accepting bets after the race is over.
A SERIES OF PRESENTATIONS ON MEDICATION featuring dreadfully boring attorneys and veterinarians has just about everyone in the room nodding off until a snappy Q&A segment near the end when the moderator directed a question about illegal drugs to Brian Stewart, head of veterinary regulation and international liaison to the Hong Kong Jockey Club. Specifically, Stewart was asked by Australian turf editor Bart Sinclair whether blood-doping agents like EPO, which have plagued cycling and some other sports, are being used in racing. Stewart nodded to the affirmative. "How big a problem is EPO?" Sinclair asked. "I’d say it’s widepread," Stewart said. That sent many Asian Racing Federation delegates straight to the bar for a stiff one.
THERE ALSO WAS MUCH DISCUSSION ABOUT HANDICAPPING INFORMATION. What should be given to these young fans who don’t exist yet? How should we deliver information to them? Gift wrapped with local currency, I think.
Howard Wright, senior editor for England’s Racing Post and one of the people in the media who "gets it," had me going there for a minute when he said the racing industry in Great Britain actually wants to make money from newspapers for providing information about horse racing to fans. Good one, Howard. They can’t be that arrogant over there, can they? Seems like the industry should be paying newspapers to promote the sport, not the other way around.
Howard, like me, is a slightly grumpy old man who does see the need for racing to replace those of us who will soon be pushing daisies. He also understands these young kids today don’t know how to read a newspaper, but doesn’t think the traditional ways of providing handicapping information (Racing Post, Daily Racing Form) should be abandoned. "One size fits all no longer applies," he said. "The media has to find ways of satisfying its traditional horse racing audience while also accommodating the PlayStation generation, who want their involvement presented in small pieces and want it now." It’s time for "Racing Form Lite" he said. Tastes great, less filling!
Howard also mentioned the budget cutbacks in most daily newspapers (e.g., they are dying faster than us old men), and suggested that racing isn’t alone in having its editorial space reduced. "Racing will never beat football," he reminded. Someone got out the Pinata again and started talking about how American newspapers have stopped covering horse racing altogether. Whack, whack, whack!
SOMEONE SUGGESTED THIS NEW THING CALLED THE INTERNET might be a good way to deliver information to these newbies. That’s where the kids are hanging out these days, aren’t they? To strategerize about this, the Asian Racing Federation found a really smart kid, Koichi Yamamoto, who must be the youngest senior research director the Dentsu Institute has ever had. (He got his MBA from Columbia University when he was, like, 12 years old.)
Yamamoto outlined how blogs and social networking have changed things and talked about how businsses need to reach "new influencers," people who are constantly communicating online by networking and commenting on blogs and never breathing fresh air. These "new influencers" might not be as informed as us old guys or as opinioned; in fact, they are more easy to influence than us stick in the mud types, Yamamoto said. But don’t inundate these "new influencers" with gibberish, he said, because they are adept at filtering out useless crap. "Only the most attractive and relevant information gets through," he said.
If the message gets through, however, Katy bar the door. Word of mouth is the new king, he said. Social trends spread at lightning speed. "People want to tell friends about things that at least some people know, but not too many people know," Yamamoto said. "The topicality window opens faster and closes faster."
Yamamoto said the newbs are hip to the trick of marketing people. "Increasingly sophisticated consumers can easily see through marketing schemes," he said. "Relationships with these consumers is more important than ever. Strong relationships turn information-filtering consumers into information-hungry consumers."
Can I get a translator please?
"WHAT IF STEVE JOBS WERE TO ENTER THE RACING INDUSTRY? How would Apple innovate the customer experience?" Those questions were asked by Edward Tse, a McKinsey and Co. consultant to the Hong Kong Jockey Club who encouraged racing associations to think more innovatively than they have done in the past. Tse reviewed the depressing statistics that show pari-mutuel handle losing altitude and asked if it is sufficient to simply launch new bet types, which many racing associations have tried. "Or," he asked, "do we need a new approach?"
He then listed six building blocks needed for innovation: 1) tax reform and product pricing; 2) customer segment expansion; 3) channel innovation and expansion; 4) product and service innovation; 5) image or brand building; 6) customer relationship management/loyalty.
Savvy guys like Tse do all sorts of analytics, and he said the most valuable ones are predictive in nature: in other words, get a swami to crunch your numbers. Short of that, he said, try and get predictive analytics that answer the following questions: What’s the best thing that can happen? What will happen next? If these trends continue, why?
Tse said companies that do this well include Capital One, the annoying credit card company that fills your mailbox with junk every day, the consumer electronics store Best Buy (news of their current problems hadn’t reached Tse yet), and the Harrah’s casino company, which he said "revolutionized the casino industry by adopting highly analytic customer focused innovation."
Harrah’s, he said, separates all of its customers into segments by profit potential, drives those customers to aspire to a higher level, optimizes placement of its slot machines in the best locations, and uses customer satisfaction measurements to shape their business plan. The whole point of this is to separate the customers from their money, and Harrah’s is extremely good at that.
Back to racing. Tse insisted that new approaches to the customer experience are required to modernize the industry. Following Harrah’s lead, racing associations must use deep customer segmentation and analytics as the foundation for innovation. "For most racing organizations," Tse said, "this will require a different mindset and new skills."
Unfortunately, many people with those skills end up working at a company like Apple.
DO LOWER PRICES INCREASE SALES? The Hong Kong Jockey Club was curious to see if the cost of a bet could affect how much is wagered, so they tried something foreign to most horseplayers: they lowered prices. Specifically, the HKJC offered rebates for losing bets made by some of their highest-rolling customers. The net result: players who received rebates, thereby effectively lowering their takeout, wagered more.
It wasn’t that easy, though. To give rebates, the HKJC had to cut a deal with government that gave them the flexibility to offer innovative programs like rebates. The agreement worked both ways, with the HKJC guaranteeing HK$8 billion in annual revenue to the government, more than they’d gotten the previous year. The HKJC wanted to expand the number of race days from 78 a year and the number of commingled simulcasts from 10. The government didn’t budge on those requests.
The rebates were for losing bets of HK$10,000 and up (about US$1,200) on win, place, quinella and quinella place wagers. To coincide with the introduction of the bets, the HKJC convinced 500 bettors from different wagering segments (frequent, occasional, big bettors, small bettors) to allow their betting to be tracked for analytical purposes. Not surprisingly, big, frequent players took advantage of the rebates the most, effectively lowering takeout from 18.7% to 16.9% and increasing the volume of their bets by having more money to churn. For the occasional and smaller players, the rebate and lure of lower takeout made little or no difference.
The rebates were funded by the HKJC, which looked at them as a marketing investment in their future. Handle increased, but not to the extent that it paid for itself. Bill Nader, the former New York Racing Association chief operating officer who is now executive director of the HKJC, said the organization hopes it will pay dividends in the long run.
MR. SEKIGUCHI, WHERE ARE YOU? Fusaro Sekiguchi, the flamboyant Japanese businessman who raced Fusaichi Sekuguchi to victory in the 2000 Kentucky Derby and has been a major buyer at foal and yearling sales around the world over the last decade, has been keeping a very low profile in his native Japan recently.
Some Japanese racing insiders have said he has sold most of his horses and others have suggested the global credit crunch may have dealt him a severe blow. Last time I saw him was in the paddock of the Tokyo Race Course at the Japan Cup a couple of year ago, where he was nattily dressed as usual. Sekiguchi has had some ups and downs in his racing and business career (famously failing to pay Keeneland on some yearling purchases prior to buying FuPeg for $4 million, and later getting fired by the company he started), and he always seems to land on his feet.
Here’s hoping we see him in the winner’s circle again real soon.
DARLEY JAPAN FARM EXPANDING: Darley Japan Farm, the Japanese breeding entity on Hokkaido owned by Ken Mishima, has expanded with the purchase of Nishiyama Farm, whose previous owner raced Paradise Creek, winner of the Eclipse Award as outstanding turf male in 1994. Though it’s a bit confusing, Darley Japan Farm and Darley Japan (which stands stallions) are separate entities, in part because of the licensing peculiarities of the JRA that require Japanese owners of breeding farms.
FINALLY, THE GRAND FINALE THAT WE HAVE BEEN LOOKING FORWARD TO…the "cage match" discussion arguing the merits of synthetic surfaces.
Ian Pearse of Pro-Ride surfaces of Australia, bragged on the results of the Breeders’ Cup at Santa Anita while Michael Dickinson, waiting for his turn to speak about his creation, Tapeta Footings, sat patiently onstage sticking pins into a voodoo doll that resembled Ron Charles, who chose Pro-Ride over Tapeta for Santa Anita, host of the 2008 and 2009 world championships.
Raji Jayaraju then sang the praises of the synthetic surface installed at the Singapore Turf Club track where he is senior manager. Singapore’s new track has been very useful because of the heavy rain they get in Singapore that often leaves the turf course extremely soggy. Jockeys and trainers said in a video that the synthetic track was terrific (under threat of a caning?).
Dr. Toshiyushi Takahashi, a representative of the JRA, presented some scientific research that showed why synthetic tracks might be safer than Japanese dirt tracks. The JRA installed synthetic material on one of its training tracks and compared hoof impact between dirt and synthetic tracks, measuring the velocity of impact and time of hoof stabilization at impact. Dr. Takahashi summarized by saying that synthetic tracks are more stable and provide more traction than dirt or wood chip tracks, and are more constant at the time of hoof landing.
But that science is meaningless in the face of comments from turf writers and horse players who are more concerned with tradition and form than the safety of horses.
"To those of you who train, for those of you who’ve got sand and dirt tracks, please switch to synthetics," Dickinson said. when asked about safety. "Whether you go with Tapeta, Pro-Ride or my good friend Martin Collins’ Polytrack, please change. It’s much safer for the horses." Apparently, someone "got to" the panelists and said no name calling. Cage match cancelled.
That’s it from the Asian Racing Conference. I’ll summarize what I’ve learned over these last few days in a forthcoming commentary.
By Ray PaulickThe 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.”
Somewhere down the road we hope Ginger Punch and Zenyatta meet. It truly will be a championship bout.
On Saturday, one week after reigning female champion Ginger Punch fought through an opening to win the Go for Wand at Saratoga, Zenyatta floated like a butterfly and then stung like a bee to score a most impressive victory in the Clement L. Hirsch Handicap to remain unbeaten in seven career starts. Zenyatta’s win came around 9:20 p.m. Saturday night on the East Coast, when most folks had retired from the dinner table and many turf writers were ordering another round at the bar. Just as West Coast college teams are often overlooked by the Eastern media because of the late hour of their games, Zenyatta might not be getting all the respect she deserves because of when her races are run.
If you haven’t had a chance to see the replay of the Hirsch, you can do so here. It’s must-see TV.
If Ginger Punch and Zenyatta continue their path and go head-to-head in the renamed Breeders’ Cup Ladies’ Classic, they will command all the headlines on the new female Friday program Oct. 24.
(Note: Commenter Tiznowbaby correctly pointed out that Zenyatta defeated Ginger Punch earlier this year by eight lengths earlier this year in the Apple Blossom at Oaklawn Park.)
THE WEEK BEGAN WITH AN EXCLUSIVE FROM THE PAULICK REPORT showing that National Thoroughbred Racing Association CEO Alex Waldrop is taking federal intervention very seriously http://www.paulickreport.com/blog/exclusive-ntra-confidential/. Some may question the secrecy of the meeting that was called at Keeneland to discuss industry reforms and whether or not the same three or four decision-makers were calling the shots, but Waldrop should be encouraged and applauded for pushing an agenda of change. Three days after we published his memorandum and discussion document page 1, page 2, page 3page 4 to the NTRA board, an NTRA committee met in Saratoga to further discuss the issue and hear some very frank and tough results of public opinion surveys about drugs and welfare issues facing the sport.
IT’S BEEN NO SECRET THAT RACING CHANNEL TVG would be put on the auction block by new owner Macrovision, which acquired TVG’s parent company, Gemstar/TV Guide earlier this year. But the Paulick Report broke the news that Swiss-based financial services company UBS is shopping the company around to potential buyers and that it’s likely a group or individual from within the racing community will end up buying TVG. We added that we hope logic prevails and that some industry group will have the vision to merge TVG and HRTV, and then consolidate the numerous wagering platforms to make it less confusing to horseplayers, many of whom have to keep more than one account to wager on their preferred tracks.
One rumored potential TVG buyer outside of the racing industry is cable TV pioneer Marc Nathanson, who in 1975 founded Falcon Cable, which became one of the largest cable operators in the country, and is currently on the board of directors of Charter Communications, which purchased Falcon. Nathanson is the father of TVG senior vice president David Nathanson, who runs the network. Marc Nathanson understands cable, has enormous clout to gain distribution, and has the resources to purchase TVG, which a stock analyst contacted by cable trade publication Multichannel News valued at $112 million. Industry insiders say it may be worth more.
We sounded off this week on the saga of Hialeah Park, beginning with a Dear John letter to current Hialeah Park owner John J. Brunetti and continuing with a profile of Halsey Minor, the Internet whiz who wants to revive the grande dame of South Florida racing. Based on the numerous comments to the profile, Minor has widespread support from people in the industry anxious to have someone bring a new business philosophy to the racetrack experience.
The week ahead: On Tuesday, Jess Jackson announces where Curlin will race next. Monday and Tuesday night’s boutique yearling sale at Fasig-Tipton Saratoga will either heighten or soothe the nerves of consignors looking ahead to the massive Keeneland September yearling sale. A spike in buybacks at FT Kentucky July and a dearth of new money players have many breeders on edge.
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.
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.
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
In my country, Mr. Funaki, old men are asleep by midnight.
which have plagued cycling and some other sports, are being used in racing. Stewart nodded to the affirmative. "How big a problem is EPO?" Sinclair asked. "I’d say it’s widepread," Stewart said. That sent many Asian Racing Federation delegates straight to the bar for a stiff one.
It wasn’t that easy, though. To give rebates, the HKJC had to cut a deal with government that gave them the flexibility to offer innovative programs like rebates. The agreement worked both ways, with the HKJC guaranteeing HK$8 billion in annual revenue to the government, more than they’d gotten the previous year. The HKJC wanted to expand the number of race days from 78 a year and the number of commingled simulcasts from 10. The government didn’t budge on those requests.
Some Japanese racing insiders have said he has sold most of his horses and others have suggested the global credit crunch may have dealt him a severe blow. Last time I saw him was in the paddock of the Tokyo Race Course at the Japan Cup a couple of year ago, where he was nattily dressed as usual. Sekiguchi has had some ups and downs in his racing and business career (famously failing to pay Keeneland on some yearling purchases prior to buying FuPeg for $4 million, and later getting fired by the company he started), and he always seems to land on his feet.
Raji Jayaraju then sang the praises of the synthetic surface installed at the Singapore Turf Club track where he is senior manager. Singapore’s new track has been very useful because of the heavy rain they get in Singapore that often leaves the turf course extremely soggy. Jockeys and trainers said in a video that the synthetic track was terrific (under threat of a caning?).