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By M ich and ael Com Patr ick V pton inza nt
24 THE FLORIDA HORSE â€˘ NOVEMBER 2009
Desp i almo te $14.7 Tho st $2 bil billion i cont roughb lion of n pari-m it fro red inue utue h m to f i o ght f rsemen advan l wager resp ce de ing in busi or th po on ei ness 2 land r livelih sible fo sit wag 007, e o scap r e wi ods and the live ring, th co s nflic relevanc how y in ting a prio ritie s.
ff-track betting was once believed to be a gamechanger in Thoroughbred racing, an ideal avenue to increase exposure and distribution of product to bettors unable to get to the racetrack. The advent of advance deposit wagering (ADW) over the telephone and internet has made the act of placing a wager easier, yet racetracks, breeders and owners are left with small percentages to split of each dollar wagered through that format while shouldering all of the costs of putting on the live show. On-track attendance and handle continue to struggle at our nationâ€™s racetracks. While the recessionary economy certainly has continued on next page
THE FLORIDA HORSE â€˘ NOVEMBER 2009 25
Gone are the days when all legal wagers were placed on track. According to the latest Jockey Club Fact Book, $14.7 billion was wagered on Thoroughbred racing in the U.S. in 2007. Of that total, only $1.67 billion was wagered on track, which means more than $13 billion was wagered off track. something to do with the depressed numbers, there are likely more answers to these problems residing in the business models the industry has practiced for decades. Technology and changing wagering habits and locations have likely contributed to the stagnant climate horse racing finds itself in today. Gone are the days when all legal wagers were placed on track. According to the latest Jockey Club Fact Book, $14.7 billion was wagered on Thoroughbred racing in the U.S. in 2007. Of that total, only $1.67 billion was wagered on track, which means more than $13 billion was wagered off track. According to the Oregon Racing Commission, $1.57 billion of that total was wagered through nine ADW outlets with hubs in Oregon. Live On Track
Blended Takeout State Tax Breeders OTB Facility Cost of Signal 50% to purses
. . . . . . . . .21.75 . . . . . . . . . . .0.5 . . . . . . . . .0.955 . . . . . . . . . . . . .0 . . . . . . . . . . . . .0 . . . . . . . . . .10.1
On Track Full Card
ITW Full Card
. . . . . . . .21.75 . . . . . . . . . . .20.6 . . . . . . . . . . .2 . . . . . . . . . . . .0.5 . . . . . . . .0.955 . . . . . . . . . . .0.955 . . . . . . . . . . .7 . . . . . . . . . . . . . .0 . . . . . . . . . . .0 . . . . . . . . . . .3.15 . . . . . . . . . .5.9 . . . . . . . . . . . . . .8
. . . . . . . . .20.6 . . . . . . . . . .2.4 . . . . . . . .0.955 . . . . . . . . . . .0 . . . . . . . . .3.15 . . . . . . . . .N/A
1/3 to purses after 45% to 2 ITW facilities
% Host Fee . . . . .blended 4.3 . . . . . . . . . . .7 % Breeders . . . . . . . . .3.475 . . . . . . . .3.475 (of revenue)
50% Purses . . . . . . . . . .2.07 . . . . . . . . .3.38 provided by FHBPA
26 THE FLORIDA HORSE • NOVEMBER 2009
Television Games Network (TVG) was the first to open an Oregon hub in 1999, shortly after that state passed favorable legislation for companies to establish account wagering hubs there. While on track handle has dropped steadily in recent years—from $2.2 billion in 2000 to $1.67 billion in 2007—wagering through ADW outlets in Oregon has exploded—from $19 million (two operators) in 2000 to $1.57 billion (nine operators) in 2007. Before delving any further, following are terms that are important to understand when addressing the business of wagering. “Handle” is the amount of money wagered. Most of this is returned to bettors in the form of winning payouts. In the pari-mutuel wagering system, wagers are placed in a pool and 80 percent of this amount is returned to the bettors with winning tickets. Approximately 20 percent of this amount, the “takeout,” is divided among stakeholders—racetrack, horsemen for purses, breeders for breeders’ incentives and taxes. These splits in Florida are determined by statutes and agreements between horsemen and racetracks.
NTRA Account Wagering Policy The NTRA supports account wagering as an appropriate and necessary means for the racing industry to expand its product distribution through the use of modern technology so long as the revenues flow to the Thoroughbred industry (including purse accounts) through wagering pools at live host tracks and not to unregulated or off-shore entities. The NTRA believes that all reasonable steps should be taken by account wagering operators to protect against problem gaming and underage gaming, including adoption and publication of specific programs to address these potentially serious problems. The NTRA acknowledges that there are differences of opinion between racing jurisdictions as to the current state of the law surrounding account wagering by a resident in one
Adopted in 2001
“Off-track betting facility (OTB)” is a location other than the live track that accepts wagers. This is how the wagering dollar on track at Calder is divided for a live event: At a blended takeout rate of 21.75 percent, approximately 78.25 percent is returned to bettors. The remaining 21.75 percent is split among industry stakeholders: 10.2 percent to the Florida Thoroughbred permit holder (racetrack), 10.1 percent to purses, .955 to breeders’ awards, and .5 percent to state tax. A bet placed on a Calder race at an OTB in state is broken up as follows: At the blended takeout rate of 21.75, 7 percent goes to the OTB, 5.9 percent to the permit holder, 5.9 percent to purses, .955 to breeders’ awards, and 2 percent to state tax. With the shift from wagering at the track to the Internet, dollars are being siphoned away from state pari-mutuel taxes, breeders’ incentives and purses. Here are some key terms when addressing ADW: “Host fee” is a designated percentage of the takeout paid to the live track for its simulcast signal. A “source market fee” is a percentage of all wagers placed by customers located near a host race track. In Florida, for example, the source fee is paid within a 25-mile radius of the live track. The philosophy behind this fee is that customers within close proximity to the racetrack would have otherwise wagered at the racetrack instead of through the ADW.
state with an account wagering facility in another state. The NTRA supports the legal interpretation of the majority of its membership that it is lawful for a resident of legal age of any state that permits pari-mutuel wagering to establish and wager through an account in a separate state that authorizes acceptance of account wagers, except in such situations where the state in which the account holder is located has adopted specific laws or regulations prohibiting such activities. The NTRA supports the payment of source market fees in an amount appropriate to ensure that live racing markets obtain a fair portion of revenues generated by account holders in their local market from account wagering activity with entities in other markets. NTRA use of resources at the federal level to shape laws and regulations consistent with the above principles shall require Board approval (by super majority). NTRA use of resources at the state level to shape laws and regulations consistent with the above principles shall require a consensus of NTRA members in the states involved.
Q&A JIM LISA PHOTO
with FHBPA’s Executive Director Kent Stirling
Q: Does the FHBPA have a set rate they charge ADW companies for host and source market fees at Calder and Gulfstream? A: Yes – by our contract with TrackNet (both Calder and
Gulfstream are TrackNet tracks) we negotiated a host fee of 9 percent for Gulfstream, the highest in the country, and a 7 percent host fee for Calder. This is split 50/50 with the racetrack. The Source Market Fee (SMF) for both tracks is the same but 58 percent of that goes to horsemen.
Q:How have host/source market fees changed over time? Have they improved the landscape for horsemen at the track? Can they be better?
A: Yes they have changed and for the better. The Thoroughbred
Horsemenʼs Group (THG) of which the Florida HBPA was a founding member along with the KYHBPA, ILTHA, and TOC was just about able to double most host fees over the last several years which obviously would mean a similar increase to purses and breedersʼ awards from ADWʼs. They can always be better as the ADWʼs are all quite profitable on the Thoroughbred signal.
Q: Can you break down the splits (in percentages) for each dollar waA: See attached. (chart, far left)
gered on-track, at an OTB, and for each dollar wagered through ADW?
Q: Can you explain how a dollar wagered in the state of Florida (through an ADW) on a race outside of Florida is treated—percentages for horsemen, purses, breeders?
A: We get nothing, except within the 25-mile market area. The ADW
pays only the host fee to that out-of-state track. ADWs are unbelievably profitable, and this is why we fought CDI (the dominant or controlling half of TrackNet) so tenaciously last year for a bigger piece of the ADW pie. We basically just got our host fees doubled when the smoke cleared which is not nearly enough.
Q: How are the splits derived and approved? A: They are negotiated between the FHBPA and their two South Florida tracks bargaining agent, TrackNet.
Q: How do you view the current distribution model regarding splits for each dollar wagered?
A: On ADWʼs we are clearly not getting our fair share yet. The THG plan was always to have a third of the takeout go directly to purses. We have not yet reached that level. This situation is further compounded by source market fees being typically paid only within a 25-mile radius of the racetrack. This doesnʼt work well when the radius includes giant sections of oceans and areas in neighboring states. A statewide source market fee makes much more sense, but failing that then the host fee needs to increase, at least for purses and breedersʼ awards. Remember that while ADW companies continually complain that they make very little profit in the 25-mile market area they are very silent about the profit they make in the rest of the state or the gigantic profit they make in states that have no horsemen or tracks to be paid, i.e. TN, NC, SC, GA, etc.
Q: As more states take a serious look at ADW splits, is there a uniform model you believe can work to the benefit of ADW operators, racetracks and owners and breeders?
A: Yes, as I mentioned previously, this simplistic one-third of takeout to purses and breedersʼ awards was also echoed by YouBet several years ago. They further suggested that an additional one third go to the racetrack and to the ADW operator. —Michael Compton
THE FLORIDA HORSE • NOVEMBER 2009 27
Near empty grandstands are common today. Pictured above is a stretch shot of a stakes race at Belmont Park from a recent Saturday program.
This is how the wagering dollar for a race on Calder’s live racing placed through an ADW is split: Seven percent host fee (paid to the racetrack), with 3.475 percent of revenue generated from that fee to breeders. The rest is split evenly between horsemen (purses) and the track. If the ADW wager was made within 25 miles of Calder, the track and horsemen split an additional 2 percent from the source market fee.
The industry must find a way to “ maximize the benefit of advance deposit
executive vice president of the Florida Thoroughbred Breeders’ and Owners’Association
28 THE FLORIDA HORSE • NOVEMBER 2009
JOEL CUNNINGHAM PHOTO
wagering. A solution must be found to have all wagers originating in Florida through ADW treated in the same manner as a wager made on track in the state.
A major issue facing Florida horsemen is this: for a wager placed through ADW in Florida on a race out of state, horsemen, breeders and the state receive nothing. The horsemen and breeders at the track the patron is wagering on (through a host fee), as well as the ADW, receive all the benefit.
“The industry must find a way to maximize the benefit of advance deposit wagering,” said Richard Hancock, executive vice president of the Florida Thoroughbred Breeders’ and Owners’ Association. “A solution must be found to have all wagers originating in Florida through ADW treated in the same manner as a wager made on track in the state.” To help the horse industry track wagering dollars, CHRIMS, Comprehensive Horse Racing Information Management Systems, was formed in 1990. CHRIMS is a non-profit, public benefit company jointly owned by the simulcast wagering companies in California. CHRIMS tracks pari-mutuel revenue and expenses for live and simulcast racing operations and interfaces with all of the major totalisator and ADW systems, according to its website. CHRIMS provides automatic breakouts of where each wagered dollar should be directed. In Florida, Gulfstream Park and Tampa Bay Downs utilize CHRIMS services. The FTBOA is asking the legislature to fund a study through CHRIMS to research the impact of ADW in Florida. “Currently, the state does not track the amount of money wagered in Florida with ADW,” said Hancock. “CHRIMS offers programs to monitor and track those dollars to ensure the horsemen and breeders receive their fair share.” With the majority of all wagers originating offtrack these days, smaller percentages of the wagering dollar are being funneled to industry stakeholders— the breeders and owners responsible for the product. “A critical priority for the National Thoroughbred Racing Association (NTRA) in Washington, D.C., is to work at the federal level to preserve the Thoroughbred industry’s multi-billion dollar market for telephone and online pari-mutuel wagering,” said Keith Chamblin, senior vice president of communications and industry relations for NTRA.
The tracks and the horsemen in each jurisdiction have the right to make business decisions that make the most sense for them. We support their right to decide which model works best in their jurisdiction. —Rohit Thukral TwinSpires.com president
Q&A TWIN SPIRES PHOTO
with TwinSpires.com President Rohit Thukral
Q: What costs are involved in providing racing content and wagering
A:ADW costs are broken down into two main categories: 1) obtaining racing content, and 2) delivering the wagering platform and associated services. There are three main expenses involved in obtaining racing content – host fees, source market fees (a.k.a. market access fees) and TV fees. Host fees and source market fees are paid to a racetrack while TV fees are paid to the TV network that holds exclusive broadcast rights to the race trackʼs content. Wagering platform expenses include statutory and pari-mutuel taxes (sometimes levied by more than one jurisdiction), tote related fees paid to the various tote companies that process wagers, internet hosting costs, networking and telecommunications expenses including bandwidth for video streaming (in HD when available), video downlink and conversion costs to prepare race track video feeds for internet streaming, ACH and credit card processing fees, handicapping products and data costs, staff and equipment for live teller wagering, staff and equipment for customer service operations, staff and equipment to keep the site up and running, initial and ongoing research and development to deliver continued technological innovations on the platform, local and national marketing campaigns, staff and equipment for general administration and multiple facilities to house all of the above. platforms for TwinSpires?
Q: In what ways do ADW companies compete with one another for customers? A: Competition in general and more specifically amongst ADW companies is a great
thing for the end user, the horseplayer. TwinSpires.com is committed to being the innovation leader amongst ADWs and that takes a great deal of investment. Our company is headquartered in Mountain View, CA, right in the heart of Silicon Valley which allows us access to people and technology that usually would not be associated with the horse racing industry. Our TwinSpiresTV online video player is a by-product of this investment that is extremely popular with horseplayers. ADW is one more option for the customer in addition to the track and off-track wagering.
Q: How have host fees and source market fees changed since the launch of TwinSpires? A: The cost of content is going up for the ADW platforms. The more popular racing
products command higher fees following economic principles of supply and demand.
Q: How many subscribers/customers does TwinSpires have? And how much money
A: In 2008 TwinSpries.com reported approximately $241 million in handle through the Oregon Racing Commission. Through the first two quarters of 2009 TwinSpires.com has reported approximately $175 million in handle. TwinSpires is the youngest platform among the major ADWs and is growing the most rapidly. Weʼve invested heavily in new technologies and the best people to build this business and bring new innovations to customers. is wagered through TwinSpires annually?
Q: How do you view the current distribution model regarding splits for each dollar wagered? A: Each jurisdiction has a unique distribution model based on supply and demand and the regulatory requirements of the jurisdiction. We comply with the requirements of each jurisdiction.
Q: Would you like to see more clarity state to state in how splits are structured? A: We support the tracks and the horsemen who put on the show being fairly com-
pensated. We work with the tracks and the horsemen in each jurisdiction to explain all the facts and cut fair deals.
Q: Considering that two states—California and Virginia—have laws, albeit different, on the books pertaining to ADW, how does TwinSpires view the regulations in those respective states?
A: We support the tracks and the horsemen who put on the show being fairly compensated. We work with the tracks and the horsemen in each jurisdiction to explain all the facts and cut fair deals. Q: As more states take a serious look at ADW splits, is there a uniform model you be-
A: The tracks and the horsemen in each jurisdiction have the right to make business decisions that make the most sense for them. We support their right to decide which model works best in their jurisdiction. —Patrick Vinzant lieve can work to the benefit of ADW operators, racetracks, and owners and breeders?
THE FLORIDA HORSE • NOVEMBER 2009 29
Sharing the blended seven percent between purses and racetracks “results in the smallest return on investment to the largest investors. Securing a reasonable range for host/signal fees, as well as source market fees and source market area, will return value to the industry that is not reflected in the current economic model. —Joe Santanna,
president and chairman National HBPA, from the Jockey Club Roundtable
Currently, at least two states, California and Virginia, have regulations regarding ADW wagering. In California, for instance, the maximum percentage allowed for an ADW operator is 4.9 percent. Percentages are also earmarked for breeders/owners, racetrack, purses, equine research, as well as a backstretch fund. In Virginia, ADW operators have to agree to a statewide source market fee of 10 percent, with an additional 1 percent going to breeders in that state to be licensed. “Every jurisdiction is unique when it comes to formulating a business model for ADW in a particular state, especially given the proliferation of alternative gaming as a source of revenue for tracks and horsemen alike,” ADW—11%
DOLLAR WAGERED BREAKDOWN ON ADW Example based on a 20% takeout
(Split between racetracks, horsemen & breeders)
Source Market Fee—2%
(Split between racetracks and horsemen)
Returned to Bettors—80%
Chamblin said. “Our view is that a market-driven model—rather than a legislative solution that can be difficult to change when market conditions change—offers the greatest flexibility for stakeholder groups to address the economic issues that go with ADW.” With on-track and OTB simulcast wagering declining, ADW is the only segment of the industry demonstrating growth. “I believe the ADW business holds more promise than any other channel for reaching the under-40 demographic group,” Robert Evans, president and CEO, Churchill Downs Inc., said during the 2007 Jockey Club Roundtable in Saratoga Springs, N.Y. “These individuals live their lives surrounded by technology. And if they are to become horse racing fans, they are going to play our game online. It is a demographic certainty that this group will determine whether racing has a future or not.” Speaking at that same panel discussion, Joe Santanna, president and chairman of the board, National HBPA, addressed the ADW business model. “Sharing the blended 7 percent between purses and racetracks results in the smallest return on investment to the largest investors,” he said. “Securing a reasonable range for host/signal fees, as well as source market fees and source market area, will return value to the industry that is not reflected in the current economic model.” With differing opinions on how to best secure the Thoroughbred industry’s future, one thing is certain: the horses and those responsible for them—breeders and owners—are the driving forces that fuel the game. “Thoroughbred breeders and owners must have the opportunity to earn a fair and equitable return on their substantial investment in this industry,” said Hancock. “We all have to work together and forge a business model that makes sense for everyone involved.” ■