07/16/2009 11:00PM

At 10, TVG looks to the future

"We'd like to give to bettors the use of our betting exchange, which has younger demographics and brings different people to the sport."

It's been 10 years since Television Games Network was launched. At its inception, TVG was the first company to provide full-time television coverage of horse racing in a studio setting, and it was the first company to put the channel on cable and satellite networks. At first, progress was slow. But TVG reports that it now reaches 32 million households, and racing fans have come to rely on it.

The 10-year period has been a tumultuous one for racing and for TVG as well, whose business plan has evolved under three different ownership groups. But no change has been bigger than Betfair's purchase of the company early this year for $50 million from its struggling former parent, Gemstar-TV Guide.

Betfair, a privately held British company, is known the world over for its online betting exchange, which was launched in 2000, a year after TVG took to the air. Betting exchanges work by matching customers on both sides of a bet. In essence, Betfair allows anyone to be a bookmaker, provided the customer has the credit in his account to pay off any bets that are accepted.

Betting exchanges are illegal in the United States, which has a conservative gambling climate relative to most of Europe. With its purchase of TVG, Betfair was clearly making its own wager - that gambling prohibitions here would eventually relax.

Gerard Cunningham, the 45-year-old president of Betfair USA (the nominal owner of TVG), said in a recent interview with Daily Racing Form reporter Matt Hegarty that the company wants to see betting exchanges legalized here. That could present a problem to American racing, where the takeout - approximately 20 percent of each wager - is struggling to produce profits and pay the industry's expenses. It's unclear how betting exchanges might contribute to racing in North America, but in Britain they return far less than the American takeout model.

Cunningham - a native of Scotland who has lived for the past 15 years in the Northern California Bay Area - is confident that U.S. racing could benefit from betting exchanges, citing the volume of wagering on the markets. For now, Betfair isn't lobbying to get the exchanges legalized - Cunningham said that Betfair needs to explain its business model better to get acceptance. And so the company is focusing on TVG.

Matt Hegarty, Daily Racing Form: TVG recently updated its website, adding social features and strengthening the video-streaming quality. What were TVG's intentions through those updates?

Gerard Cunningham, Betfair USA: Betfair and TVG really believe that the bettor and the experience of the bettor is really at the heart of what we bring to the industry. We want the bettors to have the best possible experience, and we want them to win more often. To do that, we want to help them see the races better - we now have the best video quality in the industry. The community aspects are there to help bettors encourage each other, identify value bets together, and allow them to be able to discuss horses together. We found in Europe that our betting forum was very, very successful in engaging consumers and making them better handicappers.

Bob Evans, the chief executive of Churchill, which owns one of your competitors, has played down the importance of television coverage because of his belief in the future of Internet streaming. You obviously invested a lot of effort into this new video-streaming capability, so do you agree with him in a sense? Does TVG, or horse racing, necessarily have to be available on television to succeed?

We think it does. We think about it in the same way as what television was once talked about, that it was going to replace radio. While streaming is a tremendous enhancement for bettors, there will still be bettors for a long time who will want to engage with horse racing through a television format. And we will continue to advance that format.

One thing worth noting is that horse racing is competing with many other sports, many new sports that were not popular 10 or 20 years ago, and sports that are much more well known. And if you look at things like professional bull-riding, which is now available in high definition, or you look at Nascar, where you can now buy an individual TV channel that allows you to listen to your favorite driver and listen to him talk to his pit crew and that shows pictures from inside his car, or you look at the NFL, where they allow you to have eight channels on one channel so you can monitor your fantasy football team, we think that TV will be an integral part of going forward, by delivering a multi-channel experience.

When you talk about that market for television, it seems that the consumer is demanding high-definition content. What's holding the horse racing industry back from delivering HD content?

It seems to me that the core problem is expense. Every racetrack needs to look at whether it can afford new HD cameras, new HD telecast equipment. The OTBs across the country or satellite wagering facilities would need the capability to receive that content, and the television channels, TVG, for example, would need to upgrade our core equipment. We're currently exploring it, we're very interested in doing it, and maybe we will end up doing it with some subset of the leading tracks. I'd hope to be able to talk about those experiments we will be doing in the near future.

On the business side, wagering numbers on Thoroughbred racing were stagnant before the recession, and now handle is down approximately 10 percent since last fall, with the decline accelerating in June. What is TVG doing to mitigate the effects of the recession?

Horse racing handle in the U.S., I believe it peaked in 2003, and it has been declining since then. Of course, the recession has made it worse. However, I think over the last decade, the rise of other sports that are attracting more people to them, especially the younger generation, the rise of improved entertainment formats, like HD, the rise of new online competitive betting opportunities, like the online poker sites, all of those things are contributing to the problems with horse racing handle.

We want to be part of the solution. We are a company that loves horse racing. It is the first sport our company took a bet on. Our founders own horses, breed horses. We love the sport. There are two things we'd like to be able to do. We believe the sport is supported by bettors and owners. These are the two groups of people who get entertained by the sport and really give back to the sport. So we want to make betting on the sport as good as it can be, and we will continue to do that through our website and improved functionality and enhanced user experience.

We'd also like to give to bettors the use of our betting exchange, which has younger demographics and brings different people to the sport.

Then on the owner's side, we are working quite actively with some of the horsemen's groups out there, we are in the process of finalizing agreements with the [Horsemen's Benevolent and Protective Association] and [Thoroughbred Owners and Breeders Association] to partner with those groups and give benefits to our members. We have just completed a three-year deal with Breeders' Cup and a three-year deal with the Claiming Crown. We're committing significant resources to making sure those events are as big as they can be and as successful as they can be. We have also just announced a deal with Del Mar, and we are going to be their exclusive TV provider during their meet, and we will have all of our personnel on track. As part of that deal, we are going to do a voluntary revenue-share with wagers that are taking place overseas on the betting exchange. We will share some of that revenue with Del Mar, and that money will go to purses. We are very, very excited that we are going to be able to contribute in making U.S. racing better.

You mentioned that Del Mar is going to allow betting on its signal on the betting exchange. Have any other tracks approached you about making their wagering content available on Betfair?

Betfair overseas actually takes wagers on quite a few tracks across the U.S.A., and we would love to have more of these deals where we had improved streaming from the racetracks, more data from the racetracks, and be able to share those revenues with those racetracks. Those conversations are ongoing.

There have been disagreements in the past about that practice, with some racetracks complaining that Betfair was offering their content without compensating them. What has been the response of racetracks that have been approached about making their signals available to Betfair for exchange-betting purposes?

It's been fantastic. Overall, since we acquired TVG, we've had a great experience. The tracks, horsemen, owners, trainers, breeders, have all been fantastic to work with, the staff at TVG has been tremendous, and the customer response has been terrific. As for the particular item you're talking about, we now believe that we are able to have these discussions, and so we're having those discussions actively right now. The U.S. tracks and horsemen understand now that there is another revenue stream from wagering by overseas books on their races, and the U.K. is an excellent time zone for U.S. racing, because U.S. racing is in the evening in the U.K. So we think we've had excellent discussions.

What about lobbying? Have you begun lobbying any states or the federal government about the legality of betting exchanges?

No, our focus right now is on TVG and parimutuel racing. We've not only been running the business since the end of January, we've also had a lot of work to do to improve industry relations. We still have a lot of work to do. And we're operating in a very competitive and, as you say, a declining market, so we have a lot on our plate, and we'll get around to betting exchanges when we're ready.

What is Betfair's position on the [Democratic Massachusetts Rep.] Barney Frank bill that would decriminalize gambling over the Internet?

We are keeping an eye on it and watching where it is going. Our understanding is that the major sports leagues are going to be seeking to block that, and that would be unfortunate. It would be very exciting if there were more revenue sources for the states from legalized poker and online gambling. It would be great for consumers who would then get legal protection from legalized, licensed online gambling businesses within the state, and it would be fun for consumers to not have to worry about the legality of those shops.

One of the biggest issues when you bought TVG was the lack of a content-sharing agreement between TVG and TrackNet, the partnership between Magna Entertainment and Churchill Downs. Within a few months, you were able to reach that agreement. What was the primary driver for TVG in reaching that deal?

I think we had a common interest in looking after our customers. The goodwill was there between the various companies involved - Churchill Downs, Magna, TrackNet, and ourselves - and we were able to put aside our disagreements.

What has the agreement meant revenue-wise for you? Are you down, was it revenue-neutral, has it resulted in more revenue?

We don't report those numbers publicly, but the key metric for us is that our customers are more satisfied and are pleased with the result. I think it would be a good assumption, though, that revenue is up for everybody.

Do you think the agreement will be renewed when it expires at the end of the year?

Yes. Working with Magna, CDI, and TrackNet has been a pleasure.

Are you looking to consolidate the market at all? XpressBet is available through Magna's bankruptcy. Have you explored looking at buying XpressBet or any of the other companies out there?

Our primary focus right now is on TVG and making sure we build TVG. But as opportunities arise, we will look into them and explore them.

At this point TVG is available in 16 states. Are you considering expanding to more states? Your competitors all take wagers from customers in more than 30 states.

Betfair has a very conservative approach. If we think the legality in a market is gray, then we won't take wagers. And that's why Betfair has never taken a wager from the U.S.A., even before the [Internet Gambling Prohibition Act] was implemented. TVG has a similar, very strict regulatory sense. So, right now, 16 states, and we're talking with regulators. But we're still the largest of all Internet wagering companies, even though our competitors are in more states.

As we go forward, as we get more experience, we will continually look at the regulatory policies. However, we will remain very conservative. It's served us well, as far as entering the U.S., to be able to acquire a company in the U.S. Many of our competitors overseas took easy, illegal money from the U.S. once, and now, they can't enter the country. They can't do business here.

There's always been concern that the growth of Internet betting has only shifted dollars from more traditional outlets to the account-wagering companies. It doesn't seem as if it's provided new revenue to the racing industry. What can TVG do to attract new money and new fans?

We do want to bring new people to the sport, so you will see us reach out and try to engage new bettors and make it as much of a fun experience as possible, and hopefully, with time, we can do that with a betting exchange, which will bring in new, younger bettors to the sport.

I do want to comment on this idea of cannibalization, that online wagering has damaged handle at the racetrack. I actually don't accept that premise. If I go back 10 years ago, before there was online wagering, and I move forward through the period, imagining that there was no Internet wagering on horse racing, then horse racing would still be competing against all of these other sports that are bringing in many, many more interactive entertainment experiences, and it would be competing with the sports that have remade their venues into very pleasant facilities, and with a whole new set of Internet wagering competitors, like online poker, which is a much cheaper bet than online horse racing, and you would have had this major change in the economy, in which we are all working a lot harder than we were a decade ago, where none of us have jobs for life anymore, and we do not have time to go to the track during the week. So if we didn't have Internet wagering, the industry would be in much worse shape today. Internet account wagering has helped keep the wealthier, white-collar professional who has a busy job engaged with the sport during the week, and allowed him to participate in the sport as a bettor.