04/26/2007 11:00PM

Account-wagering battle has bettors out in cold


Even by horse racing's dysfunctional standards, it was a tough week for the sport's account-wagering customers.

Within a span of seven days, customers of AmericaTab's online wagering sites were told that they would need to open an account with a different company if they wanted to bet races from Belmont, Del Mar, Keeneland, and Oak Tree, among other tracks, and customers of Youbet.com were told that they would need to find another service if they wanted to bet the races at the tracks owned by Churchill Downs and Magna Entertainment Corp.

That would mean getting authorization for another direct-deposit mechanism, making another deposit, splitting rewards points between two services, memorizing yet another user name and password, and facing the prospect of switching between two browser windows and accounts to be able to enjoy a day at the races from the comfort of one's home.

The upheavals were the product of an emerging battle in the account-wagering arena, and the trigger was a new partnership of Churchill Downs and Magna Entertainment Corp., two of the country's largest racetrack operators. Both are publicly traded. Earlier this year, they joined forces to form TrackNet Media, a company that is buying and selling the rights to simulcast signals.

The battle reflects the importance of account wagering, the only growing segment of the wagering market in U.S. horse racing. Horse-race wagering is the only legal form of online or telephone betting in the U.S. In 10 years since the introduction of this type of wagering, it already accounts for an estimated 20 percent of the annual $15 billion bet on horse racing.

Racetracks were slow to enter the account-wagering market, preferring instead to sell their signals to third-party operators like Television Games Network, also known as TVG, and Youbet. Now, as account-wagering companies' investments have begun to pay off, the partnership of Churchill and Magna has entered the picture, and the results have been frustrating, to say the least, to horseplayers.

At the center of the battle is TrackNet and TVG, the longtime account-wagering operator and television channel. Churchill Downs once sold its signal rights to TVG but is in the process of letting those contracts expire. Magna has never had a relationship with TVG and launched its own television channel, HorseRacing TV, to compete with TVG.

TrackNet controls or will soon control a sizeable number of racing signals, including Churchill Downs, Arlington Park, Santa Anita, Gulfstream, Fair Grounds, Laurel, Pimlico, Golden Gate Fields, Lone Star Park, and a handful of minor tracks. TVG controls the signals from the New York Racing Association, Keeneland, Del Mar, Oak Tree at Santa Anita, Hollywood Park, Turfway Park, and several other tracks, including the Churchill-owned Calder, at least until the Calder contract with TVG expires at the end of 2007.

From the beginning, TrackNet was an unusual marriage. Magna and Churchill are combining their signals for the purposes of resale, taking advantage of the leverage the consolidation gives them. But the two companies are going to operate separate account-wagering platforms. Magna already operates XpressBet while Churchill's platform - which has yet to have a firm launch date - will be called twinspires.com.

Michael Neumann, Magna's new chief executive, said earlier this year that Magna had attempted to convince Churchill to be partners on an account-wagering platform but that Churchill declined, preferring instead to operate its own. Churchill's chief executive, Bob Evans, said that Churchill wanted an "open market" for account-wagering, with every platform having the same content while competing for customers on the level of service they could provide.

In order to offer its customers the signals from every track, TrackNet needs to cut a deal with TVG, which charges the highest rate in the market for the signals it controls. Without such a deal, TrackNet has pressed Youbet and AmericaTab, two of TVG's sublicensing partners.

The negotiations have not been pretty. On April 18, AmericaTab announced that it had reached an agreement with TrackNet to take the Churchill and Magna signals. But AmericaTab - which is owned by several Ohio racetracks and includes the Brisbet and Winticket online betting sites - said it had failed to reach a new agreement with TVG and that its TVG sublicensing contract would expire on May 3.

Five days later, Youbet officials said that TrackNet had asked Youbet to drop its sublicensing deal with TVG as part of an agreement to take the Churchill and Magna signals. Youbet declined and chose instead to forgo the TrackNet signals. So, for the first time in five years, Youbet will not carry the Kentucky Derby.

Charles Champion, Youbet's chief executive, said in a conference call on Monday that he would not let TrackNet tell Youbet which signals it could take and that Youbet was not prepared to walk away from a long-term contract with TVG just because TrackNet and TVG have not reached an agreement on signals.

"We've had our problems over the years, but TVG has never once tried to dictate who we do business with and on what terms," Champion said.

Scott Daruty, TrackNet's chief executive, said that if the account-wagering sites operated by Churchill and Magna didn't have the rights to TVG's signals, then no single company should be able to carry every track.

"That is something we could not allow," Daruty said. "If and when TVG agrees to an exchange with us, then everyone can compete on a level playing field, and let the best operator win."

Charlie Ruma, the managing member of AmericaTab, said that he made a business decision to drop TVG, saying that the network once had its place - "seven or eight years ago" - but that the company had refused to change to suit the new marketplace. He said that TVG was a "great partner" but that AmericaTab could not go on paying TVG's high signal fees.

"It's in their best interest to reach a deal with Churchill and Magna," Ruma said of TVG. "They need to look at this new market, and they need to reset their model."

TVG officials declined to comment about the developments. Privately, they have said that their model of charging high rates for signals benefits the industry by returning large portions of the wagering dollar to tracks and horsemen while funding a widely distributed television network. According to some officials, Churchill and Magna are also charging a high rate for signals compared with existing simulcast rates. Still, the two companies have not found common ground, likely because TVG's rate is even higher than the TrackNet rate.

The signal from the New York Racing Association, the country's most sought-after year-round product, will come into play at the end of 2007. NYRA's contract with TVG expires then along with NYRA's franchise to operate Aqueduct, Belmont, and Saratoga. If TVG loses the NYRA tracks, TVG would lose a great deal of leverage, and its signal rates would have to come down. In the meantime, TrackNet seems prepared to wait it out.

NYRA officials aren't happy. When AmericaTab lost its TVG contract, it meant that NYRA lost access to AmericaTab's extensive subscriber base, leading Charles Hayward, NYRA's chief executive, to question TrackNet's motives.

"What's ironic is that TrackNet is saying that they didn't think it was right dealing with an exclusive - quote-unquote - but now they've created their own exclusivity," Hayward said. "So what's being asked is a little disingenuous. They're saying you can't do business with an exclusive unless it's our exclusive. But the biggest problem is, who's the biggest loser? Once again, the biggest loser is the racing fan."