05/01/2008 11:00PM

Bettors suffer as signal blackouts escalate

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LEXINGTON, Ky. – Spring is here. The days are getting longer, the flowers are in bloom, the 3-year-olds are taking center stage – and horseplayers are fuming again.

Just like last spring, this season’s discontent is rooted in the blackout of many popular racing signals – including the full cards Friday and Saturday from Churchill Downs – on many account-wagering sites and some offtrack betting sites. In addition to Churchill, the blackouts have affected the signals from Belmont Park, Calder Race Course, Lone Star Park, and River Downs.

For horseplayers, it wasn’t supposed to be this way. Account-wagering on horse races is the only legal form of online betting in the country, and placing a wager online should be getting easier, especially considering the rapid technological improvements made over account-wagering’s 10-year lifetime.

Instead, it’s getting more difficult. The problem, as always, is money. Online and telephone betting accounts for approximately 20 percent of the nationwide handle of $15 billion, according to estimates, and that share of the market is the only growing segment of an otherwise stagnant industry. As a result, racetracks and horsemen are drawing lines in the turf about how the proceeds from account wagers should be divided at the same time that many popular racetracks are pressing offtrack sites to pay a higher rate for the right to take bets on their signals.

Most of the blackouts are due to a stalemate between a simulcast-marketing partnership, TrackNet, and a company formed late last year to negotiate account-wagering rights on behalf of horsemen, the Thoroughbred Horsemen’s Group. THG has been pressing TrackNet, which is owned by Churchill Downs Inc. and Magna Entertainment Corp., to pay horsemen one-third of the revenue from account wagering while simultaneously asking TrackNet to share its signals with TrackNet’s competitors. TrackNet controls the signals to Churchill’s four tracks – Arlington Park, Calder, Churchill Downs, and Fair Grounds – and nine Magna Thoroughbred tracks – Golden Gate Fields, Gulfstream Park, Laurel Park, Lone Star Park, Pimlico, Portland Meadows, Remington Park, Santa Anita Park, and Thistledown.

The two sides have made little progress since THG took over the negotiations in early spring. In fact, the talks have failed to produce an agreement on the account-wagering rights for any TrackNet property. Churchill has filed a lawsuit against THG, alleging that its actions are in violation of the Sherman Anti-Trust Act, while the horsemen have accused TrackNet of hypocrisy. Officials for both sides agree that neither side has shown any willingness to back down.

TrackNet was formed last year just as Churchill was planning to launch its own account-wagering platform, twinspires.com, before the Kentucky Derby. By cutting out established account-wagering companies such as TVG and Youbet.com and instead delivering racing signals directly to customers, twinspires.com could retain approximately 15 cents of every dollar wagered compared with approximately 7 cents for an ontrack bet or 2 cents for a bet at a simulcast site or other account-wagering platform.

Those heady returns, however, piqued the interest of horsemen, who typically receive one-fifth to one-quarter of the revenue through account-wagering platforms, although the rate can vary widely. As a result, THG was formed, with the mandate of reconfiguring the returns on account wagers to the benefit of purse accounts. In addition, THG has been pressing TrackNet to provide its signals to TVG and Youbet, the two dominant account-wagering companies and direct competitors of the platforms run by Churchill (twinspires.com) and Magna (XpressBet). Horsemen have the right to approve the export of any signal under a 1978 federal law, the Interstate Horse Racing Act.

“We’re all about two things,” said Bob Reeves, the president of THG. “We want a fair share of account-wagering revenues, and we want our signals on every platform. And we need to get those things now, before this goes any further.”

Last year, when TrackNet declined to provide its signals to Youbet and TVG, customers of the two account-wagering companies had to open a new account with twinspires.com or XpressBet to bet the Derby card – or go to a nearby simulcast site. Some horseplayers boycotted the card and others sharply limited their wagering, a factor in the Derby’s overall decline in handle in 2007, the first decline after 16 years of uninterrupted growth.

The issue did not only affect the Churchill signal. In fact, a host of racetrack signals that were previously available on TVG and Youbet were suddenly restricted to twinspires.com or XpressBet, resulting in a wholesale change to the menu of tracks offered at one-stop online betting shops like Youbet and the sites run by AmericaTab. (The AmericaTab sites were purchased by Churchill last year and folded into its twinspires.com platform.)

The stalemates are not limited to the dispute between THG and TrackNet. The signal from Belmont Park has been blacked out since Wednesday at simulcasting sites in 16 states because two racetrack cooperatives have been unwilling to pay a higher price for the signal. The track’s signal, however, is being offered on all the major account-wagering sites. In Florida, horsemen have refused to give Calder permission to export the signal to out-of-state sites unless Calder’s owner, Churchill, negotiates a purse contract that includes splits from a planned casino at the track. The casino is not expected to open until next year. In addition to that blackout, THG has also failed to reach an agreement that would allow Calder’s signal to be sent to account-wagering sites.

Scott Daruty, the chief executive of TrackNet, acknowledged on Friday that horseplayers were facing even larger hardships than last year because of the failed negotiations.

“I do believe it’s going to get better,” Daruty said. “There are a lot of people who are truly working toward an environment where every platform gets every product. There are a number of complicated issues to resolve before that happens.”

When Churchill launched twinspires.com, Churchill officials complained about TVG’s practice of signing tracks to exclusive contracts and said that competition among account-wagering companies should be based on the quality of services instead of the menu of tracks offered. Officials of THG say that Churchill has done the opposite, pointing to TrackNet’s decision not to sell its signals to its competitors.

Churchill’s lawsuit accuses horsemen of conspiring to set higher rates for signals. But the horsemen contend that Churchill’s practices are no different. TrackNet, the horsemen say, is a partnership of two competing companies that was formed to seek higher rates for the signals it controls.

So far, THG has not applied the same pressure against Youbet or TVG that it has used against TrackNet. THG officials contend that many contracts with Youbet and TVG have not come up for renegotiation. Also, the officials said that Youbet and TVG provide a higher share of revenues to horsemen through source-market payments.

Daruty has complained that the horsemen’s position is unrealistic, considering the economic problems facing the racing industry. Handle has not grown in any significant way for five years, and adjusted for inflation, the trend would point down. Still, Daruty said that if horseplayers weather the latest storms, the negotiations will eventually result in a environment in which all account-wagering sites share the same signals.

“It’s not going to be days, but it’s not going to be years, either,” Daruty said. “The industry will figure this out.”