04/30/2007 11:00PM

Crossed signals won't untangle easily


NEW YORK - The dispute that erupted this week between TrackNet Media and YouBet may have the ring of one of those familiar dust-ups that always seems to happen a week or so before the Kentucky Derby, when the cudgel of access to betting on the nation's most famous race is wielded to get someone to pay a higher price for a simulcast signal. The game of chicken usually goes on until about a day or two before the big race, when a compromise is struck just in time to start betting the big race.

This time, though, the issue is a lot bigger. The entire future of account wagering is on the line. Two of the nation's biggest racetrack companies, Churchill Downs and Magna, have joined forces under the TrackNet banner to retake control of account wagering from the various third-party operators the industry has allowed to flourish over the last decade. It is going to be a long and ugly fight, during which the racing consumer, as usual, will suffer.

Every party to the dispute is claiming that it is carrying the flags of open access and concern for the customer, but the issue is all about eliminating the middlemen that the industry enabled through its own failure to embrace and exploit new technologies a decade ago. Instead of forming its own television network, betting hub and online-betting operations, the industry turned to outside companies such as the Television Games Network, YouBet and AmericaTab to disseminate its products.

All of this added new mouths to feed in the distribution chain, and track operators, already feeling they were getting too small a slice of the betting revenue on the products they were producing. began questioning why these third-party companies were necessary. Magna formed its own television network and other tracks let their TVG deals expire.

It is no coincidence that TrackNet, a joint venture between Churchill Downs and Magna, came on the heels of both public companies' naming new chief executives who came in from outside the racing business. They saw an opportunity to keep a higher share of existing revenues, and stake out a larger slice of future earnings in the booming account-wagering sector, by joining forces to market their content directly to consumers.

So now TrackNet is playing hardball with the middlemen, demanding the equivalent of loyalty oaths by saying it will not sell its content to distributors who are offering TVG's signals. This is forcing companies such as YouBet and AmericaTab to choose between offering the TrackNet package that includes Churchill, Gulfstream and Santa Anita or the TVG "exclusive" tracks including Keeneland and the New York Racing Association signals. It is a brutal choice that will cripple both companies' lineups and force many customers to fund and maintain at least two accounts in order to play all the top tracks.

The two online companies made different choices. AmericaTab informed its customers Wednesday that it is acceding to TrackNet's demands, takings its package, and dropping the TVG signals including NYRA starting next week. YouBet is doing the reverse. So now we have a a dysfunctional online split similar to the one in the broadcast world between TVG and HRTV, which broadcasts the TrackNet content.

If this were merely a short-term squabble over rates and lineups, it would take about five minutes to work out a compromise where common fees could be set and customers could do one-stop shopping at any venue. This is the way most sensible businesses would operate, rather than inflicting such massive inconvenience and confusion on consumers. Clearly, however, this is merely the first salvo in what is likely to be an increasingly bitter attempt to reset the industry's simulcasting economics and distribution channels. The tracks are willing put its customers through some short-term anguish to win the bigger battle of taking back the business it has ceded to third parties.

The disposition of the New York Racing Association franchise may end up playing a huge role in the ultimate resolution of the issue. One of the bidders, Empire Racing, includes both Churchill and Magna, who have a combined ownership interest of nearly 13 percent, and Empire's final bid specifically said that the NYRA signal would become part of TrackNet. This would give TrackNet a dominant market share and TVG's survival would become highly questionable. If NYRA, another bidder or a new agency ends up running the show, an alliance with TrackNet is still possible, but so is a TVG renewal, or New York might go its own way. It currently offers New York residents access to virtually all signals through its NYRA-One accounts and on Thursday received approval from the state to offer online wagering as well.

None of this is going to be settled by Derby Day, or even by Derby Day 2008. It took the industry a decade to turn account wagering into a dysfunctional, combative mess and it could take nearly as long to straighten it out.