10/03/2001 11:00PM

Cutting off Keeneland may well backfire


WASHINGTON - Keeneland, which opens this weekend, offers the country's best racing product, with its extraordinarily high purses producing top-quality competition. For bettors, these races have become especially attractive, because the Lexington, Ky., track this fall reduced its takeout to 16 percent, the lowest level in the nation.

But the Maryland tracks will not permit their patrons to watch or bet on the Keeneland races. Neither will the other tracks in the mid-Atlantic region, nor New York City Off-Track Betting. They have all concluded that they won't make enough money from the Keeneland simulcasts, and so they won't give their customers the product they want. This is the first significant battle in a developing war over the economics of simulcasting, and racing fans are caught in the middle.

Most people in the racing industry recognize - in theory, at least - that lower takeout rates are good for the game, because players stay in action longer and continue to churn their money, generating greater total betting. But tracks have been reluctant to trim their takeout because it might mean a short-term revenue loss in exchange for a potential long-term gain.

But in the simulcast era, major tracks can reduce their takeout painlessly, and Keeneland exemplifies the reason Eighty percent of the track's revenue comes from simulcast outlets, which pay Keeneland a percentage of the money they handle on Keeneland's races. Typically this fee is about 3 percent.

When Keeneland decided to lower its takeout rates, from an average of 18 percent to 16 percent, it still charged the same rate for its signal. So it is the tracks receiving the signal that lose revenue.

The mid-Atlantic tracks earlier this year formed a cooperative to buy simulcasts as a bloc and thus increase their leverage in negotiations.

When the New York Racing Association (NYRA) cut its takeout this summer, the mid-Atlantic group protested that its revenues were being squeezed, but it wasn't prepared to alienate its customers by cutting off the races from Saratoga. But when Keeneland announced its takeout reduction, and the cooperative couldn't persuade Keeneland to reduce its fee from 3 percent, it decided to fight.

"This is patently unfair," protested Marty Lieberman, head of the tracks' cooperative and the spokesman for all of its members. "We're bearing the burden of the reduced takeout. We're at risk, and they're not at risk."

The mid-Atlantic tracks recognize that the pricing of simulcasts is potentially a life-and-death economic issue for them, because there are a handful of major players in the industry who control the most popular simulcast signals. If they squeeze the tracks that depend heavily on those signals, those tracks may find it hard to survive.

In the view of the mid-Atlantic tracks, powerhouses like NYRA and Keeneland are threatening to disrupt the economic stability of the whole industry. But there is economic logic, not sheer ruthlessness, behind the big tracks' actions.

Maury Wolff, an Alexandria, Va., economist and gambler, observed: "The old business model was for the big tracks to subsidize the little tracks by undercharging them and to keep them open as distribution centers for their product. But now that business model is crumbling. With phone betting and Internet betting, the big tracks don't need the little tracks as much."

As the mid-Atlantic tracks moan that they are in danger of being crushed by behemoths, they won't get much sympathy from their customers. In fact, it takes a lot of gall for them to accuse Keeneland of greed in the pricing of its product. It was just a year ago that the Maryland Jockey Club pushed for and obtained an increase in takeout that boosted the rate on exactas to 21 percent and trifectas to 25.75 percent. Among the other, poor, suffering mid-Atlantic tracks, Philadelphia Park and Penn National take 30 percent from each trifecta bet, Delaware Park and the Meadowlands 25 percent. They are charging these prices (in many cases) for the privilege of betting crummy claiming races, while Keeneland charges 16 percent for a superior product.

"This is vintage protectionism," Wolff observed. "They're blocking out a superior, inexpensive product so they can sell a bad product at a high price."

There was a time that racetracks were virtual monopolies and could treat their customers as high-handedly as they wanted. But those days are gone, and the tracks' efforts to suppress the Keeneland signal will be self-defeating.

Marylanders bet an average of $215,000 a day on the Keeneland races last spring, and they are not simply going to move this money to another track that generates more revenue for Joe De Francis. The high-end customers are not going to say, "If I can't bet Keeneland, I guess I'll play River Downs."

If the Maryland tracks choose not to offer Keeneland, their customers might stay home and follow the action on the Television Games Network or the Internet.

They might bet with telephone accounts, and if the mid-Atlantic phone betting outfits bar Keeneland, gamblers surely will be able to find an offshore service willing to accommodate them. The mid-Atlantic tracks may not understand this, but bettors will go out of their way to find a superior product at a fair price.

(c) 2001, The Washington Post