11/14/2003 12:00AM

Cutting signal pie gets messy


The skirmish between the Churchill Downs Simulcast Network and the Southern Racing Cooperative may be over by the time you read this, but the war over fair rates for simulcast signals could just be starting. Its outcome will dictate the economics of the racing industry going forward.

Over the last decade, simulcasting has transformed racing and come to dominate it. Last year, only 15 percent of the healthy $16 billion national handle came from people betting at and on a live product. The other 85 percent came from people betting from somewhere other than a live racetrack or on races being run somewhere else. This is a complete reversal of where those percentages were a generation ago.

In a perfect world, it wouldn't matter where people were doing their betting, and there would be an equitable distribution of the $3 billion in takeout among all the parties entitled to a slice. In the patchwork world of simulcasting, though, it is where a bet is placed that makes all the difference in the size of everyone's slice.

With a live bet on a live race, almost all of the blended 20 percent takeout will go to the host track and its horsemen. If the same bet is placed at a simulcasting facility across state lines, the host may get only 3 percent while the receiver of the signal keeps the other 17. That 17 percent may get split with the local horsemen if the receiver is a racing facility, but if it isn't, the receiver gets the whole thing. (This is why these bet-takers can afford to give back almost half their take in the form of 8 percent rebates to select big bettors wooed away from live racing facilities.)

Depending on whether you are a sender or receiver, the 17-to-3 split is either a monumental injustice or a fair price. Senders think they should be getting closer to 10 percent than 3 percent, since they are putting on the show and paying its expenses. Receivers say they are already paying plenty for nothing more than a television picture and note that Las Vegas doesn't pay the National Football League a dime for betting on their games.

The senders have no one to blame but their predecessors if the bar has been set too low. When simulcasting began a generation ago, senders underestimated its growth and considered the new revenue found money. Now, a generation later, the senders are in a box, because if they all got together and jacked up rates to where they think they should have been all along, the industry would face more antitrust suits than Microsoft.

One of the implied benefits of the consolidation of tracks under the Churchill Downs and Magna Entertainment banners in recent years has been the assumption that these new conglomerates could raise simulcasting rates without antitrust concerns. So far, that's not exactly working out too well. The tracks whose lifeblood comes from receiving signals of better racing than their own have formed their own coalitions to keep rates down.

First there was the Mid-Atlantic Cooperative, which balked at an effective reduction in their share when Keeneland lowered its takeout two years ago, and now there is the Southern Racing Cooperative, an alliance of 17 tracks who are fighting Churchill's attempt to nudge rates upward. An impasse in negotiations this past week led to the cooperative tracks' not taking the opening-day Hollywood Park signal Tuesday and then Churchill's withholding not only Hollywood but also all if its other simulcast network signals Thursday.

We're going to see a lot more of these standoffs as new meetings start up and current simulcasting contracts run out.

It all boils down to a big game of chicken. With each passing day, senders hope customers will not permanently switch their action to other tracks, and receivers hope their overall handle stays the same.

Meanwhile, the customers bear the brunt of the inconvenience. Plenty of players at Southern Racing Cooperative tracks wanted to chase the $600,000 pick six pool at Hollywood on Thursday and arrived at the track to find themselves shut out. In previous standoffs, customers at places such as New York's offtrack betting outlets have arrived at the parlor to find that management has simply refused to pay more for signals such as Gulfstream's or Keeneland's, so today's action will be from a fifth-rate track happy to sell its signal for as low as 1.5 percent.

It may ultimately require a messy and expensive antitrust case to break the impasse. No one entity can hold out for a significant increase. Southern California withheld its signal from Las Vegas for months a few years ago and Las Vegas ultimately won that game of chicken.

If Churchill, Magna, and the New York Racing Association all independently doubled their simulcast fees, all hell would indeed break loose, and a bunch of attorneys would get richer arguing cases for years. Without such a test, racing seems stuck with a 3 percent system, practically giving away its best products in perpetuity.