05/10/2006 11:00PM

Large racing companies increasing signal fees

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Several large racing companies, including the New York Racing Association and Churchill Downs, have been asking racetracks and simulcasting outlets in the U.S. to pay higher fees for the signals from their tracks, according to racing officials.

The effort to increase the rates, which appears to have been successful in many cases, comes when racetracks and horsemen are seeking ways to increase their returns from simulcasting, which generates approximately 90 percent of the racing industry's revenues. The racing industry's share of simulcasting revenues has been declining steadily over the last five years as more and more handle migrates to rebate shops and account-wagering operations, which typically return far less to the racing industry than intertrack or offtrack betting sites that are owned or operated by tracks that hold live racing.

Randy Gallo, the owner of a rebate shop located on a Native American reservation in South Dakota, said this week that Churchill Downs, Keeneland, and NYRA all asked for rate increases this year, though he declined to be specific. Simulcasting rates, which are thought to average about 3 percent of handle, are typically kept confidential by both parties.

Although Gallo said that the rate increases from Keeneland and NYRA, especially, were "very big," he said that he agreed readily to the new rates, in part because his recent move to the Native American reservation eliminated state taxes that totaled 4.5 percent of handle.

"I'll be honest - their signals, especially Keeneland's, were so underpriced it was ridiculous," Gallo said. Asked to explain why he felt the signals were cheap, Gallo said: "Those guys are doing all the work, paying all the bills, and guys like me are making a lot of money off them. What they're charging now is what they should be getting."

Gallo, like many rebate-shop operators, returns the majority of the difference between a simulcast signal's takeout rate and the signal fee - which typically comes to anywhere from 12 percent to 22 percent - to his customers in the form of a rebate, which acts to lower the price of betting for the customer. Gallo also benefits from that spread because he is a professional gambler who bets his money through his own shop.

Bill Nader, the NYRA senior vice president who oversees the association's simulcasting negotiations, declined to provide specifics about the rate increases sought by NYRA, but he said that most outlets had accepted the increases. In the past month, NYRA has signed agreements with two large racetrack cooperatives to provide its simulcast signals through Dec. 31, 2007, the date when NYRA's franchise to operate racing at Aqueduct, Belmont, and Saratoga expires.

"We did this based on what our product is worth and what we believe is fair compensation for what we provide," Nader said, citing Belmont and Saratoga's top two positions on a 2005 ranking of tracks by average daily purse distribution.

NYRA has also been under pressure from state regulators to bump up its simulcasting rate. As part of the conditions for receiving a $30 million loan package from the state, NYRA agreed late last year to increase its takeout on win, place, and show bets by 1 percent as of May 3, and also to seek higher rates in the out-of-state simulcasting market.

The takeout increase has worked in NYRA's favor during simulcasting negotiations because out-of-state outlets are currently retaining an additional 1 percent of every win, place, and show wager, compared to last year. That gives NYRA some room to ask for a higher percentage of handle on its simulcast signal without biting into an outlet's total revenues.

Marty Lieberman, the executive director of the Midatlantic Cooperative, a group that represents 19 tracks in simulcast negotiations, said that the group was "satisfied" with the contract it recently signed with NYRA, but he also declined to give details. Still, the Midatlantic Cooperative's support is significant, given that the group has boycotted the signals from Keeneland and NYRA on two separate occasions over the past five years because of contractual disputes with the tracks.

"All I can say is that we're signed on through the end of December, 2007, and that we have no complaints," said Lieberman.

Racetrack officials typically do not discuss simulcasting negotiations in detail because of fears of losing a competitive edge over other buyers and sellers, but the negotiations are also kept confidential because of concerns of running afoul of antitrust laws, which are thought to prohibit any racetrack from discussing rates with any other racetrack except in a negotiation.

Julie Koenig Loignon, a spokeswoman for Churchill Downs, would not confirm that Churchill has been seeking higher rates for its signals, which include the company's six racetracks (Churchill also negotiates the contracts for Hollywood Park in Southern California and Bay Meadows in northern California), but said the company recently "reevaluated its pricing structure."

"We tweak our pricing structure to make sure we're receiving fair-market value for each racing signal," Koenig Loignon said. "Each situation is unique."

Churchill recently ended protracted negotiations with the Nevada Pari-Mutuel Association on a new three-year agreement with the state's race books. Those talks had been stalled by Churchill asking for a higher rate from the 79 casinos represented by the association, according to Patty Jones, the executive director of the group.

"They were asking for some increases, yes," Jones said. "I can't talk about what we pay, but I can say that there were some compromises."

Jones said that the casinos were open to the compromise because they were interested in signing a long-term contract with the Churchill properties, as opposed to the one-year contact that Churchill typically seeks.