01/22/2009 12:00AM

Magna, Churchill talk tough with Vegas


Las Vegas casinos are facing the loss of all signals from the tracks owned by Magna Entertainment Corp. and Churchill Downs Inc. as of Monday unless the two sides can come to agreement on a handful of stubborn financial issues.

The Jan. 26 deadline was set three weeks ago when TrackNet, a simulcast-marketing company owned by Magna and Churchill, granted the casinos an extension on an expired contract so as not to disrupt the National Handicapping Championship, an event sponsored by Daily Racing Form and the National Thoroughbred Racing Association which is held annually in Las Vegas. The tournament, held this year at the Red Rock Casino Resort, begins on Friday and runs through Saturday.

Scott Daruty, the chief executive of TrackNet, said this week that negotiations on a new contract have "gone backward" since the extension was granted. If negotiations are not successful by Sunday night, Vegas casinos will lose the signals from three of the most popular winter racetracks: Gulfstream and Santa Anita, which are owned by Magna, and Fair Grounds, which is owned by Churchill.

TrackNet and other simulcast sellers have argued for years that Las Vegas casinos pay below-market rates for horse racing signals. In addition, the sellers have begun to object to paying the casinos' costs to conduct simulcasting, an arrangement that sellers say is unique to Las Vegas.

Though racing officials would not confirm the rate paid by the casinos, it is believed to be at or under 3 percent of handle. The casinos, which retain the difference between that rate and the takeout - or approximately 17 percent of each wager - have been able to pay such low rates because of the size of the local market, but racing officials now contend that handle in Las Vegas has shrunk to the point where a higher rate is warranted.

Ten years ago, handle through Las Vegas casinos accounted for approximately 10 percent of the national total. That share has dwindled to approximately 4 percent now, according to Daruty.

"If I'm a big bettor, I can walk into the Bellagio and get comps, free drinks, food, a free room," said Daruty. "But if I stop betting big, and I haven't been to Vegas in three years, and I say, 'Remember me? I'd like my comps back,' they're going to tell me to get lost. It's the same situation here. I'm not underplaying Las Vegas, they are a very critical customer, but they used to be a huge, huge market for us, and now they're not."

Officials of the Nevada Pari-Mutuel Association, which negotiates simulcasting contracts on behalf of more than 80 casinos, did not return repeated phone calls this week.

An official in Las Vegas involved in simulcasting said that he was "not surprised" that TrackNet was taking a hard line with the casinos. The official, whose company would lose money in the event of a blackout, spoke on the condition of anonymity.

"It's the clash of the titans," said the official. "The casinos have leverage from the buying side, and TrackNet, for the first time, has similar leverage on the selling side. I'm surprised it took this long."

TrackNet was formed to put upward pressure on signal rates by combining the properties of Magna and Churchill, which together own 14 racetracks. Over the past two years, the company has sparred with horsemen's groups and pushed for higher rates from offtrack betting sites that are not affiliated with racetracks.

The casinos' position is strengthened because Nevada allows the racebooks to book horse racing bets. So, even if the contract negotiations fail, the racebooks could continue to offer wagering on the Magna and Churchill tracks, although TrackNet is prepared to cut off all access to its racing signals and the data associated with the races. In addition, booking bets creates problems for handicappers, because racebooks have typically put limits on payouts on exotic wagers and do not offer superexotics like the pick six.

The rate that the casinos pay is only part of the negotiations. According to officials, the race books do not pay a host of fees associated with simulcasting, including subscription rates for racing signals (in the racing industry, the subscription rates are called "decoder fees"), nor do they pay bet-processing fees to totalizator companies. Instead, the tracks pick up the subscription fees, and the bet-processing companies provide their services without payment, even though those costs are almost certainly passed along to other racetracks in the form of higher rates.

Daruty said that the negotiations are also hung up on whether race books are adequately providing information on the source of their handle. Account-wagering is now legal in Nevada, and Daruty said Magna and Churchill want to be protected if racebooks begin to operate account-wagering platforms in competition with Magna's and Churchill's account-wagering companies.

In all likelihood, some of these issues are being raised by TrackNet in order to have bargaining chips during the negotiations. Daruty acknowledged that the primary issue is "economics," and said that the situation could be resolved with an increase in the base rate the casinos pay.

"With the right rate for the casinos, we'd be willing to let account-wagering go at the same rate," Daruty said.