02/06/2004 12:00AM

Offshore hub plan a longshot


The National Horsemen's Benevolent and Protective Association's idea for an offshore hub sounds simple: Set up a site in the Caribbean that would collect wagers from thousands of sites across the globe on American races while simultaneously attacking the growing market for pirated U.S. racing signals.

On paper, the concept is certainly attractive. Officials of the NHBPA believe that approximately 1,200 foreign sites are pulling down U.S. races illegally and booking bets on the action, all without paying the racetracks and horsemen that put on the show. The NHBPA hub, endorsed on Wednesday at the association's semi-annual convention but not expected to be up and running until later this year, would ideally bring these sites into the fold of the U.S. racing industry, allowing the sport to share in the revenues.

But as with most ideas, the devil is in the details. And logistically, racing officials have said, getting foreign betting sites to conduct their business through the hub will present a host of problems that will be difficult, if not impossible, to surmount. The problems also illustrate the complexity of the international simulcasting market and the difficulty any racing entity will have in penetrating it.

Most important for the NHBPA concept, most illegal betting shops have little to no incentive to sign contracts with the association's hub operator, a newly formed company called SimulTech that will be largely administered by Stevenson and Associates, a wagering consulting group. The sites would only lose revenue by signing on to the hub plan and would be inviting scrutiny of their operations.

Most illegal foreign bookmakers - which can range from small taquerias to large, Vegas-style race books - rely on pirated racing signals from either the Internet or satellites to provide their customers with live races. The books normally take action on the basis of track prices, but with limits on payouts on exotic wagers. The books can be very profitable, because paying track prices locks in the takeout, about 20 percent, as profit. And the limits on payoffs allows the book to avoid any huge payouts that could ruin the business.

Under the NHBPA's proposal, the illegal sites would pay a rate to receive the signals, likely higher than the industry standard of 3 to 4 percent of all bets. The sites would also have to pay for decoders, which are set-top boxes that cost hundreds of dollars each per month and allow offtrack locations to pull down racing signals from satellites. And there's also the expense of equipping each site with the telecommunications hardware that would allow it to transmit bets into the separate-pool hub.

Many racing officials scoff at the notion that the sites will voluntarily agree to the simulcast rates, decoder fees, and infrastructure costs, when they are currently paying a pittance to run a profitable business. Many foreign race books simply buy a satellite dish and subscribe to Television Games Network, the live racing channel that is available on both DirecTV and the Dish Network. In the United States, subscription fees for a package that includes TVG are only about $60 a month.

"The business of selling the signal [in foreign countries] has been undermined by the fact that racetracks already make their signals available on TVG and other services," said Chris Scherf, the president of the Thoroughbred Racing Associations, a racetrack trade group. "I don't see why a bookmaker is going to pay the rates when the guy across the street is pulling the signal down for free."

The alternative to making the signals freely available seems even more drastic, since that would mean making the satellite packages that include TVG cost-prohibitive to U.S. customers as well. No U.S. racetrack - with the exception of Magna Entertainment Corp., which, ostensibly to combat signal piracy, recently stopped showing its races on its own web site and a British-based broadcasting service - seems comfortable with limiting access to its signals in homes in the United States to get a share of an undeveloped market.

"You go to any of these countries down there and you can find a slew of OTB's, but most of them are just little bars taking little bets," said Ken Kirchner, the director of simulcasting for Breeders' Cup Ltd. "If you want to get these on the network, go ahead. It's a lot of work for very little benefit."

But other racing officials said the hub may have a chance of gaining customers if Stevenson and Associates involved representatives of countries with well-developed racing industries, such as in Chile, Argentina, and Brazil. Those countries may want to share in the proceeds of international simulcasting and may be able to pressure their betting shops to accept deals.

Some racing officials pointed out that the endeavor may just be a way for Stevenson and Associates to stay ahead of the curve in anticipation of foreign markets opening up in the future. Those opinions are based on the belief that an international tax that has kept many foreign countries from merging their pools with the U.S. pools may be lifted this year through federal legislation.

If the tax is lifted - and if offshore sites can comply with minimum-security requirements to participate in U.S. commingled pools - many foreign customers would likely welcome the opportunity to bet into the huge U.S. pools, especially in carryover wagers like the pick six. If that happens, Stevenson will already have a hub made to order, along with a claim to charge a small percentage of each bet as service fees.

For their part, NHBPA officials acknowledge the difficulty of the task, while pointing out that bringing even a handful of the illegal sites on board would represent an improvement over the current situation. "We're going to try it, and if it doesn't work, you can say, 'I told you so,' " said John Roark, the president of the NHBPA. "But no one else has got a better idea, and we can go on to something else if we're wrong."