10/18/2004 11:00PM

A pitched battle over NYRA signal: Impasse over in-home betting rights

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The monthlong battle between a group of mid-Atlantic tracks and the New York Racing Association over the rights to broadcast and take bets on races from Belmont Park is the product of long-simmering tensions among competing account-wagering companies, according to interviews with racing officials involved in the dispute.

Tracks that belong to a group called the MidAtlantic Cooperative dropped the Belmont signal on Sept. 15, blocking fans in Maryland, New Jersey, Pennsylvania, Delaware, Massachusetts, Virginia, West Virginia, and New Hampshire from betting on the region's most popular races and costing the tracks involved millions of dollars in simulcast fees and purse revenues.

The mid-Atlantic region has become a battleground for account-wagering companies eager to win over a relatively small but rapidly expanding group of horseplayers: people who bet at home over the Internet or by telephone. That battle, increasingly fought out by lobbyists and lawmakers, has paradoxically limited the choices of mid-Atlantic horseplayers at a time when account wagering is becoming more widely available and reliable.

In the past several years, lobbyists for racetracks in the mid-Atlantic region, including Philadelphia Park, have helped to craft laws or regulations that restrict which account-wagering operations can take bets from state residents. The push for restrictions is at the heart of the Belmont signal dispute and underscores what is at stake for account-wagering companies: customers who can provide a lucrative revenue stream. As the companies increasingly carve up exclusive territory, the fight for customers is straining relationships, not only among competing companies but also with racetrack operators like NYRA.

The Belmont dispute stems from an agreement that NYRA signed in September with Television Games Network, the horse racing broadcasting and account-wagering company. The agreement splits in two the rights to NYRA's signal, allowing NYRA to continue to sell its signal to other racetracks and simulcast sites but giving TVG exclusive "in-home" rights to broadcast NYRA races over cable television systems, with some exemptions, and on the Internet. These in-home rights were previously assigned to the mid-Atlantic tracks in their cooperative simulcast contract with NYRA, an agreement that expired in early September at the close of the Saratoga meeting. The TVG contract was signed while NYRA and the cooperative were in negotiations to renew the simulcast agreement. NYRA operates Aqueduct, Belmont, and Saratoga.

There are no indications that the dispute will be resolved soon. NYRA officials have said that the association is limited by its agreement with TVG, which included an up-front payment to NYRA of millions of dollars. TVG officials have told the cooperative that TVG can negotiate only with individual racetracks because of the diversity of laws among mid-Atlantic states, officials for both sides said. The mid-Atlantic tracks have insisted that NYRA - not TVG - assign the in-home rights to the NYRA signal. The result has been a stalemate.

TVG, which is available in 23 million homes over cable television systems and satellite networks, is supported by many racetracks and horsemen's groups, along with the National Thoroughbred Racing Association. Nearly all of the mid-Atlantic tracks operate account-wagering companies that compete with TVG, although on a much varied scale. TVG is owned by Gemstar-TV Guide, a large telecommunications company, and has lost at least $100 million since its launch five years ago. The account companies owned by mid-Atlantic tracks operate on much smaller budgets even as they turn out relatively large profits.

Many horsemen's groups support TVG because the network is widely available and because the company returns more money to tracks and horsemen in regions where it takes wagers through source-market fees. The fees add up to approximately 13.5 percent of each dollar wagered, an amount that officials acknowledge is higher on average than the fees offered by any other account-wagering company.

Despite that model, many racetrack officials and fans have been critical of TVG's practice of signing tracks to exclusive agreements, claiming that the deals limit the number of racetracks offered by competing account-wagering services. The critics contend that TVG wields its exclusive rights like a club to gain access to markets and expand the number of tracks available over its network.

TVG's exclusivity strategy, initially designed to create incentive for cable networks to carry the channel, has softened over the years. The company first began to offer nonexclusive contracts for some tracks and then began licensing its exclusive tracks to other outlets, including two competing account-wagering operations, Youbet.com and AmericaTab. TVG keeps the vast majority of revenue from bets made by customers of its licensing partners.

TVG officials declined to comment for this article. TVG's agreement with NYRA, however, likely represented another evolution in its exclusivity strategy. By separating the in-home rights in the NYRA deal, TVG is forcing account-wagering companies in states where TVG is prohibited from operating - such as Pennsylvania and New Jersey - to negotiate with TVG for racetrack signals.

Bruce Garland, the executive vice president of the New Jersey Sports and Exposition Authority, said the mid-Atlantic tracks had refused to sign the Belmont deal because the cooperative has "no interest in signing a short-term deal that would hurt us in the long run." Garland said that the authority would be prohibited from showing Belmont's races over the Internet or in homes if the authority signed the contract with NYRA.

New Jersey plans to launch an Internet account-wagering operation by Oct. 30, four years after a law was signed authorizing telephone and Internet betting but restricting the practice to a company composed of licensed racetracks in the state. One of the company's partners is Philadelphia Park, which is part-owner of a Freehold Raceway in New Jersey.

When asked why the authority had not signed a deal for the Belmont signal - which would allow Belmont races to be simulcast at New Jersey racetracks - and then negotiate with TVG over the in-home rights to Belmont's races, Garland said that TVG had offered to exchange the in-home rights if TVG could buy the authority's races from Monmouth and the Meadowlands for 2 percent of the handle. Typically, simulcast rates average 3.5 percent.

"We're not going to make a separate deal like that at half the price of what other people pay us," Garland said.

Although TVG officials declined to comment, one TVG official said privately that TVG had not negotiated with any individual tracks because of the MidAtlantic Cooperative's insistence on one deal for all its tracks with NYRA.

Hal Handel, the chief executive officer of Philadelphia Park, said that Philadelphia Park could "theoretically" cut its own deal with TVG over the Belmont in-home rights but has declined to do so.

"If TVG is insistent that our customers not be able to bet on Belmont," Handel said, "I suppose that is their right."

Marty Lieberman, the executive director of the MidAtlantic Cooperative, who is also general counsel for Daily Racing Form, said the cooperative held several discussions with TVG officials recently but declined to give details.

"These are the first discussions we've had in a long time," Lieberman said, "so that's helpful. Still, I discern no progress."

With the growth of account wagering and casinos and the accompanying laws and restrictions, the mid-Atlantic region has become particularly contentious among gambling companies.

In Pennsylvania earlier this year, lobbyists for Philadelphia Park inserted a provision into a bill legalizing slot machines at state racetracks that limits account-wagering to licensed state racetracks. That has shut out all account-wagering companies except the ones run by Philadelphia Park, Penn National, and The Meadows, a harness track owned by Magna Entertainment Corp. Magna's account-wagering operation, XpressBet, has declined to provide the signals from Magna tracks to most other account-wagering companies.

Handel said the provision limiting account wagering to Pennsylvania tracks is "a good law" because racetracks and horsemen "should have the ability to dictate what is going on in their own state."

But the restriction runs counter to the business plan of Phonebet, an operation run by Philadelphia Park that takes wagers from residents of any state in which account wagering is not explicitly illegal. When asked if Phonebet could survive if every state in the country adopted a similar law - which would limit Phonebet to Pennsylvania customers - Handel said that it could, provided exceptions were made for established national wagering companies. No exception exists in the Pennsylvania law.

In New Jersey, the law that limits account wagering to the company operated by the New Jersey sports authority was written by officials from the authority and Philadelphia Park, according to regulators and horsemen. Philadelphia Park bought New Jersey's Freehold Raceway with Penn National Inc., another Pennsylvania-based racetrack owner and account-wagering operator, making them both part of New Jersey's account-wagering company.

Because of that relationship, Philadelphia Park will retain revenues from the New Jersey account-wagering operation when it begins accepting bets later this year. In addition, the New Jersey system will use Phonebet's technical platform to process the state's bets, officials from the authority and Philadelphia Park said.

In Virginia, state rules allow the racing commission to award multiple licenses, but to date the commission has awarded only one, to Colonial Downs, the only racetrack in the state. Colonial's operation, also called Phonebet, is managed by Philadelphia Park. Four other account-wagering companies - TVG, Youbet.com, Americatab, and XpressBet - have applied for licenses, according to commission officials, but the law requires the companies to reach agreements with Colonial before they can apply for a license. No deals have been reached yet.

Stan Bowker, the executive director of the Virginia Racing Commission, said that regulators planned to discuss whether to remove or alter the language that requires a deal to be struck between the account-wagering companies and Colonial Downs.

"Our commission would like to have as many account-wagering companies as possible," Bowker said, "because that's going to be the best result for our fans."

Colonial officials did not return a phone call Tuesday.

In New Hampshire, only licensed state racetracks can run account-wagering operations, according to Paul Kelley, the executive director of the New Hampshire Racing Commission. The account-wagering operation at Rockingham Park used to be run by Philadelphia Park, according to the track's general manager, Eddie Callahan. Rockingham installed its own system two years ago, Callahan said.

"Philly did a real nice job for us, but we thought it might be a better idea to keep everything up here in New Hampshire," Callahan said.

Callahan, whose track is a member of the MidAtlantic Cooperative, said that TVG had no right to offer betting in New Hampshire.

"To be honest, phone wagering isn't a big part of our operation, so it makes a lot of sense to get this resolved," Callahan said. "But I'm not sure that NYRA is capable of resolving it, and I don't think TVG wants to."

Along with racing fans, horsemen in the region are caught in the middle of the dispute. Dennis Drazin, the counsel to the New Jersey Thoroughbred Horsemen's Association, said it was costing horsemen in New Jersey millions in purse revenues because Belmont is the most popular simulcast signal. The horsemen's group is considering a lawsuit against the cooperative, Drazin said.

Alan Foreman, the chairman of the Maryland-based National Thoroughbred Horsemen's Association, an umbrella group for horsemen in the mid-Atlantic region, said the dispute was not only damaging horseplayers and racetracks, but was also benefiting the company that the mid-Atlantic tracks were unhappy with: TVG.

"You can't bet Belmont at the tracks in Maryland, but you can bet it on TVG, and TVG is on just about every cable system," said Foreman, a supporter of TVG. "So what are our horseplayers doing? They are staying at home and betting Belmont on their TVG accounts."

MidAtlantic Cooperative

TRACKSITEBREEDOWNERACCOUNT-WAGERING COMPANY
Philadelphia ParkBensalem, PATGreenwood RacingPhonebet
Penn National Race CourseGrantville, PATPenn National Inc.Ebet USA
Pocono DownsWilkes-Barre, PAHPenn National Inc.Ebet USA
The MeadowsMeadow Lands, PAHMagna EntertainmentXpressBet
Pimlico Race CourseBaltimore, MDTMagna EntertainmentXpressBet
Laurel ParkLaurel, MDTMagna EntertainmentXpressBet
Rosecroft RacewayFort Washington, MDHCloverleaf EnterpriseNone
Ocean DownsBerlin, MDHRickman familyNone
Freehold RacewayFreehold, NJHPenn National/Philadelphia Park4njbets.com *
The MeadowlandsEast Rutherford, NJH-TNew Jersey Sports and Exposition Authority4 njbets.com *
Monmouth ParkOceanport, NJTNew Jersey Sports and Exposition Authority4njbets.com *
Atlantic City Race CourseAtlantic City, NJTPhiladelphia Park4njbets.com *
Delaware ParkWilmington, DETRickman familyNone
Dover DownsDover, DEHDover Downs Gaming and EntertainmentNone
Harrington RacewayHarrington, DEHDelaware State Fair and Harrington RacewayNone
Colonial DownsNew Kent, VAH-TColonial HoldingsColonial Downs Phonebet **
Suffolk DownsEast Boston, MATSterling Suffolk RacecourseTVG partner track
Rockingham ParkSalem, NHH-TRockingham VentureNew Hampshire Phonebet
Charles Town Races & SlotsCharles Town, WVTPenn National GamingNone

Breed: H-Harness T-Thoroughbreds

* 4njbets is a joint venture of the New Jersey Sports and Exposition Authority, Philadelphia Park, and Penn National Gaming Inc. The site is expected to begin taking bets by Oct. 30.

** Managed by Philadelphia Park