01/08/2007 12:00AM

Simulcasting needs new math

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NEW YORK - If there's a familiar sound to New York's OTB players getting shut out of playing opening day at Gulfstream Park over a simulcasting rate dispute, that's because we've heard this song before.

Eleven years ago, the same principals had a similar staring match. New York OTB was paying 1.5 percent of handle to Gulfstream, which wanted to raise the price to 2.0 percent. While either 1.5 or 2.0 were well below the industry standard of around 3 percent, OTB argued that its high volume made it a preferred customer entitled to a lower rate. At the last moment, Gulfstream blinked first and settled for the 1.5 rate on its largest single piece of offtrack handle.

This time the range of numbers is from 2.55 percent, the rate agreed in a contract between the two entities, and 2.85, the amount Gulfstream horsemen are seeking in exchange for their approval of the contract. Perhaps the most Pollyannaish optimist could cite a 1 percent increase in the amount of handle going to a host track over 11 years as progress, but even that would be an illusion, since the migration of handle to higher-takeout bets more than covers that.

Instead, the Gulfstream-OTB situation is a stark reminder that racing's fundamental economic engine these days, interstate simulcasting, operates from a badly flawed premise that the industry has made no progress in correcting.

In very broad terms, simulcasting basically works on a model where the host track gets 3 of the 20 cents of takeout on every dollar wagered, while the bet-taker gets the other 17 cents. The people who put on the show get too little, while the people who process the bets get too much.

This is not a criticism of New York OTB's in particular. Their legislative mandate is to raise as much money as possible for the state of New York, not to increase revenue to horse owners and all the people those owners pay. If that means presenting Yavapai Downs rather than Keeneland to its customers, as it did when Keeneland dropped its takeout rates two years ago, so be it.

The blame lies instead with the people who were running American racetracks at the dawn of simulcasting in the 1980's, and with the people running them now who have been unable to correct a massive historical mistake.

When interstate simulcasting first took hold, racetracks were still cash cows, and the idea of getting additional revenue from faraway bettors seemed like finding money in the street. No one had any idea what to charge for a signal and access to commingled betting pools. It could have been a 50-50 split, but instead 3 percent was the number everyone settled on, which is more like 15 percent to the originator and 85 percent to the receiver.

No one foresaw that this sliver of new business would one day account for over 80 percent of the national handle. Once the business began heading that way, it was considered too late to change the splits. California gallantly tried to inch up Las Vegas's payment, and Vegas simply turned off the signal and booked the bets itself for months. The only increases in rates have come as a result of takeout increases and new bet types rather than a reconsideration of what would be an equitable split.

Instead, the people who put on live racing continue to get only a few pennies on the dollars bet on their races. They get some back on the other end, keeping too high a percentage on the signals they import, but nowhere near enough to offset what they should be getting on their own product.

The argument against reforming these economics is that antitrust regulators would come down like a ton of bricks on the racetracks if they all got together and demanded something like 6 or 9 percent instead of the 3 they now get, which might be seen as the equivalent of milk or gasoline producers conspiring to double prices overnight. There are, however, compelling and interesting arguments that such a radical move would work, including the sensible idea that there could be one rate between fellow racetracks that support live racing and another for pure bet-processors. It is a discussion, however, that has come to a halt as tracks have made the more lucrative short-term solution of installing slot machines their only priority.

Eleven years from now, OTB and Gulfstream may well be having the same argument that is currently inconveniencing New York's horseplayers. It would be nice if by then the dispute were over whether OTB should be paying 8.55 vs. 8.80 percent, rather than this week's debate over 2.55 vs. 2.80.