12/04/2007 12:00AM

Stagnant handle slows global deals

EmailTUCSON, Ariz. - Racing jurisdictions worldwide are increasingly looking to overseas markets to find additional betting revenues, but those efforts will likely run into significant problems because of a worldwide problem: Few, if any, racing jurisdictions are creating new horse racing customers.

That problem, which was apparent from the comments of the speakers on two panels focusing on international racing at the University of Arizona Symposium on Racing and Gaming on Tuesday, creates an unusual set of issues for countries facing the decision of whether to expand the number of foreign simulcasts available to their native customers.

Given that horse racing handle in nearly all countries is stagnant or declining, what is the overall effect on revenues to domestic industries by shifting business to a foreign product and sending some of those betting revenues overseas?

Currently, racing jurisdictions are reacting in different ways, according to the panelists. In the United States, many racetracks are aggressively seeking a foothold in the estimated $110 billion foreign market for horse racing, in part to address flagging handle figures at home, where betting has stagnated at $15 billion. This year, for example, 20 countries allowed their bettors to wager into commingled pools on the Breeders' Cup, with much of the handle coming from Europe.

But those countries have problems of their own. In the United Kingdom, according to Nigel Roddis, international director for a company that buys foreign simulcast signals for the British betting market, horse racing's share of the domestic betting market has been declining for a decade as bookmakers and betting exchanges increasingly diversify their betting products. The new products, including electronic casino games, typically have higher profit margins than horse racing signals, and as a result, the companies are pushing their customers to the more profitable games at the expense of racing, which typically charges its customers approximately 20 percent of each bet.

In addition, betting exchanges like the highly popular BetFair have created innovative new ways for gamblers to wager on horse racing, Roddis said, at a much lower return to the racing industry than if the betting was concentrated through more conventional businesses. As a result, horse racing jurisdictions around the world have seen their revenues decline even when betting grows through the alternative source.

Still, Roddis said, betting companies have no option but to embrace foreign simulcasting, because without offering new products, horse racing customers will be increasingly drawn to new games that offer cheap, constant action. The hope, Roddis said, is that by adjusting to the new preferences of bettors and the growth in overall gambling, horse racing will ultimately be able to maintain or even increase its revenues by drawing new customers from the ranks of the people who have only just begun to gamble on other games.

But that contention still leads to questions about what the incentives are for countries to offer foreign simulcasts to their bettors if the expansion will only exacerbate domestic problems. The situation is perhaps best illustrated in Japan, where betting handle has been in a freefall for a decade, declining from approximately $17 billion in 1997 to $12 billion in 2006. Japan prohibits betting on foreign simulcasts, principally to protect its own horse racing industry, and what incentive does the country have to siphon off betting revenues to another country when the domestic business is in such trouble? So far, Japanese racing officials have given no indication that the country will be opening up anytime soon.

Hong Kong has similar restrictions in place, but the country is gradually attempting to loosen those prohibitions in an effort to embrace international simulcasting. Betting in the country is run by a state-owned enterprise, and foreign simulcasts are limited to 10 races a year. But the Hong Kong Jockey Club is lobbying the government to increase those numbers in the belief that globalization will increasingly demand the opening of foreign markets, according to Bobby Chang, the HKJC's head of betting services and systems.

Still, that effort is nowhere near as aggressive as the HKJC's attempts over the past decade to get its signal into other countries. Currently, 10 countries take bets on all or a portion of Hong Kong's 78 racing programs, including the United States, despite the almost complete lack of a reciprocal arrangement with Hong Kong. And that's because of the contradictory incentives inherent in the system: Countries have far more to gain by getting their signals out than allowing more signals in.