08/02/2007 12:00AM

TrackNet imposes a limit on rebate shops


TrackNet Media, the simulcast marketing company owned by Churchill Downs Inc. and Magna Entertainment Corp., has reached an agreement with two prominent rebate shops that will prohibit the shops from awarding rebates to customers who do not bet more than $1 million a year.

The agreement is believed to be the first contractual arrangement between racetracks and rebate shops that seeks to restrict rebates to a betting outlet's biggest customers. Both of the rebate shops - Racing and Gaming Services in St. Kitts and Elite Turf Club in Curacao - have attracted bettors wagering hundreds of millions of dollars a year through rebate programs that give back a percentage of the takeout on each bet.

Scott Daruty, the chief executive of TrackNet, said that the company was seeking similar agreements with other rebate shops and that if those shops did not comply with the terms sought by TrackNet, the shops would be shut off.

Daruty said that TrackNet was determined to put restrictions on rebate shops because the shops did not return the same amount of money to the racing industry as domestic simulcasting outlets and account-wagering operations, most of which pay source-market fees on top of signal fees and may also have other obligations to state government or horsemen. Churchill and Magna both own account-wagering operations that pay rebates on handle totals far lower than $1 million a year, and they will continue to do so, Daruty said.

"We want to make sure everyone is paying their fair share," Daruty said.

TrackNet was formed earlier this year to market all the racing signals controlled by Churchill and Magna, a roster that includes Churchill Downs, Santa Anita Park, Gulfstream Park, Golden Gate Fields, Laurel Park, and Pimlico Race Course. Later this year and next year, the company will regain control of the signals from the Churchill-owned tracks Arlington Park and Calder Race Course after those tracks' agreements with Television Games Network expire.

It is unclear how many current customers of Elite and RGS will be affected by the change. Daruty said he did not know how many customers would have their rebates rescinded, and representatives of Elite and RGS could not be reached late on Wednesday. Rebate shops typically do not publicly divulge specifics about their customers, rebate policies, or handle totals, citing competitive reasons.

"It's likely that there will be a fair amount of customers who got rebates who won't be getting them anymore," Daruty said.

Generally, simulcasting outlets retain the difference between the takeout in a specific pool and the rates and fees the outlet must pay to offer wagering. Because signals are sold to rebate shops at rates that are believed to average 5 or 6 percent, the shops give back a portion of the spread to their customers in order to attract high-rolling players.

The cashback awards can turn losing players into winners, a dynamic that has attracted mathematical specialists who use sophisticated computer systems to determine bets and transmit the wagers into the pools just before the gates open. The awarding of rebates has also created controversy among bettors who argue whether rebates give some players an unfair advantage in pools.

In a statement distributed by Churchill, Kirk Brooks, the owner of RGS, said: "This agreement helps to strike a balance that properly recognizes the interests of the tracks, the horsemen, and the unique customers that support racing at the highest level."

The language of the agreement will allow Elite and RGS to continue paying rebates to players that have demonstrated that they will wager at least $1 million a year, Daruty said. In addition, new players who demonstrate within several weeks or a month of wagering that they "will hit the threshold" will also be allowed to receive rebates, according to Daruty.

TrackNet is currently negotiating with other rebate shops on identical language, Daruty said. The agreement with RGS was eased in part because Churchill Downs Inc. has an existing relationship with the company: Churchill acts as a bet-processing settlement agent for RGS and receives a small fee for each settlement the company handles.