10/05/2001 11:00PM

Tracks claim they can't make enough on Keeneland

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The sometimes unusual economics of modern-day racing have come into sharp focus this week with the battle pitting Keeneland Racecourse against nearly every simulcasting site on the eastern seaboard.

The sites, from New York to Virginia and nearly all places in between, have refused to take the Keeneland signal because the track reduced its takeout for its three-week October meet to 16 percent. The new rate, officials for the simulcast sites have said, will put too much of a squeeze on their revenues, and as a result, racing fans in some of the largest horse racing markets in the country will be hard-pressed to findnways to bet on one of the most popular signals in North America - and the cheapest, from a bettor's perspective.

The simulcast sites say that Keeneland's takeout reduction cut into their margins while shielding Keeneland from any risk.

Keeneland says it is taking just as much risk as the simulcast sites, and also maintains that the reduction is critical to collecting data on how takeouts impact racing handle.

Under current simulcasting arrangements, tracks sell their signals to receiving sites at a flat rate, usually around 3 percent of handle.

After paying the sending site its commission, the receiving site retains everything that is left over. So a track with a takeout rate of 20 percent that sells its signal for 3 percent will produce 17 cents on each dollar wagered for the receiving site.

That dynamic, in which receiving sites keep the majority of simulcast revenues, has frequently led to seemingly unusual business decisions.

New York City Off-Track Betting Corporation, for example, has

consistently offered Hialeah Park in the spring, despite the relative unpopularity of the track, because takeouts at Hialeah are so high - 18 percent for win, place and show; 23 percent for daily doubles and exactas; and 29 percent for trifectas and superfectas.

Keeneland has cut its takeout for this meeting to 16 percent from an effective rate of 18 percent. All the receiving sites will now get 2 cents less of every dollar than they received during Keeneland's previous meets. The sites, however, are paying Keeneland the same rate for the signal.

Martin Lieberman, the executive director of the mid-Atlantic cooperative that is refusing to take the Keeneland signal, explained the tracks' position by comparing the simulcast sites to television retailers.

If Sony, for example, was selling televisions to the retailer for $400, and the retailer was selling that television for $500, it would be unfair for Sony to advertise a new retail price of $450 while still selling the televisions to its distributors for $400.

Of course, Keeneland is also selling its product at its own track at a reduced price as well.

During last year's fall meet, on-track handle at Keeneland was $19.5 million. The 18 percent takeout on that total produced $3.51 million. Under a 16 percent takeout, commissions on the handle would be $3.12 million, approximately $400,000 less. For Keeneland to make the same $3.51 million commission this year, it will need to take in $21.9 million in on-track bets - a 13 percent increase.

Joseph Magnani, the chief financial officer of New York City OTB, said the city had calculated that offering Keeneland instead of Arlington Park for three weeks would cost the company $180,000 in revenue. "That's not something we can ignore," Magnani said.

All tracks also have obligations to horsemen, and all simulcast sites have obligations to state and local governments.

In New Jersey, for example, horsemen are paid a fixed rate, 6.6

percent, of simulcast revenues irregardless of the takeout, so support from trainers to restore the Keeneland signal at Monmouth Park and The Meadowlands is strong.

"They are depriving New Jersey racing fans of good racing," said Dennis Drazen, the legislative counsel for the New Jersey Thoroughbred Horsemen's Association.

Bruce Garland, the vice president for racing of Monmouth and the

Meadowlands, responded: "It's a lot easier to complain when it's not your money."

In Maryland, Alan Foreman, the general counsel of the Maryland

Thoroughbred Horsemen's Association, said that horsemen have not raised objections to the boycott by the Maryland Jockey Club because horsemen split all simulcasting costs and revenues down the middle with the MJC.

"We share in that revenue, so in this case, I would say that the

cooperative is looking out for our interests as well," Foreman said. "We have to look out for our purse revenues."

Keeneland's president, Nick Nicholson, is confident the reduction will result in enough gains in handle to offset any declines in retention from each dollar. He also cited the possibility that some simulcast sites have refused to take Keeneland's signal because they may be fearful that bettors will begin to press for lower takeouts at their own tracks.

"I for one am not going to be shocked if bettors start leaving the tracks that have exotic takeout rates of 30 percent," Nicholson said. "So what happens to these tracks that are up against a signal where the takeout rate is much lower? A lot of people don't want the answer to that question. You can guess why"