11/14/2008 12:00AM

TVG may be feeling a squeeze


Wagering on races from Fair Grounds Race Course in New Orleans will be available on three national account-wagering companies, but not the fourth, Television Games Network, reflecting what could be a new alignment in the home betting market.

TVG used to be the dominant force in account wagering, but as its contracts have expired with racetrack operators - and as Churchill Downs Inc. and Magna Entertainment have aggressively entered the market - TVG's business model has showed signs of strain.

Churchill operates Twinspires.com, while Magna has XpressBet. The other national account-wagering company is Youbet.

According to Sean Alfortish, the president of the Louisiana Horsemen's Benevolent and Protective Association, TVG was offered the same terms in the Fair Grounds contract as the other account-wagering companies, but TVG rejected the agreement. Since Churchill owns Fair Grounds, the television signal for Fair Grounds will be controlled by HorseRacing TV, a TVG competitor that is owned jointly by Churchill and Magna.

"I'm very big on allowing open access to content," said Alfortish. "I wasn't going to have disproportionate shares of revenue or source-market fees. TVG said that it doesn't work for them."

David Nathanson, the president of TVG, disputed the contention that the terms were identical to all parties, pointing out that Churchill and Magna would be able to televise Fair Grounds races exclusively.

"We are not going to accept a deal that does not make long-term business sense to TVG," Nathanson said, adding that the lines of communications between the sides were still open.

Officials declined to provide details of the Fair Grounds contract, but it is believed to address concerns by horsemen over the amount of money returned to purses from account wagers. Over the past two years, horsemen in several states, including Kentucky, Florida, and most recently California, have declined to approve account-wagering agreements because of their dissatisfaction of the purse shares.

The concerns have led to widespread blackouts of racing signals on account-wagering platforms. The blackouts followed a realignment of the menu of tracks offered by account-wagering companies after Churchill entered the market early last year at a time when TVG's contracts with tracks were beginning to expire.

TVG officials contend that the company returns a fair share of account-wagering revenue to the industry, but TVG has long maintained that it is entitled to a larger cut of the wagering because of the expenses related to its television channel, which are considerably higher any of its competitors. The problem for TVG may be that the increases sought by horsemen would not leave enough money to pay for TVG's television production.

Nathanson said that the account-wagering market was allowed fully to develop in part because of TVG's widespread television distribution. TVG is available on television in 30 million homes and is by betting volume still the largest of the four account-wagering companies.

"That is the business model that got us to where we are today," Nathanson said. "If some customers do not see that benefit, we will continue to do business with the customers that do see the benefits."

TVG's model is being challenged by discussions between the Thoroughbred Horsemen's Group, a company supported by 20 state horsemen's groups, and TrackNet, a simulcast-marketing partnership created by Magna and Churchill. For the first time since it was formed a year ago, the Thoroughbred Horsemen's Group took an active role last week in negotiations with TrackNet, which had steadfastly refused to talk to officials of the horsemen's group.

According to officials involved in the discussions, they are concentrating on whether TrackNet and the the Thoroughbred Horsemen's Group can come to agreement on a long-term contract that would give Twinspires.com and XpressBet the rights to offer account wagering on all tracks that the 20 state horsemen's groups represent.

If the negotiations are successful, the horsemen would have a model contract that TVG might not be able to accept and still cover its television production costs. At the same time, Churchill is pushing a cheaper alternative: video streaming of live races over the Internet. TVG is being further constrained by the efforts of its parent company, Macrovision, to sell the company.

In addition, provisions of many account-wagering contracts are set by statute. In New York, national account-wagering companies cannot accept wagers, and in California, some account-wagering fees are set by statute. TVG handles more bets in California than the three other account-wagering companies combined, complicating its ability to strike deals because of the small margins created by the statutes and forcing it to look for higher margins elsewhere to make up the difference.

"It's a very dysfunctional market model," Alfortish said of the California requirements, which were put in place to protect California tracks and horsemen. "And it's probably a very big reason why we're unable to get a deal with TVG."