Churchill, Magna form partnership

Churchill Downs Inc. and Magna Entertainment Corp., the two largest publicly traded racetrack companies in North America, have reached an agreement to become partners in distributing their racing signals to home viewers, a deal that could have far-reaching effects on domestic account-wagering practices.

The deal will consolidate the broadcasts of the two companies' racetracks on HRTV, a horse race broadcasting network owned by Magna that has limited distribution compared with its dominant rival, Television Games Network, or TVG. As part of the deal, Churchill purchased a 50 percent interest in HRTV, which was launched five years ago. Also, Churchill will start its own account-wagering service later this year which will compete with Magna's account-wagering service, XpressBet, but will offer the exact same content.

More broadly, the agreement represents a shift by racing companies to get a larger share of telephone and Internet betting, a market that has so far been dominated by so-called third-party companies such as TVG, Youbet.com, and AmericaTab. By and large, these companies do not own or produce their own racing content and pay racetracks a percentage of their handle on signals.

The deal will put the simulcast signals from Churchill's four tracks - Arlington Park, Calder Race Course, Churchill Downs, and Fair Grounds - on the same network as Magna, whose most popular tracks are Golden Gate Fields, Gulfstream Park, Lone Star Park, Laurel Park, Pimlico, and Santa Anita. The menu will be a formidable competitor to TVG, which has exclusive contracts with Aqueduct, Belmont, Del Mar, Keeneland, Oak Tree at Santa Anita, Saratoga, and a number of other tracks.

Churchill Downs's tracks are currently shown exclusively on TVG, but those contracts expire this year and early next year. TVG, in turn, sub-licenses the wagering rights to Churchill's signals to other account-wagering providers, as Magna does with its signals. The process has made the signals of both companies widely available on a number of different account-wagering services.

Churchill and Magna officials said Monday that they would seek to add additional racing signals to HRTV and would negotiate to place their signals with other account-wagering companies. The TVG sub-licensing deals for Churchill signals will expire when the individual contracts expire, and Magna's sub-licensing deals expire early this year.

"We're going to reach out to all of them, and as long as they meet our wagering integrity standards, and as long as we're able to negotiate reasonable business terms, they will be able to offer our content to their customers," said Joe De Francis, the executive vice president of Magna.

The new arrangement promises to shift negotiating power for in-home signals to racetracks and away from third-party companies. The current system allows third parties to negotiate with racetracks in much the same way that simulcast outlets negotiate with racetracks for signals, with the third parties paying rates that typically range from 3 to 5 percent of handle.

There have been contentions that the third parties pay rates that do not properly reflect the cost of putting on races. But these companies have been able to capitalize on the low prices in part because they offered the best way for racetracks to reach home audiences. Now, with Churchill and Magna consolidating their signals and both offering their own wagering platforms, the two companies likely will press for larger fees at the bargaining table.

There was some uneasiness reflected in the performance of Youbet's stock on Monday, which declined 31 cents, or 9.7 percent, to $2.89 a share.

Churchill chief executive Bob Evans declined to discuss rate strategy with third parties beyond saying, "What a track can get for its signal depends on the signal."

Churchill's account-wagering platform will be called twinspires.com and will launch in the fall, Churchill officials said, after the TVG contracts with Arlington Park, Churchill Downs, and Fair Grounds expire. TVG's contract with Calder does not expire until early 2008.

HRTV, which has been losing money since it was launched, is available over several local cable systems and the Dish satellite network. TVG is available over a far greater number of cable systems and also on DirecTV satellite. Churchill and Magna officials said they hoped that HRTV's new track lineup would result in new deals with cable and satellite companies.

For home racing viewers, the new deal will again raise one of their most common complaints - the inability to maintain one account to wager on every U.S. racing signal. Instead, the deal could make for a more complicated experience, depending on whether negotiations with TVG and other third parties on sub-licensing or trade deals are successful.

Evans said that he wanted to "apologize" to racing fans for any inconvenience that might result, but that in the long-term the benefits to racing fans and the industry would be obvious.

"It's going to take several quarters to sort itself out," Evans said. "I think we're in for a one-year transition period."