Last Wednesday at its regular monthly meeting, the Virginia Racing Commission chose TwinSpires.com’s “best offer” of 7.2% for the source market fee for their 2009 temporary license to conduct account deposit wagering in Virginia. The VHBPA and Colonial Downs had advocated 9.15% based on a average of what TwinSpires paid last year (8.3%) and what the new law will require them to pay next year (10%).
The Commissioners comments reflected their belief that the 7.2% is more reflective of the national average, and while that is true, the Virginia stakeholders would likely point out that a fair rate wasn’t the main point. Mind you, the VRC has pretty tight restrictions on these matters and their charge was to simply choose an offer.
(Hopefully, one positive side effect of the VRC ruling will be that TrackNet Media tracks and ADW companies will start taking bets on Colonial Downs’ races. To date, they have withheld Colonial's signal to their customers and, as a result, out-of-state simulcast wagering is down significantly through the first ten days of the meet.)
It was the debate prior to the decision that provided an insight into the next big battle on the horse racing landscape – or at least the next big battle here in Virginia - Importers vs. Exporters, and how to price the product so everybody can make some money.
This is another classic example, along with things like licensing, drugs and track safety, where a central authority like those that govern major league baseball, the NBA and the NFL would really come in handy…
TwinSpires claims Colonial Downs and the horsemen don’t want them to do business in Virginia and thus have no motivation to reach an agreement on a fair source market fee. The simplest argument against that is that every wager placed in the TwinSpires system creates purse dollars and revenues for the track. Who doesn’t want that?
Colonial Downs and horsemen say TwinSpires via TrackNet Media, which represents 18 racetracks including those tracks owned by TwinSpires’ parent company Churchill Downs as well as Magna, wants to control the market and dictate prices. From the outside looking in, it certainly looks that way.
TwinSpires says it’s not their fault the costs of signals are going up – they point to TrackNet Media and company president Scott Daruty points the finger at both racetrack and the horsemen at TrackNet client racetracks and those that aren’t such as NYRA’s tracks.
The central issue is the same one we debate so often here in Virginia – there is only so much “pie” to be cut up into the various pieces. The average takeout on a pari-mutuel bet remains 20 percent, so the amount of money available for the host track and horsemen, the ADW provider, the source market track and horsemen, the state, and (and one of these damn days) the Breeders Fund is limited to that amount.
Last winter, the Virginia General Assembly passed a bill that required the ADW companies to pay a source market fee to be shared by Colonial Downs and the VHBPA’s purse account of 10 percent. In addition, they were to pay the state of Virginia ½ percent and the Breeders Fund one percent – easy math, that’s 11 ½ percent. So if…let’s say, Saratoga charges 8 ½ percent for a host fee for an ADW wager placed in VA, suddenly there is no money left for TwinSpires (11.5 + 8.5 = 20 percent).
Now, at first blush, that creates a sympathetic case for poor little ole TwinSpires since now that Saratoga and the Commonwealth of Virginia has roughed them up, there is no money left for them. Their solution is to take it out of Virginia’s hide – the 10% coming back to Virginia’s track and horsemen is too high they say.
On the other hand, Colonial Downs and the horsemen say, no, it should come out of everybody’s hide – Saratoga simply can’t charge that much for a bet placed in Virginia. If the host track and horsemen will bend, then the source market horsemen and track will bend. But clearly, TrackNet doesn’t want to have to deal with all that, hence the stalemate.
To resolve this all the parties will be in a perpetual loop of negotiations for years and years to come. There is a simpler solution and it’s consolidation.
Unfortunately, it is unlikely that racing will ever follow in the footsteps of the big professional sports leagues – incredibly successful big professional sports leagues, I might add – the likes of MLB, the NBA, the NFL and NASCAR. Even little ole hockey sent off to wither on some obscure cable channel is consolidated through the NHL as is MLS soccer and professional lacrosse.
The beauty of the system is all the members have an interest in the success of the other members, and, ultimately, some central authority tells them what the rules are – and almost all the time (save for Al Davis, Charlie Finley and Mark Cuban on occasion) everybody does what they are told by the league offices.
It would be much simpler if the National Thoroughbred Racing League was in existence and every racetrack was a member – large and small. All the tracks need to be represented on the board and in the committee structure that basically determines policy for many of the alphabet sport’s leagues.
For example, our new NTRL would have a committee that would deal with host signal fees and source market fees. The committee would tell the tracks and the horsemen what the economic equation would look like with the ADW companies functioning as a partner the way the television networks do for pro sports.
It’s so simple it must be impossible – especially when all the attorneys get involved. But it sure would resolve a lot of squabbles based on the simple logic of doing what is fair for all parties. In the TwinSpires v. Virginia case, the committee would dictate that on a bet placed in Virginia on Saratoga, NYRA get 6 ½ percent host track fee, Colonial Downs and the VHBPA purse account get an 8 percent source market fee and the ADW companies get four percent. Add in the statutory requirements for the Breeders Fund (1%) and the Virginia Racing Commission (o.5%) and you’re good to go at a total of 20 percent.
See, that was easy, and that is exactly what Colonial Downs and the Virginia horsemen are advocating – every body gives something, so everybody gets something as opposed to nobody giving anything and everybody getting nothing.
Of course, Colonial Downs doesn’t help advance this cause when they tell the Racing Commission straight up that they’d be happy to work out a compromise source market fee with non-TrackNet Media ADW companies TVG and YouBet, but not with TrackNet Media members Xpress Bet and TwinSpires.
So, with that as a backdrop, don’t look for any easy solutions any time soon. The principals in this matter seemed to be mired in the status quo of lawyer driven non-stop negotiations and legal wrangling. It is a microcosm of the overall horse racing landscape in this country – the fiefdoms that are each state’s racing jurisdictions are very entrenched nationwide. They will all be slow to bow down to a central authority no matter how beneficial it ultimately might be.
In the end, consolidation, and the sensible pricing policies it could create, may only happen at the behest of the Federal Government. That is not likely to happen unless another Eight Belles situation occur during a major race, and nobody is looking for that sort of catalyst for change.
So for now look for more legal procedures including a battle over the constitutionality of designating these controversial rates via state legislation.
Oh, and the Breeders Fund that is supposed to get 1% from all the ADW companies on bets placed in Virginia starting July 1 – don’t hold your breath.