Contract Heat - by Dan Liebman

Calder Race Course and Ellis Park have little in common…until you look beneath the surface.

Located in South Florida on the Miami-Dade/Broward County line, Calder is part of the sprawling metropolitan area known as Miami, Fla. Driving east takes one to the Atlantic Ocean, the drive time for the short distance determined only by the congestion and traffic lights.

To the naked eye, Ellis Park appears to be in Indiana, only because one must travel over a bridge to reach Kentucky. Ellis, too, is situated near a body of water, the Ohio River, which separates Evansville, Ind., from Henderson, Ky. There is nothing sprawling or metropolitan about the area.

A couple of things they have in common, this time of year at least, are heat and humidity. The purchase of a beer from an outdoor vendor gives one six or seven minutes for consumption before the elements turn the frosty beverage warm to the taste.

Calder is known for being adjacent to Dolphin Stadium, home not only to the NFL team, but also the Florida Marlins and University of Miami Hurricanes.
 
Ellis Park, affectionately called the “Pea Patch,” is home to an infield known for its soybean crop.  

In 2007, Calder raced 172 days; Ellis Park 46. Calder allows those horsemen wanting to race year-round in South Florida a place to do so; Ellis allows those horsemen wanting to stay in Kentucky from the Fourth of July to Labor Day a place to do so. Calder is owned by Churchill Downs Inc.; Ellis was owned by Churchill until the fall of 2006, when businessman Ron Geary purchased the facility.

This year, Calder and Ellis have had one important thing in common—difficult negotiations with horsemen over simulcast contracts. Under the Interstate Horseracing Act, tracks may not send their signals out of state without the approval of the local horsemen’s group. With 85-90% of handle now wagered off-track, the lack of a contract has meant a huge loss to Calder and a similarly anticipated decrease to Ellis.

Figures show Calder’s handle off 73% during the 45 days of the contract dispute.

Few tracks today draw significant on-track crowds. In keeping with a silly CDI policy not to announce numbers, Calder does not provide attendance figures, but previous meets showed average daily turnstile counts at about 3,700. Ellis reported about 2,700 patrons per day last year.

Many horsemen’s associations have begun using the new Thoroughbred Horsemen’s Group to negotiate contracts on their behalf, as is the case in Florida and Kentucky.

On July 5, the Florida Horsemen’s Benevolent and Protective Association announced it had struck a deal with CDI on contracts covering purses and pending slot machine revenue. But there is no deal on advance deposit wagering, meaning Calder could send its signal to out-of-state tracks, and receive signals as well, but its races could not be wagered on through ADWs.

At Ellis, Geary said he would not open the track, and indeed missed the July 4 opening. The track will open July 11 after he agreed to the split THG officials have been pushing for—one-third to purses, one-third to the track, and one-third to the ADW provider. The 6% to purse accounts is up from the 2.5% Geary said owners and trainers had been receiving.

No businessman is in business to lose money. Geary said Ellis lost $2.7 million last year, and will lose money this year.

So why agree to the one-third, one-third, one-third split?

For one, because it is the right thing to do, providing more money from handle back to the purse accounts of those supporting the meet. For another, higher purses means more horses, which means more handle.

Yes, Geary and others in Kentucky are banking on getting slots. But if the deal signed in Kentucky is indeed precedent-setting, that will be a good thing for horsemen throughout the country.

10 Comments

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JustTheFacts

Ellis Park did not agree to the THG model. According to the Evansville Courier-Press and the Louisville Courier-Journal, Ron Geary satisfied the KHBPA in a fashion which few, if any, other tracks can afford to follow.

Ellis Park seems to have negotiated standard ADW contracts with a Host fee around 5%. Ellis Park gave up its share of the Host Fee (and then some) to satisfy the KHBPA's non-negotiable 6%. Ron Geary says he did this because Ellis Park needs the ADW exposure to survive long term. What sort of Source Market arrangements are in these contracts is unreported. Will Ellis Park receive any revenue from the ADW handle or will Ellis Park close before next year's meet if the national situation is unresolved by next spring (and KY does not approve slots for Ellis)?

To my limited knowledge no ADW has fully satisfied the THG contract criteria. Youbet, in its contract with Louisiana Downs, seems to be the only ADW to strike some sort of deal with any track that is otherwise ADW dark, but how much of that deal is promotional placement(i.e. not replicable on a national scale)is unreported. If any other ADW has struck a deal, I've not seen it reported.

08 Jul 2008 3:34 PM
C Bea

If Bloodhorse really wants to provide a service to the Industry it would do a bit of "investigative journalism" and not just regurgitate simple statements. Understanding what was or wasn't agreed to here is vitally important to this Industry and Sport.

While the Horsemen have a right to try and correct what they believe to be low payments to purses, it seems to me that they've got the chase upside down.

How in the world does it make sense to shut-off domestic ADWs and chase players to lower (Host Fee) fee'd off-shore providers who haven't been shut-off? Chasing domestic handle to these off-shore sites can only be making matters worse.

08 Jul 2008 4:46 PM
Shamfan49

My wife and I had booked 3 nights at an Evansville motel in order to attend the Ellis Opening. Instead we took our money to Chicago to visit Arlington Park. I don't know how many other people were forced to change their Ellis plans last weekend, but I have to think that the region suffered a big economic hit from the loss of a holiday weekend of racing.

Unless the folks running (ruining) racing wake up soon, the scenario that just played out in Henderson will be repeated many times over the next year or so. Many tracks unable to make a deal similar to the one Mr. Geary cut will simply close up shop. Unless something is done to help all the tracks which are being clobbered by the casinos, horse racing will go the way of the dodo bird. Unfortunately, in many states, such as Illinois, the very people responsible for creating the mess in the first place in order to satiate their lust for casino dollars - the state legislators - are charged with cleaning up their own toxic spill. Even the more successful operations will have trouble surviving if forced to do without the revenue they earn from simulcast wagering. How many tracks other than Saratoga, Del Mar and Keeneland can afford to keep their gates open with only the revenue generated by the fans in the stands?

Ellis has to face competition just a few blocks away from an Ohio River casino along the Evansville riverfront. I realize the Kentucky legislators can do nothing about that casino, but they can assist Ellis in order to keep it above water. Henderson and Kentucky would lose really big if Mr. Geary is forced to shut down the track more permanently. Since my wife and I were planning to spend most of our travel budget on food, lodging and gasoline in Indiana, I would think that those legislators would recognize what an asset Ellis is to their state and be willing to help keep it in business. But I really don't expect much in the way of intelligent thinking from politicians.

08 Jul 2008 5:07 PM
the geekster

after reading dans latest ive come to the conclusion that tracks that offer everyday regular length meets have given up on trying to increase live attendance and handle. its hard to imagine just how unpopular everyday racing is. track management will never ever get it and horsemen really dont care.  we need free grandstand gate, lower take outs, handicapping in school curriculums and get more people who are curious about horseracing on the end of a shank to see hoe great a job it can be. i hang it on the press, who slurp at the trough of press box benevolence, on the trainers who drive through the stable gates in new suvs all the while saying that they wouldnt want their kids to go on to training and track management who are scared to walk through their epmty grandstands.

08 Jul 2008 5:46 PM
Ed Zepplin

Ellis Park will never become the Saratoga of the midwest even with slots. Area casinos in Indiana have the lowest AGR per machine of the 11 casinos and 2 Racinos  located in Indiana. Adding Ellis to the mix and it will dilute it even more. Churchill realized Ellis would always be a financial drain (even with slots) and that is why they were willing to sell it for a Ham Sandwich to Geary. Welcome to the bottom of the gaming world Mr Geary.

08 Jul 2008 8:07 PM
Bellwether

Ellis needs the Bellwether deal...Exposure...Promotion...Horse Racing "Won Oh Won"(trademarked)...SLOTS ARE NOT THE WHOLE ANSWER FOLKS...Long Live The King & Dirt!!!

09 Jul 2008 1:21 AM
David Carrico

Before taking sides in the debate over ADW splits, it’s good to re-visit a term that not so long ago was frequently-used in racing lexicon – source market fees (SMFs).  

Introduced by TVG in a day absent of television coverage and other account-wagering platforms, another party was considered to be in line for part of the pie – tracks and horsemen in the state where bets actually came from.  The SMF rationale seemed fair since it was (theoretically) customers of those respective tracks who were making the wagers.  Specifically, if a bet was made by a resident of Maryland on a race hosted by Churchill Downs, a portion of the proceeds would be accorded to Maryland operators and its respective horsemen.  In fact, the share going to Maryland was a majority of the gross take-out; specifically, under a take-out of 21%, 3.5% went to Churchill and its horsemen as producer of the race, 5-6% went to TVG and about 12% went to Maryland!  Contrast this to the model being promoted today – 7% to Churchill (versus 1.75%), 7% to Churchill’s horsemen (versus 1.75%), 7% to TVG and 0% to Maryland.  What a difference a few years make, huh?

What ever happened to SMFs?  For starters, the original TVG model was flawed.  It presumed that all markets were equal and had no allowance for things like demand factors of respective feeds, balance of trade between states and reality that most felt a majority share in the hands of a passive participant made little sense.  Throw in facts like that no formula existed for states to divide-up SMFs, market areas straddling state borders and breed consideration and, the TVG model died an unceremonious slow death.  

Today’s negotiations fail to include the idea of making the originating market whole on any portion of an ADW transaction.  What are the consequences?  About the only one I can think of is that stronger tracks figure to get stronger.  A more important consideration, however, is that the third/third/third model may be just as naive as the old one.  Sharing equally (as the newly-formed THG promotes), implies that all feeds and ADW operators are created equally.  

There is a reason why Robert Evans, CEO of Churchill Downs, Inc. says such a deal make his company unprofitable. Why?  For the same reason TVG and XpressBET are similarly compromised – television production and carriage costs.  Other ADW outfits having a fraction on the overhead underwritten by CDI, MEC (HRTV) and TVG are flush and, actually should be paid far less than 7%.

Is television critical in the short and long-term success of ADW?  Those running CDI and MEC apparently seem to think so; horsemen seem to just want more and, haven’t really weighed in on the matter.  Streaming video accommodates some core players but fails to create reach and frequency necessary to elevate business levels.  Certainly, it could be argued that ADW without television is merely an exercise of shifting existing handle from live, OTB and ITW platforms to another distribution avenue.  

To simply allow a larger shares for CDI (Twinspires.com/HRTV), MEC (XpressBET/HRTV) and (TVG.com/TVG) with smaller cuts designated for non-television operators would seem logical.  But, horsemen will likely never see fit to underwrite televisions systems with tracks shares.  Life’s too complicated already without having to adjust Agreements to profit/loss statements submitted by track-operated premium television channel(s).

One approach may be for tracks to divest of television holdings, assign television (not wagering) rights.  A non-profit, independent, industry-affiliated group could produce and distribute (regional) channels to support ADW operations much like what is done with racing data.  Can you spell E Q U I B A S E?  

Fair to say what is on the table today won’t be the exact model all parties finally agree.  Regardless, source market fees promises to remain but a footnote in racing history.

09 Jul 2008 10:33 AM
Lory Phillips

i have noticed that most racinos do not advertise the live racing that much or that well.

most are still stuck in the model of using the announcer as the advertising guru. just because you have a good voice & memory does not mean you know ad business.

Radio was a very good asset for racetracks as well as newspapers,tracks used to court the sports guys then got cheap and lost them ant their stories.oh well

09 Jul 2008 1:53 PM
Richard R

No ADW for Calder?  Then, no Richard R for Calder!  Why would I drive 30 miles one-way to a Virginia OTB, when I can stay home, watch other tracks on TV and wager those tracks on the internet?  I have no idea what is going on at Ellis Park and I don't plan to get any closer in order to find out.  Thank goodness Del Mar and Saratoga are just around the corner.

10 Jul 2008 1:07 PM
UCLinden

If you did not have athlete's , there'd be no need for stadiums , arena's etc. Without horsemen / breeder's / owner's you'd have no racing product. You have business's , businessmen who want it their way and want to USE the horsemen to make their profit's.

This is part of the reason American

corporation's are closing ,the upper crust forgets it's the little guy who makes the company run. Without a product ...you cannot run a business successfully , horsemen have their operating costs too. Years ago,the horse industry never had what we have today , yet the tracks survived without OTW's, advanced wagering,etc. Now, we have all these business people who want in, at the expense of the horsemen , and now threaten to close the tracks.  Let Garden State race track in New Jersey be your example.

11 Jul 2008 11:05 AM

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