CHRB, ADWs Clash at Committee Meeting

A crucial issue regarding how pari-mutuel takeout is distributed for racing in California was discussed, at times contentiously, during a California Horse Racing Board Pari-Mutuel and Wagering Committee meeting Dec. 14 at Los Alamitos Race Course.

How advance deposit wagering handle gets distributed within the industry in California remains a point of contention between the CHRB and the ADW operators, which came to a head during the regulatory agency's November meeting.

The CHRB then asked the ADW operators to attend the Pari-Mutuel and Wagering Committee meeting Wednesday to address how they would "contribute to the industry" in the future.

"There are concerns—with respect to charities, with respect to the board, with respect to other aspects of the industry—what are the ADWs prepared to (do)?" CHRB chairman Chuck Winner said at the Wednesday meeting. "Rather than us dictate what we think you ought to do within your licenses, it would be better if you made some recommendations to us, without telling us why you can't do those things."

After a pause, with ADW representatives reluctant to come forward, Winner continued.

"Come on forward. I see a lot of you in the audience," Winner said. "Come and sit down. Nobody? ... It doesn't appear they want to do anything for the industry in California."

After Winner's verbal salvo, several ADW representatives did walk up to address the committee, explaining the challenges and contributions their respective companies have made to the industry in the state.

The most contentious exchange between board members and the lineup of ADW representatives came from Winner and Brad Blackwell, vice president of TwinSpires.com.

"California puts (ADWs) at a disadvantage by strapping us with so many costs and not enough money to really do what we're able to do. ... If we were just operating in California, we could not justify that cost. California benefits from the costs we're incurring and we're having to make that up in other places," Blackwell said.

Several of the ADW representatives in attendance cautioned against increasing the financial burden on ADWs that operate in the state. Handle generated online, Blackwell contended, would not return to racetracks in the absence of ADW platforms.

"When I hear, 'Would we be better off without ADWs?' I know for a fact—and this is from a company (Churchill Downs Inc.) that owns racetracks, owns a tote company, that owns an ADW, that owns a handicapping business—I know for a fact that, without ADW, those customers are not coming to a racetrack," Blackwell said.

Winner bristled at the comment.

"You don't know that for a fact," Winner interjected. "What you know is, under the circumstances, they're going to the ADW and not going to the racetrack. If there were no ADWs, you don't know for a fact that they wouldn't go to the racetrack."

ADWs get 5% of handle generated through their platforms when it is wagered on California racing and Winner grew increasingly frustrated with the answers from the representatives before him, when he expected to receive suggestions to aid racing in the state.

"The objective was—which was spelled out at the last meeting—was for the ADWs to come before us ... and tell us what you can do additionally to benefit California," Winner said. "So far, not one of you has done that. All you've done is talk about how you're getting hurt in California—how you're getting hurt by being here, how bad the situation is. Not one of you said one thing about what you're going to do to benefit California, which was the purpose of what we've asked for. Except you're giving us excuses. ... We can't unring the bell, we can't undo the legislation, we can't turn back the clock and go back to the way it was before ADWs.

"One of the purposes of ADWs was to create more business for racing—more business for racetracks. That hasn't happened. It's been the opposite. The ADWs have basically cannibalized racetracks and on-track wagering in California."

The CHRB's stance appears clear. On-track wagering provides provisions to send percentages of handle to charities, backstretch workers' aid groups, and other organizations considered to "benefit" the industry. ADWs, at this time, are not required to make similar contributions, but with handle increasingly moving to those platforms, the CHRB seems to be seeking more financial input from the ADW organizations.

"What you're asking us to do is create those regulations that will force you to do things, which I'd rather not do," Winner said.

Thoroughbred Owners of California president and chief executive officer Greg Avioli later in the meeting described the relationship between the ADWs and the horsemen as "one of conflict, not one of working together" but expressed optimism that an agreement that allows all to benefit from pari-mutuel handle could be reached.

"For three years now, we've been voluntarily asking the ADWs to address what was one of our biggest issues—people betting on-track with ADWs on their phones," Avioli said. "We got essentially nothing back. We had two years of conversations and not a single concrete thing. What we've ultimately been able to do in the last 30 days, with the leadership of TVG and Xpressbet ... (is reach an agreement for them to) take a lesser fee, and return the majority of those on-track wagers back to the tracks and the horsemen. ... It shows we can work together.

"We can work with the ADWs. Sometimes we need  a stick, as well as a carrot, but this agreement ... sets a 2-year period up where we can work closely together and try to come up with a better model."

Although the TOC has reached an agreement with TVG and Xpressbet, other ADW representatives in the room—specifically those smaller in scope to that of TVG and Xpressbet—said a similar deal would not work for them.

According to Avioli, the deal would net ADWs 1.5% of on-track ADW wagers, which would be precarious for smaller companies that also have to pay portions of their take to other stakeholders.

"The proposal we received yesterday is that, instead of 5% it should be 4.5%," said John Ford, chief executive officer of BetAmerica. "(With the on-track ADW wagers), we would then reduce that by 3%, which gets split by the track and the horsemen. So, we're now down to 1.5%, and I have to pay a 2% TV fee, and that doesn't even take into account (the) tote fee, interchange fee, or anything else. Now I'm in a spot where I'm losing money if I accept a bet at the racetrack, plus I have to do all the technical work to create geolocation.

"What I would ask is a much simpler process. Block me at the racetrack. Block my customers at the racetrack ... instead of forcing us to lose money at the racetrack, as well as incurring all the technical costs. ... It's anticompetitive for the small ADWs for the big ADWs to get together with the TOC and decide that they're going to work on a different playing field. It's not fair and I don't think this board should accommodate it."

Ford also raised an idea earlier in the meeting that smaller, start-up ADWs should not be asked to contribute as much as the larger, more established companies in the space.

"When you take our 5%, which is a bit of a misnomer for an ADW like BetAmerica ... out of that 5%, we also pay 2% to TVG or The Stronach Group ... We start closer to 3% than 5%," Ford said. "Just our marketing and promotion costs associated with California customers put us into a negative. ... At this point, my view is that you can't get blood out of a stone. We need to get bigger before we can make additional contributions, and I would hope you'd take smaller, growing ADWs into account when you make any decisions ... in regards to additional contributions."

At the conclusion of the more than three-hour meeting, the issues that spurred the session remained, as did the urgency of the matter at hand.

"We have a problem," said CHRB member George Krikorian. "The problem is that the revenue that comes in on the (on-track) side continues to diminish and on (the ADW side), as a group, it continues to rise. So, we have to try to figure out some way to balance that in order to survive."