Phone Betting Remains on Hold in California

Telephone betting on horse racing, legalized in California four months ago, will not become a reality as scheduled on Jan. 1, and what’s more, the new marketing tool, long considered a necessity by track operators and industry leaders, has further divided a struggling sport known for its internal bickering.

Said a weary Mark Wilson, former general counsel for Churchill Downs and now president of the Television Games Network, “Too many times have we seen racing presented with a golden opportunity, only to see someone come along and create infighting that defeats the purpose. It saddens me, because the racing fans and the industry deserve better.”

Based on experiences in New York and some of the 11 other states where phone and Internet betting are legal, tracks need to make their races available via home television before electronic wagering can be widely successful. For months, Wilson has hoped that his TVG, a fledgling satellite network seen by million of customers nationally but available to only about 650,000 homes in California, would be carrying races from Santa Anita, Golden Gate Fields and Bay Meadows. Last week, however, Frank Stronach’s Magna Entertainment, which runs those three tracks, announced that Magna was forming its own TV network.

Wilson responded, saying that Stronach is either trying to scuttle TVG, or is naive about how sports on television works.

“Supposedly [our negotiations] were about exclusivity of rights,” Wilson said. “Something about Magna wanting the right to carry our tracks on their [proposed] system if they gave us the rights to carry their races on ours. Well, exclusivity is always the way sports on television works. Would NBC be paying [millions of dollars] for the rights to carry the Triple Crown and Breeders’ Cup races if it were possible that those same races could be simultaneously carried by another network? If I were a shareholder in Magna, I would be nonplussed about what’s going on.”

Stronach’s office near Toronto said that he was traveling, and attempts to reach him were unsuccessful. In an earlier interview, however, he indicated that the chances of Magna’s making a deal with TVG--or any other network--were slim.

“The thing about TVG is that it brings in another middleman,” Stronach said. “Racing can’t stand too many middlemen. There isn’t that much of a profit margin in this game to begin with, and if you have a middleman skimming off what profit there is, then what do you have?”

By combining its own TV signal with a betting hub, Magna would retain as much as 61/2% of every bet it takes, rather than sharing with a partner such as TVG.

Some industry observers also believe that Magna is unwilling to deal with TVG because that company is strongly aligned with Churchill Downs Inc., the principal owner of six tracks, among them Hollywood Park in Stronach’s Santa Anita market and Calder Race Course in South Florida, where Stronach runs Gulfstream Park. Detente between Stronach and Churchill, seemingly a reality last year when Stronach backed off earlier criticism of the Churchill-supported National Thoroughbred Racing Assn., has turned out to be a mirage.

The problems between Magna and TVG aside, “advance deposit account wagering,” the official term for electronic betting in California, will not be available, with or without a TV signal, until March or April, said John Van de Kamp, president of the Thoroughbred Owners of California (TOC), a powerful group whose members race horses in the state. California’s Office of Administrative Law is reviewing the regulations necessary for launching the betting system, and the California Horse Racing Board may approve some of the betting-hub license applications at its meeting in Arcadia on Jan. 24.

The meets at Santa Anita, which opens Dec. 26, and Golden Gate will be underway by then and Marty Wygod, a board member at Del Mar and a prominent owner-breeder, is angry that telephone betting will not debut as planned.

“I’m outraged at the way things are going,” Wygod said. “It’s inexcusable, what this is going to cost the horsemen in purse loss. The TOC has no leadership and they’ve made one mistake after another. They have the power, but they’ve been dropping the ball. I can’t believe the way this is happening.”

There have been estimates that phone betting could result in an additional $30 million that would be shared annually by horsemen--in the form of purse money--with tracks and other agencies cited in the account-wagering bill.

“I know Marty hasn’t been happy,” Van de Kamp said. “But it simply takes a long time for something like this to germinate. Marty’s good friend, Roger Licht, is a member of the racing board, and it’s Roger who has done a lot of the good work that’s gotten us to where we are.”

Once the system is up and running, bettors who are 18 or older will establish accounts with a betting hub and be able to phone in their bets on California races and a number of out-of-state races yet to be determined.

But the racing board, the tracks and their partners--who include the Thoroughbred Owners of California--still have a lot of work to do. For example, the 14 regulations currently under review by the State of California’s Office of Administrative Law do not include: the number and location of races that account holders can bet on; whether racetracks can accept bets from a single account-wagering system or multiple systems; whether those systems will charge fees for each bet; and how the simulcasts will be delivered to homes.

All of these areas will be addressed when the California Horse Racing Board considers approval of contracts between the racetracks and the betting-system operators.

One regulation already in place requires that an applicant for a betting hub must post a $500,000 bond or other financial security, to protect the bettors and the money in the betting pools. While there will be no surcharges on any bets, the law will allow the betting hub to charge its customers a transaction fee on each wager.

Deposits to betting accounts can be made by cash, credit card, check or electronic transfer.

California will probably begin its era of phone betting with bettors needing to maintain multiple deposit accounts. It does not appear that one company will be accepting bets on Santa Anita and Hollywood Park, and with the telecasts of the races from the Magna tracks in doubt, phone betting as a marketing tool will not be swinging for the fences right away.

But, said Allen Gutterman, vice president for marketing at Hollywood Park, “We need to hit a home run. The [phone-Internet] handle must impact our business significantly to compensate for what we’ll lose on-track.”

The industry refers to the potential downside as “cannibalization.” Phone bettors obviously won’t pay to park, or buy beer and hot dogs, which makes betting from home a double-edged sword for racetrack bean counters.

“Part of me hates anything that’s going to detract from people going to the track,” said Joe Harper, president of Del Mar.

When intertrack betting was introduced in California in 1987, Harper posited a bottom-line formula that said that $3 has to be bet off-track to equal $1 bet at the track. He said recently that that equation hasn’t changed much over the years.

Many racing executives--among them Jack Liebau at Santa Anita, Rick Baedeker at Hollywood Park and Alan Landsburg, chairman of the state racing board--envision phone betting as something of a windfall but far less than a cure for racing’s ills.

“This is not the salvation,” Landsburg said at a racing conference in Tucson last week. “It’s a new influence and there is new money, but it’s simply a step along the way. Can it provide a new audience? Just to put more money into the coffers of tracks and more money into purses will do a great disservice. Some of this new money should be spent on refined marketing programs.”

For Baedeker, Liebau and others, no small benefit from phone betting is the chance for the industry to compete with offshore bookmakers who take bets on California’s races. Annual estimates range from $25-50 million being bet overseas and offshore on California races, with tracks and horsemen not sharing in that handle. That being the case, the offshore books can offer enticing rebates not available to the on-track bettor. Earlier this year, a bookmaker in Costa Rica promised bettors a 5% cash rebate--at least $1,000--if they bet $20,000 a week.

“Account wagering gives us a chance to compete with the other guys, to remain viable,” Baedeker said. “I think a lot of bettors are uncomfortable doing business with these offshore companies. What these same bettors are going to have here is a betting system with the stamp of the state of California behind it.”

TVG’s Wilson and Magna’s Stronach, on the same page for once, agree that more racing on TV gives the sport a window to replace with the tens of thousands of lapsed horseplayers a new breed.

“If phone betting leads to a wider audience, then it’s a good thing,” Stronach said. “It’s the nature of people to want to bet, and it’s good that it’s been brought to the surface--legally--in California. But the key is still live racing. When tracks close, then there’s no product. We have to keep trying to build live attendance.”