Thursday, April 24, 2008

Churchill Downs Files Suit Against Horsemen's Group

Today, Churchill Downs, Inc., the operator of several racetracks, filed a lawsuit related to its dispute with the Florida horsemen's group and its negotiating agent, the Thoroughbred Horsemen's Group. This dispute centers around money - as in who gets how much. The link to the article is here.

The horse racing industry has had problems for quite some time. It was really only a matter of time before all out civil war commenced. Not counting the regulators, the three key parties are the horsemen, the racetracks and the wagering outlets. Each party is "jockeying" (sorry, had to put that in) for the biggest cut of the pari-mutuel takeout. Depending on jurisdiction and type of bet, the takeout for pari-mutuel wagering typically varies from 15% to 25%. With approximately $15 billion in annual horse racing betting, there's over $2.5 billion in money to be divided up among the parties.

The horsemen have the legal ability to withhold permission for racetracks to send their track television signals to out-of-state outlets (to include wagering outlets, known as Advance Deposit Wagering or ADWs). The vast majority of wagering on a races occurs off-track. So, approximately 18 state horsemen's groups have formed the Thoroughbred Horsemen's Group (THG), which is acting as a negotiating agent to form a uniform sharing mechanism for revenue from ADW wagers. That doesn't seem so bad at first glance, but frankly, this industry is screwed up.

A couple of the largest racetrack owners, Magna Entertainment and Churchill Downs, formed a joint venture, TrackNet Media Group, which negotiates on behalf of both companies and their ADWs, and Churchill Downs seems to have no problem having TrackNet Media Group negotiate on its behalf and, on occasion not allow other ADWs to wager on its races, as was denied access to the Kentucky Derby last year. However, it seems to have a problem with the Florida and other horsemen's groups using THG to negotiate on their behalf, such that it filed suit.

It will be interesting to see how this plays out in the courts, but the real losers will be the horse racing industry in general. Customers, you see, can spend their money betting on races outside of the US, or use off-shore wagering providers that do not share any revenue with horsemen or the tracks.

A future post will apply Porter's Five Forces Theory to the horse racing industry to determine which participants in the value chain have power and which don't.

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