Mr. Chump Goes to Tucson - Part 2

--- U of A Racetrack Industry Symposium, Tucson, AZ, December 10, 1998 ---

I was reminded of something I neglected to mention in Part 1. When Gov. Edgar was speaking of mainstreaming racing via TV and movies and such, emphasizing the sport and tradition, he mentioned that "Phar Lap" was the greatest horse racing movie ever made, and he was doing his part to mainstream racing to his children by forcing them to watch the movie once a year, whether they wanted to or not. The crowd in attendance got quite a chuckle out of this one.

***** Thur., 8:00 am *****

[Note: Today's free breakfast buffet was sponsored by Ladbroke Racing and Lone Star Park. Tragically, I did not arrive early enough to partake.]

Before several of the big events of the conference, some speaker would come up to "remember" one of the five year periods that had gone before in the 25 years of the history of the UA RTIP Symposium. Quite a nice touch when a good speaker did it, and this morning's speaker was Stanley Bergstein from the harness industry, who did quite a nice job in recounting what was happening back in the early 80's, touching on the subjects that were hot those years at the Symposium, like simulcasting, and reducing racing days. What was most interesting was that, at least in Stanley's speech, the visions of the early 80's have become the reality of today - that maybe the leaders of the industry aren't quite so shortsighted as some would have you believe. Then again, I'm sure Mr. Bergstein may have chosen his subject matter very carefully.

"Investing in Racing"

This session featured featured three individuals whose companies have made significant recent investments in racing, explaining what their investments were, why they were made, and what they hope to get back. This session was moderated by our old friend Joseph Joyce from back in the old days at Arlington.

The first speaker was Steven Crist of the DRF, who explained how it was that Alpine Capital came to invest in the DRF. His selling points, when approaching potential investors, had been that there were several changes to the company and publication that could possibly improve the bottom line at the DRF, and that the DRF was a special "brand" that had a unique relationship with the industry it covered. Specific changes that seemed possible to improve the profitability of the organization included going with the Equibase data, which would save a substantial chunk of change by eliminating the redundant field operations, improving the product itself in the area of quality, comprehensiveness, and organization. (He said early returns on the changes that have been made to date have been positive.) In addition, the brand itself could be expanded into such areas as a special BC edition, and an edition for quarterhorse racing. Additionally, there was the area of electronic products, and he was shocked that DRF had never gotten involved with selling their own data. He intends to get into the electronic business. By 2nd quarter of next year, he said, readers could probably look forward to buying their entire DRF online. [This would be a really cool idea, especially if one could customize their own DRF with tracks of their choice, paying a base price plus a per track pp charge. Might save me a bundle since I only ever need one track, and it might help out the slimul players by letting them pick and choose their own mix of tracks.] The final selling point, he said, was that racing itself was starting to turn around, or at least cease decline, and the future looked better than it had in recent years.

Now, he said, it was time to put an end to the Equibase war which had been started to hurt the DRF. "The war is over. You won. Congratulations." So why are the tracks still publishing the competing pp programs? Equibase now makes money now off every DRF sold. The industry wants and needs an independent DRF, and DRF wants a good relationship with the industry.

Next to speak was Robert Fell of Silicon Gaming, which has produced the You Bet product. He was quick to point out that Silicon Gaming is in the technology and entertainment business, not just racing, but that he was an avid race fan and wanted to help bring the oldest sport to a new generation, namely the computer kids. Racing must take advantage of the Internet, said he. Their philosophy is that the tracks and owners provide content, and they provide dissemination services - for a fee of course, which is quite flexible in format. You Bet's approach is "let the customer decide what he wants to see." They have made a huge investment in this product, are years ahead of any competitor, and have already provided an additional $1 million in handle to the racing industry.

The last speaker was Mark Wilson of TVG/ODS, who basically got up and announced that USVG (or UVSG, whatever) had just committed another $40M to this project for 1999, a total of $60M through 2000, in addition to all the money they have already spent, and that the people behind this project are big bucks investors with big corporate names like FOX and Liberty and TCI, and they are really committed to making it go and committed to new fan development in the home. Yada yada.

During the Q&A session after this, the subject of what is legal and what is not as far as phone account betting came up again. The TVG/ODS rep. stated that his organization is committed to a strict interpretation of the law, only allowing betting to take place when both the states involved have legal account betting. The rep from You Bet stated that his organization believes that what they are doing - booking bets from out of state no matter if the bettor's state has legal account betting or not - is perfectly legal. [And based on what Jay Hickey said the day before, who cares? No one is bringing any action against anyone anyhow.]

As I sat there and listened to this presentation, especially to the type of investment numbers being tossed around by TVG/ODS that totally dwarfed what racing was willing to invest in itself in the form of the NTRA, a very creepy picture came into my mind following the "Why? Why would they invest that much money for a fraction of a % of a relatively small industry?", and suddenly I had this vision of smiling racing executives marching out front of huge online gambling interests, marching gambling into the home on the strength of the current laws that give racing an exemption to some of the Wire Act, only to be followed by a huge avalanche of other types of betting following on its heels and drowning racing into oblivion. Betting based on the same exact technology and offered by the same exact companies.

Probably this vision appeared because I didn't have any breakfast and not enough oxygen was being delivered to my brain.

***** Thur., 9:45 am *****

"What's the Incentive?"

This session was sort of a roundtable discussion on the merits of state breeding incentive programs. It was moderated by Ray Paulick of the Bloodhorse magazine, which had published a study in the December 5 issue that concluded states with the most restrictive programs produced the worst results. Panel members included Rollin Baugh, a bloodstock specialist, Timothy Capps, Exec. VP of the Maryland Horse Breeders Association, outgoing Cal. state senator Ken Maddy, champion of California racing issues, and Dr. Ken Walker, an Illinois standardbred breeder.

[Please note that some of these summaries are pasted together from both the speaker's formal statement and then later comments during discussion.]

First to speak was Tim Capps, who gave a brief history of the 1st incentive program in the nation, namely Maryland's, in 1962. It was a controversial program from the start, he said, with people arguing that it would only subsidize bad horses. Today the program consists of a MD bred stakes series, open stakes supplements, owner, breeder, and stallion awards. Key to the success of the MD program was the early elimination of restricted overnights, as well as changing the breedback rule to a residency rule - MD didn't want to create a disincentive for owners of good mares to send them out of state to high class stallions. As evidence of the success of the Maryland program he pointed to the fact that Maryland-breds sell well on the commercial market, and that 50% of the horses running at Maryland tracks are state bred, and they manage to hold their own quite well in open races. Later in the discussion he added his view that state incentive programs should not try to rig the market, but should create incentives for people to cater to the open market. The Maryland industry has been successful, he said, in convincing their state lawmakers that the horse industry is an important agricultural component of the state economy.

Next Ken Walker gave an overview of the jumbled mess that constitutes the Illinois incentive program, designed to encourage breeding and ownership in Illinois and stimulate the agricultural economy. This program consists of stakes for statebreds (TB and Std), restricted overnights (both), owners' awards (for horses that win in open), breeders awards, stallion awards (standardbred only), and county fair purses. This money comes from 8.5% of the tax that is collected by the state, and amounted to about $17M for t-breds and $20M for standardbreds [Why?], or 29% of t-bred purses and 49% of std-bred purses. Dr. Walker thought the state program was a great boost, especially for the standardbred industry, and in response to a question from Ray Paulick as to whether or not it had created horses that were saleable outside Illinois, he answered probably, but the purses are so high in Illinois that the horses don't need to go out of state. [He also mentioned that the 1995 law - the simulcast law - had been a huge purse and incentives boost for standardbreds, which isn't too surprising, since the standardbred industry now gets all the money bet on t-breds after 6:00 pm]. His comments on the thoroughbred side of the industry were that elimination of breedback requirements and stallion awards had really hurt the Illinois t-bred breeding industry, as there is no longer any incentive to bring a good stallion into the state.

Sen. Ken Maddy then spoke of the California program, which came into being in response to the 1986 tax laws that removed the "passive loss" provisions of the IRS code. The tax law changes devastated California breeding, he said, with a 48% dropoff in foal production. As a result, the objective of incentive program was subsidy and reward, designed to keep the breeders in operation, as the California breeders do not have all the tax writeoffs and reductions and so on like their counterparts in Kentucky. 60% of the starters in California races are Cal. bred, according to Sen. Maddy, and horses represent a huge annual economic contribution and 50,000 jobs in California. It is also a substantial revenue producer for the state, and there is a tremendous annual demand for horses, with 497 racing days in California as opposed to 297 in Kentucky, so the production of horses to fill the demand at the tracks is the important thing, with quality a secondary concern. [See? Matt Hegarty never told you the reasoning. He just said Maddy didn't care about quality. I'm never reading his pieces as straight up again.]

Rollin Baugh, who had played a part in the Bloodhorse study, was last to speak, and it was his opinion that regional breeding supports a regional product, and that most states do not address the commercial aspect of breeding and should be trying to improve their product for the commercial market. This occurs for many reasons, because everyone has differing reasons for wanting to breed a horse - the state just wants revenue, the tracks just want big fields, blah blah. Misadventures in breeding, he said, keep getting rewarded. State breeding industries should be looking at what's happening today - a concentration on the elite at the top levels - and use that as an opportunity to import potentially useful but not fashionably bred stallions to the regional programs and use the regions as a "progeny testing ground" to see if he is going to be any good [and presumably ship him back to Kentucky where all good horses rightfully belong if he does pan out]. The TRA or some other organization should set up a fund to help buy bad horses and take them out of the gene pool [another incentive to breed cheap horses?]. Finally, there's going to be a huge worldwide explosion in demand for horses if China ever comes online.

As I said, pasted together from different remarks. Mr. Baugh was actually much more coherent than I just wrote it.

This session was held concurrently with the International Racing Surfaces Association meeting and the Year 2000 Problems workshop, so I missed those.

Refreshment breaks this morning were sponsored by the Japan Association for International Horseracing and Northfield Park, so thanks to those two fine sponsors. I needed that coffee!

Continue on to the final part.

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