Panel sessions from the 2003 Joint Annual
Meeting of HTA, Thoroughbred Racing
Associations and Racetracks of Canada
held in Hollywood, Florida, March 13-14, 2003

The Future of International Simulcasting

Mr. Chris Scherf:  The sport and the business have changed with simulcasting. We are now looking for new markets. We have done tremendously well utilizing new technologies to advance our business, but technology can be a double edged sword. It can present tremendous opportunities; it can also present problems or issues that need to be dealt with in a coherent manner by the industry. Certainly one of the things that is not quite as easy as it may sound, is to expand our signal and our business overseas. Everybody has that as a goal: to develop international markets for their races. We have a panel that is going to talk about some of the things that are being done, may be done, what the opportunities are, what the obstacles are, and even some basic primer notes on look before you leap. Some of these gentlemen have had the great opportunity of breaking barriers and learning from the great teacher, experience.  

Our first panelist comes to us and takes care of most of the international requirements. He is a Canadian whose company is based in the U.K. Lorne Abony, is the CEO of Columbia Exchange Systems, which is a manufacturer of person-to-person betting software, better known as betting exchange software. The impact that it could have on our industry is readily evident if you look at what Betfair has been doing in a very short time, growing by leaps and bounds, in the United Kingdom. He comes from a technology background, formerly the CEO of Petopia.com. He certainly knows his way around technology and the opportunities that it offers. Columbia Exchange Systems is headquartered in London and also has an office in Toronto. He is here to talk to us about what his company offers and what this technology offers to the industry.  

Mr. Lorne Abony: We develop person-to-person sports betting applications. The company was founded by me and Andrew Rifkin.  Andrew’s background is more in software and gaming systems. He is the former founder and President/CEO of a company called Cryptologic, which is the largest developer of online casino software in the world. Our business model is to provide the technology and to take a percentage of each transaction.   

What are betting exchanges? The one sentence summary is: think the e-Bay of sports betting. They are a platform for people to bet against one another without the need for a bookmaker. Betting exchanges have emerged for the most part, in the United Kingdom, probably due to the nature and history of the culture, and it is not illegal.  

How do they work? Players choose to bet on a horse to win, which in the U.K. is called backing, or betting a horse to lose, which is called laying. They choose among the odds that are laid out or they set their own odds. Basically all the bets are aggregated, held in trust, pending the outcome of the race. There are no collection issues. The bets are fully collateralized. The only way for you make a bet is if your money is in the system.  

How does the exchange make money? They take a percentage of the transaction. 

This is one of our licensees’ bet mark; on the left are the exchange trees. You pick a sport, and then you open up the exchange. It is very similar to the Microsoft concept. In the middle is the actual race, in this case the customer has opened a race in the U.K., the 1:20 at Southwell. Then he sets his odds. He can set his odds to expire and it is very much like a trading screen.  

This is a trading screen that we have called our wager watch application. It opens the industry to a different breed of trader. This is more like a NASDAQ trading screen. If anyone is interested, I can e-mail you this presentation. What this sets out is the different bets and all the activity of the given player.  

So, who are the big exchanges? There has been explosive growth in the U.K. and there is one 800 pound gorilla and that is Betfair. What is really important to emphasize is their growth and the fact they are currently matching approximately 50 million pounds of bets a week. They have also grown 100 percent in the last twelve months. To date none of the majors in the U.K. have adopted person-to-person sports betting for various reasons. 

What P2P does is it eliminates the need for a bookmaker. Because there is no bookmaker, the odds are considerably better and the advantage actually goes to the player. The reason we like the exchange business model, is ultimately it does all the benefits of a person-to-person environment, which like eBay, or even a person to person dating service online, inures to the benefit of the player.  

I took a screen shot on Sunday night of the ninth race at Fair Grounds. You can see that Betfair matched $50,000 dollars in bets on that race. Neither the U.S. racing industry nor the U.K. racing industry got anything from that. TRNi’s handle on that exact race was about $36,000, and attheraces was around $2,000. So you can see, just on that one race, Betfair matched $50,000 in bets and we feel that the fact the U.K. racing industry and the U.S. racing industry didn’t get any of that is not the model for the future, but rather a partnership model for the future. 

This frame shows the explosive growth that has occurred and how recently. And the fact that they are matching just over 200 million pounds in bets.  

So what do the majors say? The majors have taken the position that betting exchanges are as bad as weapons of mass destruction. They have brought in taxing schemes and all kinds of regulatory schemes to regulate betting exchanges out of existence. For obvious reasons betting exchanges erode the large margin businesses and challenge their business. The irony is, on the side, the large players are hedging their bets and developing some products on the side. 

Our view is that the person-to-person sports betting environment is here to stay. Even if there is prohibitive regulation and it is regulated out of the U.K., large players like Betfair are just going to go off shore. We feel the appropriate solution is to come up with a scheme whereby you work with the betting exchanges and not against them. The U.K. horseracing industry, while a model for explosive growth in this industry, is just the beginning. 

Now the million dollar question: How does this work in the U.S.? We think that there is an irony even though betting exchanges have emerged throughout Europe, that North American operators are better positioned to address some of the issues with betting exchanges than their overseas counterparts. Shared simulcasting lends itself well to an exchange concept. 

We really feel like there are three scenarios that are possible here. One is that exchange betting is not at all accepted by the regulators. The question that I would pose to people is, if it is not accepted, how are you going to deal with the threat of the large Australian and U.K. players coming after the U.S. racing environment. The middle position is: it’s approved in some ways and that has some operational issues. Needless to say our hope is that the third position, which is full industry and regulatory acceptance, is the way of the future. We think that with the right partners, exchange betting is an enormous opportunity. 

It was mentioned that your industry works very well for the Internet. I feel like this industry works very well also for next generation Internet connectivity. Unlike a casino environment, the user experience is not as important. It is very data driven, and it works well for wireless and phone applications, and next generation Internet connectivity. Exchanges are not going to displace betting at the track or OTB’s. Its scale and liquidity will be a key success factor. We feel exchange betting is a new and exciting revenue opportunity for the U.S. racing market and we hope that you embrace it. 

Mr. Scherf: Our next speaker has been in the industry and worn a lot of hats over the years. He has worked for the Daily Racing Form, for Racing Times, and for Autotote. He has dealt with technology and Internet aspects of racing and currently serves as the North American Development Manager, of attheraces U.K. Ltd., which is telecasting and wagering on U.S. races in Great Britain. Please welcome Scott Finley. 

Mr. Scott Finley:  I’m going to start with a little video that shows some of our programming, both for North American simulcasting and British racing.

I have tried to paint a picture of how we present American racing in England and give you a little bit of the flavor for the color of British racing as well, which will begin simulcasting into America at the end of April.  

There has been some confusion about what attheraces is. We have the global rights to British racing, from 49 of the 59 racecourses in the U.K. It would be as if every track in the United States, except the National Steeplechase Association and the Northern California fairs, all consolidated their betting rights under one organization. We are very fortunate that all the best racing in U.K. is represented, and we broadcast into a number of different countries already. The industry stands to benefit. Attheraces guaranteed up front, 307 million pounds, which translates to roughly some $400 million dollars to the industry that is paid out each year over ten years. Once the commissions on betting exceed the guarantee, then three percent of all handle above and beyond that figure, goes back to the industry. So, the tracks in British racing have a vested interest in the operations being a success.  

There are three primary partners that own attheraces, one-third each equal share holders. One is Arena Leisure, which owns six race courses in the U.K., all three of the al -weather or dirt tracks over there. We have Channel Four, which is the secondary, primary terrestrial broadcaster in the U.K. and also BskyB which is Rupert Murdoch’s satellite and cable TV representative in England.  

attheraces is totally an account wagering operation, it only operates account wagering platforms. The bookies have their traditional shops and the U.K. tote has their tote vending on course. But we have a Web site, which launched well over a year ago now, with over 65,000 customers and it continues to grow. One of the key things is, we stream the entire television program from seven in the morning until midnight. But you have to make a bet first. You cannot watch the streaming unless you have made at least one bet on that days card.  

We launched a telephone betting service in June. It is linked into the Web site. There is a call center that we have jobbed the work out to. It doesn’t represent a high percentage of handle, but your traditional, older people tend to prefer betting with that application.  

The interactive TV has been the big success story. That went live in November of 2002, where you can actually bet off your hand-held clicker. The handle immediately jumped 122 percent and has stayed there since then. If anything TVG had the right idea. They were probably just about five years ahead of their time. This has been an absolute success story and it continues to grow. 

So what have we learned so far from our experiences? You need to remember who your customers are. In the early days when we started out, the broadcast side of the company tended to hold sway, great fancy pictures, featuring all kinds of good stuff, but there wasn’t as much information for the bettors. You can see now how we have done the American racing, a lot of graphics aiming at odds, giving tips, encouraging people to bet. 

We put together a coordinated, consolidated broadcast platform. It is very important, and what we have tried to do is use the studio folks as an anchor. Especially when you are doing say six American tracks in the evening, or six British race meetings on a Saturday, you need to have something to come back too. Sometimes races go off at the same time and you need to show taped replays and so forth. Also, it’s never quite as easy as it first appears. We have run into all sorts of regulatory and technology issues. But number one is to constantly communicate with your suppliers. We use a number of different suppliers from tote to uplink, etc. 

Just a bit about market reach and where we see the product growing. Quality content obviously has some appeal. British racing is in demand throughout the world and attheraces has been approached from countries as far reaching as Kenya, Africa to Japan and others in Asia. There is a very high interest level in American racing in the evening. 

With the international connection, we have also signed contracts with French and South African racing that will begin showing on the channel later this year. So you have a racing shell that starts off about ten in the morning in England with South Africa, runs right into the bridge programming, and carries on with the American racing in the evening. The French races, primarily the big group one races, are all run on Sunday, when generally speaking there is no U.K. racing.  

The idea is to ultimately distribute globally a consolidated package of international racing. We have already explored this with some operators in Europe to bring a package that includes British racing, American racing, South African racing, etc. into their markets. It has been well received so far. 

What’s in the future? First of all, international simulcasting―I’m speaking primarily for North American tracks―is definitely perhaps the last big growth area. Account wagering has been the manna from heaven for all of us, but due to regulatory issues in the United States, international simulcasting is pretty much the same what we do now in any OTB or any racetrack, its just you are now reaching across the oceans to a new market, and that represents tremendous additional potential handle. 

Just in Eastern Europe, Turkey, some of those places alone, Greece, there are over 300 million pounds. So you are looking at, maybe $500 million dollars a year and these are all pari-mutuelly oriented countries. These countries are lining up, wanting to get into the British pools as quickly as possible. It is a slow process, technologically slower than we thought. But within a couple of years, the U.K. tote pools will, by and large, have much more money coming into them from outside of the United Kingdom than they do from inside the country. 

In our venture over here, we bring British racing to the United States and Canada starting in late April. We are fully comlinked to U.K. tote pools. We are going to put together a separate big race package, primarily we are looking at account wagering operations given the time of day difference, British racing starts at nine in the morning eastern. So all the account wagering operators, Youbet, Winticket, and so forth, have all been quite keen to add some value to their dead space, if you will, in the morning. Some tracks and OTBs will be interested in opening up early, particularly, on Saturdays. We will have a big package that includes, Royal Ascot, things like that, and if you want to take this is every week, we’ll be happy to sign you up. 

Mr. Scherf: Our final speaker came to this country from the motherland with the concept that they would like to run a racetrack where it is all about having a bet. They have concentrated and focused their efforts at Philadelphia Park on expanding the betting options, the means, the ways, the distribution. They have really been on the cutting edge of every opportunity that comes forward, including going overseas, which I think he is going to tell us was not a painless experience. It certainly is breaking ground, getting our races over there during their night time hours, prime time. He is the Wood in Greenwood racing, Bill Hogwood, and he also serves as President of TRNi. 

Mr. Bill Hogwood: I’m speaking today on promoting American racing and supporting that with commingling back. I believe that the strength of our product is the size of the pools, and that is something we really have to keep and expand going forward. You have heard a little bit about the exchanges that could be a threat. But the longer we keep very strong big pools, we have an opportunity to have an attractive product.  

Time is very critical when you are promoting your races and, yes, in South America, especially the same time zone. We chose the U.K. in Europe because the one o’clock times are only six o’clock in that jurisdiction and it’s an ideal product to promote, as they have very little evening product themselves. So it was something that was very attractive. The thing about South America and the U.K. is that it is mainly bookmaking, and that can present problems. With bookmaking you don’t need productivity, you don’t need information links that you do need for tote betting. So we have to approach that and I will explain the way we do that. 

If you look at some of the major pari-mutuel jurisdictions, say Australia, New Zealand, Japan, Hong Kong, then the time zone is kind of early morning, so our product is not that attractive as such. If we get something moving on account wagering, you get twenty-four hour operations, then that is something different.  

The other major issue, when you are talking about commingling, is regarding the tax implications. Bets co-mingle back to the U.S., classified as source income, and therefore, you have to fill in tax forms. You have to get a tax ID number and tax ID numbers are for individuals as well as companies. So, in many jurisdictions, you must look at the requirements, and make sure you fill in the right type of forms. Know your market. 

The problem is when it is bookmaking, there isn’t an online system, as such, that has management liability for getting bets back, that type of thing. But it is not like when we want to turn on another track in the US, then we get in touch with one of the tote companies and it’s switched on the next day. We don’t have that ability in the bookmaking kind of jurisdiction. Also, there are many, many more facilities where you can take a bet, so again it is very expensive if you are going to start putting connections, frame relay, that type of thing, to pick up the bets.  

The other thing that you need to know is the local laws. I have mentioned the way things impact regarding the U.S. laws, but local laws where you are allowed to co-mingle, in some countries you can’t. So you have to go through to determine what you can, what can’t do and what risks you are taking in those areas.  

When you go to sell our product in another jurisdiction, the first thing they say is well are you going to take mine. Obviously, we have so many signals coming into the U.S. at this stage, that is somewhat difficult to say you are going to do. The good thing about U.K. racing, European racing, is it comes through in the morning. It builds up to our type of racing and is something that we should consider bringing in to help the product, the same way as we want to take our racing over to that country. 

Again, if you are betting, even in the U.K., in the morning, you have to have a tote open or it can’t get through. I can see the need for a 24 hour tote and tied into that, the opportunity to have 24 hour operations with account wagering. Otherwise it is going to get very expensive. 

We started to promote U.S. racing in the U.K., Europe in 1999. At that time we put a six hour show on Sky, it was before attheraces started. A company called SIS had the rights to British racing, and we followed that, and the service went to six million homes on satellite direct and a further two million on cable. When we started there wasn’t a great deal of interest. The bookmakers over there didn’t think it was going to be a product that was going to take on. Even now, we can’t get the cards into the local papers. So it was difficult. The time zone seemed to be ideal. One of the problems is, 95 percent of the market is based on bookmaking and therefore you don’t have a system you can go into to co-mingle, a tote system, there is nothing really like that. But the wagering is in a region of $7 billion to $8 billion just on horse racing, so the U.K. is a very mature, important market. There is no evening racing other than about four months of the year. Their betting shelf network closes on the other eight months. But what they do have is a very mature account wagering service. That includes Internet and that is where we have really concentrated to start with, is interfacing with that kind of service.  

Rather than having two channels promoting American racing, we realized that didn’t work in the U.S., it was a waste of resources. So February of this year we elected to merge with attheraces and jointly fund the channel. This has been a very good move for us. You have seen the quality of programming, it’s very good. We have six hours of live racing, coming from about five tracks, 36 races, going through to midnight. The other important thing for us, it follows the local product and as people have mentioned the U.K. Island is fanatical on betting. So it gives us the opportunity to get in front of many more eyeballs than we would if we had a channel that was on its own. 

It’s schematic in the way that it actually works. From our studios in Philadelphia, we pick up the signals. We send them across by either satellite, we have fiber connection as well, and they go to a downlink just outside London. From there it is fiber through to attheraces studio. There they package the show and send it through to BSkyB for its go up onto satellite and also to cable networks, who add another two million homes bypass. So it is getting fairly good coverage. Eight million homes have found a very good product, a local product. 

The Philadelphia Park studio is in constant talk back to the attheraces London studio. It’s very impressive and if anyone over there would like to take a tour, I’m sure we can arrange something.  

The guests, some of them have been doing it for two years, transferred across from the other service we had to attheraces. So they are fairly knowledgeable, they bring guests there. What they are doing at the studio is to convert American racing into English terminology. Explain the type of bets, the horses, performance, as there is a huge difference between the two sports. 

What is important is that we promote American Racing as a tote product, not as a bookmaking product. That is something we do with the graphics. We display the actual wagering pools available in North America. In British racing it is normally 70 percent win bets, where in our market it is 40 percent, so yes they bet much more on win betting than we do over here. We therefore promote the exotic wagers, bookmakers don’t like to pay those two dollars and someone can win a lot of money on the trifecta or pick six. So there is a lot of importance in pushing the exotic wagers. 

The results, we return for a two unit stake and you can see the dollars, pound sterling or the euro. The euro is a great thing for us, because it closer to the dollar and simplifies it, in Europe, on doing this type of service and promoting betting. Hopefully in the near future even the UK might go over to the euros. 

There are three form options for taking a bet and co-mingling that bet back to the host track. Scott mentioned, attheraces interactive. Then there is the account wagering through Internet, telephone wagering, and it’s a very mature market. Then there is the OTB network which is closed eight months of the year, but it something that, if this is going to take off and continue to be successful, the growth is going to be in the OTB market. 

The little red button says form. On the remote control there is another red button, but you can’t say bet, because of legality that you can not say anything to do with betting on U.K. television. But if you press the red button on the remote control, you then go into something that is similar to Internet betting. A view will open an account that will enable them to put in a pin number and go through and be able to bet the betting menu. This type of technology was pioneered by attheraces, and it is becoming very important. We have an Internet site and a telephone account wagering site to support the service. 

To service the bookmakers, we had to come up with something different since there wasn’t the ability to connect into a frame relay, some cost network, etc. The agreement we have with attheraces is that we have the exclusive rights to deal with bookmakers, as we have been doing the last couple of years. The way we overcame there not being connectivity, was to use the Internet as a method of getting the bets back from, say the U.K. island, Europe, getting them back into the Oregon harbor, and from the harbor to use a frame relay to get them to the horse track. What we did was to develop software, which is called either Abet or Fast bet, there are two different types, that interfaces to the bookmakers system to enable them, when they take a bet, for that bet to go through to a hub and then through to the host track. 

The TRN interface connects to the account wagering system at the bookmakers call center. Prior to racing we provide them with a raw data feed that includes all the pre-race data, the runners, riders, etc. After that we give them the current betting odds, how often they race, the result stats, etc.

This information is only given to those bookmakers who sign up to co-mingle their wagers back into the U.S. The connectivity is via the Internet, it goes through to Oregon, and the wager is only struck when you see the tote up. 

The OTB network is going to be, at this stage, the major growth area. There are 10,000 OTB’s in the U.K. Island. There are only one thousand places you can place a pari-mutuel bet in the U.S. and Canada. If you can imagine, there is one of these places on every street corner. It is in the culture to have a bet. They take bets on everything, sports, everything. 

This is the main market, but it is obviously sort of a cash business. There is no connectivity, except as a management liability to make sure they are not taking too much on any particular horse or event. So what we are doing, and it’s working in Germany and Austria where we have used it in a number of OTB’s there, is devote a simple terminal that uses the Internet so people who want to get involved can do so without investing a great deal of money. It is software that can be used on any PC, accessed by the Internet as a bar code reader, so the ticket prints out the same number that is in the tote. It is just like issuing a tote ticket. It gives us the opportunity to introduce the product without there being a huge cost. I’m sure that with our own sum of costs in network, if a product comes out no one is going to go out there and spend thousands to introduce it. We are the ones that have to go and make it easy for these people to bet on our racing. What we do is push, as much as we can, the exotics. At the end you get a bet summary and it lists in the same way you would with a tote terminal, but what this does, is anywhere in the world you have Internet access you have the ability to co-mingle back to the host track in America. The thing you have to look at, to make sure of, is it legal in that jurisdiction to be able to do that.   

It has not been easy. A lot of time and resources have gone into developing the U.K., European market. Originally there wasn’t a great deal of interest shown by the bookmakers, they didn’t see why they should give up a percentage of their handle. Gradually they are coming around, and we sign up more people like Ladbroke who is the biggest bookmaker in the world and that is a very good sign. I believe our relationship with attheraces is going to do us a great deal of good. It is important that you use your resources and work the best way possible. In everything, we have great support from the tracks in the U.S. and hopefully those things combine going forward, we can really get the U.S. racing into this market. 

Mr. Scherf: I have a question for Scott and Bill.  In the overseas venture, you are capturing the expense side, which is considerable, on transmitting the races. How confident are you that there is going to be the return, eventually, in terms of capturing the betting in a bookmaking society, over there? 

Mr. Finley:  Well, Bill has more experience than we do. But the growth has been phenomenal. Our handle directly over our interactive platform pales in comparison to what TRNi is doing, but nevertheless, it is growing consistently. The figures Lorne mentioned on the Louisiana Derby, we just took one race, thirty-six thousand some odd U.S. dollars were bet through TRNi, its all commingle, but it is coming through the bookmaker account wagering networks, and $1,840 was bet on attherace on just this one race. So there is still a big gap there.  American racing is prime time and we are confident that it is a very important part of the whole attheraces offer. 

Mr. Hogwood: There is a huge opportunity. The U.K. doesn’t have any horse races much of the year, this is an evening product. People come home from work and its going to younger audiences as well, and they are very interested in it. They have gotten to understand it. The major negative is, at this particular time, we cannot get the card into the Racing Post which is the equivalent to the Daily Racing Form. So these people are just getting the information from the incident, so therefore it is staying with a small group of people, very interested big players. Once we get it into the local newspapers and we get more two dollar players, the opportunity to really expand will happen. 

Mr. Scherf:  I would like to ask Lorne one question. Betting exchanges terrify most of this industry, because we don’t necessarily have to get a piece of the pie. Betfair has created a huge controversy in Great Britain and yet at the same time your company is not the only one with betting exchange software that is out on the marketplace and to fans it has some very attractive elements, particularly the opportunity to offer fixed odds wagering in this country. How inevitable do you think it is that we are going to have to deal with betting exchange wagering in this country? 

Mr. Abony: You ultimately will deal with betting exchange technology in this country and I think you currently are. The issue is how the existing players partner with the betting exchanges as opposed to dealing with them just as threat, something that will just cannibalize the existing revenue.  With a smart deal, it can be incremental revenue, not just revenue that cannibalizes the existing business.  

Mr. Scherf:  Mr. Green, the other half of Greenwood. 

Mr. Robert Green: If you were in a situation where you can lay the horse to lose, and there has been some exposure where various trainers laying their own horses. What do you think you should do with the integrity issue?  

Mr. Abony: Ultimately, I think there can be corruption in sports betting. There has been corruption in sports betting on the fixed odds side and there can be corruption in sports betting, in exchange betting. While there is an appearance of anonymity with respect to the backing or laying on the exchange, there really is no anonymity with respect to who has the account on our side. So, you don’t know who you are placing a bet against, but we do and those types of transactions can ultimately be ferreted out behind the scenes. 

Mr. Scherf: Mike last question.  

Mr. Mike Shagan: If the current business exchange model is two to five percent, the equivalent of takeout, and a business exchange wished to partner-up with American industry, what can you see as one or more of the potential models, where the industry would be able to make a meaningful amount of money? 

Mr. Abony: We have thought about that and we don’t think that the starting model in the United States should be two to five percent.  I think that our ability to get adoption at those numbers just won’t happen. So, we think a partnership that the takeout is down a little bit and still favors the player, but is not at the two to five percent range, which is currently where the exchanges are today. 

Mr. Scherf: Bet Fair’s biggest worry this week, the Cheltenham Gold Cup, the biggest steeplechase meet in the U.K., is whether or not they are going to crash the system, with all the bets they are going to get. That is the big thing in England this week. Can the system survive all the action it is going to take? That is how it is growing, and that is something we are going to have to deal with in this industry.