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Simulcasting Simplified


How much revenue does a track keep from pari-mutuel wagering? It depends on what you wager on and where and how you wager. WEG’s Sean Pinsonneault helps demystify a head-spinning set of equations.
 
[This article was originally published in Canadian Thoroughbred magazine, March 2015 and is reprinted with permission.]
 
Unless you’re someone that enjoys unraveling accounting puzzles, Sean Pinsonneault said it’s prudent to avoid looking too deeply at the specific numbers while trying to simplify simulcast pari-mutuel wagering.
 
The executive vice-president and chief operating officer of the Woodbine Entertainment Group (WEG) said it’s best to take a big picture approach to how the revenue from wagering is divided between tracks, particularly now that the game has changed significantly in Ontario, Canada’s largest and most lucrative horse racing district.
 
“Sticking to this high-level philosophy about what it means for every dollar that comes through, I think that is what is important for people to understand, particularly those that are in this business,” Pinsonneault said.
 
In 2014, there was a seismic shift in Ontario with respect to how wagering was divided. Prior to that, every racetrack in Canada essentially operated as a fiefdom that owned the rights to the proceeds of wagering on horse racing in its immediate geographic region thanks to the establishment of Home Market Areas by the Canadian Pari-Mutuel Agency (CPMA). Today, those Home Market Areas are still in play everywhere in Canada, except Ontario. When a five-year, $500 million government funding deal went into effect April 1, 2014 in Ontario, essentially the Home Market Area concept was abolished in the province.
 
Where once the revenue from a bet made in Hamilton accrued to Flamboro Downs, today the vast majority of the wagering in the province flows to the WEG and the revenue is distributed back to the tracks to fund purses and operations.
 
This centralized approach led to the formation of an eight track Standardbred Alliance and has those tracks — Woodbine, Mohawk, Georgian Downs, Flamboro Downs, Grand River Raceway, The Raceway at The Western Fair District, Clinton Raceway and Hanover Raceway — working together to promote wagering on the sport as a whole, rather than acting as competitors for betting dollars.
 
The province also has a series of what it calls regional tracks, including thoroughbred racing’s Fort Erie Racetrack, Ajax Downs for Quarter Horses and harness tracks such as Rideau Carleton Raceway in Ottawa that are essentially allowed to keep the proceeds from wagering at those tracks and in teletheatres in the immediate area. The regional tracks are essentially on their own and operating much like they did under the old Home Market Area system.
 
“Those tracks that are not part of the core, what they’re betting on site is for their benefit, not for the centralized racetracks,” Pinsonneault said.
 
That’s essentially how other tracks outside of Ontario are still operating, though as Chris Roberts, executive director and general manager at Northlands Park in Edmonton points out, “Scenarios will be different by jurisdiction, based on host fee rates, theatre operator commissions, provincial levies and fees.”
 
For example, if someone in Edmonton makes a wager through WEG’s HorsePlayer Interactive (HPI) account wagering platform on a race at Woodbine, Northlands keeps the bulk of that revenue. Pinsonneault said WEG has, “a contract with Northlands to service that market for their benefit. So, we take a service fee on that, but the majority of the revenue stays in Edmonton.”
 
The Best Bets
 
Pinsonneault said the best bet for someone interested in supporting Ontario’s horse racing industry is one made on an Ontario race — thoroughbred or standardbred — either live at one of the eight core tracks, through HPI or at a Off-Track Betting (OTB) parlour in all but a small handful of locations in the province.
 
“Those that are interested in the Ontario horse racing market should be concerned about the centralized racetracks and how we can possibly maximize the wagering and the revenues that are generated there, because that’s what’s going to keep us going. They need to know it’s important that they place their wagers at any one of the OTBs, through HorsePlayer, at any of these eight facilities… We’re going to maximize (revenue) through our network.”
 
Pinsonneault explained that now that the province is effectively one large Home Market Area, a bet made through HPI in Kitchener or at a teletheatre in Chatham on a race a Woodbine returns the same revenue as someone making a bet with a Woodbine teller on that same race.
 
“We’re not paying any host fees in that case. We take on all that revenue.”
 
A wager made in Ontario on a foreign product is less lucrative to Ontario tracks because host fees have to be paid to the track that was bet.
 
The Next Best Thing
 
A wager made in Ontario on a foreign product is less lucrative to Ontario tracks because host fees have to be paid to the track that was bet.
 
For example, if someone at Woodbine makes a bet on a race at Aqueduct, Woodbine, as the guest, would keep the highest portion of the revenue, with Aqueduct getting the next biggest cut.
 
“The guest receives a larger share of the revenue split than the host would get because the guest has all the costs,” Pinsonneault said. “They have to make the terminals available, they have to turn the lights on, they’ve got the track to maintain and everything that builds into that. That’s the model.”
 
But the dynamics of that model are changing, too. Pinsonneault said rising host fees from some of the bigger racing operations are threatening to rival and, perhaps overtake, the revenue the guest tracks can make.
“That model is changing as these big conglomerates continue to push their share up and that, of course, leaves less for the guest tracks and, hence, it’s thinner margins on all these products,” he said.
 
Pinsonneault said WEG has relatively high host rates, too. “We charge what  we can get in the province and across Canada,” he said. “We’re a host track, as well as a guest track. That’s one of the nuances of Woodbine and our operation. We are not a net exporter, as the NYRA tracks are, meaning they’re selling more of their product than they’re taking in of other products. We kind of do both.”
 
Everybody Into The Pool
 
Though the margins are lower from being a host track, Pinsonneault said maximizing handle — wherever it comes from — is important to growing pools, which is essential to driving revenue.
 
“That’s why we’re into every possible location we can get into that’s reasonable,” he said. “The bigger the pool size is, the more big bettors are going to come in there and be able to play comfortably… That pool size gets people looking at you a bit differently and they play differently. That’s the stuff that you want to be able to track. But the money that comes in on the remote side of the business is much less than what it is through your own network.”
That’s where total handle can be a deceptive number. Around Christmas, The Raceway at The Western Fair District in London began posting record handles, including a day when nearly $700,000  was wagered. While some the handle bet at the small half-mile standardbred track, or throughout the province, fell into the most lucrative category, Western Fair only derived a host fee for money wagered on it at out-of-province locations such as the Meadowlands Racetrack in New Jersey. Meaning, the revenue Western Fair earned on that $700,000 was actually much less than that.
 
“Where it gets really tricky and complicated to explain is when you get into the actual numbers,” Pinsonneault said.
 
Case in point, Roberts has a slide presentation he uses to explain how Northlands makes its money. For ever dollar wagered at Northlands on a race at Northlands, $0.7875 is returned to bettors, $0.2125 is retained by the track in gross commissions, $0.05 is paid to Horse Racing Alberta (HRA), $0.004 is an HRA Promo Levy, $0.008 is a federal levy paid to the CPMA and $0.1505 is retained after levies. Northlands revenue is then split, with 52 per cent to purses and 48 per cent to the racetrack itself. Those numbers are further complicated when someone comes to Northlands  and bets on a race, say, at Hastings Park in Vancouver. Hastings needs to get its host fee on that bet, meaning the revenue Northlands keeps is lower. Make that bet at Northlands on one of the premier thoroughbred products in the United States and the host fee will be even larger, meaning Northlands’ cut will be even smaller.
 
The best bet for those looking to support their local horse racing industry is to bet local and encourage others to do the same. CT

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