ILLINOIS HORSEMEN: BEWARE

Illinois horsemen have had to put up with a ridiculous law since 1995 that allows racetracks to “recapture” money from purse accounts the law says tracks have lost on live handle since the authorization of full-card simulcasting. Since 1995, over $170 million has been taken from purses earmarked for Thoroughbred and harness horsemen and handed over to the racetracks. (For more details on the recapture provision of the Illinois racing law, see page 10 of the Illinois Racing Board's annual report for 2008, which can be viewed here.)

This law needs to be repealed, and representatives of the harness and Thoroughbred horsemen's organizations are working in the state capital in Springfield to do so. Racetracks seem to have more clout, however, and it will be no easy task.

Lobbyists for racetracks and ADW companies are also pushing for approval of Advance Deposit Wagering in Illinois, a state that permits casino wagering, off-track betting and has offered a lottery for many years. Those lobbyists represent Arlington Park, which is owned by the same Churchill Downs Inc. that operates TwinSpires.com. The largest shareholder in CDI is Richard Duchossois, the Chicago industrialist who owned Arlington Park before merging it into CDI. Another company pushing for ADW approval is Youbet.com, one of whose principals is Chicago billionaire Jay Pritzker, heir to the Hyatt Hotel chain. A member of the Youbet.com board of directors is former Illinois Gov. Jim Edgar (one of those rare Illinois politicians who has avoided public scandal or indictment). Edgar knows his way around Springfield.

ADW would be a good thing for Illinois, provided that the horsemen are taken care of. The fear is, however, that Churchill Downs and its lobbyists are crafting a bill that will be more to their benefit than it is to the horsemen.

An example: the bill (SB1298, which has passed out of committee and is on the floor of the Senate waiting approval), includes an amendment that permits Advance Deposit Wagering terminals to be placed at Illinois tracks. The language of the bill (see page nine, line nine of SB1298) suggests an “organization licensee” (in other words, a racetrack like Arlington with its own ADW) may operate Advance Deposit Wagering without horsemen's permission. If a track doesn't own an ADW, it may contract with a third-party company, with horsemen's permission, to operate Advance Deposit Wagering. In other words, it appears tracks that operate their own ADW can do so without contracting with horsemen.

What does this mean? It could mean that Churchill Downs Inc. will do everything it can to move handle from traditional on-track or OTB facilities in Illinois to its ADW platform, TwinSpires, where it would almost certainly retain a greater percentage of the revenue. We've already seen how it works in Kentucky, where a wager placed by a Kentucky resident through TwinSpires on a Churchill Downs race produces far less revenue toward purses and more for TwinSpires and its parent company, than would a wager made on-track or at an intertrack wagering facility in Kentucky on a Churchill Downs race. The percentages are even worse for bets made on out-of-state races by Kentucky residents through TwinSpires, versus at a simulcast facility. (See the graphs on pages 16 and 17 of a presentation on purses I made to the Kentucky Thoroughbred Farm Managers Club earlier this year for an explanation of how the revenue is divided.)

Illinois horsemen have to be careful not to let the racetrack and ADW companies dictate the language of this bill, or they are going to see purses fall even farther – if that's possible.

Of course, bad news for horsemen could be very good news for Churchill Downs. Perhaps that's why Duchossois continues to load up on CDI stock. I reported last September that Duchossois was gobbling up shares in CDI, and he's been on two buying spree since. He spent more than $1.3 million to buy over 42,000 shares in November and in recent days spent another $285,000 on over 12,000 shares.

Copyright © 2009, The Paulick Report

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