COLONIAL DOWNS SHORTSIGHTED IN LACK OF SUPPORT FOR VTA

The Virginia Thoroughbred Association has long been a tireless advocate of racing and breeding in the Commonwealth. Since the two go hand-in-hand with the state’s only pari-mutuel wagering facility, the organization has been not only a constant advocate, but also a loyal political ally, for Colonial Downs.

The VTA’s leadership has long lent a reasonable voice to the many debates about racing days, marketing, purses, the Breeders Fund as well as other critical issues that don’t magically happen at a racetrack. We have been sensitive to the simple fact that Colonial Downs is not a non-profit entity but a for-profit business. We understand that everything has a cost associated with it, and that the cost needs to be recouped if the business is to remain viable.

Last week, we learned the value of our advocacy, our support, our promotion and dedication to the cause is worth – less than $17,000. After all these years and all this effort, that’s very disappointing.

Here’s the unfortunate bottom line: In spite of our efforts to legalize and promote ADW and in spite of our efforts to help Colonial Downs secure their rightful share of source market fees from ADW through the passage of additional legislation earlier this year, the management of Colonial Downs doesn’t think we DESERVE a very small share of ADW revenue. Our efforts on their behalf simply aren’t worth 1.1% of the revenue stream.

So how did it come to this? A few years back, we reached an agreement with Colonial Downs and the VHBPA that 0.85% of each EZ Horseplay wager would be paid to the VTA. The horsemen contribute half, the racetrack contributes half. The contract was for three years and Colonial Downs has informed us they don’t intend to renew the contract. Evidently, we aren’t worth a share of ADW wagers. This would have been nice to know when we were working to pass additional legislation that guaranteed CLN one of the largest source market fees in the country.

(OK, the latter legislation was self-serving in order to get the Breeders Fund a share of ADW. That said, the five years previous to that only Colonial Downs and the purse account were compensated from the $122 million in ADW wagers generated while the Breeders Fund received nary a penny. Nothing says “horse business” like working for free.)

Of course, Colonial Downs’ management knows that we have no leverage – no purse contract where we can modify our compensation and no control over simulcast signals. They know it would be foolish of us to abandon our promotion and advocacy of Virginia’s only racetrack and to withhold our financial, marketing and political support. They know that, so they simply choose to do what is best for them and only them.

Colonial Downs’  President Ian Stewart was nice enough to call and give us this news over the phone. We endeavored to explain why we felt the VTA deserved a share of the ADW revenue stream, and he counter with “you get 1% of all account wagering dollars.” No, WE don’t.

The Breeders Fund gets 1%, thanks to the previously mentioned legislation we helped pass. The Breeders Fund desperately needs that money to offset recent double digit declines in overall wagering. The VTA doesn’t get any additional financial compensation from that. What we get is more dollars in the Fund to pass on to our deserving breeders and owners – about $500,000 in a full calendar year divided between Thoroughbred and Harness.

Could the VTA ask the Virginia Racing Commission for a share of the new ADW contribution to the Breeders Fund? Of course, we could, but the administration and promotional budget is already a burden to the Fund and asking for more doesn’t make sense in these lean times. Colonial Downs either doesn’t understand this or simply chooses not to factor it into their decision process.

In addition, by way of full disclosure, Colonial Downs has always taken a “not my problem” approach to the breeders as a legitimate stakeholder. For years, they didn’t want to compensate the Breeders Fund saying the Fund should be compensated, just not by them. They don’t have a problem with the VTA being compensated so long as the money does’t come from thier share of the pari-mutuel pie. Unfortunately, pari-mutuel takeout doesn’t work that way. It has limits. There is only so much pie, and when the pie is divided up, all the stakeholders pay their fair share. Why should we continue to work to create more pie, if we aren’t going to get any or if our share only comes out of the horsemen’s hide?

A quick relevant history lesson: The VTA has participated in every major legislative effort related to pari-mutuel wagering (staring in the 1970s) and Colonial Downs (staring in the 1990s). Up until last year, we have employed a full-time professional Richmond-based lobbyist to help pass legislation helpful to the racetrack, the horsemen and the Breeders Fund. We will do that again in 2011 when we will again pursue legislation beneficial to Colonial Downs.

Due to the way the takeout is divided in the enabling legislation, the breeders’ share on any dollar wagered in the traditional pari-mutuel system is literally a penny on the dollar while the horsemen receive a nickel and the racetrack a dime. Halve that number for the track and the split is now about the same for an ADW wager.

In spite of the fact that our percentage take on each traditionally wagered dollar is lower than everybody else’s, we still contribute substantial resources to achieving everyone’s goals. And even though the VTA didn’t receive a penny of ADW wagering the first three years and the Breeders Fund the first five years, we have worked hard and committed substantial resources to get it, keep it and now guarantee a fair source market fee and Breeders Fund contribution.

That said, let’s do the math. ADW wagering will reach the $50 million mark in 2010 – a new record. It’s the only segment of the pari-mutuel wagering market that is growing. Thanks to legislation passed earlier this year, in 2011 the horsemen and the track will receive 10% of all ADW wagers — that’s $2.5 million each. But, let’s be fair, there are deals negotiated with the various ADW providers which changes the net dollars received by the two parties. We don’t know all the details (and we don’t have time to look them up), but let’s say it gets negotiated down to 8% of all ADW wagers or $2 million each.

EZ Horseplay will probably generate $6 million of the overall ADW wagers in 2010, about 12% of the overall ADW market. From that, the VTA will be paid $51,000 (0.85%) – half, $25,500, comes from Colonial’s $2 million and the other half from the horsemen’s $2 million. Colonial Downs’ half works out to 7.3% of the VTA’s 2010 revenue…which makes the overall ADW contribution a whopping 14.6% of the VTA 2010 revenue already reduced 30% due to the slumping economy. Good morning, here’s your 14.6% budget cut, please continue to promote and support us. Really?

Simply put, on $50 million of annual ADW wagers Colonial Downs will get approximately $2 million, the purse account approximately $2 million, the Breeders Fund approximately $500,000 and the VTA $51,500. So the “net takeout” breaks down like this – Colonial Downs 45%, purses 45%, Breeders Fund 8.9% (some Breeders Fund dollars go to the harness folks) and the VTA 1.1%. We aren’t suggesting our efforts are worth 1.5%, 2% or 2.5%, but we do think what we bring to the table is worth more than the 0% Colonial Downs is willing to pay.

We don’t know how much Colonial Downs’ $25,500 share is of their overall budget, but we do know that if they earn (and, mind you they do earn it, we aren’t begrudging them that) $2 million a year from ADW wagering, the portion paid to the VTA via the existing contract is a scant 1.275%. Wow, that’s a backbreaker…Yes, that was sarcasm too, just wanted to be clear.

But wait, it gets worse. In 2010, the VTA has spent $8,500 at Colonial Downs for events related to the Turf Cup and the Virginia Derby. Simply put, Colonial Downs is getting an $8,500 rebate on their $25,500 contribution. Of course, that $8,500 doesn’t go directly to their bottom line, but it does create some profit and it creates additional revenue generated by VTA members and guests at the track on those occasions. So the cost to Colonial Downs in terms of gross dollars now falls to $17,000 – less than one percent of their $2 million ADW revenue stream.
At times, the stakeholders, the regulators and the politicians can be short-sighted when it comes to building the business which generates the revenue that sustains horse racing and breeding. However, if you are looking for another example of the greed and shortsightedness in corporate America which personifies a small and self-serving viewpoint, look no further. This time, Colonial Downs is the short-sighted one.
We, of course, could encourage you to close your EZ Horseplay account and move your ADW dollars elsewhere since the purse account and the Breeders Fund come out the same either way. We could, of course, boycott Colonial Downs and not hold member events there on the big race days when VTA folks eat, drink and bet. Of course, we could also not promote Colonial Downs on our blog (fast approaching 150,000 visits), in the Mid-Atlantic Thoroughbred, in our Breeders Fund ads, in “In And Around Horse Country” or in the countless press releases we send out each year.
Needless to say, we could stop saying nice things about our lone racetrack when speaking frequently with the press, the Virginia Racing Commission and the General Assembly based on the simple fact that Colonial Downs doesn’t think the VTA deserves any part of a revenue stream we helped create and maintain as compensation for all that we do. Zip. Zero. None. If you’re looking to motivate a group to help, support and promote you, telling them their effort is worth NOTHING isn’t the best strategy.
Yes, we could get mad and take all our collective marbles and go home. But, we won’t, because that too would be equally short-sighted. We run a “big picture” operation here with a keen view of the many obstacles facing all the stakeholders. No, we will do the right thing. We will look for an alternative solution while we continue to support and promote pari-mutuel racing in Virginia.

Colonial Downs knows that we will do the right thing and that gives them the freedom to do the wrong thing.

And, after all these years, that is the most disappointing thing of all. — Glenn Petty, Executive Director, Virginia Thoroughbred Association.