ELMONT, NY, September 23, 2009--I had a suspicion that someone involved with the thoroughbred industry was going to respond to Wednesday’s Morning Line blog penned by an industry insider exposing the shortcomings, legal and otherwise, on the subject of settlements.

Settlements are the monies paid by host tracks to their simulcast partners following a day’s betting activity at a particular track or the proceeds that simulcast “guests” owe the host tracks. How does this system work, exactly? What integrity and transparency issues are involved?

Leave it to Fred Pope. Pope never ducks a good argument. The Lexington-based advertising executive should probably have his own vehicle for commentary, not that he’s allowed his ideas to exist in a vacuum all these years. You may not agree with him. But you need to listen to what he has to stay.

The following, then, is Pope’s take on the settlement issue that was exposed by HRI’s industry source Wednesday. Pope’s edited e-mail thoughts to me in response to yesterday’s insider guest commentary.

“Your piece on the Settlement issues provided a new perspective on just how upside down things are in the racing business.…

“.…The question is, if the problems of the off-track business keep becoming more apparent and dire, is there a real world solution? How can we solve it fast enough to save racing and the infrastructure in our major markets?

“…You understand the history of wagering. I got involved in the Upside Down, off-track revenue model in 1995 when I created the NTA, a major-league style structure in racing.

“At the time I called the simulcasting market a "buyers' market" and came up [with] a business plan to fund the NTA primarily by a 50/50 split of off-track wagering like the Breeders' Cup [put] in place.

“If we could have broken the "buyers' market" then, we wouldn't be facing these problems today.

“….As off-track became more and more of the national handle I have watched the only numbers we have in a steep decline from the original deal with the tracks. The percentage of purses from handle has been cut in half while takeout went up four percent.

“…. My solution to correct the IHA is by breaking the back of the ‘buyers' market,’ by establishing a national ‘price floor’ of 50% to the host event. That means tracks would trade evenly and other bet takers would be charged a fair amount over time.

“The federal government will not allow Thoroughbred racing to fix the off-track model itself. If host tracks, and/or horsemen, try to set a higher price for the host product, that is price-fixing.

“But the federal government can fix the problem for racing nationwide overnight. Just like the milk industry, where dairy farmers produce too much milk and buyers drive down the price below what it cost to produce milk, Congress put in a price floor on milk products.

“Milk price supports raise the price of milk to the consumer, but a price floor in racing would not change the consumers' price.

When the IHA was passed in 1978, we needed bricks and mortar OTB's to accept wagers and provide a dedicated facility to watch the races. But that distribution channel is history. Phone and internet bets have bypassed the protected facilities and cannibalized their customers while contributing hardly anything to the sport.

“We need a distribution system now where it doesn't matter where the bet is made, or how the bet is made, a fair amount goes to those producing the product.

“We cannot tell the producers of the product they must continue to distribute through outmoded bet taking operations simply because they did so last year. Apple should be allowed to sell its I-phone direct, not forced to sell it through Amazon because that's how phones were sold before.

“The technology is there…. our best situation is for the Host Track to accept wagers DIRECT. That means a provision in the federal law (IHA) to eliminate barriers at state level in every state that allows parimutuel wagering. Today, kickbacks called Source Market Fees are forced on the ADW's by each state… those would be eliminated by law, making the cost of bet-taking lower.

“…..To the settlement issue, the Host event can accept account wagers and pay back winners from the same pool; no middle men. The Host can contract with existing ADW's or establish its own. YouBet has said in the past they can make a profit with 5% of the wager.

“At the point that this would happen, a national body in racing could establish a state-of-the-art, national tote with one number to call.

“With $13 billion in national handle at an average takeout of 20%, there is $2.6 billion in revenue from wagers. About $1 billion in gross purses this year, including my estimate of $400 million from slots…. making the purses from handle only $600 million, at best. Deduct the $600 million in purses from the $2.6 billion and you get $2 billion for the tracks' share and BET-TAKING Expenses.

“Where that $2 billion ends up, who knows?

“In 1985, purses from handle, $600 million, were primarily on-track and there were no slots contributions.

“In 2008, purses from handle are [the same] $600 million. After 24 years of growth in handle from $7.5 billion in 1985 to more than $15 billion at peak, racehorse owners' purses are the same. [See Power Point presentation for illustration].

“I have now presented the problem to every organization in breeding and racing. No organization, or no individual wants to hear about the problem, nor are they going to do anything about it. (italics mine).

“Why? Because purse money is not their money. There is no [effective] national organization for racehorse owners. No one has their back. TOC in California can do nothing about a buyers' market.

“There's a lot of fear-mongering going on that we cannot risk correcting the IHA. They point to the exclusive racing has on internet wagering but they don't understand racing makes hardly anything from it. If we have $1 billion in internet handle and the hosts only get 3%, that means $30 million is going to tracks and purses and $170 million is going to bet takers.

“Each percentage point of $13 billion in handle is $130 million. If we can get the percent to purses up from 4% to 8%, we'll have $500 million in purses the first year, and probably a like amount to host tracks.

“The breeders just suffered a 50% drop in the yearling market yet have no appetite to fix the off-track model. They don't understand that $500 million in new purses would help keep their customers, the racehorse owners.

“…. More important than purses, a new off-track business model would give racetracks a new lease on life and racing a future. Tracks would have an incentive to put on a good show. Today the incentive [for many] is to bet on other track’s races.

“[We’ve] got to bring a silver-bullet solution [to the problem] and correcting the IHA is a rifle-shot.”

This e-mail included a slide presentation which Pope used when speaking before the Thoroughbred Owners and Breeders Association. Those of you wishing to receive this graphic presentation, e-mail your request to . You will receive a copy at my very earliest convenience.