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Churchill Downs Subsidiary Sues Thoroughbred Owners Of California Over Simulcast Fee Dispute

A subsidiary of Churchill Downs, Inc. that operates advance deposit wagering companies TwinSpires and BetAmerica is suing Thoroughbred Owners of California for invoking state statute in an effort to bring a dispute over simulcast hub fees into binding arbitration.

Churchill Downs Technology Initiatives Company (CDTIC) filed the suit on Tuesday in United States District Court Central District of California's Western Division, seeking declaratory and injunctive relief while alleging that the arbitration provisions of California Business & Professions Code section 19604 are invalid and unenforceable because they violate the U.S. and California Constitutions' Due Process and Contracts Clauses.

The dispute centers around a hub agreement reached on Dec. 22, 2020, between Santa Anita Park and CDI's two online wagering companies, TwinSpires and BetAmerica. The agreement specified the percentage the ADW companies would receive on each dollar wagered by California residents using their platforms. By California statute, the maximum an ADW company may receive to facilitate a wager is 6.5%. The agreed-upon percentage in the agreement between the ADW companies and Santa Anita is redacted in the court filings. According to the lawsuit, TOC asked that the hub fee be reduced to 4.1%, which the complaint said “would cost Churchill Downs Technology millions of dollars and upset almost a decade of an established course of dealing between the contracting parties.”

TOC is not a party to the contract. By law, according to the complaint, an ADW provider can choose to enter into a hub agreement with a racetrack, a horsemen's organization, or both. However, under section 19604, the horsemen's organization (or racetrack) may file a written demand for arbitration within 10 days of receiving a copy of a hub contract. TOC did so on Dec. 31.

Two months earlier, on Oct. 28, the suit alleges, TOC president and CEO Greg Avioli asked Churchill Downs Inc. executive Mike Ziegler to “voluntarily return the equivalent of 1% of the total” wagered on the company's ADW platforms in 2020. “TOC threatened that if Churchill Downs Technology did not comply with its 'voluntary' request, it would demand arbitration pursuant to section 19604,” the complaint alleges, calling the effort a to retain additional revenue a “shakedown.”

In a statement issued by Avioli after the TOC learned of the lawsuit, he said: “ADW wagering in California increased by over 40% year over year statewide in 2020 while purse generation from live tracks and OTBs dropped substantially due to COVID-19 closures and restrictions. In 2020 CDTIC received over $7 million of hub fees from ADW wagers by California on Thoroughbred races. TOC's decision to exercise its arbitration rights under California law came after CDTIC declined to reach a voluntary settlement of the matter.”

The complaint suggests that California racing – not TwinSpires or BetAmerica – was the real beneficiary when wagering shifted from on-track to online during the pandemic.

“Online and telephonic wagering, known as advanced deposit wagering, has transformed horse racing in the state, and allowed the many stakeholders involved in horse racing to continue to prosper,” the complaint states. “This has been particularly true since the beginning of the COVID-19 pandemic, which led to limited races and limited spectators for months.

“ADW providers, such as TwinSpires and BetAmerica, make significant investments in technology, marketing and customer service to bring horse racing to as many fans possible, attract new fans, and make wagering on horses fun and easy,” the complaint continues. “During the COVID-19 pandemic, the ADW distribution not only kept fans engaged when they could not otherwise go to a racetrack, but also attracted and created many new fans of horseracing. Rather than appreciating this necessary and growing distribution outlet, the TOC has treated the ADW providers as competition, not as valued partners. This is bad for racing fans and horseracing as a whole.”

TOC's Avioli said the statute concerning arbitration is long established and clear.

“The specific provision in California law (Business and Professional Code 19604 et. seq.) authorizing the arbitration of hub fees is nothing new and, in fact, has been unchanged in California law for more than two decades,” Avioli said in a statement. “We intend to move forward with the hub fee arbitration in an expedited manner and believe the attempt to disrupt the arbitration by CDTIC with this last-minute federal lawsuit has no merit.”

According to section 19604, the arbitration must take place within 60 days of a formal request. The arbitrator has 15 days to render a decision on whether to maintain the contract as signed or to change the fee to the percentage requested by TOC.

The post Churchill Downs Subsidiary Sues Thoroughbred Owners Of California Over Simulcast Fee Dispute appeared first on Horse Racing News | Paulick Report.

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Alleging ‘Shakedown’ over ADW Fees, Churchill Takes TOC to Federal Court

In a spat over advance-deposit wagering (ADW) hub rate fees and which entity should benefit from the pandemic-related boom in at-home betting, a subsidiary of the gaming corporation Churchill Downs, Inc., filed a federal lawsuit against Thoroughbred Owners of California (TOC) Feb. 2 asking a judge to rule that TOC can't use a state law to force CDI into either accepting lower rates, abandoning its just-signed agreement with Santa Anita Park, or entering into arbitration to settle the dispute.

In a chain of events that plaintiff Churchill Downs Technology Initiatives Company (CDT), which operates the TwinSpires and BetAmerica wagering platforms, termed a “shakedown” in its 22-page complaint for declaratory and injunctive relief, the dispute arose Oct. 28, 2020, when TOC president and CEO Greg Avioli allegedly asked CDI's then-executive director of racing, Mike Ziegler, to “voluntarily return the equivalent of 1% of the total” amounts generated from California residents wagering on those platforms in 2020.”

In addition, according to the complaint, “Mr. Avioli proposed that all ADW providers agree to a 3% hub fee for the 2021-2022 term–a rate CDT has never agreed to in its history of operating in California. Indeed, at such a rate, CDT would be operating at a significant loss, and it would make little sense to do business in California or with California residents.”

The complaint does state the fees that are currently under contract between the CDT platforms and Santa Anita, but the United States District Court (Central District, California, Western Division) has allowed those rates to be redacted at the plaintiff's request. Santa Anita itself is not a defendant in the suit.

The complaint continues: “TOC threatened that if CDT did not comply with its 'voluntary' request, it would demand arbitration pursuant to [California Business & Professions Code] section 1960447. Contrary to Mr. Avioli's false characterization, the revenue ADW providers earned in 2020 was not a 'windfall,' but the result of increased demand for online wagering.”

Avioli responded to a request for comment on the lawsuit by emailing a statement, which read, in part, “On Dec. 31, 2020, TOC notified CDT that TOC would pursue the statutory remedy (available to both racetracks and horsemen in California) to seek arbitration of the amount of the hub fee retained by CDT from wagers from California residents for the calendar year 2021.
“ADW wagering in California increased by over 40% year over year statewide in 2020 while purse generation from live tracks and OTBs dropped substantially due to COVID-19 closures and restrictions.

“In 2020 CDT received over $7 million of hub fees from ADW wagers by California on Thoroughbred races. TOC's decision to exercise its arbitration rights under California law came after CDT declined to reach a voluntary settlement of the matter. The specific provision in California law… authorizing the arbitration of hub fees is nothing new and, in fact, has been unchanged in California law for more than two decades. We intend to move forward with the hub fee arbitration in an expedited manner and believe the attempt to disrupt the arbitration by CDT with this last minute federal lawsuit has no merit.”

CDT, according to the suit, disagrees: “There is simply no basis for TOC to earn more money when California's horse-racing industry already retains a large majority of the revenue generated from online wagers. TOC has not contributed a single cent or ounce of effort in 2020 to the efforts and success of www.TwinSpires.com and www.BetAmerica.com, and has no right to a greater portion of their revenue.

“Although TOC wishes to confuse the issue to make it appear more sympathetic, California law already ensures that TOC is handsomely compensated any time a wager is placed on races occurring inside or outside of California,” the complaint continues. “Indeed, Section 19604 ensures the California horse racing industry, including TOC, receives the majority of the money available, after winning bets are paid out, earned from a race, and that the California horsemen and horsemen organizations do far better than their colleagues in every other state or nearly every other state.”

The complaint explains this is because “When an ADW accepts wagers from California residents on an out-of-state race, the track hosting that race, which is not in California, also collects a 'host fee' as compensation for conducting it. California law caps the host fee amount at just 3.5%, in addition to capping the hub fee rate. By capping the out-of-state track's host fee and the ADW provider's hub fee, Section 19604 ensures that California's horsemen groups and racing associations receive the vast bulk of revenue earned from wagers placed by California residents, regardless of where the race actually takes place.

The complaint states that CDT did not agree to the 1% return of money to TOC, nor the demand accept a “substantially lower” hub fee in 2021. Instead, in December, CDT and Santa Anita negotiated an ADW agreement for 2021 at a hub rate “far below the statutory maximum of 6.5%.”

The complaint states that same day that TOC received a copy of that hub agreement, “Mr. Avioli demanded that CDT voluntarily return approximately 0.9% of its 2020 handle, equal to $1.23 million, and reiterated TOC's intent to use Section 19604's arbitration provisions to set a hub fee rate of 4.1% or lower.”

Again, CDT refused. The complaint states that TOC then sent two letters dated Dec. 31 (one for each ADW platform; referenced above by Avioli) demanding that CDT “pick one of three options: (1) abandon its hub agreement with Santa Anita Park; (2) accept an alternate hub fee of 4.1%; or (3) proceed with a hub agreement arbitration.”

On Jan. 13, 2021, the complaint states that TOC did file an in-state demand to officially start the 60-day clock on a “rushed” arbitration process.

“CDT now faces nothing but untenable options,” the complaint states. “It could abandon the hub agreement, meaning all of its investment in building and promoting its websites in California will be lost. It could accept TOC's unreasonable and unsustainable hub fee, which would effectively cause the same result since it is highly questionable that CDT can profitably operate at 4.1%. Or it could go to a binding, unconscionable arbitration process, which would deprive CDT of its right to access the courts, force it into a rushed process without any standards guiding the arbitrator's decision, and allow a third-party to use California law to upend its contractual rights.

“Additionally, TOC has already threatened to attempt to use these arbitration provisions in future years. This sets the stage for a continuous, protracted, and inefficient legal dispute between TOC and CDT.”

The complaint sums up: “Lacking clarity, and recognizing that none of [the] 'options' provided by Section 19604 were actually fair or viable choices, CDT was forced to bring this lawsuit, seeking a declaration that TOC cannot force it to proceed to a fundamentally unfair and unconstitutional scheme and enjoining the organization from utilizing Section 19604 to force CDT to choose between abandoning its agreement, submitting to TOC's proposed rate, or arbitrating.”

The post Alleging ‘Shakedown’ over ADW Fees, Churchill Takes TOC to Federal Court appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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California ADW Agreement Set to Boost Purses by $15 Million

With many wheels of California’s daily industry operations greased through wagering made at bricks and mortar venues, a pandemic-driven wholesale betting shift towards ADW platforms has thrown a sizeable wrench into the works, prompting something of a fiscal scramble to readjust.

Just last week, the Southern California Stabling & Vanning Racing Committee announced a set of stop-gap funding measures to grapple with a $2-million deficit and maintain the stabling status-quo in the southern portion of the state during 2021.

On Wednesday, the Thoroughbred Owners of California (“TOC”) announced a new “purse enhancement” program with TVG, Del Mar Thoroughbred Club, and The Stronach Group’s 1/ST Racing to inject up to $15 million into California Thoroughbred purses in 2021 and 2022.

“California racing has always been very important to TVG, and we are committed to continuing our support of the racing industry here, especially given the challenging circumstances the industry faced in 2020,” said TVG CEO Kip Levin, in the press release. “We feel the right strategy is to partner with the stakeholders to further strengthen what has always been a premier racing circuit in the United States.”

In October, the TDN reported that during the first eight months of 2020–when compared to the same period in 2018–the number of races had declined 30%, and while the overall handle declined 18.8%, purses dropped more than 26%.

During that time, overall purses in the state dropped from about $87 million in 2018 to around $64 million in 2020–a near 30% decline. The press release, however, makes a number of financial projections under the new agreement.

Santa Anita Park recently announced a 10% across the board purse increase for its 2020-2021 Winter/Spring Meet, putting the daily purse average around the $533,000 mark, making Santa Anita Park “competitive with the top circuits in the U.S. despite not receiving any casino revenues or government subsidies,” the press release states.

Under the new program, the Del Mar Thoroughbred Club is projected to increase average daily purse levels to over $600,000 in 2021.

“This is a great development for California horse racing,” said Craig Fravel, The Stronach Group’s CEO of Racing. “Along with our horsemen and regulators, we instituted historic safety reforms starting in 2019. We believe these reforms and the enhanced purses previously announced have created a great racing environment that has already attracted top stakes horses, trainers and riders from all over the country to our current Santa Anita Winter/Spring meet.”

Del Mar’s president, Josh Rubinstein, said that, “Coming off our extraordinarily successful summer and fall meets in 2020, these increased purses, coupled with the growing excitement for the 2021 Breeders’ Cup World Championships, sets us up for a fantastic 2021.”

According to TOC president, Greg Avioli, “This unprecedented level of partnership among California’s horsemen and women, FanDuel/TVG, The Stronach Group and Del Mar is just the beginning. With sports wagering on the horizon and its potential to both add millions more to purse accounts and to create new horse players, combined with the successful safety and welfare measures instituted over the last two years by our race tracks, we are well on the way to returning California to its historic place as the country’s premier racing circuit.”

There is pushback, however. According to the Paulick Report, Churchill Downs Inc.’s ADW company, TwinSpires, does not go along with the agreement-prefaced upon ADW platforms accepting a lower fee on all wagers from California residents-and the matter will reportedly go to arbitration.

The post California ADW Agreement Set to Boost Purses by $15 Million appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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Pennsylvania: Continued Casino Closures Would Make Racing Dependent On Break-Even Handle

Penn National's current purse account will allow the Grantville, Penn. track to race through the end of January whether or not Hollywood Casino remains closed, according to a Tuesday memo from the Pennsylvania Horsemen's Benevolent and Protective Association executive director Todd Mostoller.

Should Gov. Tom Wolf extend the casino closure past the current Jan. 4 expiration date, however, racing at Penn National will become contingent on track handle.

“Penn National has agreed to continue live racing through [January], provided the handle generates a break-even scenario for the company,” Mostoller wrote. “This is estimated to be a handle of roughly $1.4 million per night.”

Mostoller's memo indicated that both the track and the Pennsylvania HBPA are confident that level of handle is achievable, but added that if it is not, Penn National management will “likely wish to temporarily shut down racing.”

The memo concluded with an encouragement to bet the races through HollywoodRaces.com: “A bet placed on Penn National races through this ADW is treated the same as a wager placed on track, resulting in considerably higher revenue for both horsemen and the track.”

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