Negotiations
Sharing the Risk
Following up on a question about the proposal made by the New England horsemen to Suffolk Downs on Wednesday and the potential risk of racing this year without purse guarantees, NEHBPA lawyer Frank Frisoli replied:
The proposal just advanced by the NEHBPA offers to fund purses for 2011 based upon the share of revenue generated for purses in accordance with the offer. In this manner any reduction in revenue because of this dispute would be shared by both Suffolk and the NEHBPA…. It certainly appears the economy is recovering so that we can reasonably anticipate business to be at least as good as the prior year. In any event if the revenue is shared as we propose (and as virtually every other venue shares it), and the risk of decreased revenue is likewise shared equitably.
Frisoli describes the offer, partly based on an increase in simulcasting revenue this winter (before signals were blocked), as “very generous.” I would say it’s very interesting, and reminiscent of aspects of Fred Pope’s recently published scheme for paying purses, in that horsemen would have a vested interest in increasing revenues for the purse account. The proposal relies, though, on a 50-50 simulcasting split, about which the NEHBPA is adamant.
Suffolk, which has not yet commented on the horsemen’s proposal, seems just as determined to split toward the lower end of the range allowed by state law (4-7.5% of gross simulcast handle, which equals 25-50% of available revenue). According to numbers provided by the NEHBPA and drawn from track financial documents, Suffolk has paid less each year since 2008, when the simulcasting split was 40.92% to purses, 59.08% to the track. In 2010, 34.49% went to purses, 65.51% to the track. “We have simply asked Suffolk to share the net profit from simulcasting in the same manner as it is shared in virtually every other racing jurisdiction in the United States,” said Frisoli.
Track management has previously pointed to the loss of more than $40 million over the past four years and declining revenues as evidence that a more equitable split isn’t feasible without expanded gaming in Massachusetts.
“The issues are quite simple. Suffolk Downs controls its expenses,” said Frisoli, citing the track’s investment in the Wonderland dog track and expenses related to work on gaming legislation, passage of which would benefit the horsemen as well as the track. “We are not quarreling with Suffolk’s right to choose how to spend its money. But we are contesting its claim that it was ‘forced’ by declining revenue or other economic factors to act as it did.”
The horsemen’s desire for an even split is understandable, I said to Frisoli, but considering the declines since 2007 in total handle (down more than a third) and revenue, the NEHBPA seems to be seeking more of less. “The NEHBPA continues to seek only an equitable share of whatever revenue exists,” he replied, “and will work with Suffolk Downs to increase revenue.”
The Laurel simulcasting signal to Suffolk was cut beginning today, bringing to six the number of blocked tracks. “It is a long-standing practice of the MTHA and its predecessor organization, since the enactment of the Interstate Horse Racing Act, to withdraw the simulcasting signal of Maryland races if there is a contract dispute between a racetrack and its horsemen’s organization,” said Maryland Thoroughbred Horsemen’s Association counsel Alan Foreman. “We don’t take sides. We don’t profess to know the details. It is automatic.” So, nothing personal, Massachusetts bettors! (Thanks to Thoroughbred Times correspondent John Scheinman in Maryland for the assist.)
Racing at Brockton if not at Suffolk? George Carney appears on the scene.
New Proposal, Laurel Cut
The New England HBPA’s response to Suffolk Downs’ proposed terms for the 2011 meet was presented to the track this morning and posted to the group’s website this afternoon. You can read the whole thing — it’s a two-page letter (PDF) — the gist of which is that the horsemen will race for the number of days required by state law for an equal split of the simulcasting revenue, “without the guarantee made in previous agreements as to the total amount of purses to be paid during the course of the meet.” No purse guarantees is the concession* — the rest of the proposal is what both sides stumbled over earlier in negotiations, leading to the breakdown in talks. Suffolk confirmed that it received the new proposal, but declined commenting until management reviewed it. My sense is that a breakthrough isn’t in the offing.
Suffolk’s simulcasting menu shrinks again on Friday. The Laurel Park signal will be blocked beginning tomorrow. The action, being taken by the Maryland Thoroughbred Horsemen’s Association in solidarity with the NEHBPA (joining the Florida, Ohio, and Oregon horsemens’ groups), brings the number of blocked tracks to six and could be taken as another sign that the impasse isn’t about to end soon. Here’s one Massachusetts bettor mad about the mess.
10:35 PM Addendum: Funny, I didn’t expect confirmation that the situation wasn’t on an upswing to come so swiftly. “[T]he racetrack threatened legal action against the horsemen and demanded they remove their office trailers from the grounds,” reports Lynne Snierson. At issue, apparently, is the NEHBPA’s fact-sheet posted yesterday (and which I delved into a bit below).
*2/11/10 Addendum: Additional info on what the NEHBPA projects for purses:
The proposal requires racing for the minimum number of days required by statute which is presently 100 days of racing. Daily purse distribution would be determined based upon available revenue. Assuming revenue consistent with 2010, the NEHBPA projects a daily purse distribution of about $95,000 per day would result from implementation of its proposal, with the prospect that the daily purse distribution could increase to $100,000 per day based on increases in simulcasting revenue consistent with increases experienced for the month of January 2011.
Assuming that 2011 revenues will remain consistent with 2010 seems risky, considering the downward trend in handle across the industry, as well as at Suffolk Downs, which is down more than a third since 2007.
Point by Point
While waiting to learn more about the New England horsemen’s counter-proposal to Suffolk Downs, and the track’s response, it seems worthwhile to dig into a couple points under discussion. Where last left off, negotiations had come to a standstill over the number of race dates, the total purses to be paid, and the simulcasting revenue split. Suffolk, awarded the state-mandated minimum of 100 days in 2011 by the Massachusetts Racing Commission, proposed racing 67-76 days for average daily purses of more than $100,000 — the level sought by the NEHBPA — instead of the $75,000 initially offered. The NEHBPA rejected racing fewer than 100 days, which would require legislative approval, citing the importance of maintaining the Massachusetts breeding industry, and holds that the higher purse level, which would total approximately $10.6 million instead of the $7.5 million Suffolk projects, could be funded by a more equitable split of simulcast monies.
What is not in contention at this time is the purse formula posted by Suffolk Downs on its website (PDF), or revenues after financial documents previously requested from the track were provided to the NEHBPA on Tuesday.
Responding to a dispute fact-sheet published by Suffolk last week, the NEHBPA posted a “Truth About Suffolk Downs Fact Sheet” (PDF) on Wednesday. We’ll pass over item one, which questions track management’s commitment to live racing. It’s been my opinion since Richard Fields bought into the place in 2007 that management has consistently demonstrated good will and concern for the track and its community, history, and future. Fields and company have never hidden that their goal is for expanded gaming — preferably a casino — to come to Suffolk, but their support for racing appears genuine.
The NEHBPA takes issue with Suffolk’s claim that it raised purses in 2007 and 2008 in item two, writing that 2008 purses were $200,000 less than in 2007, and 2009 purses were $2.3 million less than 2007. That’s a decline of 19% for the period, which the group ascribes to Suffolk paying less on the simulcasting split. What this ignores, though, is that race dates also declined in 2008 and 2009, and much more importantly, that handle declined. In 2009, simulcasting handle was down 26.2% and live handle down 27.6% over 2007. Comparing 2010 to 2007, purses were down 23.6%, simulcasting handle down 35.6%, and live handle down 36.2% (all figures based on data supplied by Suffolk). In other words, purses have declined less than total handle since 2007.
Item three has to do with the “overpayment” of purses by Suffolk, which the track calls voluntary and the NEHBPA contractual, writing that “the NEHBPA knew that the requirement to pay purses at the levels set forth in the contract would result in Suffolk paying more in purses than the revenue accumulated from the various sources as set forth in the contract.” I could be reading this wrong, but it sounds as though the NEHBPA knowingly extracted more money for purses than revenues could support, and that the group wants a new contract with the same deal. No wonder Suffolk balks.
[2/11/10 Edit: NEHBPA lawyer Frank Frisoli clarifies the above:
As discussed in greater detail in postings on the NEHBPA website, we have always considered the “overpayment” of earned purses as an additional share of the simulcasting revenue and a consequence of the terms of the contract. The contracts signed in the past required Suffolk to pay towards purses simulcasting revenue in accordance with state law. State law requires the parties to negotiate between a minimum and maximum percentage. So the contracts signed required Suffolk to pay an amount between 4% and 7.5% of the gross simulcast handle to purses which translates approximately to a minimum of 25% of the net commissions to a maximum of 50% of the net commissions.
I stand corrected re: more for purses than revenues could support.]
Coming back to the track’s commitment to racing, item four spells out the horsemen’s fears regarding expanded gaming:
If Suffolk Downs is granted a casino license, the profits that could be realized from developing for gaming use the portion of the Suffolk property presently used for racing will significantly exceed any profits that could be realized from continuing live thoroughbred racing. So the future of thoroughbred racing at Suffolk Downs appears to be clearly conditioned upon legislated conditions being attached to the gaming bill requiring Suffolk to continue thoroughbred racing.
Well, yes, and that’s what makes the slots trade such a treacherous one, as Bill Finley recently wrote. But the New England horsemen are not helping themselves by attempting to buck the trends driving the industry these days, such as shorter meets. The NEHBPA actually attempts to make an argument for a longer meet in item five, seeking to increase the number of race dates to a minimum of 125 days annually in order to support the Massachusetts breeding program. Ray Paulick responded to this seeming flight from reality:
So according to the legislature, the NEHBPA, and the Massachusetts Breeders Association, the state needs four racing days for every live foal it produced three years ago. Using that formula, Kentucky would require more than 30,000 racing dates a year.
There’s just no market for 125 days of Massachusetts racing (or 100 days), not at the level the game currently exists in the state. The handle bears that out.
Because I’m determined to keep this post to a reasonable length, we’ll skip over the rest of the document, which largely reiterates points already made. The exception is a late charge, in item 10, that Suffolk is negotiating with the intention of not holding a meet. “The negotiating posture of Suffolk Downs clearly evidences its intent not to conduct live racing in 2011,” reads the fact-sheet. Track management has said elsewhere, and repeatedly, that a live meet is planned, whether an agreement is made with the NEHBPA or another horsemen’s group, and I see little reason to doubt the sincerity of their statements, although I do agree with the NEHBPA that average daily purses of $75,000 for 100 days are “insufficient.” The solution, though, is fewer days.
Negotiations to Resume?
After days of stalemated negotiations, the New England HBPA plans to present Suffolk Downs with a counter-proposal to the track’s January 26 offer. It’s a bid to end an impasse that has led to the blocking of simulcast signals from Florida, New York, Ohio, and Oregon, and threatened the running of a 2011 meet. During a closed meeting on Tuesday, after financial information the NEHBPA had been seeking from Suffolk was provided, the board “authorized submission of the new offer which will be issued to Suffolk Downs no later than tomorrow,” said NEHBPA lawyer Frank Frisoli this morning.
Frisoli declined to discuss the details of the proposal or whether resuming negotiations would result in the blocked signals being made available once more to Massachusetts bettors. “I will not address the terms of the offer until after it has been made,” he said, noting that the horsemen’s group only has control of the New York signal. “The NEHBPA had no involvement whatsoever relative to the Tampa Bay signal,” said Frisoli, “and it is entirely inappropriate to demand action beyond our control as a condition to further negotiations.”
Related: There’s been some confusion about whether Massachusetts statutes only allow ADWs to take wagers from state residents on tracks that simulcast through Suffolk Downs. TVG has closed off betting on the blocked signals to customers, but TwinSpires has not. “We will continue to offer wagering on these tracks to Massachusetts residents because the dispute does not involve us or our contracts,” said a company representative. Sounds like a reason to sign up, if you don’t already have an account!
2/10/11 Addendum: More on the counter-proposal from Lynne Snierson, as well as notice that Suffolk plans to reduce hours and staff due to lost revenue.
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