Outtakes: Racing Bets on Cable Operators

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It is appropriate that attendees of this year'sNational Show started swarming into Atlanta on the day of the Kentucky Derby: The futureof thoroughbred horse racing as a sport could depend on the cable industry.

If all goes reasonably well, by the time Derby 1999 comesaround, cable operators will have heard the pitch for an interactive digital-tier channelthat will let a guy like me watch and wager on the ponies from my armchair in the den.Subscribers will be able to place bets by merely pressing some buttons on a remotecontrol.

The question today is who will provide this service: ODSTechnologies, a Broomfield, Colo.-based start-up that is pitching Television Games Network(TVG) to cable operators for a late-1998 launch; or Tele-Communications Inc.-controlledUnited Video Satellite Group.

TCI, through UVSG, owns a 10 percent stake in ODS, but thecable company believes that interactive horse-race wagering is such a good bet that itwants more. For much of the last year, the two companies have been locked in anarbitration battle to sort out who owns the technology that is needed to bring the"sport of kings" into millions of cable homes.

Both sides are sworn to secrecy, but an arbitration panelis expected to issue a final report in June. Sources in the racing industry believe thatthe arbitrators are taking their time because they are trying to convince the warringparties to come to their senses and join forces again.

These sources believe that TCI's distributiondominance -- through its own subscribers and through those of its MSO partners, such asCablevision Systems Corp. -- is a compelling argument for ODS to give TCI a bigger shareof the business.

And distribution will be even more critical for TVG becauseit faces a problem that most other start-up networks don't: It's only legal inthe eight states where telephone betting is allowed -- New York, Kentucky, Pennsylvania,Oregon, Maryland, Connecticut, Nevada and Ohio.

The business is too small for competition, and the bad newsfor ODS is that TCI has a pretty big presence in many of those states. TVG has signed"exclusive" deals with 10 prominent racetracks, but the tracks can break thepact if TVG fails to meet certain performance standards.

That's why compromise is in the air.

That's good news for racing, which is depending oncable to expand its base into the home and to create new fans via the tube. That'sthe only place where casinos can't crush the sport. In state after state, gambling isbooming, but people are abandoning racetracks for the high style and hospitality ofcasinos. In the last few years, the amount of money bet on racing -- both on-track and atoff-track sites -- has dropped from $19 billion to $15 billion.

Why is racing dying? Casinos are more hospitable to theirclientele than racetracks (free drinks, versus paying for parking and admission); theaction comes hot and heavy at casinos; and any plunger can figure out how to pull a slotmachine, as opposed to the vastly more rewarding, but very challenging, pastime of tryingto pick a winner at the track.

So racing is counting on the couch-potato vote.

"There's a very good business in here for horseracing," said Tom Aronson, vice president of business affairs for TVG. "Itshould be obvious that if we were building something that nobody was interested in, wewould not be in arbitration right now."

This is a business worth fighting over, agreed Pete Boylan,UVSG's chief operating officer.

"This is an excellent opportunity for the cableindustry if it is carefully pursued or managed in a very responsible way in states whereit is legal and supportive of it. It could provide an exciting, additional unregulatedrevenue stream that is a very attractive return on bandwidth for operators," Boylansaid.

Just how will operators make money? No one is giving awaytheir business plan, but operators could get compensated based on the number ofsubscribers that they bring to the table.

"It will be richer for them than home shopping,"insisted Jay Barchus, TVG's vice president of affiliate sales, who will man a modestbooth at the show.

TVG would love analog carriage, but it also realizes that aracing channel would be an excellent digital-tier driver. More than most hobbyists, racingfans spend money on their obsession -- lots of it -- and forking over $10 per month toroot home a winner would be chicken feed to them, no how matter how many losers they pick.

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