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ANDY GROSSMAN
Two pieces of legislation - one in California, the other before Congress - could mean hundreds of millions of dollars to cable operators in states where it is legal to place bets on horse racing over the telephone.
This is no tale of ordinary political arm-twisting, but a bi-coastal odyssey involving backstretch workers' drive for unionization and unlikely political allies lobbying for a common cause.
The results of these two bills - a cable Daily Double if you will - could dictate how much operators will benefit from in-home wagering on horse racing in the years to come. One programmer, Gemstar's Television Games Network, has the most to gain or lose in this matter, especially in California. Through TVG, cable and satellite customers can watch live racing and bet through a third-party-operated hub. Eventually, the company wants to let people bet interactively via hand-held devices rather than over the telephone.
Last Friday, California lawmakers were due to act on a bill that would allow TVG to offer its service to cable customers in the state. With California, TVG's potential base of customers - those who can legally bet off-track via telephone - would include more than half the population who can legally make a wager in the United States.
How do cable operators gain from all this? They get a nice piece of the action from all the bets placed through the third-party hub. They also get a cut from the 25-cent transactional fee placed on each wager, as well as potential merchandising revenues.
That could add up to hundreds of millions of dollars a year for operators in the 10 states where TVG can operate: New York, Pennsylvania, Maryland, Connecticut, Ohio, Nevada, Oregon, Louisiana, Kentucky and New Hampshire. Michigan and New Jersey are considering similar legislation.
In California there's a hitch. The bill authorizing in-home wagering seemed primed for passage until a side issue arose. Aggrieved backstretch workers sought protection through the ability to organize. Their employers - horse trainers - are objecting loudly, and the bill could be doomed.
On the other side of the country, a more complicated state of affairs threatens the racing industry's ability to carve out a nice little niche that would indirectly benefit cable operators.
Two years ago, U.S. Sen. Jon Kyl, R-Ariz., introduced a bill that would ban all forms of Internet wagering. The racing industry lobbied hard and won an exemption in the bill. That carve-out is critical: It helps clarify the murky legal waters under which companies like TVG operate.
Without the Kyl bill's protection, the sport could find much of its off-track business under attack. Some Justice Department officials have testified that many of racing's ongoing practices are "criminally illegal" in this regard, although TVG is certain the DOJ is wrong. TVG argues existing legislation protects the company.
To remove any lingering legal issues among MSOs, TVG a year ago removed itself from actually "booking" the bets. Rather, a third-party racing group does that and reimburses TVG for providing the programming service and the technology.
The Kyl bill easily passed the Senate, but once it reached the House earlier this year, all heck broke loose. Anti-gambling groups, which usually line up on the opposite side of the fence of racing, lobbied hard for the bill. Other gambling interests, such as casinos and state lotteries, which normally side with racing, loudly objected to racing's exemption. The measure could come before the House this month.
Passage of the Kyl bill might eliminate much of the queasiness some operators feel about joining hands with the horse racing industry and give TVG more legal muscle to move ahead outside the 10 states in which it has express authority to do so.
TVG is in but one cable system so far, Insight's operation in Louisville, Ky. TVG signed an affiliate deal with AT&T Broadband a year ago, saying AT&T would launch the service by the end of the year. That hasn't happened, and TVG's service seems destined for cable's digital tier. EchoStar's Dish Network also carries TVG.
Industry observers say TVG has held back from making a major MSO push while the Gemstar-TV Guide merger ran its course. TV Guide owned TVG. TVG has also used the time to complete work on its various interactive platforms via AOL TV and Web TV as well as its online wagering service.
TVG has other challenges: Some cable operators are resisting using Gemstar's interactive program guide, and TVG's fortunes could be linked to the IPG in some operators' minds. And it might face competition from Magna Entertainment, which is buying up racetracks and may want to start its own in-home wagering service.
TVG hopes to parlay a victory in California with one in D.C., but as most bettors know, parlays are risky ventures at best.
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