First it was record companies suing Napster and peer-to-peer file sharers, and then it was media companies such as Viacom, Universal Music Group, and Agence France Presse suiting Google, YouTube, and Facebook for distributing content whose rights they owned. Now GateHouse Media has filed suit against another newspaper firm, the New York Times Co., for publishing content from its websites and papers on Boston.com.
That media companies are suing each other is a sure sign of the maturation of online distribution and that money is starting to flow—albeit slowly and at levels far below that of traditional media, which still account for more than two-thirds of all consumer and advertiser expenditures
But the lawsuits really point out the weakness of revenue distribution for use of intellectual property online. In publishing, well-developed systems for trading rights and collecting payments exist. In radio, systems for tracking songs played and ensuring artists, composers, arrangers, and music publishers are compensated are in place and working well. The trading of rights for television broadcasts and mechanisms for payments to owners of the IPRs are well established.
However, effective systems are absent in online distribution and the industry needs to move rapidly to establish them. If the industry can not create such a system on their own, more money will go to lawyers and the rules and systems for online payments will ultimately be imposed by courts or legislators who tire of the governmental costs for solving disputes and enforcing the rights.
Organizations representing print and audio-visual media need to sit down with their major counterparts in online distribution to create a reasonable mechanism by which rights are traded and revenues shared, otherwise they risk imposition of a government imposed compulsory license scheme that will be less desirable to the industry.
Companies that continually argue there should be less government regulation of media operations can’t increasingly go to government to solve their disputes without expecting it to produce more regulation.
Wednesday, 24 December 2008
Saturday, 13 December 2008
Let's see. Thieves on Wall Street are getting $700 billion, apparently without having to make any promises at all on how they'll use the money. (Well, all right, they probably can't use it for lavish spa getaways, though they can pay out dividends, obscenely huge salaries and bonuses.) And the auto companies, after three decades of making the wrong cars for the wrong market, are getting at least $14 billion to put off their inevitable trip to bankruptcy court.
So, why shouldn't racing get a piece of the pie? I'm really disappointed that Mitch McConnell, the Senator from racing (oops, make that Kentucky), hasn't yet made sure that his constituency gets its place at the trough. Just in case ole Mitch is paying attention to what we say here, I've come up with a plan that'll hardly cost the government anything at all. In fact, we could do a very nice bailout package for well under $5 billion over a three-year period. That's hardly a rounding error in the grand scheme of things. (Disclosure:I started this post tongue-in-cheek, but, looking at the figures, I've almost convinced myself)
So, how would it work? If we look at who's losing money in racing, the outlines of a bailout practically reveal themselves.
First, the folks who actually race the horses. Last year, there were some 67,000-plus horses in training, if you define "in training" to to mean every horse that made at least one start during the year. (All the statistics in this post come from the inestimable Jockey Club Fact Book.) To make a very rough estimate, let's assume that the average cost of keeping one horse in training for the year is $25,000 -- it's much more, of course, for a horse that spends a whole year in New York or California, much less for a horse that races at a minor league track and spends a good part of the year on the farm. That's a total cost of about $1.675 billion just for maintaining horses. Add in the amortization of the cost of buying or breeding those horses and getting them to the races, and we're probably talking about another $675 million, or a total cost of $2.35 billion to acquire and keep the horses that provide the product.
Purses generated $1.18 billion last year; it'll probably be a bit less this year, taking into account the recent cuts by a number of tracks. Of that, at least 20% never reaches the owner, going to jockey and trainer percentages and assorted deductions by the tracks. So let's say that net purses going to owners are on the order of $950 million. That's barely 40% of the $2.35 billion it cost owners to acquire and keep their horses in training.
I know, I know. What about all that money that the owners will get at the end of a horse's racing career when it goes to stallion duty or becomes a broodmare? Sure, Big Brown was valued at $50 million, and Curlin at $20 million, but the Keeneland November sale showed what the rest of the market was like. Let's be generous and say that total residual value for a year's worth of horses coming off the track is perhaps $500 million.
Add all those numbers together and we still have a shortfall of about $900 million a year for owners. That loss is, of course, very unevenly distributed. A few owners, who are rich enough or lucky enough to get the year's best horses, do very well. The rest of us make do, while we are writing endless checks to trainers, vets, etc. and wondering where the money for the next check will come from, with the psychological satisfaction of watching our lovely horses run.
But, in this post-liberal age, let's not worry about fairness or equity in distributing the bailout money. After all, the banks got part of that $700 billion whether they needed it or not, so why not horse owners? Just take the $900 million, divide it equally among the owners of every horse that raced in the past year, and we get about $13,400 per horse. Enough to make the difference between profit and loss for many of us.
Next, we need something for the beleaguered race track owners. Magna has lost some $600 million over the past few years; NYRA is just emerging from bankruptcy and hasn't made a eal profit in more than a decade; and Churchill is showing a profit, but that's largely due to its off-track internet wagering system, which earns money by low-balling the horsemen over the split of wagering revenue. Calder, suffering under the Churchill bean-counters' ownership, just canceled three graded stakes because it couldn't afford to put up the purse money. As for the smaller regional tracks, I have no idea how they'd survive were it not for slot-machine income or casino supplements. So again, just to throw around some rough numbers, let's say that US tracks are losing some $200-250 million a year on racing operations. That's 1/2800th of the financial system bailout. Just give them the money.
And then there are the breeders, who are certainly hurting, after declines of 20% or more at the yearling sales and 40%-plus at the bloodstock sales. The solution for them, though, like that for the auto industry, needs to be coupled with some requirements for changes in behavior. Luckily, we already have a good precedent for how to solve the breeders' problem: just pay them not to breed more horses.
That's the way the US agriculture program already works for many crops, so why not extend it to horses?
As late as the mid-1960s, the annual foal crop was about 20,000. To be sure, those were the days when stallions generally covered only 40 mares per season. In the current decade, the foal crop has been in the mid-30,000's, and stallion owners, eager for quick cash flow, book their horses to hundreds of mares per year. Of course, since average starts per horse has declined from 11 to 6 per year in the same period, I guess one could argue that we need all those additional foals just to fill the same number of races. (In fact, average field size has declined from 9 to 8, notwithstanding a decline in the number of races run and the increase in the size of the foal crop.) If the 1950's and 1960's were the glory days of racing, why not go back to the number of foals we had then?
So let's pay breeders not to breed horses above the 20,000 limit. How much would that take? I'd bet that we could find 15,000 volunteers at, say, $15,000 each in return for refraining from breeding. That'd cost $225 million -- just a drop in the bucket. Of course, we'd need some kind of enforcement mechanism, but if it works for other crops, why not for horses?
To sum up, we need $900 million for horse owners, $250 million for race tracks, and $225 million for breeders. Rounding up, as Washington tends to do, let's call it $1.5 billion for the whole industry. That's per year, of course, but, what the hell, let's make it for three years, to give everyone time to figure out a new business model or else retrain themselves for all those new jobs in solar energy that are just around the corner.
So, for a mere $4.5 billion, we could save an industry that employs more than 200,000 people across the country. Such a deal!
How about it Sen. McConnell?
Friday, 12 December 2008
We've been watching as handle has declined and sales receipts have fallen through the floor for the past few months. But today seems to be when those ongoing causes caught up with racing in a way that none of us in the game could avoid noticing.
Not necessarily in chronological order:
- The Breeders Cup announced that it's canceling its national stakes program, which provided supplemental financing for 121 races around the country this year;
- Calder canceled three graded stakes from the current Tropical Park meeting and announced another cut in overnight purses;
- The Blood-Horse announced plans to lay off 10% of its staff; and
- The Washington Post, formerly home of Andy Beyer, fired its racing reporter and will drop daily racing coverage.
The elimination of the Breeders Cup National Stakes program probably has the biggest impact of today's events. According to the Blood-Horse, Breeders Cup staff expects their revenue -- which comes primarily from stallion and foal nomination fees, to decline by up to $10 million in 2009, as fewer foals are nominated (though the cutback in actual numbers in the foal crop is likely to be much more severe in 2010 than next year) and as stud fees, on which stallion nomination fees are based, decline somewhat from recent high levels.
At the same time, the Breeders Cup put nomination and entry fees for its fall championship races up by 20%, from 2.5% of the purse to 3%. That's $30,000 to get in one of the $1 million races. By way of contrast, the typical stakes nomination and entry fee for a stakes race at most tracks is 1.1% or so of the purse.
Both these changes put the added burden of declining revenue on only one segment of the industry -- the people who buy or breed to race. The breeders don't take any of the hit, which I guess one should expect, since it's called the Breeder's Cup. But that extra $50,000 or so, available 121 times over in the BC national stakes program, might well make a difference for an owner who happens to get a good, but not great, stakes horse. And an extra $5,000 or $10,000 in entry fees may not deter many from entering the Breeders Cup itself, but I just wonder why it is that the race horse owner, who we know is already losing money, has to bear that burden.
At Calder, which is owned by Churchill Downs, Inc., They've canceled the Grade III Stage Door Betty and Frances A. Genter stakes, both scheduled for December 27th, as well as the Grade III Tropical Park Derby, an important turf race for brand-new three-year-olds, scheduled for January 1st. Churchill management, of course, tried to put the blame on the horsemen, who've been involved in a bitter dispute over the division of advance-deposit wagering receipts. For whatever reason, handle at Calder is down very significantly, and I wonder how many of the longtime owners and trainers who put on the show there every day will be able to make it through another year like this.
The cutbacks at the Washington Post and the Blood-Horse, while not of the scale of the race track-related cuts, are another sign of decline. The Post has now joined such other papers as the Los Angeles Times, the New York Times and the Philadelphia Enquirer in eliminating daily racing coverage. Putting together two troubled industries -- racing and newspapers -- seems to be a recipe for disaster. If it weren't for racing meta-sites like the Paulick Report, Equidaily and the Thoroughbred Bloggers Alliance,it would be just about impossible for the committed horseman or racing fan to keep up with the news. But, valuable as those sites are, they're not going to create new racing fans the way that having Secretariat on the cover of Sports Illustrated would. For the record, the last race horse on the cover of SI was Smarty Jones in May, 2004.
Sunday, 7 December 2008
Unlike the 1930's, when racing was a relatively bright spot in an otherwise very dreary economy, thoroughbred racing in 2008 is not immune to the general economic malaise.
The latest figures from Equibase, reported yesterday in the San Diego Union-Tribune, show that nationwide handle was off 9.7% in November, compared to the same month last year, even though the total number of racing days at tracks across the country was up by more than 5%, from 440 in 2007 to 465 this year.
For the first 11 months of the year, through November 30th, total nationwide handle (on-track, at OTB's, and through ADW outlets) was down 6.17%, to $12.8 billion. purses were down 0.6% to $1.1 billion, and the number of race days was down 0.67%, to 5,764.
In some ways, these numbers are good news. Most US industries are doing a lot worse than racing. Auto sales, for example, are down 30-40% compared to last year, so perhaps we should be grateful that racing is down only in the single digits. And for those of us who own and race horses, the tiny decline in purse money is even better news, at least in the short term. Any business whose revenue is more or less flat this year shoulod probably consider itself verey lucky indeed.
Or at least that would be true but for some very worrisome facts. First, it's true that purse money always lags behind handle, and if handle continues to decline, cuts in purses can't be that far behind. Already, at Aqueduct this winter, we're racing for pretty much the same purse levels as last year; the big boosts in purses for the high-prestige Belmont and Saratoga meets have vanished, as the high-profile trainers and their horses head south.
Second, a significant section of the betting public consists of retirees with a few extra dollars to spend -- the guys, for example, who hang out in the Man O' War Room at Aqueduct, betting a few dollars and enjoying the camaraderie. If these folks' retirement accounts are taking the same kind of hit from the stock market that mine is, I'd expect them to have a lot less to spend on the frivolity of racing.
At the same time, I don't see any decline in the cost of owning and racing thoroughbreds. Trainers' day rates continue to close in on $100 in New York -- and that's if you're not using Pletcher, Mott, etc. The recent declines in auction sale prices are a small sign that economic rationality may be returning to the bloodstock market, but we're still a long way from a situation in which one can buy a horse to race with a decent expectation of breaking even, much less earning a profit.
Slot machine revenue, comning soon to New York and Maryland, may help out in the short run. In the longer term, we still need to figure out how to make our game accessible, relevant and popular.
Thursday, 4 December 2008
Thanks to Terry Bjork on the Derby List for alerting me to how far Churchill Downs, Inc. and the Churchill horsemen are from agreement on sharing the revenue from internet betting. As reported in the Louisville Courier-Journal, Churchill's last offer to the horsemen was to give 5.5% of internet (ADW) handle to purses, while at the same time eliminating any "source market" fees that would otherwise have gone to purses. (Don't ask me to explain source-market fees, but they compensate tracks for bets made online from locations near a track).
In contrast, the recent settlements with horsemen in California and Louisiana apparently give horsemen 7% of the internet/phone wagering handle, in a combination of source-market fees plus a percentage of the takeout. That's in line with the goal set by the Thoroughbred Horsemen's Group for an equal one-third division of ADW revenue between tracks, ADW companies and purses.
Comparing Churchill's 5.5% offer to the 7% goal, there's still a long way to go. I hope Marty Maline of the Kentucky HBPA is right that chances are good for an agreement before Churchill's spring meet, but the deal isn't done yet.