Alan Marzelli: Joe Santanna knows Thoroughbreds and he knows numbers. He has been a Thoroughbred owner for approximately 20 years and he is a certified public accountant. He will share some of the National HBPA's perspective on the ADW situation right now. Joe, welcome to the Round Table Conference.

Joe Santanna: Thank you, Alan. Mr. Chairman, on behalf of the National HBPA officers, board of directors and our affiliates, I thank The Jockey Club for the opportunity to make this presentation at the Round Table.

Recently the National HBPA conducted a survey of its affiliate membership, and I want to share with you some of that information.

Our members conduct over 4,300 races, which results in starting over 270,000 horses. The National HBPA membership represents over two-thirds of all races and two-thirds of all starters.

Our membership also reported nearly $600 million of purses paid to our owners, which represents 50 percent of the purses paid in North America.

Additionally, our affiliates generated close to $9 billion in handle which, when compared to the almost $16 billion of handle in North America, represents 56 percent of the national total.

Recognizing that the National HBPA represents over two-thirds of the starts and races run in North America and generates close to 60 percent of the handle resulting in 50 percent of the purses earned in North America, I would like to share with you a few passages from the Interstate Horseracing Act (IHA) of 1978.

It is commonly known that horsemen organizations have "consent and approval" rights over signal and as a "condition precedent," the host racing association must obtain the agreement of the horsemen association.

And the IHA also recites that setting forth the terms and conditions of this consent and approval is part of the regular contractual process.

The IHA further defines "terms and conditions" to include the percentage which is paid by the off-track betting system to the host racing association. Consent and approval also extends to pricing as well. It is this portion of the IHA that is not widely known or generally accepted. Horsemen now recognize that it is time to get involved in every facet of the transaction, most notably this one.

The regular contractual process must include the horsemen's group from the beginning of the transaction and throughout the transaction. Horsemen's groups no longer want racing associations to negotiate, beyond the initial agreement, without being involved.

The IHA, by its plain language and by case law interpreting it, allows the horsemen's groups to negotiate with its host racetracks over prices to be paid for the interstate export of simulcast racing signals.

The following information was compiled from panel presentations given by TrackNet, TVG and Youbet at the recently held National HBPA 2007 Summer Convention in Williamsburg, Virginia.

The 7 percent share to the horse racing industry is a blended rate of the host/signal fee coupled with source market fees. While it is true that within a source market area the percentage can be as high as 14 percent, with the host fee coupled with the source market fee. When you are outside the source market area, the fee can be as low as 3 percent. Any time we represent a fee coming to the horse racing industry, it should be the blend of these, not the high rate nor the low.

Sharing the blended 7 percent between purses and racetracks results in the smallest return on investment to the largest investors. Securing a reasonable range for host/signal fees, as well as source market fees and source market area, will return value to the industry that is not reflected in the current economic model.

The Woodbine Entertainment Group also presented at our summer convention and reported that a majority share is returned to the horse people - 57 percent, not one-third.

In order to provide the additional funding from takeout, we suggest that all sublicense fees be eliminated.

Additionally, we suggest that in the event there is an intra-ADW source market fee, that it also be eliminated and added to the pool of redirected resources.

Television fees should be standardized to recognize the important element that has become an integral part of the racing fans' expectation in our industry.

If the off-track betting system is willing to pay a host fee while in the source market area, then a standard source market fee for being there would also be appropriate.

Source market areas should be consistent geographical areas that reflect the impact of losing a live, on-track wager to the simulcast markets. The IHA of 1978 suggests 60 miles in its consents and approval language.

Unrestrained content availability and accompanying live video streaming will continue to result in handle growth within the fastest-growing segment of our industry. On the Claiming Crown "day of truce," the all sources handle of $4.9 million eclipsed the former all time handle of $3.6 million - a 33 1/3 percent increase when we all shared the signal.

Separating content distribution from TV coverage is the initial step of a process to move the current ADW stalemate into a solution.

TV should then be separated into its own competitive component that can be exclusive. Content would be purchased "inter-company" based upon demand to fill slots that are desired or available by each broadcasting entity.

It is time to end leveraging content distribution against TV broadcasting.

Our customer fan base is very capable of determining what best suits their needs.

Let's allow the marketplace the unlimited access to signal distribution that all the ADWs espouse but have yet to provide. Protecting "turf" through exclusivity is detrimental to our sport.

Thoroughbred racehorse owners and trainers intend to negotiate these necessary improvements to change the current ineffective and unfavorable model. We no longer wish to wait for our ship to come in. We now intend to swim out to it.

Reported nationally, purses earned is a $1.2 billion business. When we subtract out the jockey fees, calculated at a blended rate of 8.5 percent, and subtract out the trainer fees, calculated at a blended rate of 7 percent, the owners "net" slightly more than $1 billion of that revenue.

When we factor in the cost to train the approximate 75,000 horses that start each year at a very conservative cost per horse, the owners' equivalent to the corporate "EBIDTA" is a net loss of approximately $800 million.

When we take that net loss to the owners and we then add to it the annual purchase of weanlings, yearlings, 2-year-olds and broodmares, we create negative cash flow of $2 billion.

There is no greater challenge in front of this industry than narrowing this gap!

This amount is a recurring annual "investment" by horsemen. The very engine of our industry needs a tune-up.

The financial gap presented a moment ago does not even consider the significant investment by those horsemen who breed to race. It's not in that $2 billion.

No portion of this industry makes the substantial annual investment into assets to generate revenue for our sport similar to the contribution made by the horsemen.

The Thoroughbred horse race is the major income-producing activity for our sport. Without horses there will be no sport. A critical review of what represents a fair portion from the takeout for purses is absolutely necessary.

We may have to redesign the model - move away from host fees, move away from source market fees - to fuel the proper amount of money necessary to make purses correct.

Perhaps that would be replaced with the percentage of the takeout that represents the licensing of horsemen's rights that goes directly to purses.

In summary, this cannot continue. We must address the engine that drives the rest of this industry. Purses must increase. Horsemen are more aware than ever of the economic model. We must work together to strengthen this industry. It's in everybody's best interest.

My parting thought is this, a quotation attributed to Albert Einstein:

"Insanity is doing the same thing over and over again and expecting different results."

$3.2 billion chasing $1.2 billion is insanity.

Let's stop the insanity!

Thanks, again, to The Jockey Club for inviting the National HBPA to be part of The Jockey Club Round Table.

Alan Marzelli: Thank you, Joe.