Wednesday, September 8, 2010

Understanding Signal Fees

While the nuances of signal fees may be something many are unaware of, it is an issue that impacts all horseplayers. HANA feels that education is one of the key components in helping horseplayers make the most important decisions for their long-term bottom line. The following is part of a continuing series highlighting the various issues that affect horseplayers.

A Signal Fee is the percentage of every dollar of gross handle that is owed to the host track (the track where the race is run) by the ADW or simulcast facility for the right to wager on that track's races. Signal fee rates can vary quite dramatically amongst tracks ranging from 2-9%. Unfortunately for horseplayers, signal fees have been facing upward pressure the past few years which in turn puts downward pressure on the level of player benefits a horseplayer can receive. Often times when there is a break in the availability of a track's signal to customers of a particular ADW or track consortium, it is due to a disagreement over signal fees. Since one of the rare growth areas in horse racing is the ADW market, signal fees have become more important and an increasing important point of contention. ADWs currently account for approximately 25% of handle in the United States and Canada and that figure continues to increase.

How does the level of signal fees a track levies against an ADW affect a horseplayer (aka the ADW customer)? If a track charges a reasonable signal fee, it allows an ADW greater flexibility in providing benefits to its customers through rebates/player rewards, as well as helping to provide the necessary capital to help fund technological innovations to their ADW platform which provides an improved customer experience. In addition, the bulk of advertising in racing is by ADWs advertising their companies to an internet savvy customer. While a low signal fee helps promote growth in handle through player benefits/innovations, a high signal fee has the exact opposite effect, stymieing player returns and technological innovation. The above reasons is why there has been a shift in strength from higher signal fee tracks to lower signal fee tracks. And of course, the higher a signal fee is, the less likely it is that takeout for the track will be reduced.

The most recent signal fees controversy arose from the Illinois Racing Board's decision to install a 5% cap on advance deposit wagering fees charged by out-of-state racetracks to send their signals to customers in Illinois. The cap lead to cutoffs of tracks such popular summer tracks as Del Mar, Saratoga and Calder which typically have a 8-9% signal fee associated with them. The cutoff of out of state tracks which failed to comply with the 5% signal cap led to a severe decline in wagering for Illinois ADW customers with handle plunging 47% after the cap was instituted on July 12. In response to the plunge in handle, the IRB just raised its cap to 9% to allow wagering on the cut-off tracks to continue.

On a separate note regarding signal fees, open access is in the best interest of both the tracks and horseplayers versus the contractionary mindset of limiting a tracks signal to a certain number of ADWs. It is a very basic tenet of business that making your product as available and easily accessible as possible (not to mention at a reasonable rate) is the best way to expand your business and increase revenue. Expecting your customer base to jump through hoops to get your product is not a good business practice in terms of long term profitability. It goes without saying that a horseplayer should not have to maintain multiple ADW accounts in order to give racing their money.


Anonymous said...

This article says: "How does the level of signal fees a track levies against an ADW affect a horseplayer (aka the ADW customer)?"
First of all,I thought HANA supported all horseplayers not just ADW bettors. The lower the signal fee the bigger the rebate and this leads to outrageous rebates(10 or 11%) for ADW high rollers that creates a tremendous unfair advantage for "regular" players in a parimutuel wagering system. HANA should be championing lower take out rates not lower signal fees. Lower signal fees serve to perpetuate high takeout rates. Trigger99

HANA said...

Hi Anon.

We have covered that in previous pieces. i.e. lower takeout for everyone will get them to bet more, and enjoy racing more.

This piece is about those fees that ADWs pay for their slice in the market - the one that is currently growing.

There are several ADWs which offer low takeout now to players (even small ones) but they are 1) Too few 2) Not available everywhere and 3) sometimes shut out from getting signals.

We feel bringing that to the attention of players, who have asked us about it, is a good service so they can make better betting choices if they choose this avenue.

Thanks for the comment!


Anonymous said...

You should pay a fair price for your ticket to the game. If you think sneaking in, under the fence and not buying a ticket is fair, then it will be fair when the game shuts down and there is no game to sneak into.