Stuart S. Janney III:

Thank you, Julie.

When representatives of McKinsey & Company provided recommendations to grow our fan base at this conference five years ago, one of them focused on developing new wagering opportunities and improving the scheduling of races. TVG is doing just that with the recent introduction of exchange wagering to the North American landscape. Kip Levin is here today to update us on the exchange wagering experience in New Jersey and on some of TVG's other business initiatives. Kip, welcome to the Round Table.

Kip Levin:

Good morning. Thank you, Stuart, for the introduction and the opportunity to address the audience today to give an update on TVG, our launch of exchange wagering in the U.S., and its enormous potential and promise for the future of the U.S. racing industry.

I'm a relative newcomer to your sport. I grew up not too far from here in Burlington, Vermont.

And I'm slightly embarrassed to admit I didn't grow up in a racing family and I'd never visited Saratoga until I joined Betfair and TVG.

Thanks to Chris Kay and our friends at NYRA, I was able to bring my father to Saratoga for his first visit last year, and we both had an immediate appreciation for what a special place it is.

Since I'm based in Los Angeles, I'm now bringing my own family and friends to Santa Anita and Del Mar on a regular basis.

Before joining TVG, I spent 20 years in technology and leadership roles, most recently as head of digital e commerce for Ticketmaster. Throughout my career I followed opportunities where technology innovation was poised to have a big impact on the industry, and this fit the mold.

From Betfair's perspective, they wanted to bring an outsider's point of view to TVG, our U.S. operations, to recognize both its current limitations and its future potential, which, thankfully, is vast.

When Jim [Gagliano] graciously asked me to join today's roster of speakers, I did a little homework. Looking back at this conference over the last few years, three themes emerged with The Jockey Club's leadership position in our industry: investments, innovation, and integrity.

So this morning I'll give you a brief update on our business and how it specifically relates to those three themes. Since Betfair's acquisition of TVG in 2009, the company has been one of the largest investors in U.S. horse racing industry, and the innovations are clear. We launched the first native app for iPhones and iPads which are our fastest growing wagering channels.

We invest tens of millions of dollars in our television production every year. In 2014, we rebuilt TVG's production facilities, providing U.S. racing, a state of the art, high definition television product on par with other top sports networks.
In 2015, we launched a multi-year partnership with The Stronach Group which included the acquisition of HRTV to create TVG and TVG2. This merger made so much sense for the sport.

Rather than two competing networks in many cases focusing on the same tracks and the same races, we've been able to combine the top talent from both networks, streamline production, prioritize content, and offer more races than ever to fans and betters. In fact, in the first year since the merger, the combined networks went from showing 29,000 live races per year to over 43,000.

We have also been able to positively influence the schedule of major U.S. tracks, a goal identified at this conference a few years ago, working in cooperation with our track partners, many in this room, on a weekly process to coordinate post times. And our investment in technology, definition, and improved content quality has helped expand distribution as well.

This year we launched our first over the top online streaming version of TVG and TVG2 in HD. And we're proud to announce today we're in final plans on a new deal with DirecTV and AT&T that will put TVG on AT&T U Verse basic distributions in high def, our first major distribution deal in HD.

Equally as exciting, TVG will be a launch channel as part of DirecTV's upcoming fall rollout of their first over the top product, DirecTV Now, arguably the most significant launch of an over the internet streaming television service to date.

Lastly on TVG, the racing industry receives direct benefits from our investments and innovation in our wagering business too. Each year our ADW platforms generate over $120 million in direct revenues to racetracks, horsemen, purses and governments, and this number continues to grow.
Additionally we know that our television coverage increases handle through all of our ADW competitors, all of which make their own significant contributions to racing.

That brings me to our latest innovation that we've been fortunate enough to introduce in the U.S. with the help of racing stakeholders, our great partners at Monmouth Park, and the regulators in New Jersey, Betfair's exchange wagering platform.

One of the most significant worldwide developments in betting, the exchange has attracted over one million customers to racing around the globe. The good news is those customers are far younger than the existing fans here in the U.S., and utilize functionality not currently available in the Tote system. We do not have to speculate. The exchange is proven to attract a new, younger, tech savvy demographic to this great sport.

The results of New Jersey since launch in May are encouraging. The age of the average new exchange customer is 20 years younger than the average New Jersey ADW customer. 80% of the money wagered thus far has come from new customers that were not previously wagering on the 4NJBets ADW product. 45% of the current customers are transacting with their mobile devices.

And while the exchange in New Jersey remains in its infancy, it is doing what it's supposed to do  give people who are not playing in the current system a contemporary, fast paced way to interact with and enjoy our game.

So what is exchange wagering? It was invented by Betfair in 2000, and in the simplest terms it's a peer to peer pari mutuel trading environment that allows players to offer and accept fixed prices on the outcome of a race. To be clear, it's limited to win, place and show betting on the official outcome of each race.

It is a platform that will allow you to offer somebody 2 to 1 odds on Songbird that Songbird will win the Alabama here next week provided somebody else is willing to accept that proposition on the other side.

Some have called it eBay for betters, but that's not giving it enough credit. Betfair's exchange platform processes more trades annually than all of the European stock markets combined. It is strikingly similar to the trading of equities, commodities and other industries which, not coincidentally, is why it tends to attract people who understand the movement of markets and enjoy participating in that activity.

The platform gives betters the ability to shop for and set their own odds on individual horses to win, place or show, or conversely, not to win, place or show, something that I'll talk more about in a minute. It is turbo charged and technology enabled to allow real-time trading in and out of positions so that players can arbitrage to ensure profit before the race is even run or mitigate a loss with one keystroke if the race is not going their way.

It allows players to continue to trade during the race right up until the first horse crosses the wire. We have a little video that I'll close with today that will show you just how that works.

How does the exchange business model work?

It's the same as simulcasting under the Interstate Horse Racing Act. We offer a revenue share with the tracks and horsemen out of the commissions of wagering, ensuring that the content providers and participants share in the new revenue stream. Commissions on the exchange are calculated based on each player's net winnings rather than the traditional model of takeout on total handle.

Customers on the exchange tend to stay and play longer than those in the traditional Tote, generating larger revenue as a result. In fact, for example, on our 4NJBets business, the average $100 deposit results in about $310 in handle. On the New Jersey exchange, the average $100 deposit leads to more than over $1,000 in equivalent handle.

Any innovation has early adopters and others who take a wait and see approach. Some in the U.S. have been worried about the introduction of exchange wagering, suggesting that its nature raises additional integrity concerns.

Let me take a moment here to explain why that is not the case, and why, in fact, the opposite is true. I know we have lots of regulators and racing officials here today. So as we've said to some, exchange wagering is a regulator's friend.

Why? Because unlike the current Tote system where anybody can walk through a window and anonymously place bets or a series of bets providing little transparency about who is behind the wagering, the exchange provides a complete transparent audit trail for investigators.

And wagering activity can be monitored by regulators with support from our own integrity on a realtime basis to detect suspicious activity. It is a cutting edge innovation for wagering integrity, and the reason institutions like the International Olympic Committee, the BHA, the WTA and the NHL have agreements with Betfair to provide information for integrity monitoring of their events.

And while we report any irregular betting patterns to the proper authorities, it is up to them to then decide what to do with that information and whether or not it represents a potential infraction for the rules and regulatory standards for their jurisdiction.

There are some myths and urban legends out there about exchange wagering. You cannot bet on a horse to be on the lead at the half mile pole. You cannot bet on a horse to finish last. Our exchange platform offers markets on win, place and show only, for and against.

Some have suggested that being able to wager against a horse to finish in the money somehow increases the chances of somebody trying to manipulate the results of a race. In fact, it's no different than somebody boxing several horses in a trifecta and leaving others out. The better is in effect betting against the horses than not in his trifecta box. It also does not alter the rules of racing in any way. Riders must still persevere and give their best efforts to place.
In addition to providing television coverage and wagering services and platforms, our company, TVG and Betfair, has historically sponsored major racing events like the TVG Pacific Classic next week with our great partners at Del Mar.

This year as part of the launch of exchange, we've partnered with Monmouth Park to sponsor the Betfair.com Haskell Invitational. I asked the team at TVG to prepare this video to illustrate how the exchange works during the race.

[Video.]

I hope my time today has given you a glimpse of why we're so excited about the investments we've made at TVG, and why we think exchange wagering can bring new fans, new excitement and new revenue to racing.

 Thank you very much for your time, and thanks to Jim, Stuart, and everyone from The Jockey Club for the chance to speak with you today.