Woodbine Entertainment Group (Re), 2007 CanLII 86996

IN THE MATTER OF THE RACING COMMISSION ACT, S.O. 2000, c.20;

TO CANCEL EIGHT (8) ADDITIONAL DATES OF LIVE RACING

Woodbine Entertainment Group ("WEG") appealed the Director's decision to decline an application to cancel eight standardbred race dates, being eight consecutive Sundays commencing November 11 and ending December 30, 2007.

On October 15, 2007, a Panel of the Commission composed of Chair Rod Seiling, Vice-Chair Hon. James Donnelly and Commissioner Jane Garthson, convened to hear the appeal. Brendan Van Niejenhuis acted as legal counsel to the Administration. Jane Holmes, Jamie Martin, Scott McKelvie and Steve Mitchell appeared on behalf of WEG. John Walzak appeared on behalf of the Ontario Harness Horsemen’s Association, which by order of the Panel, participated as a party at the hearing.

On reading the exhibits, filed, and on hearing the oral evidence of Daryl McArthur, and on hearing the submissions of the parties, the Panel dismissed the appeal with written Reasons to follow, and directed that all eight scheduled race dates be maintained.

On October 18, 2007, the Panel released its written Reasons, a copy of which is attached to this Ruling.

DATED at Toronto this 18^th^ day of October 2007.

John L. Blakney

Executive Director

Overview

Woodbine Entertainment Group (WEG) appealed (tab 1, Ex.1) the Director’s decision (tab 2, Ex 1) not to grant the association’s request to cancel 8 additional days of live racing at Woodbine Racetrack and requested a hearing before the Commission as per the Commission’s Policy Directive, No. 3-2007 on race date allocation (tab 9, Ex.1). An oral decision was rendered following the hearing with written reasons to follow.

Background

On August 22, 2007 the ORC received a letter from WEG (tab 3, Ex.1) requesting permission to cancel Sunday night standardbred racing at Woodbine Racetrack on 8 consecutive dates commencing on November 11, 2007 inclusive to December 30, 2007. These race dates had been approved by the Commission in late 2006 as part of WEG’s 2007 standardbred race date allocation.
In approving the new race date allocation policy, the Board of the Commission was quite specific as it relates to what supporting documentation would be required from a racetrack wishing to deviate from its previous year’s allocation of live race dates. The notice read “ the ORC will only consider change where a business case in support of the change is provided and where the ORC is firmly convinced that change is warranted and will provide the greatest benefit”. It is noted that in reference to a request for a change to be considered by the ORC, the wording of the directive is specific: “the change is demonstrated to benefit all industry stakeholders”.
Racetracks were notified in the directive that a series of six (6) indicators would be used to assess their request for a change in race dates. They are as follows:

Customer satisfaction and demand for product
Adequate purse levels
Racing opportunities and available horse supply
Financial condition of the racetrack association to deliver
Harmonization of date schedule with other Ontario tracks
Motivation to engage in the conduct of live racing

Mid season requests for a change, as per the directive, are to be dealt in the same process but the applicant was forewarned in that directive that there would be an increased burden to demonstrate the positive benefits to all stakeholders. Utilizing the indicators, the Director was not convinced there was a compelling case to grant the request.
Before coming to that conclusion, the Administration did request of WEG to file supplemental information (tab 6, Ex.1) to assist the Director in making a final decision.
An integral part of the directive notified the industry that the Administration may accept input from other affected parties. On August 23, 2007 (tab 4, Ex.1) the ORC sent out a notice to the industry in regard to the WEG application notifying it would accept comments. Three responses were received (tab 5, Ex.1). They were an extensive response from the OHHA, Myro Yurko and from Andre and Judy Villeneuve. All three opposed the WEG request. During the hearing WEG introduced a letter (Ex.3) from Ian Fleming, race secretary at Western Fair Racetrack alluding to the WEG horse shortage being caused by a purse imbalance.
Brendan Van Niejenhuis, legal counsel for the Administration argued that while economic regulation is not a science and requires some latitude, the onus is on the applicant to substantiate its request with facts to the extent possible for it to be accepted. He stated the Director denied the WEG request because the request did provide an analysis on the reasons for WEG’s alleged horse shortage and there was no definition of the Woodbine brand, which the applicant kept referring to need to protect.
WEG opted not to have legal counsel represent it and instead opted for a team approach with Jane Holmes, Vice President of Corporate Affairs leading backed up by Jamie Martin, Senior Vice President of Racing, Scott McKelvie, Race Secretary and Steve Mitchell, Senior Vice President and CFO.
WEG claimed its mandate ensures its commitment is to live horse racing and that the proposal to cut the 8 live race dates was being done to protect the long term viability of standardbred racing on the WEG circuit. It was WEG’s position that the move was to protect the industry from a worsening situation, and for the Commission to reject the application could put the industry at even more risk. The reason for the application was a shortage of horses, the same reason for the approved cancellation of 3 live race dates in the spring. The impact of those cancellations was a large increase in the number of horses entered, particularly on the Mondays.
The primary cause of the horse shortage in the view of WEG is a purse imbalance amongst tracks. This purse imbalance is the result of the manner in which slot revenues flow to the tracks in the form of purses. The slot agreement does not take into account pari-mutuel wagering at tracks for which WEG represents the majority amount in the Province of Ontario.
Both WEG and OHHA recognized ongoing initiatives in the industry such as the HIP review, CPMA changes, Public Infrastructure Renewal Ministry (PIR) slot program review, and the industry strategic planning process. WEG said there was need to proceed now and not to wait for the reports while OHHA argued it prudent to wait for the reports before acting.
The statements of WEG officials were helpful to explain quality in terms of the Woodbine brand. Simply put, the Panel was told it means full fields and full race cards and an average daily handle of over a million dollars. The time period between the end of October until the end of April is problematic for WEG as the traditional stakes races which help fulfill that quality are finished and so the need to fill with conditioned and claiming type races.
WEG asserted that previously the better horses had to race at its tracks as it offered the best purses but other tracks now are competitive, purse wise. Of the “unique” WEG starters which average 20 starts per year, only 33% of those starts are at WEG tracks with 40% at other Ontario tracks and the rest in the United States. WEG also alleged that with 10 starters at its tracks versus less at other Ontario tracks, it meant that 5 starters per race were not receiving purse money versus 3 at other Ontario tracks. The Panel was told that WEG was formally withdrawing its request for a $250 hitching fee per horse entered at its tracks. The proposal was made to address the horse shortfall and to act as a stimulant to race at WEG’s Woodbine track. It was doing so because the proposed HIP changes would have substantial negative impacts on the purse account at its tracks because of the large percentage of wagering its tracks represent in the province.
WEG agreed that the statistics appear to show the number of starters is constant but that the number of starts per horse is down. It was agreed this is an indicator of losing horses to other tracks. WEG admitted its retention program may have had an impact and that is why it dropped it for overnight racing except for certain circumstances which have been communicated to the industry. There was disagreement with OHHA as to whether writing more lower class races was a viable answer to the horse supply issue.
WEG argued that it has and is trying new initiatives to try and attract more horses. Those initiatives included trying suggestions from OHHA such as a new Non Winners of 3 races class plus different types of conditioned races. Changing the Sunday to another day, Tuesday was tested previously and found wanting in comparison to Sundays. Wednesday is not an option for most of the time period in question as Woodbine operates nighttime thoroughbred racing on that day. Waiting to see how the Sundays performed was not an option we were told, as the time it takes to re-apply would not enable a new application to be heard given the new race date allocation process and that there is a need to communicate to stakeholders the race date schedule. It was recognized that the new initiatives may be helping but WEG stated that despite this, the total number of entries at the just concluded Mohawk meeting was down 6.5%. There are a number of other factors that affect wagering beside field size. They include the day of the week, race placement, and type of race. As Sunday is the least productive in terms of handle, it was selected as the day to drop in order to bolster the other four days, as was the case for the May 2007 cancellation.
The decline in WEG standardbred wagering has been ongoing since 2003 as the charts furnished by WEG in its presentation indicated. The Mohawk meet was down 2.5%, a continuance of the decline. The stronger Canadian dollar has reduced the value of U.S. exports. The parties agreed that the reasons for the decline were offshore wagering opportunities and some integrity issues. Every 10% decrease in wagering equals a drop of $3m in revenues. WEG strives to maintain a large percentage of its revenues are derived from wagering. It argued this is important for its benefit to maintain a top flight racing operation, for the purse pool which goes to horse people, and for the support of the HIP program.
Large wagering pools are important to maintain existing large bettors so they are not just playing with their own money. They are also important in selling WEG races into the export market. Those markets demand large pools. Currently there is about $115m Home Market Area bet live on the WEG standardbred product. This produces $22m in commissions plus another $8m in export revenues. This net $30m in revenues must be retained to keep the Woodbine brand strong we were told. Moving to 4 race cards per week is WEG’s response to maintain that quality.
If approved, the total number of lost races would be 37 as more races would be added to existing days. The revenue loss was projected at $ 840,000 with an offset from simulcasting at $440,000. The projected revenue losses were $36,000 for WEG and another $36,000 for the purse account, with the HIP losing $9,000.
The OHHA was represented by John Walzak, Association General Manager, with support from Daryl McArthur, trainer /driver and OHHA rep for District 6 (WEG circuit). OHHA was provided party status by the Panel as a policy principle of the Commission.
OHHA maintained that WEG, in applying for the dates, made a commitment to race them and that it had not met the conditions set out by the ORC to allow for a cancellation of approved live race dates. The numbers supplied by WEG were projections and speculation, not facts. Based on that race date approval, horse people made investments with those investments having an expected ROI of 3 to 5 years. Horse people require stability in race dates so that they can make decisions based on an expected set of circumstances. Windsor was used as example of the negative impacts of decreased live race dates as to the impacts on horse people and horse supply.
OHHA argued that everyone must work towards preventing a downward spiral in the business. The start of that spiral is to continue to cut live race dates as a response to the decreases in wagering as it leads to cutbacks across the board. WEG racing is the centrepiece of harness racing in Ontario and everyone needs to work to keep 5 days of live racing at its tracks. Any loss will impact on the entire industry including other tracks it put forward.
It was argued that results at Northfield Park in Ohio and Balmoral Park in Illinois show that bettors are prepared to support races with full fields and will accept “cheaper” horses. There were conflicting opinions from OHHA as it related to import substitution of thoroughbred simulcasts which took place as a result of decreased live standardbred racing. WEG maintained it had more to do with the introduction of 5 new large thoroughbred betting opportunities that have come into the market since 2006 and a winning back of former thoroughbred fans to the sport. It was alluded the impacts of lost live racing also contributed to decreases in slot revenues at tracks that had reduced their live race dates.
OHHA suggested that purse money alone is not the sole determining factor where horses are entered to race. How races are constructed also affect entries. This facet was supported by Daryl McArthur who provided examples in his opinion as to how current WEG racing conditions were acting as a disincentive to enter horses on the WEG circuit for some horse people.
OHHA entered as Exhibit 4, a printout from Standardbred Canada, showing an increase in entries at the first week of the Woodbine meet compared to the last week of the Mohawk meeting as proof there were sufficient horses, and that using 2006 as a base was inappropriate. WEG countered that there was some double counting because of races carried over and that the figures were not accurate.

Issue

Has WEG met the criteria as established by the ORC’s directive No. 3-2007 for race date allocation in its submissions so as to compel the Panel to grant its appeal of the Director’s decision not to allow it to cancel 8 live dates of standardbred racing at Woodbine Racetrack?

Decision

After carefully considering the testimony and reviewing the exhibits, the Panel upholds the decision of the Director. Furthermore, based on the testimony of WEG, the Panel rules that all 8 Sunday race dates in question will be raced as there would be insufficient time to re-apply to cancel the final 4 dates.

Reasons for Decision

The Board of the Commission purposely set a higher standard for the cancellation of approved live race dates. This decision was made in recognition of the impacts on the industry that such cancellations have on other stakeholders as they would have made their own respective business decisions based on a set of assumptions that included those live days of horse racing. Given WEG’s acknowledged leadership role in the industry it is natural to expect any significant change in its live racing schedule would have far reaching impacts on a broad cross section of the industry and the public.
WEG, in its business case, relied on a set of assumptions based on numbers from its 2006 operations. There was no accompanying analysis and there was disagreement as to whether the numbers furnished can be reliably expected to hold true for 2007. In fact, there were statistics provided by OHHA, which indicated that horse supply may be better than WEG numbers suggested. The Commission cannot be expected to make such an important ruling in the absence of factual data.
WEG did not argue that the cancellation of the 8 days was based on an urgent need such as to save money. Rather it positioned the appeal that the cancellation was based on the long-term interests of standardbred racing.
WEG was unable to meet a key criteria established in the race date allocation policy, that is to demonstrate the positive benefits.
WEG was able to qualify its definition of quality as it relates to the Woodbine brand. It is defined as full fields, full cards and an average daily handle of over one million dollars. While the Panel is reluctant to offer any operational advice to WEG, there does appear to be opportunities available that may assist it to achieve those goals.
WEG officials, in its own submission, in response to the Director’s ruling stated that re-applying to cancel the final four Sundays after racing the first four was not an option. Therefore, given the need for consistency as all the parties argued was important, the Panel agreed the best outcome for all stakeholders was a firm commitment that all eight days of live racing would be raced as scheduled.
The Panel noted the reference made to the recent Judicial Review decision rendered by the court in the OHHA versus the ORC re Flamboro/Windsor 2007 race dates. In particular, the reference to the time delay and the lateness in the year being an important aspect in the deliberation. The Panel was of the view that these same principles hold in this appeal.
The Panel recognizes the anecdotal information provided as it related to the purse imbalance and its impacts on horse supply. While it may be argued that there may be other factors than just purse size on where owners enter their horses, common sense leads the Panel to agree that it is a major factor in the decision making process. The Panel notes that this is a matter that falls outside the purview of the Commission and urges the parties to work together to find a solution as it does recognize the need to “keep the centre strong” as Mr. Walzak from OHHA argued. There are, as both parties raised, other industry initiatives ongoing, and the Panel suggests this matter be raised at those forums.
The issue of the optimal number of live race dates continues to be a divisive matter within the industry. The parties’ respective positions as to how best to address the challenge of declining wagering levels is at opposite ends of the spectrum. Somehow the partners must find a means to collaborate as to the best approach to ensure the long-term economic viability of the industry. To do otherwise is to imitate Nero who fiddled while Rome burned.

DATED this 18^th^ day of October 2007.

Rod Seiling

Chair