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Kevin Smith

TVG, Maryland Jockey Club Square Off

5 August 2003

The Maryland Jockey Club has filed a lawsuit in United States District Court in Baltimore alleging that the Television Games Network has not met contractual obligations by failing to maintain a three-month average of $230 million in gross wagers for simulcasting.

As reported by the Baltimore Business Journal, the lawsuit refers to the $230 million figure as "a critical and material term of the contract that formed one of the bases for [the Maryland Jockey Club's] expectations regarding future revenue."

Laurel Racing Association Inc. and Laurel Racing Association LP joined the Jockey Club in the suit.

Filed on July 21, the suit alleges that TVG, through its subsidiary ODS Technologies LP, has not been open about turnover numbers to the Jockey Club.

Oregon-based TVG hasn't stated its betting numbers for Maryland, but the lawsuit could be more about a business decision than anything else.

One of TVG's biggest competitors, Magna Entertainment, owns a majority interest in the Maryland Jockey Club through its racing properties in the state. Earlier this year, Magna launched HorseRacing TV, a competing service to TVG's The Racing Channel.

The suit also alleges that TVG has failed to recognize the Maryland Jockey Club's ownership interest in a partnership between the organizations.

The club, with its Magna ties, claims that it is entitled to a one-third interest in a half-ownership in TVG because it deployed the network in Maryland.

TVG argues that the Maryland Jockey Club is not entitled to the half-ownership, unless three conditions are met. Officials claim that unless there is a full deployment in Maryland and Virginia, and TVG is awarded exclusive home-betting rights on the Preakness, the Jockey Club is not entitled to its ownership share.

"There is a dispute among the parties as to the meaning of some aspects of our contract, and the court will decide it," TVG's general counsel, John Hindman, told the Baltimore Business Journal.

TVG is based in Los Angeles and owned by Gemstar-TV Guide International, which is a part of media giant Rupert Murdoch's News Corp.

The Maryland Jockey Club and the Laurel Racing Association entered into the agreement with TVG in 1997. The contract required the network to obtain the $230 million average by November 2001 and maintain that average.

In return, the Maryland Jockey Club would provide the network with access to its racing signal. The agreement expires in April 2004.

A clause in the contract stated that if TVG gave notice that it had not met the standards, the Jockey Club could terminate the agreement. The suit claims that ODS tried on numerous occasions to remove the $230 million clause, or at least lower it, without success.

Although the Jockey Club has never received notice, the suit claims there is good reason to believe those levels haven't been met.

If the courts agree, it could open the door for Magna to take control of the Maryland simulcasting market.

The lawsuit could be the latest wedge in an intense battle to control the simulcasting market, a battle in which TVG and Magna are leaders.

In addition to starting the new racing channel, complete with distribution deals with satellite TV providers, Magna bough a majority interest in Pimlico Race Course and Laurel Park.

The revenue generated from simulcasting is desperately needed by Pimlico, a track that has fallen into disrepair in recent years.

Gov. Robert Ehrlich's proposal to allow slot machines at four Maryland tracks failed in the state legislature this spring.

Ehrlich's proposal estimated slots would generate $1.5 billion a year in gross revenue; a revised proposal he unveiled in March would have given the three major tracks--Pimlico, Laurel and Rosecroft Raceway--roughly 45 percent of the revenue, or $665 million a year.

Maryland Jockey Club spokesman Mike Gathagan referred questions about the suit to attorney James E. Gray of Venable LLP, who could not be reached for comment.

John Hindman, vice president and general counsel for TVG, said company officials would not back down from the litigation.

"We disagree with the position that the MJC took in their complaint and we will vigorously defend our position," he said.

TVG, Maryland Jockey Club Square Off is republished from
Kevin Smith
Kevin Smith