Archive for December, 2008

It has been just over six months since the inception of the Paulick Report, and in the year-end spirit of Top Ten Lists and Best Of proclamations; we have decided to put our own spin on a Year That Was wrap-up. Instead of showing our personal narcissistic tendencies by deciding which were the top stories of the year, we have decided to venture into our traffic numbers and determine the ten stories you read most. Enjoy this flashback into the recent past and let us know how this list strikes you in the comments section below.
 
10. Priority 1: Racing’s Business Model – We start our list with the most commented story of the year with 107 and still counting. Fred Pope’s speech from the University of Arizona’s Symposium on Racing sparked some serious controversy between horseplayers and horsemen as to how to deal with the issue of takeout from simulcasting and ADW wagering. At its core, this sort of back and forth is what the Paulick Report is all about.

9. Free Money: Past-Post Betting – Have you ever wished you could bet on a race after the results came in? Well that is precisely what happened for several horseplayers at Tampa Bay Downs betting on a race from Philadelphia Park. For ten minutes, players took advantage of the ultimate sure thing

The culprit? Most of the blame goes to the tote, a patchwork, less-than-state-of-the-art wagering network that handles $15 billion in bets each year. But most shockingly, this story didn’t see the light of day for several days afterwards. This made way for the Paulick Report’s first exclusive story and wrestling match with the mainstream media. More on that later.

Oh, and the big losers? Those who bet on the 8-1 winner Magical American. Because of the skewed betting results, those who legitimately bet on the winner only got paid $9.20 on a $2 win bet. It just goes to show that nothing in life is truly free, not even a sure thing.

8. Major Breeder Calls For Breeders’ Cup Resignations – Imagine you had thousands of dollars in the stock market and the NYSE sent out a press release announcing they are cancelling the market in 2009. When the Breeders’ Cup announced they were suspending the stakes program for 2009, a lot of breeders across the country felt they were getting a similar short end of the stick. But Liberation Farm’s Rob Whiteley was the only one so bold as to write an editorial about the subject, going as far as to call for the resignation of the Breeders’ Cup board members.

Again, much conversation ensued and all sides of the issue were heard. Interestingly enough, two days later the Breeders’ Cup made a complete turnaround and guaranteed the stakes program would continue in 2009. We would never be so bold as to claim victory, but the Paulick Report is proud to be a small part of the discussion that led to this appropriate outcome.

7. Minor Takes On Magna – In case you missed it, Halsey Minor is not a big fan of Magna Entertainment, Frank Stronach and John Brunetti. But perhaps his least favorite person in the Thoroughbred industry is unknown Magna CFO Blake Tohana. Or perhaps we should say previously unknown after our number seven story hit the pages of the Paulick Report.

Never one to mince words, Minor holds nothing back in his description of his conversation with Tohana. Not surprisingly, Tohana didn’t have a glowing opinion of Minor and let us know about it.

Since then, Minor has continued in his quest to buy a racetrack as he tries to help the sport he loves. As for Tohana? Well, we haven’t heard much from him recently and we imagine that’s the way he prefers it.

6. Bloodhorse President Hits Below The Belt – Sundays are usually slow news days in the world of the Paulick Report, especially in December. However, all of that changed when we received an email from an old friend. Stacy Bearse, President of the Blood-Horse and Ray’s former boss, expressed his “concerns” about the accuracy of his reporting when it came to recent Blood-Horse layoffs. While we encourage dissent on our pages, the language Mr. Bearse used was too colorful not to share and the consensus among our readers determined it language unbecoming the president of the largest trade publication in the business.

Regardless of his less than courteous tone with Ray, we have yet to receive a list of facts we got wrong in the stories at question. We are big enough to admit when we are wrong.
 
5. Thoroughbred Times Rip Off – So a funny thing happened on the way to breaking the past post betting scandal. The Thoroughbred Times just happened to write a piece on the same subject a few hours after we broke a story that had been in hiding for several days. Much to our dismay, the Paulick Report was not mentioned or given attribution credit. One thing Ray doesn’t like is when someone steals his scoop and he let Frank Angst and the Thoroughbred Times know all about it. And you let them know that you were interested in the behind the scenes aspect of Thoroughbred journalism by making this one of the most trafficked stories of 2008.

4. Guest Editorial Ed Whitfield – A companion piece to Fred Pope’s aforementioned speech, Congressman Ed Whitfield of Kentucky contacted the Paulick Report to help get its message out to our industry. Much like Pope, Congressman Whitfield wants to amend the Interstate Horseracing Act of 1978. Unlike Pope, he proposes using the IHA to impose ethical standards on each state racing body or else revoke their simulcast rights. Whether you agree with him or not, it is clear that Congressman Whitfield understands that solving any problem starts by hitting people where it really hurts…in the pocketbook.

3. Banned Trainer "Suffolk Done Me Dirty" – The closest our pages have come to the Jerry Springer Show, this crazy web of he said/she said ended in the lives of five horses being saved by the Thoroughbred Retirement Fund which is all that really matters. However, we aren’t sure that’s why you enjoyed this story so much. 

To give a synopsis of the twists and turns and very questionable explanations in a few sentences would be an impossible task. Instead, we just quote the title again. When trainer in question Pam Pompell was asked how she felt about Suffolk Downs, she said in an interview to the Paulick Report “Suffolk done me dirty.” Do you really need anything more?

2. Sadler Mullins Take Leave From Trainers Board – With drug use being the top issue of 2008, John Sadler and Jeff Mullins’ voluntary leaves of absence from the California Thoroughbred Trainers board raised more than a few eyebrows.

The CHRB phased in a new steroids testing program in July. For the first month, positive tests would not be treated as violations and for the second month, positives would be reported as violations but not penalized. It was during these two months that according to the Thoroughbred Times, Sadler had accounted for 18 of the 38 positive tests and Mullins’ hands were sullied as well. They became poster boys for an industry trying to change its ways when it comes to drug use. Only time will tell if the sins of the past will be washed away.

1. Ray Paulick Live From Capitol HIll – In only our second week of existence, the Paulick Report flew Ray economy class to Washington DC and put him up in a fancy Motel 6 so he would be rested and ready to report on what was likely the biggest non-racing event of the year.

While there were other journalists reporting on the daily happenings, the Paulick Report was the only platform giving up to the second updates on the hearings. It was the beginning of what has become a regular feature here as we have live blogged several events since. Unfortunately, we are unable to refund the productivity lost by companies all across the country whose employees were following the hearing online instead of working. Fortunately, all of racing’s problems were solved in those two sessions and 2009 will be the best year ever in racing. (We can hope, can’t we?)

Finally, tomorrow is Christmas and whether you celebrate that holiday or you have other plans, it is definitely a universal time for reflection. The last six months have been quite a ride for the Paulick Report. We have more than doubled our daily audience, anonymous donors have stepped up to fill the gaps and advertisers have jumped onboard even in the first few months when the traffic wasn’t near what it is today.

To our advertisers, we would like to thank you from the bottom of our hearts for stepping out and lending the Paulick Report your good name as well as trusting that your investment would pay off. Please be sure to frequent Liberation Farm, North American Trainer Magazine, Team Valor, M & M Thoroughbreds, TVG, Stonestreet Farms, Lost In The Fog, BetFastNow, That’s Racing and BetAmerica. They have stepped up by publicly supporting us and for that they deserve your support.

To our donors, your generous support has also helped us fill in the gaps and make it possible to bring the consistent quality you have come to expect on the pages of the Paulick Report. We would not be here today without you. (Plus, our families would not have received any Christmas presents this year!)

And finally, we would like to give a big thank you to those of you who check in on a daily or weekly basis to see what is going on in the industry. We hope you have found the Paulick Report to offer a brand of reporting not very often seen in the Thoroughbred industry. Please continue to tell your friends about the breaking news and hard journalism found on our pages each and every week.

I would also like to thank Ray for his unrelenting pursuit for truth and his thirst for strong, ethical journalism. Whether you agree with his viewpoints or not, he is relentless in his passion to help the sport he loves through this difficult time. His work ethic is unmatched and we are all fortunate to have a person of his integrity and skill willing to take a chance with the Paulick Report.

Merry Christmas and Happy New Year,

Brad Cummings
Associate Publisher
Paulick Report

By Ray Paulick

While the Breeders’ Cup board of directors acted swiftly to reverse last week’s suspension of the $6-million stakes supplement program for 2009, somewhat overlooked in the swirl of controversy was the organization’s loss of $11 million in the stock market this year. Breeders’ Cup president and CEO Greg Avioli said the losses were not as severe as those suffered by endowments and funds related to other industries (i.e., the Harvard and Yale endowments have lost billions), but some Thoroughbred breeders are questioning why so much of the money from foal and stallion nominations and other revenue was tied up in a volatile equities market in the first place.

The losses, first reported by the Paulick Report on Monday, have dropped Breeders’ Cup cash reserves from $40 million to less than $30 million. The board of directors originally had voted unanimously not to use those cash reserves to plug any of the projected $10-million revenue hole in the 2009 budget, a move that led to the brief suspension of the stakes supplements as well as deep cuts in the marketing and television budget. 

Avioli said the market losses, which exceeded the size of the budgeted deficit for 2009, were unrelated to the board’s original decision.However, an examination of the Breeders’ Cup 2007 annual report shows $2.7 million of unrealized and realized gains on investments were reported as revenue. Total revenue for the year was $56.5 million against expenses of $56.3 million. Without that $2.7 million capital gains reported as income, it appears the Breeders’ Cup would have had an operating deficit of $2.5 million in 2007. It’s unclear to me what becomes of the reported income, now that potential “paper gains” in the equities market have been wiped out in the tumultuous economic climate of 2008. It will also be interesting to examine the 2008 financials to see whether unrealized or realized gains in stock holdings exist or are reported as revenue.

The 2009 operating budget before last week’s cuts were announced was projected to be down $10 million, from $50 million to $40 million. Critics have complained the company should have first undergone more corporate belt tightening (which it has been doing since 2006, when Avioli replaced D.G. Van Clief Jr. as CEO) before cutting out the stakes supplements and marketing expenses. 

The supplements have been part of the Breeders’ Cup program since its inaugural year in 1984, when $10 million was put into championship purses and $10 million into other stakes. That was done to give the Breeders’ Cup broad appeal to potential nominators across the country, and the supplemental money was dispersed at both large and small racetracks. 

In his statement about the decision to use cash reserves to reinstate some portion of the stakes supplements in 2009, Breeders’ Cup board chairman said the board is “not in a position to commit to the stakes program beyond 2009.” The Breeders’ Cup board and executive team have discussed elimination of the stakes supplements in recent years, citing research that shows the money has not been a great incentive for breeders to nominate their foals. 

Farish also said in his statement that “the Board still believes, as I do personally, that it’s critical to maintain sufficient reserves to allow for the long-term viability of the Breeders’ Cup.”   Avioli said the cash reserves are viewed by the board as a catastrophic fund in the event the Breeders’ Cup is canceled because of unforeseen circumstances (equine disease outbreak, fire, earthquake or other disaster) or a multi-year financial crisis. Business interruption insurance would cover a great deal of any potential losses if the event had to be cancelled – in which case the current $25.5 million in championship purses would not have to be distributed. 

The odds against holding the event, which can be moved from one venue to another in the event of a crisis, would appear to be slim. The Kentucky Derby has been run continuously since 1875 despite two World Wars and the great flood of 1937 that covered much of Churchill Downs.

IRS Form 990 for the Breeders’ Cup shows $28.3 million in stocks and bonds holdings in 2006 with another $7.8 million in U.S. treasuries and $2.5 million in Breeders’ Cup properties (the 2007 Form 990 is not yet available). Earlier this year, the Paulick Report has been told, members of the Breeders’ Cup board and its Investment Committee were urged by at least two individuals on the larger board of members and trustees not to keep such a high percentage of the organization’s reserves in the equities market. The Investment Committee, chaired by G. Watts Humphrey Jr. (its other members are Farish, Antony Beck, Donald Dizney, Ogden Mills “Dinny” Phipps, Joseph Shields, and Satish Sanan, who recently was appointed), opted to keep a substantial part of the assets in stocks. By year’s end, the assets have fallen sharply. 

A number of breeders told the Paulick Report the money should never have been invested in the market because they view the Breeders’ Cup as a pass-through organization. “It’s our money,” one breeder said. “I didn’t pay $500 to nominate my foal so the Breeders’ Cup could buy stock in Coca-Cola. An emergency fund should be kept, but the rest of the money should go into purses.” 

Cash reserves were an important part of the program 25 years ago, one founding member of the Breeders’ Cup said, because putting together and keeping a coalition of stallion farms was not an easy task, and there was the threat that if one or two major farms pulled out it could cause the whole concept to collapse. Keeping enough reserves to fund the program for a full year was considered a strategic defense against any boycott. 

The coalition has held together, however, despite some bumps in the road along the way. The Breeders’ Cup has expanded from the $10 million championship day of seven races to a two-day event worth $25.5 million. The stakes supplement program has been reduced several times over the years from its original $10-million budget, and it now appears to be in jeopardy beyond 2009. 

Farish said in his statement the board is looking at other ways to provide benefits to nominators of the program, though gave no further specifics. One benefit would be to continue to do what the board has done in the last five days: listen to those who support the program through their stallion and foal nominations. Beyond that, the board should provide greater transparency and disclosure about financial matters, committee appointments and board activities. The production of a 2007 annual report, something that had not been done in the early years of the Breeders’ Cup, was a good first step. 

The Breeders’ Cup is designed to promote Thoroughbred racing and enhance public awareness of the entire industry. But it should always be remembered that the foundation and single biggest stakeholders remain the breeders who have financially supported the program since it was nothing more than a vision in the creative mind of the late John Gaines.   

Copyright © 2008, The Paulick Report  

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By Ray Paulick

Kentucky Gov. Steve Beshear’s Task Force on the Future of Racing reported its findings in a hearing in the state capitol in Frankfort on Monday. The Task Force, chaired by Tracy Farmer, vice chairman of the Kentucky Horse Racing Commission, made the following recommendations through various subcommittees:
 
INDUSTRY FINANCIAL MATTERS RECOMMENDATIONS:
1-Kentucky needs increased purses to remain The Horse Capital of the World.
2-Kentucky’s Breeders’ Incentive Fund must remain competitive in order to retain the best stallions and mares.
3-Kentucky needs to expand the Kentucky Thoroughbred Development Fund to retain high-quality racehorses.

Keeneland president Nick Nicholson, who chaired the financial matters subcommittee, said his committee dug into a great deal of research comparing Kentucky’s breed programs with other states. “The stark reality is this,” Nicholson said. “The more we dug, the worse it looks. … Other states are trying to reach out and take what Kentucky has. The threat (to Kentucky) is very real, and it’s not long term – it’s imminent.” Nicholson said he has “100% certainty” that “if we maintain the status quo our position vis a vis other states will deteriorate.”

FUNDING AND STAFFING RECOMMENDATIONS:
1-Hire 10 new full-time staff members, consisting of two state stewards, two auditors, one paralegal, a staff attorney, two investigators, a racing veterinarian, and a veterinarian technician. Hire additional interim personnel as needed.
2-Put all three Thoroughbred stewards and Standardbred judges on the KHRC payroll.
3-Submit a budget request for a pari-mutuel information monitoring system as a capital project.
4-Require the various participants in the industry to share in funding the regulatory body.
 
The following funding mechanisms are proposed:
1-Dedicate to the KHRC a specific dollar amount from the General Fund from the pari-mutuel tax.
2-Increase takeout on exotic bets and win-place-show bets, and dedicate the increase to funding the KHRC.
3-Require the owners of the top three finishers to contribute toward the cost of drug testing in any race in which the purse is $10,000 or more.
4. Require the racetracks to continue to pay any cost of drug testing not covered by the owners.
5. Increase the pari-mutuel tax on racetracks with an average daily handle of $1 million or more and dedicate the increase to funding the KHRC.
6-License tote companies and advance deposit wagering (ADW) companies.
7-The subcommittee recommended that if other funding sources are not found, the amount of the reimbursements from tracks for the compensation of KHRC employees be increased and that tracks continue to pay for drug testing charges.

INTEGRITY OF RACING AND ALL PARI-MUTUEL ACTIVITIES RECOMMENDATIONS:
Short-term (end of fiscal year 2010)
1-Fill current vacancies in the positions of pari-mutuel wagering supervisor, director of enforcement and investigator.
2-Obtain CHRIMS system (Comprehensive Horse Racing Information Management System).
3-Require all racetracks and off-track betting sites to notify KHRC of communications, reports, or investigations by any state or federal regulatory agencies.
4-Require a track to record the exact time of races on all video feeds originating from Kentucky, require a tote company to certify the exact time of the closing of betting windows, require all tracks, tote companies and video providers to synchronize their time systems, and require tracks to provide a tote company with written permission for KHRC to receive handle and wagering information directly from the tote company.
5-License and regulate tote companies.
6-Establish a Kentucky Horse Racing Integrity Hotline.
7-License and regulate advance deposit wagering companies.
8-Develop a method to license and supervise all vendors of products sold to trainers, veterinarians and grooms for use at tracks.
9-Hire and train additional security personnel to investigate alleged violations of Kentucky laws and regulations.

Long-term
1-Direct the pari-mutuel wagering supervisor to review available wagering monitoring systems and programs and obtain an appropriate system.
2-Develop career paths for investigators, auditors and stewards.
3-Continue efforts to verify and regulate wagering into Kentucky pools.
4-Monitor the progress of national efforts regarding the early closing of pools.
5-Establish regulations regarding past posting, cancel delay, late odds changes and unusually low payoffs.

LABORATORY FACILITIES RECOMMENDATIONS:
1-Establish a nonprofit, world-class research and drug testing institute with a significant accreditation status.
2-Solidify, through further research, the cost estimates and identify potential additional revenue and funding sources.
3-Establish a foundation to begin raising a $10-million endowment for operating expenses.
4-Establish an executive board of up to five members, including a chief executive officer, one member of the KHRC, and one member of the Equine Drug Research Council to guide the institute. The executive board would develop goals and a detailed business plan, collaborate with financing partners, work with the University of Kentucky on organization structure and facility development, and hire a labor directory, among other functions. The Task Force did not address the issue of expanded gambling in Kentucky.

The full Task Force voted to approve the report, which will be sent to Gov. Beshear.