BREEDERS’ CUP: TRANSPARENCY AND DEMOCRACY?
President Barack Obama, on his first full day in office, called for higher standards in transparency and accountability for his administration. While there already have been some bumps on that road, our new president’s demands are in line with a broader movement toward greater transparency, accountability and openness, not only in government but in private enterprise as well.
A recent scandal in Lexington, Ky., involving the executive director of Blue Grass Airport and several of his key staff was uncovered only after the local newspaper, the Herald-Leader, filed an open records request and examined travel and expense reports of airport executives. What the paper found was shocking: thousands of dollars of taxpayer’s money spent on a night of partying at a Texas strip club, airport credit card purchases of a shotgun, audio systems, DVDs and other items seemingly unrelated to the operation, including scalped tickets to a Hannah Montana concert at Rupp Arena.
The airport’s oversight board at first dismissed the newspaper’s charges that the executive director’s travel and entertainment expenses were exorbitant, but after conducting an internal audit discovered numerous irregularities and suspended him. Shortly thereafter he resigned.
The episode teaches us several valuable lessons, including the importance of a free press, open records law, and vigilance by members of oversight boards. Without transparency or sunshine laws, it’s likely the airport scandal never would have been uncovered and taxpayers would continue to be abused by officials entrusted to serve them.
While I am by no means suggesting similar transgressions are taking place, a call for greater transparency and accountability is also at the heart of Thoroughbred owner and breeder Peter Blum’s recent criticisms of the Breeders’ Cup – a non-profit company funded in part through stallion and foal nominations by thousands of breeders. Following a guest commentary he wrote for the Jan. 10 edition of the Thoroughbred Times and a follow-up letter to the editor published in both the Jan. 31 Thoroughbred Times and Feb. 2 Paulick Report, Blum has heard from a number of fellow horsemen who are in philosophical agreement.
Blum sees things only getting worse unless there are changes in how the Breeders’ Cup operates. “There is very little transparency and it is apparent that is the core of all major issues,” he said. “Does the Breeders’ Cup management not understand how angry its members are? Unless transparency soon occurs, the Breeders’ Cup cannot succeed in its present form. And has there been any disclosure to membership of an agenda of board member meetings, votes, and minutes? If not, why not?”
The Breeders’ Cup moved toward a democratically elected board in 2006 after complaints from some breeders that it had been run for too long by a handful of people selected by a self-perpetuating board of directors. But as Blum pointed out in his letter to the editor, there are flaws in the revised bylaws that appear to stack the election process in favor of the status quo.
Thirty-nine individuals are elected to the board of members and trustees by stallion and foal nominators (each year, 13 of the 39 seats are up for election to three-year terms). Those members and trustees are responsible for electing the 13-member operating board of directors. However, in addition to the 39 elected members and trustees who vote for the smaller board, also given votes in the small board election are six “founding fathers” of the Breeders’ Cup: Brownell Combs, formerly of Spendthrift Farm; William S. Farish of Lane’s End; Seth Hancock of Claiborne Farm (whose proxy has been permanently bestowed upon farm executive Jim Friess); Brereton Jones of Airdrie Stud, John T. L. Jones, director emeritus of Walmac Farm; and James Philpott, an attorney who has served as Breeders’ Cup secretary. Two former Breeders’ Cup presidents, James E. (Ted) Bassett III and D.G. Van Clief Jr., also are entitled to vote in the small board election, as are four current officers of the Breeders’ Cup, including CEO Greg Avioli.
It strikes me as unfair to “grandfather” any founding fathers onto the board of members and trustees. When the U.S. Constitution was written, individuals who signed the Declaration of Independence were not given a lifetime seat in Congress. Representatives of farms like Coolmore, Darley and Three Chimneys, among many others that have been major financial contributors to the Breeders’ Cup, are forced to actively run for a board seat while those farms associated with founding members get an automatic seat. Furthermore, at least two of the founding Breeders’ Cup members are no longer actively engaged in the business. Doesn’t seem right.
It also seems downright scandalous to allow paid staff, including CEO Avioli, to vote for who their bosses will be on the operating board of directors. Human nature suggests they will always favor those who butter their bread.
“It appears that large farms standing stallions may control the outcome of the election of inner and outer board members,” Blum said. “For example, if Gainesway stands a syndicated stallion like Tapit or Mr. Greeley, the farm is given all of the votes, not the actual owners or shareholders of the stallion. If this is true, won’t this inequity come as a surprise to most breeders?” (Editor’s note: It is believed that some stallion syndicate agreements may convey Breeders’ Cup votes to majority shareholders.)
As a result of the inequities he sees in the bylaws, Blum calls for widespread change in the election process.
“In view of the existing controversy, will management agree to submit to membership the right to hold a new election for board members under a more democratic process sooner rather than later?” he asked. “When will the BC provide an accounting of all the nomination fees paid in, and why have we not received them to date?”
Breeders’ Cup board member Satish Sanan wrote a rebuttal to Blum’s commentary that was published in the Thoroughbred Times of Jan. 24. Sanan later spoke with the Paulick Report about some of the issues raised by Blum, along with his own role as chairman of a Breeders’ Cup strategic planning committee.
“Mr. Sanan appears to be a constructive voice at the Breeders’ Cup and I hope his efforts bring much needed changes in transparency and benefits to breeders,” said Blum.
Blum said he hopes his decision to speak out on the management and direction of the Breeders’ Cup is not misinterpreted
“My remarks were intended as constructive criticism of Breeders’ Cup management and recommendations for change,” he said. “In no way were they made to be personal in nature or an attack on the Breeders’ Cup concept or festival of racing. On the contrary, my remarks were intended to encourage needed change and redirection of management.”
Copyright © 2009, The Paulick Report
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Tags: airdrie stud, barack obama, blue grass airport, blue grass airport scandal, Breeders' Cup, Breeders' Cup board of directors, brereton jones, brownell combs, Claiborne Farm, coolmore, D.G. Van Clief, darley, gainesway, Greg Avioli, James E. Bassett, james philpoptt, jim friess, John T.L. Jones Jr., Lane's End, Paulick Report, peter blum, Ray Paulick, satish sanan, Seth Hancock, spendthrift farm, Ted Bassett, Three Chimneys, walmac farm, Will Farish, William S. Farish
February 3rd, 2009 at 12:37 pm
Great premise. Question: Why shouldn’t all drug testing records be made public? We pay for them, after all. Shouldn’t the Freedom of Information Act cover this? Why isn’t this information public domain?
February 3rd, 2009 at 2:33 pm
Who are the other three officers that can vote?
BTW, a witch hunt of current BC employees is not going to “solve” the economic pressure on horse racing and the Breeder’s Cup, nor will it alleviate a generation of apathetic marketing efforts.
February 3rd, 2009 at 3:14 pm
I don’t think you can equate an effort to create transparency and democracy with a witch hunt in this case, although your underlying premise is correct.
Spectrum Value Partners will not help solve the first and most important obstacle BC is facing and that is to make sure that Breeders have a voice in their product and future, until that is solved all other problems are futile. Now that this issue has been uncovered it must be addressed and I hope the 13-member operating board of directors realize this. It won’t go away.
February 3rd, 2009 at 3:19 pm
Barbara,I’m not sure where you live but around here we don’t think its a witch hunt to go after someone whose taken tax dollars and stuck them in gartar belts at a topless bar. Thats what happened with our airport president. Lets hope nothing like that is going on with our breeders money. But I sure am not against opening records so people can see how thekr money is being spent.
February 3rd, 2009 at 3:46 pm
The transparency would be welcome. But let’s get real. This is a witch hunt. Under the noble guise of democracy.
That said, the board should change the voting procedure and kick aside the votes of founding members that are out of the biz, the past Presidents, and any compensated officer.
Frank - if BC dollars were stuck anywhere, in this case, they did not belong to taxpayers. And it is not even your money once you send it in to another organization in exchange for a specified good or service, in this case a foal or stallion nomination. It is their money.
Where was this big clamor for transparency when times were good?;)
February 3rd, 2009 at 4:00 pm
Barbara
There are a lot of holes in your argument. First of all, do you expect people to back off because you say ‘let’s get real’? If this is a witch hunt, then so is any shareholders meeting where the shareholders ask accountability questions of the company. Breeders own shares in the Breeders’ Cup. Let’s get real.
The parallel to taxes for me is this: In order to enjoy the privilege of living in the US, you must pay taxes. In order to compete in Thoroughbred racing at the highest levels, you must be a member of the Cup. Any time you are forced into an organization with no other outlet, there deserves to be transparency due to lack of choice.
Finally, transparency arguments didn’t get legs before largely due to the lack of forums like Ray’s. And there is nothing like financial hardships to increase people’s anger and brazen behaviors.
February 3rd, 2009 at 4:04 pm
Ask that clamor question to Mr. Madoff’s clients.
February 3rd, 2009 at 4:22 pm
Panty raid - Paying taxes is legally required of US citizens. Nominating a foal or stallion to the BC is not. You do not “own a share” in the Breeders’ Cup, either. You do have a vote if you pay to nominate, though.
“Let’s get real.” No, I hardly expect anyone to back off. But ask for transparency, and don’t make veiled allegations directed at specific targets. I would spell it out but would rather leave the obvious to those that know, and not educate the rest. I apologize for that.
You made my point about financial hardship = anger, hence the need for a convenient target or two. And btw, anger is going to make it worse, not better.
February 3rd, 2009 at 4:35 pm
It’s that sort of hostility towards breeders that has put us in the situation we are in. Owning a share may not be the technical term, but if you want to run in the industry, you must pay into the Cup. It may not get you jail time to disregard the rule, but if that is your barometer, we are all screwed.
I am making no veiled allegations. I am just asking that their be transparency. That way all of this mess can be cleared up. I assume there is nothing to hide, so show it and lets move on. Why is that so difficult?
You can stop the anger. Just be transparent with those who pay your salary. (More of a ‘royal you’ than directed specifically at you. Not sure if you are just a big fan or work for the Cup Barbara)
February 3rd, 2009 at 4:45 pm
I wish I could get a gig like the permanent BC board members.
And after all, isn’t this the kind of mind set that is the current finacial, auto and government institutions troubles? What happened to sound and responsible business sense, to include disclosure?
What the hell has happened to this country? Too many lawyers? Too much TV. I don’t know, but it certainly isn’t the country that our founders tried to lay out in that magnificent piece of paper over two centuries ago. And the majority of them owned and raced horses.
In the meantime, the horse racing industry struggles…what is this? Every man for himself as the building burns down? Where are the firemen?
Barbara:
Do people that breed/nominate or enter/race horses for the BC receive any type of tax consideration, either at the Fed or State level? And yes, if they win they pay tax on winnings.
May be a tough question to answer as individuals like Daschel, Rangel, the treasury guy (name escapes me) and others that set and enforce the rules can’t seem to figure them out. for themselves, much less for you and me.
February 3rd, 2009 at 5:14 pm
PR, What hostility toward breeders?
I did not mean to suggest that you were making veiled allegations but those that did know who they are;)
Interesting that I must work or be a fan of the BC to have a dissenting opinion in this democracy. Duly noted;)
Denise, tax dollars are what you pay to the government. The BC is not tax dollar supported business. And you know it but parse away…
February 3rd, 2009 at 6:40 pm
Barbara:
Let me ask again, do the people that participate in the nominating and/or supplementals for racing of the potential horses for the BC receive tax deductions for doing same and also majority of funds for the BC? In other words (and I’m not sure how your handle is being cranked here), but the people that participate in every aspect of the BC, save for the BC entity it’s self (NFP) receive a tax benefit (aka deduction) because they are considered a business…not a hobby or NFP. That being said, don’t you think that the BC organizers should have some similar accountability? And there are a ton of FPs and NFPs that we all now know stink.
I did not say BC was tax dollar supported enterprise (although it does appear to have some spending perks). Where did I say that? My point was that those that provide the nomination fees, horses (breeders/runners), venue(physical, not the logos), prize money, jocks, down to the t-shirts are tax accountable. As business people, don’t they all have the right to know what the real game is at charity BC? Maybe the problem is this NFP crap with BC.
And in the end, horse racing struggels…but I parse…
February 3rd, 2009 at 7:38 pm
Denise, if you are a breeder FP, then your water bucket is tax deductible as well as your foal nomination. What do deductions of expenses against income have to do with the BC and the nomination of a stallion or foal? In exchange you get to sell or race a BC nominated horse that is eligible to run for larger purses than if he or she is not nominated. Your stallion breeds more and better mares. Because the nomination is a business expense that you can write off against your income the BC has the same accountability to you as the government should have with your tax dollars?
My handle is cranked? Because I fail to see the BC as a form of government? Personally I just decide if I am getting what I want from any expenditure. If you are not with he BC, then don’t nominate. But if you are, then recognize it. The board immediately corrected their error about the stakes program. For me, that spoke as loudly as the initial lapse in judgement - that I know was made in haste and as a reaction to the economic disaster we all live in.
OK. Well, I agree about transparency as the new order of the day and as I already said, I think the BC board should reconsider the voting system.
February 3rd, 2009 at 7:47 pm
Faith, yes that was my point about transparency (buried in sarcasm) as transparency would have averted much of the global economic debacle at hand. But typically, human nature doesn’t rock a boat that is sailing in the direction they want to go. Only when it is every man for himself after a shipwreck.
February 3rd, 2009 at 8:26 pm
Transparency, democracy, Big words to expect from an organization that on it’s biggest day posts signs in the winners circle, for all the world to see, that read Junenile fillies and Junenile colts. The problems with the BC would seem to be even more basic than those brought up in this article.
Did anyone from BC management or the board see the snafu ahead of time at Santa Anita. Or how about a BC employee; or not unlike the Blue Grass Airport staffers are they also afraid to come forward about problems they see.
February 3rd, 2009 at 8:43 pm
Barbara:
You said…”Because the nomination is a business expense that you can write off against your income the BC has the same accountability to you as the government should have with your tax dollars?”
Yes, because there is a reasonable assumption of minimum standards, mutual benefit and reciprocity of competence and performance among all participants; just as the BC has to file returns to the government to remain a NFP, the devil is in the details.
As a NFP (which is kind of squirelly), what does the BC risk if it’s board approves policies and dedicates funds that fail, fall short of positive return? To whom do they answer? The investors? Where is their risk of investment (actually that has been brought up on Paulick before)? And don’t tell me reputation, please. Therefore, accountability with access to all those that pay those fees and support the venue/host the annual event deserve a bit better.
How to do it, I leave to industry professionals. But I don’t see any suggestions from you…just a lot of keeper of the guard. BTW, excuse me? The lack of ethics and accountability from all parties brought us to this situation economically in this country with a ton of blind eye by our governments that we pay through the nose for. The situtation in the TB racing world is just a microcosim of that world. I’ve been rockin’ that boat for quite awhile. Problem is I’m in Steerage Class…doesn’t make much of a wave. The people that feed the BC fund are 10 decks above me, way above the water line. And even they think they are sinking.
You have a good night.
February 3rd, 2009 at 9:17 pm
Arkle, if a BC employee had seen the mistake in the sign beforehand it would have been fixed. I am personally going to apply for the position of Keeper of Signage.
So, every service and good that I pay for entitles me to complete transparency of all matters at the company that provided the service or good to me? On the other hand, I think I am entitled to call my city and ask where the damn snow plow is…or if they plan to patch that auto eating pothole down the street.
Reputation? You lost me there. Positive return? Yes indeed the BC would be considered wise in their investment strategy before this past year.
Denise, we speak different languages and my interpreter has the night off. Me? I am off to buy plexiglass at Home Depot to replace my glass house and to decide what shade to paint my pot. Then I’ll be back to sit in judgement another day;)
February 3rd, 2009 at 9:40 pm
Barbara says…I am personally going to apply for the position of Keeper of Signage. Good for you but will you have to relinquish your current position as Chief Apologist?
As someone who nominates several foals every year I have little say in what job positions are established or exist. Likewise I have little say in what they do with my money. However I can choose not to nominate; a cost saving option which may appeal to many in our current recession.
Barbara, don’t stay out too late at Home Depot as I’m sure you’ll need to be at your desk at Breeders’ Cup early Wednesday morning.
February 3rd, 2009 at 10:16 pm
Arkle, I put off my errand to fill out the job application;…
I have never received a paycheck from the Breeders’ Cup, Ltd. But I have benefitted from the BC indirectly. And I am far from an apologist. I am just fair in my assessment of what can be done better, and assume human mistakes will happen, especially in a downturn when distraught minds and lack of reasonable expectations abound. That said, I would behead the person responsible for the incorrect signage so maybe I will look elsewhere;)
Seriously. I ask the following with sincerity. What is is that you are displeased with about the Breeders’ Cup? How are they failing to meet your expectations? Because the investment fund lost money in 2008 like everyone else you know that had a heretofore successful investment return? Because they admitted their mistake about the stakes program and corrected course? Because their revenue is down due to the loss of handle affecting all of racing in this country? And because they are already seeing less nomination income due to the economic suffering of breeders?
I can think of several decisions that the BC board approved that I do not agree with but it involves none of the above. And I am on record as suggesting that a revamp of the voting process would be in order. But aimlessly attacking the employees for innovation and for SPENDING the money on purses at the BCWC is not my cup of tea. I did not agree w/ some of the innovative ideas BTW. But I applaud the effort to try instead of just standing pat. And I realize that not many could have had the foresight to see this deep of a recession coming down the pike…which has made certain decisions seem less ideal.
How would you like them to spend “your” money this year? I think the BC board is more interested in your opinion than you realize. These are tough times and all ideas should be welcome.
February 4th, 2009 at 11:32 pm
Today’s meetings were very productive and signaled a strong spirit of cooperation within the full board of members and trustees,†Breeders’ Cup chairman Bill Farish said in a statement. (BH 2/4/09)
Mr. Farish is a class act I am sure but statements like the one above just don’t cut it anymore. Wheres the beef?
February 5th, 2009 at 10:23 am
Faith,
With sincerity, I ask you as well, what would you suggest that the BC do to improve or to provide to you as a breeder? Do you have a specific complaint that should be addressed? Or did you just want to grab lunch at Wendy’s?
Farish was addressing the fact that the Board of Directors announced that the BC would continue to support the supplemental stakes program beyond 2009 since there was concern that they had not yet made that commitment. He was pleased that the larger 39 person strong Board of Member and Trustees will now meet the day before the 13 member Board of Directors meets for quarterly meetings - so that more voices will be heard.
Seems to me by any objective standard that they are responding to their constituents’ complaints?
For the accurate record, I provided a larger context for Farish’s quote:
http://news.bloodhorse.com/article/49083.htm
Breeders’ Cup officials said the board agreed to a long-term commitment to funding the Breeders’ Cup stakes program at current levels beyond 2009. It also agreed upon a quarterly meeting schedule for the board of members and trustees to occur the day before regularly scheduled meetings of the 13-member board of directors. The next trustees’ meeting is slated for April 7 in Lexington.
“Today’s meetings were very productive and signaled a strong spirit of cooperation within the full board of members and trustees,†Breeders’ Cup chairman Bill Farish said in a statement. “Importantly, the actions we took were unanimously approved by all trustees in attendance. We understand this is a challenging time for the industry, which makes it especially critical that we work together in a unified fashion.
“We also want to send a strong signal that the board has heard our nominators loudly and clearly; and we will continue to support the stakes program in the foreseeable future. Our multiple constituents look to the Breeders’ Cup to be a strong leader, and we plan to do everything it takes to meet that obligation.â€