BROWN GETS PEANUTS FOR RACHEL
By Ray Paulick
The legal battle in Kentucky between Jerry Brown, owner of ThoroGraph performance figures, and Kentucky horse owner James Lauffer ended with Johnson Circuit Court Judge John David Preston ruling Lauffer owed Brown for advisory services rendered in Lauffer’s purchase of a half interest in eventual Horse of the Year Rachel Alexandra in November 2008, but the amount Brown will receive–$25,000—is peanuts compared to what he was looking for.
Click here for Preston’s “Findings of Facts, Conclusion of Law, and Judgment,” which was handed down on Monday.
Lauffer asked the court for declaratory relief to determine he owed Brown nothing for Brown’s role in his purchase of the half-interest in Rachel Alexandra from breeder Dolphus Morrison. Brown had sought what he said is his standard fee for advising clients to buy a horse: 5% of purchase price, 5% of future earnings, and 5% in the increase in a horse’s value.
In Brown’s counterclaim against Lauffer, he sought a total of $4,928,451, which includes profits Lauffer made on Rachel Alexandra from purses and the May 2009 sale of the entire filly to Jess Jackson’s Stonestreet Stable for $10 million.
Brown had several witnesses testify in person or by deposition in defense of his fee structure, including WinStar Farm racing manager Elliott Walden, Overbrook Farm principal Chris Young, Millennium Farm owner Ro Parra, and bloodstock agent Rich Decker.
Lauffer called Headley Bell of Mill Ridge Farm and several other witnesses who indicated the industry standard for commissions is 5% or less.
Brown and Lauffer both testified in the case.
Brown had recommended the purchase of several fillies, including Rachel Alexandra, to Lauffer and two potential partners, Lexington insurance agent Ron Kirk and horse owner and businessman Greg McDonald. Since Brown is a consultant and not a bloodstock agent, he put them in touch with Florida bloodstock agent Don Brauer to negotiate a deal. Kirk backed out because he felt Rachel Alexandra was overpriced at $1.2 million and McDonald said he didn’t like Brown’s fee structure, and he also opted out. Lauffer then struck a deal with Morrison to buy the half-interest for $500,000 without using an agent.
Lauffer said he had asked Brown to lower his fees, but Brown declined to do so. When Brauer complained he was cut out of the deal for his normal 5% commission, Lauffer offered to pay him $15,000, which Brauer accepted.
At issue was whether Lauffer was aware of the fee structure when he accepted what Judge Preston called “valuable information and advice” from Brown. Preston concluded Brown and Lauffer “never reached an agreement concerning any fee to be paid” for Brown’s services and that Lauffer was “not made aware of the fee structure” prior to getting advice from Brown.
However, Preston wrote, Lauffer “relied at least in part” on Brown’s “valuable services in the form of specific advice” in his purchase of Rachel Alexandra, and that Brown deserved payment, even in the absence of a binding contract, under the legal concept of quantum meruit. But Preston limited the judgment to $25,000, or 5%, which he called a “reasonable amount. … In fact,” he wrote, “5% seems to be a fee covering a wide variety of situations” in the horse industry.
Preston ruled against Brown’s plea for punitive damages, disgorgement of profits, fraud, and said Brown was not entitled to treble damages and attorney’s fees under KRS 230.357, a relatively new Kentucky law regulating bloodstock transactions.
Andre Regard, attorney for Brown, said he and his client “are reviewing our options for appeal.”
Copyright © 2010, The Paulick Report
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Tags: andre regard, chris young, dolphus morrison, Don Brauer, elliott walden, Greg McDonald, headley bell, James Lauffer, Jerry Brown, Johnson Circuit Court, Judge John David Preston, mill ridge farm, Millennium Farm, overbrook farm, Paulick Report, Rachel Alexandra, Ray Paulick, Rich Decker, Ro Parra, Ron Kirk, Thorograph, winstar farm
April 13th, 2010 at 5:11 am
5% of purchase price, 5% of future earnings, and 5% in the increase in a horse’s value.
IN THIS DAY AND AGE, WHO WOULD BE SILLY ENOUGH TO PAY A FEE LIKE THIS? ESPECIALLY WHEN SO MUCH OF THE GAME IS RANDOM!
April 13th, 2010 at 5:44 am
Five percent is a fair figure. How many bloodstock agents reimburse their clients when the horses they recommend cannot run around a high school track?
April 13th, 2010 at 6:37 am
Jerry Brown got screwed.
April 13th, 2010 at 7:07 am
Mr. Brown invests much more than a bloodstock agent to gather the information that he brings to clients. He has a “groundman” working every track, big and small, to provide several factors of every horse and every race that is run. He has a full office staff to process the “ground” and has invested in all the latest technology. Victory Gallop, Da Hoss, Student Councel, just to name a few, returned huge profits for his clients. He isn’t just marketing his opinion, he is selling proprietary data that gives a tremendous edge to his clients. Mr. Lauffer will give every bit of that RA money back investing with people who only provide opinions for a small fee.
April 13th, 2010 at 7:18 am
Hate to make snap comment as I’m a little bitter myself over bloodstock agents offering advice (many times unsolicited) then thinking they are entitled to some fee or share of the sale…..I guess I’d have to know more about what services Brown offered…. Did Lauffer seek him out for advice on the purchase? If that is the case, then of course, some payment for services is justified. I can tell you this, if the 5% of the price, 5% of earnings, and 5% of increase in value is Brown’s “standard fee,” I’d never use the guy as that is simply insane!
I have no trouble paying someone for his/her expertise, and especially in a situation in which that individual actually did some leg work to help get a sale or purchase completed. Maybe Mr. Irwin knows more than we do about this particular situation…. Maybe you could elaborate a bit more as to why you believe Jerry Brown “got screwed.” I am curious to know. I wonder (and as South of the Border hints to above), had Rachel not turned out to be Rachel….. were she now running in $20,000 claimers rather than winning the Oaks, Preakness, etc, would Brown even be pursuing this. Would any “agent” be so quick to step up and say, “oops, made a mistake, my judgement was wrong, your filly has depreciated 98% so here’s $4,900 of my fee back from the original 5%”? Of course not (and before any one jumps in to attack, yes, I realize so much more, so many more people impact a horse and their abilities than the judgement of a bloodstock agent. Just seems agents have such a sense of entitlement, yet have zero accountability after the sale.
April 13th, 2010 at 7:20 am
Just saw the comment above mine…. while Jerry Brown has a business in place, with parts and pieces on the ground at various tracks, isn’t that “proprietary data” mainly for the handicapper in the form of the Thorograph sheets?????
April 13th, 2010 at 7:32 am
Why is it that whenever a horse does very well on the racetrack or the breeding shed a lawsuit is soon to follow?
April 13th, 2010 at 7:35 am
Oz, yes, if you want to analyze the data yourself. Brown created the system himself and can find much more between the numbers. He is also using this information to select a handful of horses from thousands of choices to offer a select few with tremendous upside to his clients. Any weekend warrior can offer a horse off a flashy maiden win or a string of improved races. The trick is finding the allowance horse or minor stakes winner that the data says can move way, way forward.
April 13th, 2010 at 7:40 am
Take Student Councel for example. He was a minor stakes runner with limited success. In his first start after the sale recommended by Brown he won the Pacific Classic when switched to polytrack. I believe he then paired up with a win in the Hawthorne Gold Cup and is standing stud. Worth Brown’s fee?
April 13th, 2010 at 7:42 am
Ever notice how all of Jerry Brown’s disputes are over money?
April 13th, 2010 at 8:10 am
As predicted. The court found merit in the claim of work performed and assigned a dollar value. End of story. On trial was not the fee structure proposed.
April 13th, 2010 at 8:25 am
Brown thinks very highly of himself. May the buyer beware when dealing with him.
April 13th, 2010 at 8:55 am
I agree that Brown got screwed. He has put much time and expertise into his system which other people do not have the ability to use at the same level he does.
Sadly, what he has not put time and effort into is basic contract law. GET YOUR AGREEMENT IN WRITING, Mr. Brown!
I feel a tad sorry for the guy. But he created his own problem with his amateur business practices — giving out information to people who were not bound by contract to pay him for it.
He now has a problem, because the Judge found him to be an agent, compensable at an agent’s commission level. If he ever wants to be paid as a consultant, he will have to have an ironclad contract signed by all parties.
April 13th, 2010 at 9:11 am
Perhaps Mr. Irwin should read sections 21-23 of the judgement … Brown didn’t get screwed at all.
He may be good at evaluating his figures and equine talent and he might actually be worth his fees, but Lord Helpus is correct, he failed miserably at Business 101. I’m sure he won’t make the same mistake again.
April 13th, 2010 at 12:34 pm
#3 - Ya right Brown got screwed… Just like every other bloodstock agent… re: Jim Cullen, et al…
April 13th, 2010 at 12:35 pm
Correction to my above post: I reread and I understand Brown is a “consultant ” vs. a bloodstock agent - little difference.
April 13th, 2010 at 12:42 pm
Barry Irwin Says:
Jerry Brown got screwed.
I guess Mr. Irwin must be an expert on these matters as he charges outrageous fees for those over-priced partnerships of his.
April 13th, 2010 at 1:38 pm
To IronLeige–To compare all bloodstock agents to Jim Cullen totally destroys the credibility of your comment. The are many honest and competent agents working in this industry. To OZ–to say that bloodstock agents have no accountability is also out of line. To begin with we would not be able to continue working if we didn’t get results. No one bats 1,000 but without reasonable results we wouldn’t have many clients. I know, myself, when a horse does not work out it is gut wrenching. There is a place for agents who charge a fair commission.
April 13th, 2010 at 2:23 pm
As a “consultant “I recommend a prospective purchase to my “client”. The horse turns out to be one the best to ever look through a bridle. Do I collect a ton of money?
I recommend another purchase to a different client. The guy drops a wad on the prospect who turns out to be the kind who can’t outrun a fat man. Can my client sue me for bad advice?
Or I stand in the mutuel line. Tell the world I love the six…..Same difference.
Even a stopped clock is correct twice a day. Ask any bloodstock agent or consultant.
April 13th, 2010 at 2:33 pm
Mike Bronzino,
You might want to check your facts regarding fees and Team Valor. I would suggest comparing them to other partnerships on a head to head basis before making such a statement. Regarding the horses Ray regularly has the rankings of wins / stakes wins with partnerships and Team Valor / Barry Irwin is always number one.
April 13th, 2010 at 4:14 pm
Remember sports fans, ” You can always tell the class of a man, the first good horse he gets”. History keeps repeating itself.
April 13th, 2010 at 7:14 pm
I”d like PR to announce the inaugural “Bloodstock Agents Stats Index” !! Let the mudslingin’ begin!
April 13th, 2010 at 7:40 pm
Jerry Brown is not a bloodstock agent and should not have been treated as one by the prospective client or the court. He has a unique product and his track record is evidence that he brings a lot more to the table than merely selling somebody a horse.
April 13th, 2010 at 8:20 pm
Respects, Barry, Dr. Bramlage has unique qualities as a veterinary surgeon. Should he look at a big money deal like RA and say, yes I will operate on this ankle for 5% of the purchase price , 5% earnings, plus 5% accrued value? Here’s the contract, sign here before she unloads at the chute? Mr. Brown’s market value will find it’s “unique” level.
April 13th, 2010 at 9:18 pm
I suppose a person’s advice is like a horse — it’s worth what someone is willing to pay for it. If Irwin or someone else is willing to pay that fee structure to Brown, then that’s up to them.
I couldn’t imagine paying that kind of fee for the reasons others have outlined. As the buyer, I’m taking all the risk and need a few to hit to make up for all the ones who don’t hit. The agent wants to be even further rewarded for those few hits, while taking no risk, and certainly not paying anyone back the money they spent on horses who couldn’t outrun the stable goat.
I would suggest that if Brown is so good at selecting horses, that he’s doing himself a disfavor by advising others to buy the horses instead of buying them himself. Just imagine, he could own Rachel right now. Of course, he’d own Rachel, and how many others, who didn’t pan out?
Sorry, I’m still gurgling over suing for $5 million when according to Brown’s own purported fees, he’d only be due about $300,000.
April 14th, 2010 at 7:10 am
Final comment: the number of losers vs. the number of winners in this game is considerable. Therefore, any professional that can improve a participant’s chance of winning can write his/her own ticket.
Year in and year out, Brown’s advice to his clients has panned out and improved their racing success.
These people do not complain about paying him.
The only ones that seem to object are those that a) want to benefit from his advice without paying for it and b) all of those jealous people that cannot figure out how to get from A to B, let alone from A to Z.
April 14th, 2010 at 8:21 am
We’ll just have to guess that “Z” is a fat bank account and a huge ego.
April 14th, 2010 at 8:51 am
As an owner, I can see both sides. I don’t know Brown myself or his track record, but I will say that if there is someone who can fairly reliably point out horses that make money on the track more often than not, they are worth the extra 5% in future earnings and 5% in increase in value. After all, if the horse doesn’t make anything in the future and falls to that $20,000 claiming price some people are mentioning, this consultant isn’t entitled to anything above the standard 5% commission charged by bloodstock agents whether or not their advice is worth anything above the average. Should I mind paying someone an extra $5,000 on each $100,000 that I wouldn’t have made without good advice? Hell no. It costs $30,000 for every year of owning a horse whether or not that horse makes a penny on the track, and it is extremely hard on average for a stable to make enough to even cover the basic training costs. It is also quite painful (for some of us, anyway) to watch a horse you get attached to have to be entered in claiming ranks to be competitive or to have to give them away because they really should have another career. Then you throw away all the investment, financial, emotional, whatever. I would be smiling all the way to the bank to have to share the kind of increase in value and the earnings that Rachel Alexandra has enjoyed.
Now, if there was someone with a superb track record of finding the needles in the haystack that become valuable stakes winners and valuable in the breeding shed, and charged just the performance fees of 5% on the future earnings and increase in value, without charging 5% of the initial price, I would think they should have clients all day long - and a huge incentive to only find REALLY good horses.
April 14th, 2010 at 11:23 am
Aunt Bea: you are correct–the clients have fat bank accounts and a big ego.