Posts Tagged ‘bessemer’

By Ray Paulick

One of the first projects that landed on my desk when I joined the Thoroughbred Times as managing editor in 1988 was a feature story on the Jockey Club, the organization historically entrusted with registering Thoroughbreds and being the keeper of the Stud Book. The article was accompanied by a lengthy mail-in survey of Thoroughbred Times readers. The story and the survey results were of great interest, for at the time I had no idea how broadly the Jockey Club reached across the entire industry and how unhappy rank and file breeders then were with the organization’s service, pricing and activities.

It should be noted that there was an agenda to the article. The Thoroughbred Times was then owned by Richard F. Broadbent, whose Bloodstock Research Information Services was facing new competition from a subsidiary of the Jockey Club. There were questions about whether a tax-exempt breed registry like the Jockey Club should create a subsidiary to compete with a private enterprise company like BRIS, which supplied statistical data to breeders, owners and various publications. A few years later, the Jockey Club helped form another for-profit company, Equibase, which competed with the Daily Racing Form to collect racing results (the Form eventually closed its track and field operations and became Equibase’s biggest customer). The Jockey Club has since started other for-profit businesses.

One of the things that struck me was the comparison between how the Jockey Club and the American Quarter Horse Association conduct their business. The Jockey Club is clearly a breed apart from its Quarter Horse counterpart. The AQHA, then and now, is a relatively transparent organization, one whose membership is open and whose leadership is democratically elected through regional and national elections. There is a board of directors, from which comes an executive committee and elected officers. The AQHA has term limits that prevent individuals from maintaining longstanding control of the organization. The AQHA web site publishes a great deal of information about its governance and membership rules, which can be read here.

By comparison, membership in the Jockey Club has always been by invitation only. Click here for an explanation about membership. It is "governed" by a rotating board of stewards, though that term is used loosely since the Jockey Club has been under the firm control of just two men since 1982, when Ogden Mills “Dinny” Phipps was named chairman and William S. Farish became vice chairman (pictured left). Click here to see the current list of Jockey Club members, stewards, and officers.

The AQHA is a huge organization that maintains the registration of more than five million Quarter Horses, with 135,000 registered in 2007 alone. There are nearly 350,000 AQHA members. According to Internal Revenue Service Form 990 for tax exempt organizations, the AQHA generated $54.4 million in revenue in the 2005-06 fiscal year, the most recent year available. At that time it had $73 million in total assets, including nearly $49 million in investment securities. Click here for the AQHA Form 990.

The AQHA, like the Jockey Club, maintains pedigree records, but also promotes the Quarter Horse breed through horse shows and publishes three magazines (the Quarter Horse Journal, the Quarter Horse Racing Journal, and America’s Horse) that had total circulation of over 400,000 in 2006.

The AQHA charges as little as $25 to register a Quarter Horse foal if done within seven months of birth. The organization is based in Amarillo, Texas, and its highest-paid officer, longtime executive vice president Billie G. Brewer, earned an annual salary of $424,928; treasurer Lee Callaway was paid $221,965 (both figures are from the IRS Form 990.) The two executive salaries represented 5.5% of the AQHA’s total payroll of $11,725,124.

The Jockey Club is also a rich organization, one that is exempt from federal taxes but also has several wholly owned for-profit subsidiaries. The Jockey Club’s 2006 IRS Form 990 states that it registered 37,300 foals that year. The Jockey Club generated $13.2 million in revenue in 2006, the most recent year the figures are available. It claimed $32 million in total assets, including $21.6 million in investment securities. Click here for the Jockey Club Form 990.

In addition, the Jockey Club claimed that its subsidiaries generated over $25.7 million in income for 2006 ($13.7 million by TJC Holdings Inc. & Subsidiaries, which is engaged in information services and software solutions; $4.9 million by The Jockey Club Racing Services, for the collection of Thoroughbred racing data; and $7.1 million by The Jockey Club Technology Services, Inc., for its technology services). Click here for more information on those subsidiaries, which include shared ownership in the data collection company Equibase, and full ownership of TJCIS (The Jockey Club Information Systems  and data supplier Equineline), and InCompass Solutions, which provides software systems for racetracks.

The Jockey Club’s IRS Form 990 lists its annual Round Table Conference in Saratoga Springs, N.Y., publication of its Fact Book, and providing financial support to other industry organizations among reasons for its tax-exempt status, in addition to its breed-registry responsibilities.

The Jockey Club charges $200 to register a Thoroughbred foal, considerably higher than the AQHA’s fee. Its last increase was in 2000, when it was upped from $175. The Jockey Club, which for many years was known as the “New York Jockey Club,” relocated its registration department from New York to Kentucky in 1988. 

Its highest-paid officer is president Alan Marzelli  (pictured, left), who earned $672,796 in 2006, 58% more than the AQHA’s top executive. The Jockey Club has three executive vice presidents: James Gagliano, with a salary of $256,885; Daniel Fick, $243,546; and Laura Banllaro, $243,804. IRS Form 990 also lists but does not itemize another $542,776 in 2006 pension plan contributions for those officers. The salaries represented 39.1% of the Jockey Club’s total payroll of $3,626,092 (exclusive of its subsidiaries, each of which have its own executive staff and employees).

The Jockey Club’s 2006 tax return came to light recently when an entity called “CTBA Boardwatch” (which generally concerns itself with the inner workings of the California Thoroughbred Breeders Association) distributed IRS Form 990 to numerous individuals. A number of those people contacted the Paulick Report and were outraged over the salaries paid to Marzelli and his three executive vice presidents.

I don’t know the going rate of executive compensation for a tax-exempt company in New York, where three of the four Jockey Club officers are based (only Dan Fick, a former AQHA executive, is located in the Lexington offices of the Jockey Club). Perhaps those numbers are perfectly in line with other non-profits. I would imagine, though, that the going rate for an executive staff is higher in New York than it would be in Kentucky.

It does seem strange to me that the Jockey Club continues to maintain a nicely appointed office in the high-rent district of midtown Manhattan, on 52^nd Street just off Park Avenue. I doubt that it’s gotten many walk-in customers seeking to register their foals since the registration department was moved to Lexington more than 20 years ago. It is conveniently located near the headquarters of Bessemer Trust, the Phipps family-run wealth management firm whose offices are just a few blocks away on Fifth Avenue.

I asked Jockey Club communications officer Bob Curran why the Jockey Club continues to have a New York office 20 years after the organization’s primary function was relocated to Lexington. A few days later I received the following statement from Jockey Club president Marzelli: “Beginning in 1989, when the first of our commercial subsidiaries was incorporated, The Jockey Club has created and developed a group of for-profit subsidiaries and strategic partnerships, each designed to serve specific segments within the industry by utilizing highly efficient, state-of-the-art technology platforms. We have built and managed this growing list of technology-based companies with a corporate office based in New York and operations centers in Lexington, Ky., and Mountain View, Calif.”

That didn’t really answer the question “why a New York office is necessary” although it did tell me something I didn’t know; namely, that the Jockey Club now has a division in California’s high-tech Silicon Valley town of Mountain View.

The bigger question is who is the Jockey Club accountable to. Is it simply Phipps and Farish and their hand-picked stewards? Is the breeders who have paid registration fees over the 100-plus years of its existence? Is the Thoroughbred industry at large? If there is accountability to the industry, why isn’t there more transparency in the operational and financial activities of the Jockey Club and its various subsidiaries? Why is its membership so restrictive and its governance so secretive?

James Gagliano, one of the aforementioned executive vice presidents, touched on some of these questions, during the Jockey Club Round Table in August in which he discussed some of the activities of the Jockey Club and its affiliate for-profit companies. Click here to read Gagliano’s remarks.

Are you satisfied that the Jockey Club is properly and responsibly representing the best interests of the Thoroughbred industry? Let us know in the comment section below, or take the Daily Paulick Poll about the Jockey Club and its activities, located on the left-hand column of the Paulick Report home page.

Copyright © 2008, The Paulick Report

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By Ray Paulick

This Sunday in Saratoga Springs, N.Y., Ogden Mills Phipps  – better known as Dinny throughout the Thoroughbred world – will preside over the 56^th Jockey Club Round Table Conference on Matters Pertaining to Racing.

For those who have never attended, there is no “round table” at this annual throat-clearing exercise for many of the industry poobahs, and there is not really any discussion, either. It’s a precisely orchestrated show that leaves nary a stanza for improvisation, and there is no question about who the conductor is waving the baton. According to several individuals who have spoken at past Round Tables, Dinny Phipps goes over every speech with a fine-tooth comb, cutting out things he doesn’t like and adding points he wants to have made.

The Round Table is one of the projects of the Jockey Club that Phipps has overseen since becoming the breed registry’s chairman in 1982. That same year, William S. Farish became the Jockey Club’s vice chairman. That’s 26 years running as a two-man team, 

But let’s not look ahead to Sunday’s festivities just yet. Let’s go back in time to a day when Dinny Phipps wasn’t trying to save the entire Thoroughbred industry; he was merely applying his business skills, enthusiasm and charisma to New York racing.

Some people who confuse wealth and power with vision and business intelligence might say that Dinny Phipps was born to lead. He is a member of one of America’s wealthiest families. His great-grandfather, Henry Phipps, was Andrew Carnegie’s partner in what became known as U.S. Steel, and he was the founder of Bessemer Trust, for which Dinny Phipps has served as chairman. As if that wasn’t enough, Dinny Phipps’ grandfather, Henry Carnegie Phipps, married into another of America’s wealthiest families, that of Darius Ogden Mills, who struck it rich in the California Gold Rush. At one time, the Phipps family owned roughly one-third of the exclusive island enclave of Palm Beach, Fla., where Dinny Phipps officially resides (Florida has no personal income tax).

Dinny Phipps followed his grandmother (Mrs. Henry Carnegie Phipps of the Wheatley Stable) and his father, Ogden Phipps, into Thoroughbred racing. Phipps and his father also were skilled at “court tennis” (some call it real tennis), a game that also found popularity with royalty in 16^th and 17^th century France and England. Ogden Phipps was a mover and shaker in New York racing, serving for years as a trustee of the New York Racing Association and also as chairman of the Jockey Club.

Dinny Phipps was made a member of the Jockey Club in 1965, when he was just 24 years old. In 1971, at the age of 30, he was appointed to the board of trustees of the New York Racing Association. It was the same year the first Off-Track Betting shop opened in New York, a development that sent on-track business at the NYRA tracks into a long and steady decline.

Young Phipps wasn’t entirely a chip off the old block. Whitney Tower, writing in Sports Illustrated, said most members of the Phipps family went out of their way to avoid publicity. Tower wrote in 1965: “Until Dinny slightly altered the family pattern by hobnobbing in track press boxes and frequenting Toots Shor’s (a midtown Manhattan bar and grill frequented by celebrities and athletes), none considered the press anything more than a necessary evil of the modern age."

Tower, whose sense of humor could be wicked, also wrote of the young (and still growing) Phipps’ court tennis skills in the 1965 article that featured the Phipps family’s Bold Lad, an early season Kentucky Derby contender. “Dinny, who, like Bold Lad, has never missed an oat in his life (weight, 275 pounds), is defending amateur doubles champ with Northrup Know, after playing No. 2 on both the tennis and squash teams at Yale.”

Phipps was moved up to a newly created position of vice chairman of the NYRA board in 1974. The chairman, Jack Dreyfus, bred and raced under the name Hobeau Farm and was best known as the creator of the mutual fund through his financial company, the Dreyfus Fund. Dreyfus also spoke willingly about his bouts with clinical depression and became a vocal proponent of a drug he was given to treat the problem.

In an extraordinary editorial in the Feb. 16, 1976, Bloodhorse magazine, editor Kent Hollingsworth called for Dreyfus’ ouster as NYRA’s chairman.

‘The roof is leaking,” Hollingsworth wrote of NYRA and its three racetracks, Aqueduct, Belmont Park, and Saratoga. “In other sports when the trend is downward, the coach or manager is fired. … (Dreyfus) has lost the confidence of a growing number of New York owners and trainers and cooperation of management and horsemen is absolutely essential to reverse the downward trend of New York racing.”

Hollingsworth then endorsed Phipps to become the new chairman.

“Young Dinny Phipps, vice chairman of NYRA, has the support of most New York owners and trainers. As chairman, Phipps would be more accessible, and greater cooperation with horsemen could be attained. Also, the vacant slot for a director of racing needs filling now, by a man who has the experience and rapport with both management and New York horsemen. … The NYRA needs new – not just new, but better – direction. It needs it now, for all of racing cannot afford to have New York racing continue downward.”

Five months later, in July 1976 Dreyfus stepped down and Dinny Phipps was appointed NYRA’s chairman. “I hope I can fulfill the duties of this office with the same energy, foresight and creativity displayed by Jack Dreyfus,” Phipps was quoted in the Bloodhorse. “Working under him has been a valuable experience.” The Bloodhorse article gave no professional or business background  on Phipps, only saying that he was the son of Ogden Phipps.

By today’s standards, on-track business looked pretty good when Phipps took over. Aqueduct’s early-season meeting had average on-track attendance of 20,722, Belmont Park’s summer meeting averaged 24,387, and its fall meeting averaged 20,363. Saratoga had a daily average of 18,894.

But there were serious problems, and they would only get worse. By the time Phipps left in 1983, those same numbers were 13,340 at Aqueduct, 19,530 at Belmont summer and 16,735 for Belmont’s fall meeting. Saratoga was the lone bright spot, increasing to 26,644 by 1983.

Phipps spoke before New York legislators after his appointment, saying: “Thoroughbred racing in New York State, once a growth industry, has fallen on evil days, and a period of crisis is clearly upon us. And this has happened, purely and simply, because growth has stopped. … There may be those who will argue that concern for on-track growth is misplaced in the era of OTB and who anticipate the day when tracks will operate primarily to serve off-track clientele. If this day comes, we believe it will mark the end of both OTB and the tracks. We do not believe that OTB can flourish and prosper in a climate of ever-declining interest in on-track racing. The tracks make customers for OTB, not the other way around.”

But under the headline “Better Days Ahead,” a story in Bloodhorse magazine in November 1976 quoted Phipps telling the American Trainers Association that NYRA was going to “make an all-out effort” to improve conditions.  

The efforts went unnoticed by Sports Illustrated the following June after Seattle Slew clinched the Triple Crown with a win in the Belmont Stakes. “The 70,000 people who showed up at Belmont Park Saturday did so despite the best efforts of the New York Racing Association to keep the race a secret,” the Scorecard item read. “No wonder the NYRA is in trouble. … NYRA chairman Dinny Phipps needed a bang-up selling job. So, the week of the Kentucky Derby, just one month before the Belmont, Phipps hired a marketing expert and gave him the title vice-president in charge of marketing. It seemed like a smart move.

"But new VP Ted Demmon admits that the only thing he knew about horses is which end the tail is on. “His previous job was marketing vice-president for Hardee’s, the ‘hurry on down to’ hamburger joints, where he was also in charge of product development. While Phipps hasn’t yet assigned him that job, someone at the NYRA should have told Demmon that a man named Billy Turner has just spent a year developing the hottest product the NYRA could have hoped for. Yet just three days before Seattle Slew was to become the first undefeated Triple Crown winner in the history of racing, the television ads in New York were still inviting people to come out to beautiful Belmont Park, where, just maybe, some afternoon they might see another Secretariat.”

At the end of 1977, his first full year as chairman, Phipps was scarcely mentioned in Bloodhorse’s annual index of articles. The few references included the fact he had commissioned artist Richard Stone Reeves to paint a portrait of Bold Ruler, that he was awarded the P.A.B. Widener Trophy in Kentucky, that he was re-elected as a director of the Grayson Foundation and that he and his wife had a son born in July (sort of like those stud news items that announce when a major stallion’s first foal is born).

But things were happening at NYRA. In September 1977, Thomas FitzGerald was forced out as NYRA president and James Heffernan was brought in to replace him. There were labor problems with mutual clerks, and a TV deal was struck to show some major races on CBS.

The major emphasis after Phipps took over as NYRA chairman was to convince then-Gov. Hugh Carey to push for a reduction in takeout in hopes that it would stimulate handle and on-track attendance. Independent research commissioned by NYRA, the Pugh-Roberts Study, showed business would go up between 12-15%. How hard did Phipps work on this? “We put in two hours every working day just on this one thing,” said Phipps, who even made two trips to the state capital in Albany. Eventually, a 20-month takeout reduction experiment was approved, and Phipps became the toast of racing. 

The New York Turf Writers named him “the man who did the most for New York racing.” In February 1979, Phipps was given the Eclipse Award of Merit by a committee representing Daily Racing Form, the National Turf Writers Association and the Thoroughbred Racing Associations.

Hollingsworth, Bloodhorse’s editor, remained one of Phipps’ biggest supporters, writing of NYRA: “The management is tops; NYRA board chairman O.M. (Dinny) Phipps is young, innovative, responsive, with a competent staff of experienced professionals that knows what should be done and does it.”

Six months after giving Phipps the Eclipse Award of Merit, however, the presenters might have wanted to call for a “do-over.” Business at the Belmont summer meeting was down in attendance and up only slightly in handle after the takeout reduction, falling well short of the Pugh-Roberts Projections. NYRA’s overall year-to-date business was even more dismal, with attendance dropping 13% and betting off 8.4% through the first seven months of 1979.

“Despite reduced takeout and million-dollar promotion campaign, no light has appeared yet at the end of the tunnel,” Bloodhorse’s New York correspondent William Rudy wrote. “Nor was the atmosphere a happy one. Horesmen were irate over what they termed general ineptitude in the racing department, and a new organization, the New York Thoroughbred Horsemen’s Benevolent Association, was formed with Jack Gaver president and Joe Trovato and Murray Garren vice presidents. The group issued a statement that said: “You must be able to communicate with the NYRA if you have a problem or disagree with existing policies. … The fact is that the NYRA now is pretty much a closed shop at top levels.”

The critical Bloodhorse article said NYRA’s board members were mostly yes men who “all go along with decisions made. … Members are often informed at board meetings of actions already taken. There is, on occasion, dissent from former NYRA chairman Jack Dreyfus Jr., a gentleman who seems inhibited by a feeling he should not criticize his successors.”

For his work, Phipps was rewarded with re-election as chairman in May 1980, a year that ended just as poorly as the previous year: Belmont attendance was down 8.2% and 3.8% in handle, while Aqueduct’s late-season meeting dropped 13% in atteance and 8% in handle.

The following year, former treasurer Jerry McKeon replaced Heffernan as NYRA president. The legislature began looking at the 1985 expiration of NYRA’s franchise and invited racing people to speak at a hearing of a joint legislative task force in Albany. Penny Chenery, who raced Secretariat, expressed her displeasure over the actions of the board and management of NYRA, telling legislators: “If you gentlemen perceive as I do a lack of responsiveness on the part of NYRA, I urge you to require of the board of trustees responsibility for the performance of the NYRA and its CEO,.”

After nearly 6 ½ years as NYRA chairman, Phipps resigned the post in January 1983, and he was succeeded by Thomas Bancroft, who also failed to reverse the slides at Aqueduct and Belmont that accelerated during the Phipps era (Saratoga was an exception). 

Phipps has remained on the NYRA board, and some have likened his stepping down in 1983 to the recent replacement of president Vladimir Putin in Russia, who was constitutionally prohibited from running for a third consecutive term. Just as Putin has not stepped aside after being nominally replaced by Dimitri Medvedev as president (Putin remains “prime minister”), high-placed industry sources say that Phipps continues to call many of the shots in New York racing from behind the scenes.

In that is the case, Dinny Phipps, if nothing else, is a master of the power play.

Copyright © 2008, The Paulick Report

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