Posts Tagged ‘brownell combs’
Wednesday, May 6th, 2009
By Ray Paulick
“I’m often credited with the motto, ‘Only the paranoid survive.’ I have no idea when I first said this, but the fact remains that, when it comes to business, I believe in the value of paranoia.” – Andrew Groves, founder and former chairman, Intel Corporation.
“Just because I’m paranoid doesn’t mean they aren’t out to get me.” Anonymous.
There appears to be a mixture of both paranoia and rational thinking when it comes to how governance over the Breeders’ Cup has evolved in the last decade among the different camps that have fought behind the scenes to control this critically important industry organization.
For most of its 25-plus years, the Breeders’ Cup was run by a small executive committee headed by Jockey Club vice chairman and Lane’s End Farm owner William S. Farish, and later by G. Watts Humphrey, a Jockey Club steward and a partner in many of Farish’s equine interests. Board meetings were perfunctory events where self-perpetuating members of the Breeders’ Cup board did little more than rubber-stamp decisions made by the executive committee. Breeders’ Cup management carried out those directives.
Some breeders grew increasingly frustrated over this “private club” style of leadership and made demands for change: specifically, a more democratically elected Breeders’ Cup board of directors and one that isn’t controlled by a small executive committee. Significant change came in 2005 with amended corporate bylaws and articles of incorporation that allowed breeders who nominate foals and stallions to the program to vote for a board of 39 members and trustees. Those members and trustees would then elect a smaller operating board of directors to guide the organization.
At first blush, it looked as though the individuals who had controlled the Breeders’ Cup (namely Farish and Humphrey) were acceding to a democratic system (or at least one based on one vote per $500 in Breeders’ Cup nominations). But a closer look suggests they may have found ways to tip the scales of the election in their favor. In fact, a Farish has been able to maintain control of the Breeders’ Cup under the new election process, but it’s William Farish’s son, Bill, who has held the title of chairman of the board since the new system was adopted and the first reconfigured board of directors elected in 2006.
The "election" of Bill Farish as chairman was a fait accompli even before the new board had its first meeting. "We have decided to elect Bill…" several newly elected directors were told on the eve of that first meeting, at which there was little discussion about a chairman. Farish has two years left to be chairman (term limits prohibit anyone serving more than five consecutive years as Breeders’ Cup chairman or vice chairman), and ground work is said to already be under way for Reynolds Bell, who does bloodstock work for Lane’s End, to replace Farish as chairman.
Back to the election of members and trustees. There is a section of the bylaws that permits the standing board of members and trustees to veto anyone voted onto the board by stallion and foal nominators. That authorization hasn’t been used since it was incorporated into the bylaws, but why is it even there? Is it possible this may be used in the event the people in control of the Breeders’ Cup become paranoid and worry that their grasp on power is in jeopardy?
Another example: Why would the current bylaws allow corporate officers (including paid employees) to participate in the election for the board of directors? Whether you are paranoid or thinking rationally, you’d have to assume that the paid officers, if they wanted to keep their jobs, would vote to maintain the status quo. The same goes for the section in the bylaws that allows past presidents to vote in the board of directors election. Currently, James E. Bassett III and D.G. Van Clief Jr. are permitted to vote for the board of directors at the annual meeting of members and trustees. Whenever the tenure of current president and CEO Greg Avioli ends, he will also have the right to vote for members of the board of directors.
Would it be paranoid to suggest that these three officers and two past presidents would be considered “safe” votes for the incumbents, as, represented by Farish and son?
For this year’s election of the board, to be held in July, the three corporate officers have agreed to abstain from voting. That’s a good move to alleviate concerns over conflict of interest, but the clause permitting their vote should be stricken from the bylaws. Past presidents Bassett and Van Clief should also agree not to vote in the election, and there is no reason to include past presidents in this decision making process.
Then there is the matter of the Founding Members, those individuals who put up $10,000 apiece as seed money when the Breeders’ Cup was established. The current founding members are Brownell Combs II (formerly of Spendthrift Farm), William S. Farish (Lane’s End), Jim Friess (appointed by Claiborne Farm’s Seth Hancock, the actual founding member), Brereton C. Jones (Airdrie Stud), John T. L. Jones Jr. (director emeritus of Walmac Farm)and John Nerud. It may have seemed like a good idea at the time to give certain lifetime rights to these individuals, but at least two of these founding members are no longer active in the business and it makes no sense for them to be able to vote annually on the election of board members. This is especially true when you consider the individuals (Sheikh Mohammed, John Magnier, Robert Clay, Tom Simon, Duncan Taylor, among others) who have put up huge sums in nominations and have to stand for election in order to have a vote for the board of directors.
So what we have is a sort-of democracy. One that allows nominators to vote for members and trustees (whose sole authority is to elect a board of directors), but which also says the existing members and trustees can exclude whoever has been elected by those nominators. It’s a democracy that gives current and past paid employees just as big of a say in shaping the board of directors as people who have put millions of dollars into the program and have to stand for election.
To the credit of the Breeders’ Cup, there has been progress (click here to read the Paulick Report article on this year’s election), though it would not have been made without criticism, paranoid or otherwise, of how the current election system is shaped. The old guard that’s run the Breeders’ Cup has come a long way, but there’s more to be done.
Copyright © 2009, The Paulick Report
Support the Paulick Report. Make a donation today.
Sign up for our Email Flashes to get the latest news, analysis and commentary from Ray Paulick
Tags: Bill Farish, Breeders' Cup, breeders' cup election, breeders' cup founding members, Breeders' Cup members and trustees, brownell combs, D.G. Van Clief, duncan taylor, G. Watts Humphrey, Greg Avioli, James E. Bassett, jim friess, Jockey Club, john magnier, john nerud, john t.l. jones, Paulick Report, Ray Paulick, reynolds bell, Robert Clay, Seth Hancock, sheikh mohammed, tom simon, William S. Farish
Posted in Breeders' Cup | 11 Comments »
Tuesday, February 3rd, 2009
By Ray Paulick
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.
“As a result of my willingness to speak out, many people have contacted me and have expressed their concerns and serious reservations about Breeders’ Cup management,” Blum told the Paulick Report. “One theme that continually comes up when people share their thoughts with me is, ‘What are they trying to cover up?’ Have there been any bonuses recently paid, particularly in this troubling economy when (President Obama) in the last few days referred to bonuses paid to bankers as shameful, outrageous and the height of irresponsibility? If there have been any bonuses, who got them, when they did get them, and how much did they get? And if they were given, why were they given, especially in light of the Breeders’ Cup announcement to cut off supplemental funding for 121 races throughout the year? (That decision was quickly reversed.) Furthermore, have there been any recent senior management contract extensions. If so, who got them, and when and why were they given?”
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.
Blum also takes issue with how votes are allocated to those farms with stallions (stallion owners are entitled to one vote for each $500 of a stallion’s stud fee).
“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
Visit the Paulick Report for all the latest news throughout the racing world.
Sign up for our Email Flashes to get the latest news, analysis and commentary.
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
Posted in Breeders' Cup, Industry Organizations | 21 Comments »
Thursday, September 4th, 2008
By Ray Paulick
In his wildest dreams, Hal Price Headley could not have imagined what eventually would develop from the 145-acre plot of land and training center on Versailles Road outside of Lexington, Ky., that he was asking his fellow horsemen and Blue Grass residents to buy from John Oliver Keene in 1935. His proposal for “a model race track” was detailed in a 24-page prospectus that outlined why it was important for Lexington to have a new racetrack, how the seed money would be raised, where that money would be spent, what specifically would be acquired, when race meetings would be conducted, and how this new association would be run.
What ensued from Headley’s plan was Keeneland, which evolved from a community-owned, non-profit company, one that grew in size and scope, largely through the acquisition just over a quarter century later of a Thoroughbred auction breeders co-op, and is now a tightly controlled for-profit business that may be the largest Kentucky cash repository this side of Fort Knox.
Headley’s plans for Keeneland were taken to the Blue Grass community at a mass meeting at the old Lafayette Hotel in downtown Lexington on March 20, 1935, at the height of the Great Depression. More than 200 people attended, and “by a virtually unanimous standing vote,” a new committee of 10 members was appointed to move forward “in an effort to procure the funds to finish the plant and finance the first (race) meeting.”
Keene had already built a track for training, and a 258-foot-long stone building that could serve as a clubhouse was nearly completed. But Headley and his fellow planners felt they needed to raise significant funds to complete the purchase and develop the facility to their satisfaction.
To raise the money, the prospectus said, the so-called Committee of Ten decided to sell 3,500 “non-voting preferred shares of stock in Keeneland in units of $100 each, with interest at 6%…It will be the privilege of the association to retire this stock in whatever proportion it can afford at any dividend date, and it is contemplated that the retirement will be effected as rapidly as possible.”
Another 3,500 shares of “voting, no-dividend, no-par common stock” were also offered. Together, according to articles of incorporation filed April 17, 1935, the Keeneland Association had $700,000 in capital stock.
“It is our desire that lovers of the Thoroughbred throughout the country will recognize in this a serious effort to establish a model racetrack, to perpetuate racing in the proper manner and to provide a course which will stand for many years as a symbol of the fine traditions of the sport,” the prospectus said.
“In order to accomplish these ends we shall first ask the aid of sportsmen in building the track. Later we shall ask them to race their horses and to lend their own presence at the meetings. We shall ask the good will and the active cooperation of many, for this is an enterprise which, if it proves successful, will be an everlasting credit to the sport of racing, not only in Kentucky, but throughout America.”
A partial list of those who purchased common stock at the outset included: Richard C. Stoll (three shares), Hal Price Headley (200), Brownell Combs (200), Carneal Kinkead (3), W.R. Embry (3), W.H. Courtney (3), T.H. Kink (3), Wallace Muir (200), A.B. Gay (200), Victor K. Dodge (200), Thomas Piatt (200), A. B. Hancock Jr. (200), L. B. Shouse (200), Frazer D. LeBus (200), Horatio Mason (3), Jack S. Young (200), Barry Shannon (3), Louis Lee Haggin (3), Fred W. Rankin (3), J.N. Camden (3), C.R. Thompson (3), Louie A. Beard (200), and Silas Mason (200).
Headley was made Keeneland’s first president, and the track hosted its first day of racing the following year, Oct. 15, 1936.
A few years later, in February of 1940, new articles of incorporation were filed by a new company known as “Keeneland Race Course,” which would lease property from the Keeneland Association to conduct the two annual race meetings. There were 25 shares of common stock in this new company, with 10 owned by L.A. Beard, and three each by L.L. Haggin II, J. Edward Bassett Jr., Harold Fallon, W. C. Smith, and J.A. Estes.
Additional changes to the articles of incorporation would follow, including a 1950 amendment that dictated Keeneland’s assets, in the event of voluntary or involuntary dissolution, could only be distributed to organizations that were not required to pay federal taxes.
Keeneland itself was tax-exempt, both on a federal and state level, from its inception until 1958, when it had to pay state tax on wagering. The following year, the Internal Revenue Service removed Keeneland’s non-profit status and required the company to begin paying federal taxes.
“This will kill the goose that lays the golden eggs,” said Louie Lee Haggin II, who was president of Keeneland Race Course from 1940-56 and of the Keeneland Association from 1956-70.
That couldn’t be further from the truth, however. In the late 1950s, Keeneland was getting ready to enter an era that would make it the most profitable company in racing, thanks to its takeover of the Breeders’ Sales Company, a co-op started by a group of Kentucky breeders in 1943.
The Breeders’ Sales Company was created during World War II when racing at Saratoga in upstate New York was canceled in 1943 because of travel limitations. The annual summer yearling sale in Saratoga was canceled as well. At the same time, Kentucky horsemen learned they would be unable to ship their yearlings by rail to anywhere in the East and they quickly put together a sale under a tent on the grounds of Keeneland.
The 1943 sale was conducted by officials from Fasig-Tipton, but there were numerous complaints from breeders about the conditions. A meeting of breeders, led by Arthur B. Hancock of Claiborne Farm, was called at the Lafayette Hotel a few weeks after the sale to discuss what future direction they should take. “There have been a lot of gripes about the sale and the sales company,” Hancock was quoted in Bloodhorse magazine as saying. “I haven’t had any trouble personally, but I’ve heard a lot of criticism. Let’s go around the table and see what these gripes are.”
Bloodhorse reported: “Most of the grievances seemed to imply a general pettiness in the management of the sales.”
Within weeks, after discussions with Fasig-Tipton failed to resolve their differences, the breeders voted to form the Breeders’ Sales Company and hoped to build a sale pavilion on the grounds of Keeneland.
According to the Sept. 4, 1943, edition of Bloodhorse, “Mr. Headley, on behalf of Keeneland, offered the ground for such a pavilion, but specified that it must not be in the ownership of a sales company.” Twenty years later, Keeneland played a different tune.
The new company was a true co-op, with any year-end profits derived from the sale commission to be divided among participating breeders on a pro-rata basis. It held its first sale in the summer of 1944 and enjoyed sustained growth, eventually expanding to offer five different sales during the year for racing stock, yearlings and breeding stock.
In 1962, that all changed, when the Breeders’ Sales Company was turned over to Keeneland. There are different stories about who was responsible. Some say Headley insisted the breeders turn it over to Keeneland to prevent the association from going bankrupt. Others have said Leslie Combs of Spendthrift Farm and Howard Reineman of Crown Crest Farm maneuvered to give it to Keeneland, with Combs allegedly maneuvering to become the next president of Keeneland.
No matter who was responsible, the deed was done. In a meeting at the Campbell House in Lexington, approval was given to hand the Breeders’ Sales Company to Keeneland. Small-scale breeders who depended on the year-end profit sharing revenue were upset because they felt they were going to get squeezed. Many of them saw tremendous growth in the Thoroughbred commercial market coming on the horizon.
The decision to give the Breeders’ Sales Company to Keeneland was perhaps the most monumental mistake Thoroughbred breeders collectively have ever made. From 1962 on, after billions of dollars of auction sales, Keeneland has collected hundreds of millions of dollars in profit while many small-scale breeders have struggled.
TOMORROW: Who owns Keeneland, what became of the shareholders, who runs the company, and where does all that money go?
Copyright © 2008, The Paulick Report
Support the Paulick Report. Make a donation today.
Tags: a.b. gay, a.b. hancock jr., barry shannon, blue grass, breeders' sales company, brownell combs, c.r. thompson, campbell house, carneal kinkead, Claiborne Farm, frazer lebus, fred rankin, hal price headley, harold fallon, horatio mason, howard reineman, j. edward bassett jr., j.a. estes, j.n. camden, jack s. young, john oliver keene, keene, Keeneland, l.b. shouse, l.l. haggin II, lafayette hotel, leslie combs, louie beard, louis lee haggin, Paulick Report, Ray Paulick, richard stoll, silas mason, t.h. kink, thomas piatt, thoroughbred, thoroughbred auction, thoroughbred sale, victor k. dodge, w.c. smith, w.h. courtney, w.r. embry, wallace muir
Posted in Keeneland | 11 Comments »
|
|
