Posts Tagged ‘Dinny Phipps’
Thursday, October 1st, 2009
By Ray Paulick
Anyone who has been with us at the Paulick Report since our June 2008 launch knows that I have been critical of Ogden Mills Phipps as one of the Thoroughbred industry’s leaders, or to borrow a phrase from the late John Gaines, a “self-appointed guardian of the Turf.”
One thing I’ve never questioned in my own mind, though I probably have never written it here, is that the Jockey Club chairman better known as “Dinny” loves this industry as much as anyone and has always acted in what he believes to be in the industry’s best interests. What those actions are and have been is where he and I hit the fork in the road.
This has been a tough year, personally, for Dinny Phipps as he has battled some health problems, and if the old axiom is true that the outside of a horse is good for the inside of a man, I’m sure I’m not alone in wishing the Phipps Stable continued success in 2009 and beyond. That stable, carefully developed over generations of both horses and the family that has owned and bred them, is quietly having a very good year in terms of success in American Graded Stakes, with three AGS winners of four graded stakes. Sure, it’s not quite like 1988, when Dinny’s late father, Ogden Phipps, directed the stable to one of the most amazing years in racing history, when Personal Ensign, Easy Goer, Cadillacing and other Grade 1 winners carried private trainer Shug McGaughey and the Phipps family to a sweep of the Eclipse Awards in outstanding trainer, breeder and owner categories. Five years later, McGaughey won five Grade 1 races on the Jockey Club Gold Cup card at Belmont Park, led by Miner’s Mark’s triumph in the Gold Cup itself.
The three 2009 Phipps Stable AGS winners (Parading, by Pulpit; Vacation, by Dynaformer; and Gone Astray, by Dixie Union) put this relatively small but select outfit in a four-way tie for third with three other homebreeding operations ( as opposed to commercial breeders), Sheikh Mohammed’s Darley Stable; the Juddmonte Stable of Saudi Arabian Prince Khalid Abdullah; and the stable operated by Virginia-based Edward P. “Ned” Evans. The leader, with five AGS winners of 2009, is Robert and Janice McNair’s Stonerside Stable.
I don’t really think it’s any coincidence that the leading breeders of AGS winners are outfits designed to produce horses for the racetrack as opposed to the sale ring. Are there any lessons that commercial breeders can gain by more closely studying how these private operations have functioned, developed their broodmare bands, and plan their matings? Perhaps.
Looking at Bloodhorse.com’s list of leading breeders by money won, Stonerside ranks the highest of the five leaders by AGS winners at fifth on the money list behind Adena Springs, Eugene Melnyk, Brereton Jones, and William S. Farish. Stonerside, which was sold to Darley when the McNairs opted to get out of the business, also has the most starts of the five (604). Evans is sixth on the money list from 437 starts; Juddmonte is eighth, with 217 starts; Darley is 11th, with 423 starts; and Phipps 22nd, with 206 starts.
Tags: adena springs, American Graded Stakes Standings, brereton jones, darley stable, Dinny Phipps, Edward P. "Ned" Evans, eugene melnyk, Gone Astray, Janice McNair, Jockey Club, Juddmonte Stable, Keeneland, Ogden Phipps, Parading, Paulick Report, Phipps Stables, Ray Paulick, Robert McNair, shug mcgaughey, Stonerside Stable, Vacation
Posted in American Graded Stakes Standings, Keeneland | 3 Comments »
Thursday, June 18th, 2009
By Ray Paulick
For those of you wondering whether I’d gone into the witness protection program following the announcement of election results for the Breeders’ Cup board of members and trustees (where 10 of those elected were recommended here in an earlier analysis), fear not. As one of my mentors in this business often reminds me, family should be a person’s top priority, and I’ve spent the last couple of days carrying out his advice.
Several things stood out when the results were announced on Tuesday. First, I believe they represent a victory for continuing the trend toward transparency and openness for the organization. There should be no turning back to the days of secrecy with how the industry’s money is being spent at the Breeders’ Cup. Minutes to board meetings should be posted on the Breeders’ Cup web site, information about committees and subcommittees needs to be published, and decisions should no longer be made in a vacuum. I believe the board of directors, which has taken steps in the right direction over the last couple of years, has been put on notice in that regard during this year’s vote by nominators.
Second, I believe the results showed dissatisfaction with the status quo. Two members of the smaller operating board of directors, Don Dizney of Florida and Tracy Farmer, were not re-elected to the larger board of members and trustees. It’s that larger board that decides who to elect for the smaller operating board, and to be a candidate you have to be on the board of members and trustees. Dizney and Farmer will be replaced on the smaller board after having been defeated in the election.
Third, the results show the strength of stallion farms and coalitions, something I wrote about last year. I don’t think any one stallion operation has the votes to elect an individual to the board of members and trustees, but several farms working together can do so. And there was coalition building going on prior to and during this election process.
Finally, and perhaps most significantly, the leading vote getter among Breeders’ Cup nominees, Richard Santulli, is the same man rejected by a majority of members and trustees voting for the smaller board of directors last year. I wrote then that the members and trustees made a huge mistake in not electing Santulli to the board. He is a man with great energy, enthusiasm for this industry and great business experience that could be put to extraordinarily good use by the Breeders’ Cup. He is chairman of NetJets and often is mentioned as a potential heir apparent to Berkshire Hathaway’s Warren Buffet. Perhaps the “old guard” on the board of members and trustees voted against Santulli because NetJets dropped its Breeders’ Cup sponsorship, or maybe because he is closely associated with Thoroughbred Daily News Publisher Barry Weisbord, who can be a prickly critic of the status quo. It’s also widely believed that Santulli felt the Breeders’ Cup should have sought executive experience from outside of horse racing when current Breeders’ Cup president and CEO Greg Avioli was given the job in 2007. Putting him on the smaller board could add some discomfort to management.
Whatever the reason, the nominators in this election voiced strong disapproval of the vote to keep Santulli off the operating board. Let’s hope he still has the interest in giving his time, energies and insights to the industry and will submit his name for nomination later this month.
There are six open spots on the board of directors, and if dissatisfaction with the status quo and the old guard carries over into that election, we could have a significant change in philosophy on the operating board. As mentioned, the board positions currently held by Tracy Farmer and Donald Dizney are open because they failed to be re-elected to the board of members and trustees. The other four candidates that are up for re-election are Reynolds Bell, Don Robinson (appointed to fill out the remainder of the term held by B. Wayne Hughes, following the decision by Hughes to resign from the board earlier this year), G. Watts Humphrey and Bob Manfuso.
Bell and Humphrey are closely associated with Lane’s End Farm, owned by William S. Farish, the father of current Breeders’ Cup board chairman Bill Farish. For years, Humphrey and the senior Farish were the guiding force of the Breeders’ Cup executive committee, back when the organization practiced limited transparency and operated under the auspices of a self-perpetuating board.
While the old guard from the Jockey Club (Farish is a Jockey Club member, his father-in-law is chairman Ogden Mills (Dinny) Phipps and his father is vice chairman, Humphrey is a longtime member and former steward, and Bell is a member and current steward of the club) did maintain control in the last board election, their grip on power has been weakened. I expect the slate of candidates from opponents of the status quo/old guard to make a concerted effort to defeat Humphrey and Bell in the upcoming election. Sources say Bell, who does extensive bloodstock work for Lane’s End, has been hand-picked by the Farishes to replace Bill Farish as Breeders’ Cup chairman if Farish serves five years, the limit for a chairman under the organization’s current bylaws. He has served three years in that role.
There will be much more here in the coming weeks on the Breeders’ Cup board election, which takes place during a meeting of the newly elected members and trustees on July 9. Candidates seeking a position on the board have until June 30 to state their intention to run.
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Tags: Barry Weisbord, Bill Farish, bob manfuso, Breeders' Cup, breeders' cup election, Dinny Phipps, Don Robinson, donald dizney, G. Watts Humphrey, Greg Avioli, Jockey Club, lane's end farm, netjets, Ogden Mills Phipps, reynolds bell, richard santulli, tracy farmer, William S. Farish
Posted in Breeders' Cup, Industry Organizations, Jockey Club | 6 Comments »
Tuesday, June 16th, 2009
By Ray Paulick
There have been very few dull moments since the Paulick Report was launched one year ago today, June 16, 2008. I guess that’s one of the benefits for a journalist covering an industry in turmoil.
Where to begin? We’ve posted 418 of our own stories, most of them written by me, and have linked to thousands of others published in daily newspapers and trade publications – both of which are going through their own economic crises – and the independent writers who represent about the only growth segment of the industry through their online blogs.
The idea behind the creation of the Paulick Report was to offer independent coverage of an industry that, for the most part, has been given a free pass from the press. We’ve tackled many subjects people in the industry have talked about for years but were left untouched by the media. Foremost among those issues is the leadership that is largely responsible for the problems the industry now faces.
Among other subjects, we’ve examined how the Breeders’ Cup has evolved over the last 25 years, going from a small group of self-appointed leaders to a more democratic process where nominators to the program have a say over who is charge. But the battle for control has been fierce, between the “old guard” led by Will Farish, his son Bill and some close associates, and the “new guard,” represented by people like Bill Casner of WinStar Farm.
Many of the Breeders’ Cup nominators weren’t very happy in December when the organization’s board of directors voted to eliminate the special stakes program supplements that have been a key part of the program since 1984. The Paulick Report covered that story aggressively and accurately, reporting on the significant losses of the Breeders’ Cup’s investment portfolio, which coincided with the decision to eliminate the stakes supplements. The uproar was substantial, and in an unprecedented move, the board quickly reversed its decision and kept the stakes program for at least another year.
We’ve taken a close look at how the Jockey Club, run for years by Dinny Phipps, has tentacles reaching into many other industry organizations in an attempt to control as much of the business as possible. We also reported on how The Jockey Club, whose principal purpose is to be the Thoroughbred breed registry, has built a family of for-profit companies that have done quite well financially at the expense of industry participants.
Another company that has prospered is the Keeneland Association (which we referred to as “Lexington’s Fort Knox” in a two-part series that culminated with the question “Who Owns Keeneland?”) The articles explained how Keeneland took over the sales company from a horsemen’s co-op and has since earned hundreds of millions of dollars, and how the once publicly held shares in Keeneland were acquired by the association over a number of years and are now in the hands of a holding company.
We had fun with some of these stories. When the Thoroughbred Owners and Breeders Association gave its own Sales Integrity Committee an industry service award (the headline was “TOBA gives award to…TOBA”), we called them on it (as if nobody else noticed the self-congratulatory move).
One of the hot-button issues in recent years is medication. Bad news has been abundant in that area (Rick Dutrow was the 2008 Triple Crown poster child for medication and other violations, and several additional high-profile trainers also had horses test positive for prohibited drugs), but there was good news, too. Anabolic steroids, which for years had been one of racing’s dirty little secrets (they were considered a therapeutic drug and were legal in most states), were subjected to strict regulations in many jurisdictions in 2008 and early 2009.
Another significant problem the industry faces is an antiquated tote system owned by three different companies, all of which are for sale. We reported on numerous instances of past-posting, where bettors were allowed to make wagers after races had started and in some cases well after they had been run. Another Paulick Report exclusive focused on how the Jockey Club may get into the tote business with yet another for-profit subsidiary. Stay tuned on that one.
Racetracks provided us with plenty of stories to cover, too. Magna Entertainment, the largest track operator in North America, filed for bankruptcy in March. We reported much earlier on the constantly revolving door of executives who have worked for the company and were terminated at the whim of Magna chairman Frank Stronach. It hasn’t been a stable company at any point in its brief history.
We exposed how Churchill Downs, which has been far more successful than Magna, is trying to squeeze purse revenue by shifting wagers from on-track to its account wagering company, Twin Spires. A feature on the Thoroughbred Horsemen’s Group, which represents various horsemen’s organizations in their negotiations with Churchill and other tracks, provided some good news for horse owners.
The Paulick Report also served as a forum for other writers, including the tireless Fred Pope, the Lexington advertising executive who has been calling the simulcasting model “upside down” because it rewards the bet takers (the site or account wagering company taking wagers on someone else’s race) far more than it does the racetrack and horsemen who staged the race. Pope’s article elicited a record number of responses in the comment section, a unique part of our online publication, which allows the public to sound off on the issues.
We broke our share of stories over the past year: Curlin going to Lane’s End for stud duty; the Ernie Paragallo horse abuse case in New York; the efforts of “old guard” Breeders’ Cup board members to keep NetJets chairman and longtime horse owner and breeder Richard Santulli, along with Hill ‘n’ Dale Farm owner John Sikura, off the organization’s operating board; layoffs at Churchill Downs and Blood-Horse magazine, along with the elimination of several turf writers at big city daily newspapers; Halsey Minor’s efforts to buy Hialeah from John Brunetti, and Minor’s attempt to purchase many of the Magna tracks out of bankruptcy; and the Thoroughbred Owners of California’s decision to bid for Santa Anita from the same bankruptcy proceedings.
Live blogging was an interesting and effective way to cover some of the events and get the news out as it happens: among them were the Congressional hearings into horseracing last June, industry conferences and regulatory meetings, and the Eclipse Awards in January.
Do we have any regrets? Sure, perhaps the tenor of some of the stories were overly critical and sometimes too personal.
But the overwhelming feeling I have for the last year is gratitude. Our readership has more than tripled since our launch, and we have continued to build support from the Thoroughbred advertising community, even though they understand they are not buying favorable coverage with their dollars. It is gratifying that so many businesses support this kind of independent journalism, and we hope those who haven’t will see the benefits of what the Paulick Report offers to the industry.
Thanks to our readers, those who have given us moral or financial support, and our advertisers.
We’re just getting started.
Copyright © 2009, The Paulick Report
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Tags: Bill Casner, Dinny Phipps, fred pope, Jockey Club, Keeneland Association, Magna Entertainment, Paulick Report, rick dutrow, steroids, Thoroughbred Horsemen's Group, TOBA, Twin Spires, Will Farish
Posted in Paulick Report | 36 Comments »
Tuesday, March 24th, 2009
By Ray Paulick
Will a bet-processing tote division be the newest sibling in the Jockey Club’s family of companies? That’s the word I’m hearing from a variety of sources within the industry who say the not-for-profit breed registry is itching to get into the tote business with a new, for-profit subsidiary along the lines of Equibase, the horse industry’s official database for racing information that the Jockey Club owns in partnership with the Thoroughbred Racing Associations of North America.
Alan Marzelli, the Jockey Club’s president and chief operating officer, declined to comment when asked by the Paulick Report about the company’s possible entry into the tote business.
It makes perfect sense for the Jockey Club to take over yet another segment of the Thoroughbred industry, though it would be a move that is not universally supported. Would its entry into the tote business be a case of merely doing what’s right for the industry, or an opportunity for empire building by the Jockey Club, which already has six for-profit divisions? Those divisions are Jockey Club Information Systems (a data provider to industry publications, sale companies, and others); equineline.com (which sells breeding and racing statistical reports); Equibase (which sells past performance information to Daily Racing Form and for programs sold at racetracks and provides some free information to the public); TrackMaster (which sells customized handicapping information); InCompass (which bills itself as a technology solutions company for the industry and is involved in such areas as racetrack paymaster accounts); and TJC Technology Services (which provides technological infrastructure and support for the various Jockey Club companies).
These Jockey Club companies are all inter-related. For example, Jockey Club Information Services and equineline.com require pedigree information, which is provided by the Jockey Club’s registration department. Racing results from Equibase are fed into TJCIS, equineline, and Trackmaster products for consumers and into software applications in racetracks. A bet processing or tote company and an account wagering division currently are missing pieces in a Jockey Club strategy to cover as many of the industry’s bases as possible. The various companies must pay for the data, but the money essentially shifts from one pocket to another.
Let’s look a little more closely at the state of the tote industry. The three existing companies – Scientific Games Racing (Autotote), AmTote and United Tote – each has roughly one-third of the North American market. All have been struggling for years, in part because racetracks have played one company against another in contract negotiations and have marginalized their business. As a result, they have not made the kind of profits that lead to substantial investment in research and development, and the end product has been one that is technologically inferior and suspect in its ability to maintain absolute integrity in wagering pools.
All three companies are for sale. AmTote, which Magna Entertainment acquired for $17.4 million in a two-phased purchase agreement in 2003 and 2006, is part of that company’s bankruptcy filing. Last month, Scientific Games, a company that makes most of its money in lotteries, hired a financial consultant to look into selling its pari-mutuel division, formerly known as Autotote. Youbet.com, an account wagering company that has not been profitable, paid $49 million for United Tote in 2005 (at least two times higher than the appraised value of some industry insiders). One year ago, Youbet.com officials said they were hoping to find a buyer for United Tote.
At this stage, a purchase by the Jockey Club of United Tote seems the most likely, and sources say a deal could be announced in the coming weeks. The company has contracts with the New York Racing Association, which walks in lockstep with the Jockey Club. United Tote also serves Keeneland, whose president, Nick Nicholson, was instrumental in the development of the “family of companies” strategy when he worked as executive director of the Jockey Club. United Tote has contracts with the other Kentucky racetracks, including Churchill Downs, which employs AmTote at the other racetracks it owns.
All of the uncertainty involving the three leading tote companies comes at a time when the integrity of the Thoroughbred industry’s pari-mutuel wagering systems is being questioned by racing commissions, track operators, and, perhaps most importantly, horseplayers. Autotote, in particular, has been at the center of several controversies, including the 2002 Breeders’ Cup pick six scandal when three of the company’s employees had the only winning ticket and were in line for a $3-million payout. It was discovered they hacked into the system and processed their pick six tickets after the first four races had been run.
Racing executives familiar with the tote business suggest that United Tote may have the best tote machines, while the back end or software infrastructure for AmTote is the most advanced. Scientific Games is viewed as the laggard of the three companies, from a technology standpoint.
SHADES OF EQUIBASE?
This all sounds a bit similar to when Equibase was created in 1990. The Daily Racing Form had been owned by Walter Annenberg’s Triangle Publications for well over a half-century when he sold it to Rupert Murdoch’s News America Corp. in 1988, ending what had been a very cozy relationship between the Form and the racing industry. Whether this upstart Aussie (whose publishing empire includes the New York Post, Fox and other major media outlets) upset Jockey Club pooh-bahs like chairman Ogden Mills (Dinny) Phipps or they were worried about price-gouging or additional changes in the Form’s ownership will probably never be known. But under the banner of the racing industry collecting and owning its own data (versus a private company like Daily Racing Form doing it), Equibase was established in the imposing shadow of the Jockey Club.
At the time, there were pronouncements that the industry needed to provide more information to fans. Alan Marzelli, then the chief financial officer of the Jockey Club, said the “promotion and betterment of racing is behind the decision” to start Equibase. David Haydon, a longtime Jockey Club employee and the first Equibase president, took it one step further, saying the new company would “address racing’s need for fan base expansion.” Jockey Club chairman Phipps himself said, “Everyone in the industry realizes we have to make a day at the races more enjoyable and less intimidating for the general public.”
Equibase has succeeded as a business. Now, instead of competing with the Daily Racing Form, which eventually closed its track and field data collection operations, the Form is its biggest customer, purchasing past performance information to provide in its daily newspaper and for its online products. Most racetrack programs now include past performances – at a fee to consumers.
But where exactly has Equibase succeeded in expanding the fan base or making the races less intimidating?
Other sports, from Major League Baseball to the National Football League, National Basketball Association, and the PGA Tour, provide extensive data at absolutely no cost to the fans. This information is used by fans to make watching the sports action that much more enjoyable, and allows them to be more informed, whether it’s for their own general knowledge or to participate in the fantasy leagues that have become so popular, especially with young people.
Racing, or more specifically Equibase, insists on charging its fans for some of the most basic data. Lifetime past performances of a single horse cost a consumer $8; lifetime stats on a jockey or trainer cost $7 on Equibase’s sister site, equineline.com. If you want career statistics for a baseball player, just go to Google and type “Barry Bonds stats” and you’ll have a plethora of choices for free.
If you want to look at a simple race chart that’s more than a few days old, Equibase charges you $1.50. You want the box score of an NBA game from last month? Go to NBA.com, and click on scores. They’ll provide you with more stats on the game than you could possibly ever want – at no charge.
“It is symptomatic of our industry being a step behind,” said one racing executive who has grown wary of Equibase’s profit-driven motive and thinks the company has strayed from its original mission. “It’s short-term thinking. If our objective in racing is for the horseplayers to win, we should do everything we can to help him, and increase the churn. That’s where the revenue for our business should come from, not from the statistics the horseplayer needs.”
Hank Zeitlen, the current president of Equibase, said fans can get deals for free past performances from some of the account-wagering companies (which, of course, have to pay Equibase to buy the data) and there is often past performances for “feature races of the week” that Equibase makes available at no charge.
“If you look back to 1990 and see what information was available and how it was made available, we’ve accomplished a lot,” said Zeitlen, who added that it’s unfair to compare racing with other sports. “The economic models of other sports are different than ours,” he said. “Each of those leagues has revenue coming from television. We don’t have that. And Equibase is not a handle-driven business.”
Zeitlen overlooked the fact that the tracks in the TRA that own two-thirds of Equibase (the Jockey Club owns one-third) are handle driven businesses.
JOCKEY CLUB’S THIRST FOR PROFITS
Perhaps it’s this thirst for profits that makes more than a few people wary that the Jockey Club may be getting into the tote business. There are some in that industry who say the Jockey Club, despite its claims, is not a very savvy technology company, and that its entry into the business would not be a giant leap forward – particularly if they wind up with a monopoly. Others believe the Jockey Club should focus on its core business, registering foals, and let private enterprise take care of other segments of the industry.
It was 10 years ago that Tim Smith, then commissioner of the National Thoroughbred Racing Associations, tried to forge a deal between the North American racing industry and IBM Global Services, which promised to modernize the tote system. An IBM executive told the Jockey Club Round Table in 1999 that he had never seen an industry so far behind in technology. The IBM proposal was blown up by some tracks who didn’t see the need for change or improvements in the industry’s tote and simulcasting technology.
Ten years later, we’re even farther behind. It’s clear something must be done to guarantee that the process of handling wagers is improved. If not, the industry will continue to lose the confidence of horseplayers, many of whom are convinced that past-posting of bets and tampering within wagering pools is all too common.
Is the industry ready for the Jockey Club’s family of for-profit companies to grow? Do we really have a choice?
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Tags: Alan Marzelli, amtote, autotote, Breeders' Cup, breeders' cup pick six scandal, daily racing form, david haydon, Dinny Phipps, equibase, hank zeitlen, ibm global services, incompass, Jockey Club, jockey club round table, news america, Ogden Mills Phipps, Paulick Report, Ray Paulick, rupert murdoch, scientific games racing, the jockey club information systems, tim smith, tjc technology services, tjcis, totalizator, trackmaster, united tote, walter annenberg
Posted in Industry Organizations, Jockey Club, Keeneland, New York Racing Association, Tote System, Wagering, daily racing form | 19 Comments »
Thursday, January 29th, 2009
By Ray Paulick
Random notes while waiting for the ice to melt …
The devastating snow and ice storm that hit Kentucky earlier this week has created serious economic hardships on Thoroughbred farms, many of which are without electricity and have suffered major damage, just as the foaling season is hitting full swing and the breeding season about to begin. Let’s hope organizations like the American Horse Council, the NTRA, Thoroughbred Owners and Breeders Association, the Kentucky Thoroughbred Association and the Kentucky Equine Education Project are in contact with government officials to seek relief, now that Gov. Steve Beshear has asked the Obama administration to declare a federal emergency.
Horse farms are already under extreme economic pressure because of the plunge in bloodstock prices, and this latest problem is only making things worse for them. It’s at times like these that these alphabet soup organizations can actually do some good.
DID FRANK STRONACH’S ONE-VOTE MARGIN over IEAH Stables in the Eclipse Awards outstanding owner category come by virtue of several racing secretaries who work for him? I have a great deal of respect for Stronach’s racing and breeding operation, which has produced solid numbers for many years now, but I just can’t fathom how 2008 was an Eclipse Award-winning year for him. Ahmed Zayat’s stable earned slightly more money but only ranked sixth in the number of first-place votes. IEAH had a far superior year in terms of Grade 1 winners. George Strawbridge’s Augustin Stable had a better year when the number of starters was taken into consideration, as did the racing stables associated with Sheikh Mohammed. Here is the year-end ownership standings by money.
Apart from the National Turf Writers Association, which has historically published how its members vote, there is no disclosure from Daily Racing Form or the National Thoroughbred Racing Association about who votes – never mind who each individual votes for. But the NTRA should insist that racing secretaries or any other voters who work for racetracks owned by Stronach’s Magna Entertainment not be allowed to vote in categories where there is a potential conflict of interest. That would include the leading owner and leading breeder categories. The awards are too important to permit any conflicts of interest or suspicions of impropriety.
In the owner and breeder categories (the latter of which was for years determined by a committee vote), there seems to be little imagination or thought put in by voters, who more often than not look at which owner and breeder is at the top of the money list that is supplied with the ballot. If the people who vote for Academy Awards were that lazy, then “Paul Blart: Mall Cop” would win the Oscar for best picture this year.
Opportunity (the number of starters) should play a role in voting for outstanding achievement by an owner or breeder. Twice in the last eight years, a breeder who produced two individual champions in the same year from a small band of broodmares (Virginia Kraft Payson, with Farda Amiga and Vindication in 2002, and Aaron and Marie Jones, with Speightstown and Ashado in 2004) did not even get enough votes to be among the three finalists! That’s insulting to the thousands of Thoroughbred breeders who either can’t afford to or don’t choose to maintain massive numbers of broodmares. (Click here to see what I wrote about this issue a few years ago at Bloodhorse.)
The NTRA needs to address this, either by eliminating the vote and simply giving the awards for leading owner and breeder to whoever wins the most money, or by changing the system of selecting the outstanding individuals in these two categories. I don’t think enough voters understand the importance of this category or what “outstanding” means when it comes to owning or breeding Thoroughbreds.
SPEAKING OF THE NTRA, what is its future? The organization is a shell of its former self, when it had widespread industry support and a mission to improve the economics of racing and breeding through increased pari-mutuel handle, marketing and greater exposure on television. Following its split from the Breeders’ Cup, the NTRA has lost much of its economic clout and influence, as it no longer has the annual championships to promote to the general public or to race sponsors that were tied in to group purchasing (i.e., John Deere, NetJets, Dodge), which only a few years ago produced upwards of $100 million a year in sales. Following the NTRA-Breeders’ Cup “divorce,” group purchasing through NTRA Advantage has dropped significantly.
Today, the NTRA seems to be playing more defense than offense, reacting to crises (i.e., the death of Eight Belles in the Kentucky Derby, Congressional inquiries, totalizator problems) but not really having the resources to go on the offensive in any areas, including marketing and promotion.
Complicating matters (and this isn’t new) is the ongoing struggle to maintain membership in the NTRA. Churchill Downs Inc., which is tabbed to pay approximately $400,000 in dues for its various tracks in 2009, hasn’t recommitted to membership. A source says Churchill might considering paying $200,000 in dues. An NTRA official told the Paulick Report he hopes Churchill executives see value in the NTRA’s legislative activities, the “Racing to the Kentucky Derby” television series on ESPN, NTRA Advantage purchasing, the National Handicapping Championship, and the Safety and Integrity Alliance. The interesting thing about the latter, I’ve been told by sources, is that Churchill Downs CEO Bob Evans is the one who insisted the NTRA do something about the safety issues that led to the creation of the Safety and Integrity Alliance.
Magna apparently hasn’t committed to renewing its NTRA membership, either. If the NTRA loses the two largest track ownership companies, it will be further weakened, perhaps terminally.
CORPORATE SPONSORSHIPS ARE A CHALLENGE in the current economic climate, whether it’s the PGA Tour, NASCAR or horse racing. But it was, nevertheless, a surprise to see Bessemer Trust drop its sponsorship with the Breeders’ Cup. I would think the wealth management firm formerly chaired by Ogden Mills (Dinny) Phipps and now run by his cousin, Stuart Janney Jr., is encountering the same economic challenges that many financial institutions are (though Bessemer’s investment strategy is believed to be conservative).
Janney responded to an email with the following comments: “I would say our reasons for dropping out are as follows. First, we have been a sponsor for some time, which means many of our clients have been entertained at a Breeders’ Cup event and having them back again is possibly less appealing than providing a different venue. Second, the two-day format works better for others than it does for us. Third, we have never been able to really derive full value from the TV ads as our target audience is very narrowly focused. Fourth, as we look at other sponsorships and ways to thank our clients or meet prospects, it helps in tighter times to have this money available. We believe our involvement with the Breeders’ Cup has been beneficial to Bessemer and the staff at the Breeders’ Cup has been a pleasure to work with.”
Copyright © 2009, The Paulick Report
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Tags: aaron and marie jones, adena springs, ahmed zayat, American Horse Council, bessemer trust, bob evans, churchill downs, daily racing form, Dinny Phipps, eclipse awards, Frank Stronach, george strawbridge, ice storm, ice storm of 2009, IEAH, kentucky derby, kentucky equine education project, Magna Entertainment, National Thoroughbred Racing Association, national turf writers association, NTRA, ntwa, Ogden Mills Phipps, Paulick Report, Ray Paulick, sheikh mohammed, stuart janney, Thoroughbred Owners and Breeders Association, TOBA, virginia kraft payson
Posted in Breeders' Cup, Horse Racing, Industry Organizations, National Thoroughbred Racing Association, People, Sponsorships, TOBA, Thoroughbred Business, eclipse awards | 18 Comments »
Friday, January 9th, 2009
The death of Daily Racing Form’s longtime executive columnist Joe Hirsch has brought an outpouring of tributes from people throughout the Thoroughbred industry who remembered him for his dedication to the sport and to his profession, and for his friendship.
“Joe Hirsch was much more than just the dean of American racing writers for half a century. He was a global ambassador for the sport, a mentor to two generations of journalists, and probably the most universally respected figure in the world of horseracing.” Steven Crist, publisher, Daily Racing Form
“He was a great, great man and a racing journalist the likes of which we will never see or read again.” Charles Hayward, president and CEO, New York Racing Association and former president and CEO of Daily Racing Form
“Joe was a great ambassador for our sport. He had the best interests of horse racing at heart at all times. He was a true student of the game and it was always a privilege to spend time with him.” Ogden Mills Phipps, chairman, the Jockey Club
“Joe was a friend of the Breeders’ Cup, an inspired advocate for the sport he loved and, most importantly, a true gentleman.” Greg Avioli, president and CEO, Breeders’ Cup
“There has been no more respected figure in horse racing over the last 50 years than Joe Hirsch. He eloquently brought our sport to the hearts and minds of millions, and those of us who had the good fortune to know Joe personally have an even greater sense of what racing has lost today.” Alex Waldrop, president and CEO, National Thoroughbred Racing Association
“Keeneland joins the entire Thoroughbred industry in mourning the death of Joe Hirsch. Joe devoted his entire life in the tireless effort to chronicle the sport, traveling throughout the world and making the racetrack with the next major event his temporary home. No one has ever done it better—he was so good he made it look easy. I’ll miss his visits, friendship, dinner together and most of all our conversations filled with his stories.” Nick Nicholson, president and CEO, Keeneland
“To many the image of Joe Hirsch was racing’s national journalist, with his trademark dark glasses, the deliberate walk and the diminutive notebook in his left hand documenting irrefutable quotes. He redefined the role of sports journalist, becoming the most widely read turf columnist in the world, respected by his peers, revered and admired by his colleagues, truly one of racing’s treasures and one of its finest ambassadors.” James E. Bassett III, former chairman of the board, Keeneland
“He was one of the gentlemen of the sport, one of the most thoughtful men I’ve ever known. He had a difficult time with his health for many years, and he never, ever complained. Every time I feel a little down or things aren’t going the way I’d like them to, I think about Joe and how he handled his life. He carried on with extraordinary class. … He would often send me Joe’s Stone Crabs packed in dry ice from that restaurant in Miami Beach. When I’d visit him in Miami we’d go there for dinner, and it was a place that supposedly didn’t take reservations. But the waters would part whenever Joe walked in.” Sherwood Chillingworth, executive vice president, Oak Tree Racing Association
“Joe Hirsch earned and deserved universal respect and admiration throughout Thoroughbred racing. Owners, breeders, trainers, jockeys, grooms, racing executives, members of the media, and lovers of racing around the world revered Joe for his immense knowledge, remarkable talent and positive impact on our sport. But those who had to good fortune to know or simply meet him through the years will remember Joe for the incredible kindness he displayed to all who crossed his path. Countless journalists benefited from his guidance and counsel, and the Kentucky Derby and Thoroughbred racing are stronger because of the work and influence of Joe Hirsch. Churchill Downs and the Kentucky Derby family are deeply saddened by his passing, and mourn that his insightful and impassioned voice is now quiet. One of Joe’s most memorable sentences came in a Daily Racing Form piece on five-time ‘Horse of the Year’ Kelso in which he wrote: ‘Once upon a time there was a horse named Kelso … but only once.’ Let us borrow Joe’s brilliant phrase and proclaim today that once upon a time, there was a special journalist and man named Joe Hirsch … but only once.” Steve Sexton, president, Churchill Downs
“Joe Hirsch founded and served as the first president of the National Turf Writers Association, but more importantly, was a role model and mentor to so many of its members. Joe set a high standard of excellence that so many in the industry admired and while we are deeply saddened by Joe’s passing, we are tremendously honored to be the recipient of his guidance, generosity, and leadership.” Tom Law, president, National Turf Writers Association
“One thing I can say about Joe, and I think this is universally accepted. He didn’t have one person in this world who would say a bad word about him, and there’s not many people you can say that about.” Peter Blum, Thoroughbred owner and breeder, who in 2003, the year Hirsch retired from Daily Racing Form, named a Giant’s Causeway colt after his longtime friend
“Joe always brought out the good in the sport. All of his columns, no matter what happened, he always looked for the good in a horse or in the people in racing. There’s only one other writer I could compare him to: (the late) Jim Murray of the Los Angeles Times. They were both listeners. The first time I was interviewed by either one of them, I’d tell them my story, and they’d only write down a few words here and there. But when the papers came out the next day their stories got everything and were great. Guys like that are really missed. Joe set the bar for all the other writers in racing, and it hasn’t been the same since he left.” Bob Baffert, trainer
“He was a special guy. I was always flattered whenever he wrote an article about me and quoted me because he always made me sound a lot better in print. He’ll be missed by me, and more importantly, by horse racing.” Shug McGaughey, Hall of Fame trainer
“He had such a wealth of knowledge about the history of the game, and it was always fascinating to listen to him talk. When I was on the Triple Crown trail with Seattle Slew, he’d come around and interview me. I’d pick his brain, and after about a half-hour he’d say, ‘Wait a minute – I’m supposed to be interviewing you!’ He put so much color into his stories. He expected things to be done first class, and that’s the way he wrote. He will be irreplaceable.” Billy Turner, trainer of 1977 Triple Crown winner Seattle Slew
“I wish we had more turf writers like Joe Hirsch. He was a class act all the way and a tremendous historian of the sport. He knew horses inside and out.” William Badgett, Jr., trainer
“We’ve lost a good man. It’s very sad. Racing has lost such a knowledgeable man, who was always fair and accurate … and always a gentleman.” Jorge Velasquez, Hall of Fame jockey
“I don’t have one specific memory – he was such an icon. Even before I rode I’d look forward to reading his column to see what he had to say about the best 2- year-olds, or Derby prospects, or whatever champions he was writing about that day. He wrote about racing in such a passionate, articulate, thorough way and it was always a pleasure to read his thoughts and interpretations on what was going on in the game. Then, when I started riding and you’d get the call that Joe Hirsch wants to interview you it was so special and humbling that he’d pick you as a topic.” Richard Migliore, jockey
“I just remember being a kid and seeing PEB’s drawing of Joe–it was the best, really lifelike and it stands out when I think of him.” Mike Luzzi, jockey
“He was the greatest that Joe Hirsch. He and Charlie Whittingham used to use this expression—‘where Molly hid the peaches.’ I’d always ask him what it meant and he’d never tell me. Guess now we’ll never know.” Sonny Taylor, NYRA placing judge
Tags: alex waldrop, billy turner, Breeders' Cup, charles hayward, churchill downs, daily racing form, Dinny Phipps, Greg Avioli, James E. Bassett, Jockey Club, joe hirsch, joe's stone crabs, jorge velasquez, Keeneland, kentucky derby, mike luzzi, National Thoroughbred Racing Association, national turf writers association, New York Racing Association, nick nicholson, NTRA, oak tree racing association, Ogden Mills Phipps, peter blum, Richard Migliore, sherwood chillingworth, shug mcgaughey, sonny taylor, steve sexton, steven crist, Ted Bassett, tom law, william badgett
Posted in People, Racing Media, daily racing form | 1 Comment »
Monday, December 29th, 2008
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 52nd 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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Tags: Alan Marzelli, american quarter horse association, aqha, bessemer, bessemer trust, billie brewer, billie g. brewer, bloodstock research information services, bob curran, breed registry, bris, california thoroughbred breeders association, ctba, ctba boardwatch, daily racing form, dan fick, Dinny Phipps, equibase, Horse Racing, incompass, james gagliano, Jockey Club, jockey club racing services, jockey club round table, jockey club steward, jockey club survey, jockey club technology services, laura banllaro, Ogden Mills Phipps, Paulick Report, phipps family, quarter horse, Ray Paulick, richard f. broadbent, the jockey club information systems, thoroughbred, Thoroughbred breeding, thoroughbred times, tjc, tjc holdings, tjcis, Will Farish, William S. Farish
Posted in Breeding, Industry Organizations, Jockey Club, daily racing form | 27 Comments »
Thursday, December 18th, 2008
By Ray Paulick
Breeders’ Cup chief financial officer Matthew Lutz has responded to recent questions about the organization’s investment fund in a memo distributed to the Breeders’ Cup board of members and trustees and posted on the Breeders’ Cup Web site, www.breederscup.com.
The questions arose after last week’s board of directors vote to suspend the $6-million stakes supplement program because of a projected $10-million budget shortfall in 2009. That decision was reversed this week after Breeders’ Cup president and CEO Greg Avioli and individual board members heard from numerous stallion and foal nominators protesting the suspension of the stakes supplements.
In reporting on the original decision to suspend the program and in a follow-up article after the reversal, the Paulick Report revealed that the Breeders’ Cup had lost approximately $11 million from its cash reserve fund in 2008. Lutz’s memo does not address the 2008 losses, but does indicate that the investment fund has outperformed the S&P 500 for the first 11 months of 2008. It also said the Investment Committee, headed by G. Watts Humphrey Jr., moved a portion of the fund into fixed income securities at the beginning of the third quarter in 2007 to reduce exposure to market declines.
Below is the Breeders’ Cup memo, in its entirety:
TO: Breeders’ Cup Board of Members and Trustees
FROM: Matthew Lutz
DATE: December 18, 2008
RE: Investment Performance
There has been much discussion within the industry in the past week regarding the performance of Breeders’ Cup’s invested assets. The purpose of this memo is to respond to a number of the questions raised by individual Trustees on these matters. The following points below provide details on investment performance both historically and more recently.
- Since May 1989 Breeders’ Cup’s investments have yielded an average annual return of over 7 percent and generated more than $26 million in investment gains.
- For the 10-year period ending November 30, 2008, Breeders’ Cup’s portfolio has yielded a return that exceeded the S&P 500’s performance by more than 3 percentage points.
- On a more recent note, the portfolio outperformed the S&P 500 by more than 11 percentage points on a year-to-date basis though November 30, 2008.
- A contributor to the outperformance of the major indices this year was the decision by the Investment Committee to overweight fixed income securities beginning in the 3rd quarter of 2007 thereby reducing the portfolio’s exposure to the market’s declines in equity values in 2008.
- The current balance in reserves is $30.3MM. The Investment Committee is currently maintaining an allocation with 55% of reserves invested in high quality bonds and cash. The bond portfolio is managed by Neuberger Berman. The 45% of reserves currently invested in equities are managed by well respected firms including Blackrock, T. Rowe Price and Chase Investment Counsel.
The portfolio continues to be managed by the Investment Committee consisting of the following Board members: G. Watts Humphrey (Committee Chairman), Bill Farish, Don Dizney, Antony Beck and Satish Sanan who was recently appointed. Two former Trustees, Dinny Phipps (former Chairman of Bessemer Trust) and Jerry Shields (Managing Director and Chairman of Shields & Company), remain on the Committee by invitation of the Committee Chairman given their significant investment expertise. The Committee met on eight occasions in 2008 and will continue to meet regularly in 2009 to review performance and make adjustments to the allocation based on circumstances in the markets.
I hope this information is helpful. Please call me at 859-422-2650 if you have any additional questions.
Regards
Matthew Lutz
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Tags: Antony Beck, bessemer trust, Bill Farish, blackrock, Breeders' Cup, Breeders' Cup board of directors, breeders' cup investment committee, chase investment counsel, Dinny Phipps, donald dizney, G. Watts Humphrey, jerry shields, Joseph Shields, matthew lutz, neuberger berman, Ogden Mills Phipps, Paulick Report, Ray Paulick, satish sanan, shields & company, t. rowe price
Posted in Breeders' Cup, Industry Organizations | 10 Comments »
Wednesday, December 17th, 2008
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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Tags: Antony Beck, Bill Farish, Breeders' Cup, breeders' cup annual report, Breeders' Cup board of directors, breeders' cup cash reserves, breeders' cup stakes program, Breeders' Cup World Championships, churchill downs, D.G. Van Clief Jr., Dinny Phipps, donald dizney, G. Watts Humphrey, Greg Avioli, John Gaines, Joseph Shields, kentucky derby, Ogden Mills Phipps, Paulick Report, Ray Paulick, satish sanan
Posted in Breeders' Cup, Industry Organizations | 23 Comments »
Monday, December 15th, 2008
By Ray Paulick
Last week’s decision by the Breeders’ Cup board of directors to suspend the program that put $6 million in purse enhancements into stakes races around the country in 2008 has brought an angry outcry from breeders who nominate their foals and stallions to the Breeders’ Cup in part because of the incentive created by that money. Some are saying they feel betrayed by the board and want a refund on their nominations because the decision was announced after the foal nominations deadline. Others are suggesting the move will cause some breeders to stop nominating stallions and foals in the future.
A press release issued late Friday said the stakes program has been suspended for 2009 and other cost-cutting measures have been adopted due to “anticipated losses in nominations revenue because of recent trends in the bloodstock market and decreased revenue related to the worldwide economic downturn.”
Breeders’ Cup president and CEO Greg Avioli told the Paulick Report on Sunday that a $10-million decline in revenues is anticipated: $4 million less in stallion and foal nominations compared with 2008; $3 million less in sponsorship money; and $3 million less in revenue from the two-day world championships, which are scheduled to return to Santa Anita Park in Southern California Nov. 6-7.
Purses for the world championships will remain at their 2008 level of $25.5 million. The board’s vote on the various budget actions at its Dec. 11 meeting was unanimous, Avioli said.
The Breeders’ Cup press release failed to disclose that the non-profit organization has lost approximately $11 million in the stock market this year and that its cash reserves have declined by more than 25%, from $40 million at the beginning of 2008 to less than $30 million today.
Even with those losses, some breeders believe the cash reserves, which many of them view as an “emergency fund” created from their nominations money, should have been used to make up the projected 2009 budget shortfall as an alternative to elimination of the $6 million from the stakes program. Avioli said the board did not want to budget a deficit for 2009 and would not dip into cash reserves to pay operating costs.
“The projections are for us to go from $50 million to $40 million in revenues,” he said. “That’s what the board was faced with, and it was a simple choice for 2009, once they determined we would not operate at a deficit: reduce championship purses or suspend the stakes program.”
To help meet the budget reductions, Avioli said, marketing costs for the “Win and You’re In” Breeders’ Cup Challenge Series have been cut from $6 million to $2 million. “That means no national media this year,” he said, “no inserts in major publications. We eliminated all the mid-year ABC telecasts and we are down to two shows on ESPN in the fall, four and five weeks out from the championships. That saved us $500,000.”
The changes caught many people by surprise, including numerous members of the 48-person Breeders’ Cup board of members and trustees contacted by the Paulick Report. The members and trustees have no specific power other than to elect the 13 members of the Breeders’ Cup board of directors, but some of them feel the smaller operating board should at least consult or poll them on issues as important as the decision to suspend the stakes program.
STAKES PROGRAM A REASON TO NOMINATE
“Nobody called me, nobody said a word to me, and there was no discussion about this,” one member/trustee said. “This stakes program is one of the reasons people nominate. The purse supplements give breeders, especially those outside of Kentucky, an incentive to participate. Without this program, many of them will stop nominating their foals and stallions.”
Another member/trustee who is based outside of Kentucky concurred. “There are a lot of breeders in my state with 40 or 50 foals a year who pick out the 10 best ones and nominate them,” he said, “not because they think they can win one of the big races but because of these smaller Breeders’ Cup stakes around the country. It’s the only reason they nominate.”
Minnesota-based breeder David Miller wrote the Paulick Report, saying: “As a regional breeder who has nominated his foals for the last few years, these supplements were my only chance to realistically recoup the investment. What is my recourse? The money is paid in and after re-reading the nominations terms, it appears the Breeders’ Cup will be making no refunds under any circumstances.”
Avioli disagrees that the stakes program has played a major role in nominations. “We’ve done qualitative and quantitative research and we never got results back that the stakes program was the driving reason people nominated,” he said. “The two reasons that came out in research is the opportunity to have a horse be eligible for the championship days and the perceived increased value at sales for Breeders’ Cup nominated horses. This is not something we took lightly when we removed it, and I can’t tell you it’s not going to be restored in the future.”
Kentucky-based breeder Tom Evans, who operates Trackside Farm, made the following comment about the suspension of the program: “As a breeder who annually contributes funding for the Breeders’ Cup, I would appreciate the financial detail as to why the Breeders’ Cup needs to suspend nearly $6 million in co-funding for 2009 stakes races throughout the country. The catch phrase ‘challenging economic environment’ lacks the detail that supporters of the program deserve. And, since the Breeders’ Cup finds it necessary to suspend funding, what measures have they taken to cut costs in other areas such as corporate overhead and executive compensation?”
Avioli — whose compensation package was $517,965 plus another $248,175 in employee benefits in 2006 (the most recent year the Breeders’ Cup IRS Form 990 is available) – said the organization eliminated five full-time positions in the last year and will cut one additional job by the end of 2008. “Our total (2009) compensation budget is basically flat with 2008,” he said. The Breeders’ Cup 2007 annual report showed $3.6 million spent on personnel costs (2008 figures are not available). It is paying $266,160 in 2008 and 2009 to former CEO D.G. Van Clief Jr. as part of an $890,000 severance package he received when he stepped down in 2006.
WHAT IS THE PURPOSE OF THE CASH RESERVES?
John Sikura, of Hill ‘n’ Dale Farm in Kentucky, a member/trustee who unsuccessfully sought a seat on the operating board earlier this year, has been an outspoken critic of the Breeders’ Cup board’s handling of its cash reserves. Sikura doesn’t understand why the reserves are not being used to cover anticipated shortfalls in 2009 to keep the stakes program intact.
“Those reserves are there for times of emergency,” Sikura said. “This is certainly one of those times. They should have funded the program, at the very least through 2009, because people have made reliances on this stakes program, and to have the rug pulled out from under them is wrong. These programs are not secondary to the racetracks or to the people who own horses.”
Avioli claims the reserves are there to “protect against catastrophic occurrences that would cause cancellation of the championship event” – such as the kind of equine disease outbreak that shut down Australian racing last year or an earthquake or other natural disaster. Business interruption insurance would cover some, but not all, of a catastrophic event, Avioli said.
“Second, like any organization, you have reserves so that you have security that the organization will continue if unforeseen circumstances arise,” he said. “Say this economy stays down for four or five years and nominations don’t come close to former levels. If you don’t have reserves, what are you doing to do? The question is, what’s the level of the reserves that need to be maintained, and that’s a function of the board of directors.”
Some believe the board has built its cash reserve fund as a defense against the possibility of a boycott by stallion farms or syndicates that could grow unhappy with the direction of the Breeders’ Cup and stop nominating.
The cash reserves are overseen by an Investment Committee chaired by G. Watts Humphrey Jr., a board member who for many years served on the Breeders’ Cup Executive Committee with William S. Farish prior to the 2006 changes in governance that brought some semblance of democracy to the organization. Farish’s son, Bill, has served as chairman of the board since 2006.
The other members of the Investment Committee are Antony Beck, Donald Dizney, Ogden Mills “Dinny” Phipps, Joseph Shields, and recent appointee Satish Sanan. As board chairman, Bill Farish is automatically on every Breeders’ Cup committee, Avioli said.
Phipps was voted off the board of directors in 2007 and Shields was voted off the board of members and trustees earlier this year. As chairman, Humphrey is authorized to invite anyone he wants, and he appointed Shields and Phipps to the committee. The cash reserves are entrusted to three or four different financial advisers. Contrary to rumors, Phipps’ Bessemer Trust is not one of the groups handling the Breeders’ Cup cash reserves, according to Avioli.
Critics of the Investment Committee complained that scheduled meetings have been cancelled or postponed this year as the cash reserve fund was battered by market volatility and the global financial crisis that hit in September.”Farish and Humphrey do what they want,” one member/trustee told the Paulick Report.
Another member/trustee said the cash reserves should not be looked upon as an emergency or catastrophic fund if a large percentage of it is invested in the stock market. “That’s a long-term investment strategy,” he said, “so it makes no sense to call it an emergency fund if it’s in equities.”
Avioli defended the board’s handling of the cash reserves, even though the Paulick Report learned that at last week’s board meeting the Investment Committee indicated it was likely going to “get out of the equities.”
“Should the money have ever been invested in the stock market?” Avioli said. “If you say ‘no,’ we wouldn’t have had the $40 million to begin with. If you accept that it was in the market and want to see how it was managed in the last 18 months, I’d say it’s done reasonably well compared with other industries. It’s down from $40 million to $30 million, but given these markets that’s not atrocious.”
“I’ll bet a lot of the members and trustees don’t even know there is an Investment Committee,” one member/trustee said when learning of the $10-million-plus in losses. “It’s all part of the cloak and dagger secrecy that some of the people still engage in, even after we went through this new process of electing the board. People like the guys who run this committee do whatever they want with it. They can make all the bad decisions and they don’t think they have to be held accountable.”
Another commented: “There is an unrecognized aristocracy in the United States, and these guys think they are part of the First Family.”
Sikura is disappointed at the message the Breeders’ Cup board’s decision sends out to the industry. “In times like these, people are looking for some reassurance in the business from some of the industry foundations,” he said. “By taking this action, the Breeders’ Cup board failed to provide that reassurance.”
Do you have an opinion on the Breeders’ Cup board’s decision to not use some of its $30 million in cash reserves to make up a projected budget shortfall and instead eliminate the $6 million in purse supplements to the Breeders’ Cup Stakes Program? Take the Daily Paulick Poll on the left-hand column of the Paulick Report homepage or leave your comments in the space provided below.
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