Posts Tagged ‘donald dizney’

By Ray Paulick

(UPDATED: 6:30 p.m.)

Three of the four incumbent Directors of the 13-member Breeders’ Cup board did not receive enough support from their fellow Members and Trustees to retain their positions in an election that culminated with an annual meeting today at Keeneland in Lexington, Ky.

Re-elected to a two-year term on the board of Directors was Robert Manfuso of Maryland’s Chanceland Farm and a former investor in the Maryland Jockey Club racetracks. Newly elected to the board were five individuals: Tom Ludt of Vinery; Clem Murphy of Coolmore/Ashford; Richard Santulli of Jayeff “B” Stables; Oliver Tait of Darley; and Duncan Taylor of Taylor Made Farms and Sales Agency. Incumbents Reynolds Bell Jr., G. Watts Humphrey, and Don Robinson failed in their bids for re-election. The other candidate not receiving enough votes was John Sikura of Hill ‘n’ Dale Farms, a board candidate for the second consecutive year.

In last month’s election of Breeders’ Cup Members and Trustees, two individuals on the board of Directors, Donald Dizney and Tracy Farmer, failed to be re-elected and were thus ineligible to run for re-election on the smaller board of Directors. Thus, five of six incumbents on the board of Directors failed to be re-elected.

The 48 Members and Trustees, past presidents and current officers of the Breeders’ Cup  had the option of voting online from July 1-8 or in person at today’s meeting, during which a presentation was made by William Field of the international consulting firm, Value Partners, on behalf of the Strategic Planning Committee that has been drafting a 10-year plan for the organization. 

Vote totals were not provided for the board of Directors election, despite assurances to the Paulick Report in May by Breeders’ Cup president Greg Avioli that results to both the Members and Trustees and board of Directors elections would include the number of votes every candidate received. Following the Members and Trustees election in June, Breeders’ Cup only released the number of votes received by the winning candidates, not by those who failed to be elected. Avioli declined to comment when asked about today’s board of Directors election results.

Following the meeting of the Members and Trustees, the newly-named board of Directors met and re-elected Bill Farish to a one-year term as chairman of the board. Manfuso was elected vice chairman, replacing R.D. Hubbard in that position. Hubbard is one of the seven other board members, along with Helen Alexander, Antony Beck, Farish, Terry Finley, Roy Jackson, and Satish Sanan  (their terms expire in 2010).

The other officers re-elected to one-year terms were Avioli, president, and Matthew Lutz, treasurer. Robert Watt, an attorney who has represented the Breeders’ Cup in the past, was elected to the post of secretary, replacing James A. Philpott Jr., who resigned after serving in that post since 1983. 

The board unanimously approved the following Committee Chair appointments: Audit and Finance Committee – Oliver Tait; Investment Committee – Richard Santulli; Compensation Committee – Satish Sanan; Host Site Committee – R.D. Hubbard; Racing and Nominations Committee – Clem Murphy; Marketing - Roy Jackson 
The Breeders’ Cup will host a teleconference for its nominators and the media with Value Partners at 2 p.m. (EDT) Friday, July 10, to review the recommendations of the strategic plan in greater detail.

“Our five new Directors comprise an outstanding group of individuals with knowledge and expertise that will be vital to the Breeders’ Cup in the opportunities before us.” chairman Farish said in a statement. “We also express our sincere thanks to Reynolds Bell, Watts Humphrey and Don Robinson for their excellent and distinguished service to the board.”

Humphrey, a partner of Farish’s father, Will Farish, in numerous ventures at the Farishes’ Lane’s End Farm, has been a Breeders’ Cup board member for many years and was a member of the Executive Committee that essentially ran the organization prior to its decision to allow nominators (beginning to 2006) to elect a board of Members and Trustees, who in turn vote for the board of Directors. Bell, a bloodstock agent with close ties to Lane’s End, had been rumored to be Bill Farish’s preferred candidate to replace him as chairman if Farish serves the maximum of five years in that position. He was re-elected today to his fourth year as chairman.

Copyright © 2009, The Paulick Report

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By Ray Paulick
The 25 candidates for the 13 open positions on the Breeders’ Cup Board of Members and Trustees were asked by the Paulick Report last week to respond to six questions about themselves, their priorities and recommendations for the organization, and their thoughts on Breeders’ Cup governance issues.

Click here to read or print out a PDF document with all the responses (UPDATED JUNE 3), which are listed alphabetically.

Additionally, click here to access the biographies supplied to the Breeders’ Cup by each of the candidates. Nominators who have not received a customer number and passcode with voting instructions should e-mail the Breeders’ Cup nominations department or call (859) 514-9423.

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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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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On the surface, it seems unfathomable that the 40-some members and trustees, founding members and officers of the Breeders’ Cup who select the organization’s operating board of directors could have rejected Richard Santulli, whose business acumen is such that he is on the short list of candidates to succeed Warren Buffett, the “oracle of Omaha,” as chairman of Berkshire Hathaway. But that’s what they did on Friday, when the group voted to fill seven positions on the 14-member board. Neither Santulli, a New Jersey-based Thoroughbred owner and breeder, or Hill ‘n’ Dale Farm owner John Sikura received enough votes to secure a board seat.

The members and trustees re-elected all five of the candidates who sought re-election to two-year terms: Breeders’ Cup board chairman Bill Farish of Lane’s End Farm, Antony Beck of Gainesway Farm, Terry Finley of West Point Thoroughbreds, racetrack and casino owner R.D. Hubbard, and Satish Sanan of Padua Stables. Two open seats, made possible when board members Robert Clay and Joseph Shields Jr. were voted off the board of members and trustees by Breeders’ Cup nominators, were filled by Helen Alexander of Middlebrook Farm and Roy Jackson of Lael Stables.
Those seven are joined on the Breeders’ Cup board by the following individuals who were elected to two-year terms in 2007: Reynolds Bell Jr., Donald Dizney, Tracy Farmer, B. Wayne Hughes, G. Watts Humphrey Jr., and Robert Manfuso. The 14th board position is filled by the Breeders’ Cup CEO, Greg Avioli.

It is widely believed that the xenophobic duo of Farish and his father, Will, the vice chairman of the Jockey Club, lobbied heavily with the members and trustees to keep Santulli and Sikura off the board. Ironically, Santulli has been a client of Lane’s End, keeping mares at the Versailles, Ky., farm. Both Santulli and Sikura have been outspoken in their criticism of various aspects of the Breeders’ Cup in recent years. NetJets, the company Santulli founded and which is now part of the Berkshire Hathaway empire, was a Breeders’ Cup sponsor for several years but did not renew its sponsorship in 2008.
New Jersey-based Thoroughbred Daily News publisher Barry Weisbord, a close associate of Santulli, is believed to have lobbied to get Santulli elected. In addition, a number of Kentucky-based members and trustees pushed for the election of Sikura.

Simply put, Farish had the most juice in this election, and sources say it wasn’t even close.

The two new board members, Alexander and Jackson, represent old money. Alexander is an heir to the massive King Ranch, which raced 1946 Triple Crown winner Assault. She is widely respected for her independence and toughness, and support for her candidacy likely reached across the various factions.

Jackson, an heir to the Standard Oil fortune through his grandfather, William D. Rockefeller, is best known as the owner-breeder with wife Gretchen of Barbaro, the Kentucky Derby winner whose injury in the Preakness and unsuccessful battle to survive was a closely followed national drama two years ago. Having the conservative and low-keyed Jackson seek election was a stroke of genius by whoever convinced him to run. He and his wife, along with trainer Michael Matz, jockey Edgar Prado and veterinary surgeon Dean Richardson, were the human elements in the Barbaro story, and the Jacksons received plaudits from all corners for their handling of the horse’s post-Preakness struggles.

I’ve never heard anyone compare Jackson’s business experience with that of Richard Santulli, or his knowledge of the horse industry with John Sikura. But he is without enemies in the business and doesn’t make waves: a sure-fire qualification for an endorsement from the Farishes.

The respect for Alexander and the affection for Jackson notwithstanding, the rejection of a highly successful businessman like Santulli is mind-boggling. If he is good enough to be a candidate to run Berkshire Hathaway, it’s almost comical to think he would not be an asset on the Breeders’ Cup board.

The only conclusion I can make is that the most influential board members, led by Bill and Will Farish, are interested only in maintaining power by preventing individuals with different points of view from getting elected.

“Billionaires run the industry,” one horseman said to me after the election. “The only way to beat them is on the racetrack.” 

By Ray Paulick

Copyright ©2008, The Paulick Report

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