Posts Tagged ‘fred pope’
Wednesday, September 2nd, 2009
Lexington advertising executive Fred Pope has come up with an intriguing proposal for a race between Rachel Alexandra and Zenyatta, one that would help explain how racing’s business model for simulcasting is broken and needs fixing. Will any one listen or act on the suggestion? –Ray Paulick
By Fred A. Pope
In an effort to deliver what everyone wants— Rachel Alexandra versus Zenyatta — NYRA recently hooked up with off-track bet taker TVG to supplement the purse of the Beldame Stakes by $400,000.
NYRA was reduced to this weak position because the premier track operator cannot make $400,000 from off-track wagering on the race.
That’s because of the upside-down, off-track revenue model, where casinos and off-track betting companies pay as little as 2% to the host track, while they keep up to 18% of the wager themselves.
If $20 million were wagered off-track on the proposed race, the purse account would have only gotten $300,000. The off-track bet takers would have gotten $3,400,000. That’s right, ten times more money just for taking the bet, than for the racehorse owners putting on the show.
Trying to put on a show for racing has become the Theatre of the Absurd. Host tracks cannot make the fillies’ owners “an offer they can’t refuse”. Perhaps the racehorse owners need to step in with some common sense.
Inside the Box Thinking
You are about to read a outrageous proposal for how the owners of the star attractions, Jess Jackson and Jerry Moss, can focus the sporting world on Thoroughbred racing and deliver the Filly Race of the Century.
When you do a Situation Analysis on racing today, you come to the painful conclusion that the host event gets nothing from off-track wagering on its product and nothing from the television networks for its product. Since the basic objective of providing the owners of the racehorses with a valuable purse, the strategy becomes crystal clear:
If you can make 20% from the wagers made on-track, but only 2% from the wagers made off-track, then you need to see how you can maximize the on-track wagers.
No off-track wagering and No televised coverage
Sheer madness? Maybe not, it seems to work for the NFL when they haven’t sold out a studium.
To make a statement for all racehorse owners about the upside-down, off-track revenue model that bled $500 million out of purses this year, the owners of these two magnificent fillies have a timely opportunity.
Jess Jackson knows how to market a product and Jerry Moss definitely understands the entertainment business, so let’s explore how these two racehorse owners can achieve for their sport what the industry around them cannot seem to grasp — You either control your product and its distribution, or someone else will control it. You can increase demand for your product by limiting supply.
We are about to revisit the revenue model of 1938, when Seabiscuit was a star.
Let’s Go Retro
Hell, Jess Jackson even saw Seabiscuit race at Santa Anita, so he knows the excitement and electricity that fans feel being on the grounds at a closed sporting event.
There are three tracks big enough to handle the crowd — Belmont, Churchill Downs and Santa Anita (I know the surface problem for Jess, but this is a different consideration).
I would go to those tracks and offer the race, with these conditions. The track would get all admissions, concessions, parking, programs, etc. The track and local purse account would get the on-track takeout from a quality-packed under card of races.
For the big event, the fillies’ owners would agree the race would have no set purse amount, but instead they would get 100% of the takeout from on-track wagers on the race. In effect, the racehorse owners take the risks.
By locking out all off-track wagering and televised coverage, if we can get a crowd of 80,000 and drive the on-track handle to $20 million, the takeout for the purse would be $4 million gross. If we paid back to 6th place, there is a huge incentive for the owners of other good fillies to enter the race and drive the handle higher.
To publicize the race, the two major owners could take the satisfaction of the winner being named Horse-of-the-Year and dedicate their share of the winnings to charities like the Susan G. Komen Race for the Cure and the Race for Education. A ban on cell phones and computers at the track will further boost the on-track handle.
A replay of the race the next day will allow fans to see the great race, but the attraction of a great sporting event would be live attendance.
The tracks would need their racing commissions to pre-approve a non-traditional day, similar to Breeders’ Cup days.
With all the advances in technology and expanded distribution of wagering, the host track should be able to make a lot more money today than they could in 1938. But, because the off-track revenue model fails to pay the host event for its product, the stakeholders of racing are back where they started.
The real “True Blood”
Last July 2008 the industry was “shocked†by a series of articles I wrote on this subject. But, obviously not shocked enough to fix it.
As a result, more than $1 billion has been sucked out of racing this year. The money is lost forever to the tracks, racehorse owners, trainers, jockeys and everyone in between. The lost money has not flowed down to breeders through the sales as reinvestment in racing prospects. The lost money will not be spent at the upcoming September Sales
This past year I have traveled to Arizona for the Racetrack Symposium and throughout the year presented the problem and solution to the heads of every organization in racing and breeding. To date, not one of these organizations have done anything to change the off-track model or push for the corrections to the IHA.
Each month about $100 million is bleeding out of our sport and the rate is accelerating very rapidly through the cannibalization of bets previously made at the tracks and now increasingly made through phone and Internet companies with no connection to racing.
The Future of Racing
If we can get quick passage of the correction to the IHA and the host event starts getting 50% of the takeout from bets made at other tracks; then gets up to 75% from non-racing bet takers, and finally the future of racing is when the host event can start accepting wagers direct from customers for a virtual “on-track” revenue model. We could have 15% of the wagers going to the host event.
Then on big race days, if we have $50 million in off-track handle, the revenue at 15% to the host event would be $7.5 million for the day. That’s how you bring Rachel Alexandra and Zenyatta, or Curlin and Big Brown together in races.
That’s when you have the star power to fill the seats and make racing a viable sport again. So that no matter where the bet is madej, or how the bet is made, the majority of the revenue goes to those producing the show.
Once the IHA is corrected, the opportunity for creative, innovative thinking on how racing is packaged and presented will abound, because the host event can make money on the show.
But, until then we will continue in the Theatre of the Absurd, where the off-track bet takers walk off with all of your money and your sport.
Tags: Beldame Stakes, belmont, Big Brown, Breeders' Cup, churchill downs, Curlin, fred pope, iha, jerry moss, jess jackson, nfl, nyra, off-track betting, Racetrack Symposium, Rachel Alexandra, santa anita, seabiscuit, Susan G. Komen, Theatre of the Absurd, tvg, zenyatta
Posted in Account Wagering, Industry Reform, Rachel Alexandra, zenyatta | 112 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 »
Monday, May 4th, 2009
By Ray Paulick
What’s in store for the Breeders’ Cup over the next five to 10 years? Will racing’s championships remain a two-day event? Will it consider a move to Europe, Dubai,or Hong Kong to incorporate more of an international audience? How will the organization’s revenue expand beyond its two primary sources of funding: stallion and foal nominators and North American horseplayers? More fundamentally, what should the Breeders’ Cup mission and vision be?
Answers to some of those questions may begin to crystallize this morning when the Breeders’ Cup Strategic Planning Committee, meeting formally for the third time, hears the draft conclusions and recommendations from William Field of the international consulting company Value Partners. Today’s meeting, Field told committee members in a memo, will provide a forum for them to discuss the staretegic plan’s draft conclusions and recommendations before they are formally presented to the Breeders’ Cup board in July.
Field and others from Value Partners have been digesting the data and information gathered from a process that began late last summer and included a lengthy survey of the 48 members and trustees of the Breeders’ Cup, interviews with nominators , horseplayers and fans, and two ideas-generating workshops. (Click here to read a previous Paulick Report article on the process.)
Thirty-five people are expected to attend today’s meeting, scheduled from 9 a.m.-3 p.m. at the Crowne Plaza Hotel in Lexington. Fred Pope, a Lexington advertising executive and the founder of the National Thoroughbred Association who has been a vocal proponent for changing horse racing’s business model for simulcasting, will make a presentation at the outset of the meeting.
The question some members of the Strategic Planning Committee are asking is whether they will be getting an uncensored version of the recommendations from Field and Value Partners, or if the board of directors, led by chairman Bill Farish, along with Breeders’ Cup president and CEO Greg Avioli, have hijacked the process from committee chairman Satish Sanan before its conclusions were presented. Avioli met with Field in London recently and a second meeting with the consultant in Lexington last week included Farish and Avioli but not Sanan. Governance, sources have told the Paulick Report, remains a significant issue among members and trustees as measured by the members and trustees surveys, yet there are concerns the issue will not be addressed in Field’s recommendations to the committee.
Nevertheless, Sanan said he is confident the draft recommendations made by Field will not have been edited by the controlling powers of the Breeders’ Cup board.
“I am optimistic that the process has been very transparent and it’s gone very, very well and has received overwhelming support from the attendees,” Sanan told the Paulick Report. “I am extremely confident that what comes out of the strategic plan will be the combined input and recommendations of the people who have been involved in the process.”
Another committee member concurred with Sanan that the longtime established powers on the Breeders’ Cup board have not tried to control the process. “I felt no reluctance on the part of the ‘old guard’ or efforts to steer the process,” the committee member told the Paulick Report. “It’s been a very good, open-minded exercise. It’s come down to acknowledging revenue sources: gambling and nominations. We’ve got to make both groups happy, but need to figure out the right strategy to grow this thing. The bottom line is we need to have a five or 10-year plan. Operating year to year as it’s been done is just too tough.”
Copyright © 2009, The Paulick Report
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Tags: Bill Farish, Breeders' Cup, breeders' cup strategic planning committee, fred pope, Greg Avioli, Paulick Report, Ray Paulick, satish sanan, value partners, william field
Posted in Breeders' Cup | 8 Comments »
Monday, January 5th, 2009
By Ray Paulick
“It’s hard to get half the people in this industry to agree on what day it is,” a Central Kentucky breeder said to me a couple of weeks ago, shortly after the Breeders’ Cup announced suspension of the stakes supplement program for 2009. “I can’t believe 83% of the people voting in your poll agreed that the Breeders’ Cup board made the wrong decision.”
The day after the results of the Daily Paulick Poll were reported (83% opposed the decision by the board of directors not to use cash reserves to fund the program, 10% supported it and 7% were unsure), the Breeders’ Cup reversed field, reinstating the stakes supplements – at least for 2009. Breeders’ Cup president Greg Avioli said he did not “anticipate the fervor of the response” to the original decision to suspend the program. Apparently, the poll results reflected the response Avioli and board members received in the way of telephone calls and emails from nominators to the Breeders’ Cup from around the country.
This wasn’t the first time judgments ran strong on an issue on which readers of the Paulick Report were asked to vote. The polls are not scientific, but the results are quite interesting and we are flattered by the daily response. This much we’ve learned: You’ve got opinions.
The most recent results, in fact, represent the strongest sentiment of any of the 40 polls we have conducted since just before the Breeders’ Cup World Championships in late October. (Click here to see archives of all the Daily Paulick Poll results.) We asked, “Does the National Thoroughbred Racing Association provide a strong central organization to move racing forward in the future?” The results have been stunning, with 94% saying “no” and only 6% answering “yes.”
In some ways, the question about the NTRA mirrored the results of earlier polls regarding the state of the industry and thoughts about some of the organizations that lead it. In mid-November, we asked, “In general, are you satisfied or dissatisfied with the way things are going in the Thoroughbred industry in the United States at this time.” The question was parallel to the right track/wrong track question the Gallup organization periodically asks of American citizens about the state of the nation.
According to our poll, 91% answered “dissatisfied,” suggesting the industry is currently on the wrong track. Of the remainder, 4% said they were satisfied and 5% were unsure. One e-mailer suggested that the 4% who said they were satisfied must not have understood the question.
Along those same lines, in early December we asked, “Are you confident the individuals in charge of the most prominent racing and breeding organizations in the United States are adequately addressing the problems the industry is currently facing?” That resulted in an 85% no confidence vote, with 10% saying they are confident in our industry leaders and 5% unsure.
A specific question about one of the year’s biggest stories, the creation of the NTRA Safety and Integrity Alliance, indicated skepticism among voters. While 8% agreed that it was a “major step forward in the areas of medication and safety issues and will result in significant improvements” and 27% called it a “good idea, but it’s too early to say whether or not it will be effective,” fully 44% voted that the alliance was “designed to keep the federal government from stepping in and taking action” on safety and medication. Another 22% said it will be “ineffective because the NTRA lacks authority to enforce its recommendations.”
Poll responses to questions about how to improve the economics of racing were less conclusive. For example, we asked which of three areas of growth were most important to the future success of racing: reinvigorating on-track business, expanding account wagering through TV or on-line video streaming, or getting subsidies from slot machines or other forms of gaming. Reinvigorating on-track business got the most votes, 45% of respondents, barely ahead of the 41% who believe account wagering is the industry’s best hope. Only 14% believe growth from slots/alternative gaming is the answer. A more specific question about slot machines ended with a four-way dead heat, with each of the following answers getting 25% of the votes: 1) slots are a short-term fix to boost revenue; 2) they are a long-term necessity for racing to be competitive; 3) they are a necessary evil; and 4) I oppose slot machines at tracks.
On the issue of simulcast revenue, the poll run in conjunction with an article by Fred Pope on what he calls “ Priority 1: Racing’s Business Model” found 63% agreeing with Pope that host tracks and owners where the live race is run should get the lion’s share of takeout revenue. Another 29% believe it should be divided equally between the host site and where the bet is taken, and only 7% support the current model that leaves most of the revenue from simulcast wagers with the bet takers.
The level of takeout has been hotly debated in the comment sections of Pope’s article and several other related pieces. Our only poll question on the subject came after the Kentucky Horse Racing Task Force recommended an increase in takeout to help fund additional staff for the Kentucky Horse Racing Commission. Only 17% agreed with that recommendation, with 83% opposed to an increase in takeout to fund the commission.
We’ve touched on many other areas in our polls. For example, 55% of voters opposed Breeders’ Cup putting all of the filly and mare races on the Friday program of the two-day championships, with 18% in support and 27% taking a “wait and see” approach; 49% opposed having the Breeders’ Cup dirt races run on a synthetic track, while 39% supported it and 12% unsure. In the breeding world, in mid-December, 65% of voters said stud fees had not been reduced enough, 31% said the reductions were “about right,” and 4% felt they had been lowered too much. A comparison of the three highest-priced new stallions of 2009 found that Henrythenavigator offered greater value and opportunity for success to breeders than Curlin and Big Brown. The votes were 52% for Henrythenavigator, 44% for Curlin and 4% for Big Brown.
Finally, in light of the depressed bloodstock markets and a downward trend in pari-mutuel handle in 2008, a year-end poll asked readers if they believe 2009 will be a better year. Only 24% said they feel 2009 will be improved from 2008, with 52% saying it will be worse and 24% believing it will be the same.
Naturally, we hope our readers will be proven wrong and that 2009 will be a year that the industry addresses some of its biggest issues: organizational structure, leadership and a new business model that reflects the reality that roughly 10% of wagers are taken on-track where a race is being run. It’s clear there is a high level of discontent currently running throughout the industry, but it’s just as obvious that the passion to have racing stage a comeback is equally strong.
Copyright © 2009, The Paulick Report
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Tags: Account Wagering, advance deposit wagering, ADW, Big Brown, Breeders' Cup, Breeders' Cup World Championships, Curlin, daily paulick poll, filly friday, fred pope, gallup poll, Greg Avioli, henrythenavigator, Horse Racing, kentucky horse racing task force, National Thoroughbred Racing Association, NTRA, ntra safety and integrity alliance, Paulick Report, priority 1: racing's business model, racing's business model, Ray Paulick, right track/wrong track, Simulcasting, stud fees, synthetic racetracks, takeout, Thoroughbred breeding, thoroughbreds
Posted in Account Wagering, Breeders' Cup, Breeding, Horse Racing, Horse Welfare, Industry, Industry Organizations, Industry Reform, National Thoroughbred Racing Association, Simulcasting, Slot machines, Synthetic surfaces, Thoroughbred Business | 15 Comments »
Saturday, January 3rd, 2009
A recent guest editorial by Fred Pope entitled “Priority 1: Racing’s Business Model,” brought forth a vigorous discussion among Thoroughbred owners, breeders and horseplayers about revenue splits from simulcasting and the levels of takeout in pari-mutuel wagering. Comments continue to be posted on that article two weeks after its original publication (including a lengthy reply from Pope on Jan. 2), as well as on a follow-up piece I wrote on the subject.
The following analysis on the issue was written by a California-based horseplayer who goes by the pen name “Indulto.” He previously wrote a Paulick Report guest commentary on the Breeders’ Cup in October and has contributed to other racing-related blogs and web sites. Indulto’s views, like those of any guest commentary, do not necessarily represent those of the Paulick Report. – Ray Paulick
By Indulto
I heard there was a mugging going on at the Paulick Report recently, but when I got there it looked more like a series of drive-bys.
What is it about Fred Pope that riles up horseplayers? When the Paulick Report offered a second exposure to Pope’s agenda in “ PRIORITY 1: RACING’S BUSINESS MODEL,” it was swamped by responses from horseplayers including multiple comments from several staff members of HANA (Horseplayer’s Association of North America).
In pari-mutuel pool participant parlance, it appeared to be an attack of pirHANAs.
As usual, Mr. Pope’s crafted arguments are logical, persuasive, and targeted at racehorse owners. The reader who is primarily a horseplayer, however, soon realizes that Pope doesn’t acknowledge their existence much less recognize them as having any stake in his new business model for racing despite the fact it involves funding purses with pari-mutuel handle – a breath-taking omission to some. Understandably, a few initial reactions from responding horseplayers were overly negative and/or derisive.
Considering the volume and passion of his opposition, Pope’s willingness to engage was laudable, but his live responses to the onslaught were not as convincing as his canned content. One of my objectives in this belated response is to address the concerns of some of racing’s customers who are not among the horseplaying elite; in theory, practice or internet participation. Perhaps a chronological presentation of the salient portions of Mr. Pope’s defense – with assistance from Ray Paulick — will permit easier reader verification, if desired. The bolding in quoted portions is mine.
Pope’s initial reply disparaged most of the industry’s customer base.
“… I value bettors greatly. We have somewhere in the neighborhood of 100,000 handicappers in America and we are losing some every day. They are not being replaced, so time is of the essence. We have about 3 million people who go to tracks each year and have a generally good feeling about racing, but they don’t know how to handicap, so betting isn’t much fun unless the color they picked wins. ….”
Who are those “100,000 handicappers” he referred to and where does that figure come from? How many of them are whales and/or professionals, i.e., the tiny minority of players whose huge bankrolls give them the clout to force the industry to effectively lower takeout on their wagers through rebates. This perversion of the pari-mutuel system puts the vast majority of non-rebated bettors at a competitive disadvantage, especially in the exotic wager pools. Takeout is obviously too high, but only the wealthy are eligible for relief. Some of the average player resentment against horsemen today is derived from the horsemen’s shutting off signals from tracks they were negotiating with to onshore ADWs, but still allowing them to go to offshore ADWs that service those high-volume players.
Where are the free videos the industry should be generating for internet and on-track viewing to acquaint the novice with the game and the environment before, after, and even while attending the races for the first time?
Mr. Paulick then came to Pope’s defense.
“I didn’t interpret in reading Fred Pope’s article that the horseplayers don’t matter. Of course they matter. But so do the owners who invest a whole lot more than an OTB or a phone betting company, and so do the tracks that have huge investments in bricks and mortar. Horseplayers lose on average 20% of what they bet. Horse owners lose more like 50%. Tracks may be show a minor profit, but not enough to rebuild their infrastructure or invest in the future. Right now, no one seems to be winning.”
Those percentages are misleading, in my opinion. Without implementing a level playing field from an equine medication standpoint, wouldn’t the bulk of any purse increases continue to go to the same owners who currently collect a disproportionate share of purses just as rebated professional bettors cash a disproportionate number of IRS signers?
Apparently emboldened by that support, Pope responded to his detractors in kind.
“ Now, how some of you got the impression that I am against lowering takeout and don’t care about bettors, is hard to understand. But, I have a wife, so here it is: I apologize honey for not considering your feelings and I promise to never do it again. I was trying to get the front door back on and should have thought about the fact you are feeling a chill.”
Okay, Mr. Pope. We are a sensitive bunch. We’re watching an industry devoid of leadership and deficient in integrity self-destruct. You aren’t the only one passionate about saving it and seeing it prosper. Concentrating on the unhinged front door while ignoring the broken back door hardly seems a recipe for success. Like a politician whose message changes with his audience, you provide no indication in any of your speeches and articles that bettors should benefit as well as owners.
In his concluding response there, Pope wrote, ”But, I think most people were not aware the bet takers were getting the lion’s share and now most want to change the IHA to restore live racing. What I would like to hear is from some young folks in marketing about what this change could do for the host tracks and the sport.”
I would guess that as many people were unaware of who gets the “lion’s share” as were unaware that the playing field is tilted against the non-rebated bettor. Horseplayers prefer ADWs to other bet takers when they provide rebates or access to venues the others do not. In my opinion, enabling residents of all states to wager on-line through the bet taker of choice on races at any venue, would by itself justify modifying the IHA. Establishing a centralized industry authority would be icing on the cake. John Pricci once proposed Bill Clinton for Racing Commissioner. Is anyone better prepared to deal with industry politics?
In Paulick’s last response he wrote, “What has gone up is the access to exotic wagers (multiple types of exotics on every race, which wasn’t the case 25 years ago). With that increased access to exotics is an increase in the blended takeout, since players invest more in exotics than in lower takeout WPS wagers. Did racing make a mistake in offering too many exotic wagers, or should the higher risk-reward bets have the same takeout as WPS, which most serious players don’t seem to play?”
Currently the “serious players” dominate the Pick Six wagering pools because the $2 minimum for each combination effectively bars virtually all but big-bankroll bettors from playing it competitively. Defenders of the current minimum insist that a lower minimum would reduce the number of carryovers and thus the huge payoffs the wager sometimes generates. Perhaps a compromise is warranted. New York offers a lower Pick Six takeout on non-carryover days. Lower minimums on weekends and holidays – and only when there is no carryover — would enable more players to compete in the Pick Six Pool. Allowing on-track patrons to purchase a minimum of say 100 combinations at $.50 on those days should spur attendance as well as handle.
Shortly thereafter, Paulick followed up with his own summary in “ POPE’S UPSIDE-DOWN BUSINESS MODEL PROVES HOT TOPIC.”
“Comments from horseplayers focused largely on what they believe is an onerous level of takeout,… Not many of the horseplayers who commented seem to have much sympathy for horse owners who spend at least $2 billion a year on training costs and compete for half that amount in purses.
“Many of those horseplayers want to see takeout reduced, especially on exotic bets such as exactas, trifectas, superfectas or multi-race wagers where the takeout often exceeds 25%. Some of them feel ADW companies should get a large enough share of the takeout so they can be profitable and still offer rebates to their best customers.
“The problem with that, as I see it, is that the stronger position the ADW companies have, the greater a percentage of handle will migrate from on-track business to phone or internet wagering . … As handle moves from on-track to ADWs, there is less retained revenue for the tracks and local horsemen to put on the show. Less revenue means lower budgets for marketing, capital improvements and technology advancement for tracks, and less incentive for horse owners to stay in the game.”
Sympathy on all fronts is obviously in short supply. Maybe I should have changed the title to “Can’t we all get along?” Seriously, owners need to consider reducing costs where practical. Purses aren”t supposed to support extravagance or subsidize bad judgment. Trainer fees, vet bills, stud fees, and sales prices are likely places to start. Why are fees generally greater for high-profile trainers whose "expertise" is funneled through assistants and applied increasingly hands-off across venues and among clients? Are their total earnings to total charges (including vets) ratios always competitive?
Pope added: “You know, it is hard to have it both ways. You want a better racing product, but the money from a better product is now going to the bet takers who give you a discount. … Which way do you want it? Do you really want a better product that will grow the sport, or do you want your discount.”
Actually, we want both. To imply the two are mutually exclusive is also misleading. One problem that players now attribute to owners, as well as tracks, is the degradation in quality of the product. Higher purses aren’t drawing large fields, and graded stakes seldom attract previous winners at the higher levels. There are simply too many races being carded and insufficient cooperative scheduling. The result has been lower demand and thus handle. In fairness, synthetic surfaces may also be a contributing factor in this area.
Pope then rallied back to his original position.
“So, you guys are contending the growth of claiming races to over 70% is a better racing product?
And, the main reason for racing’s decline is the takeout rate?
… I think you will find the people spending $500 million each year on yearlings want to get back more than the claiming ranks provide. They also want to participate in a sport, not just make a bet.
So, I’m going to say horseplayers are overpopulating this discussion.
Thoroughbred racing is the racehorse owners’ game. The track facilities are important partners, but at the end of the day, racehorse owners and breeders will decide the racing product, its distribution, pricing and promotion. From time to time, they need to stand up and fix problems. I think that is exactly what they will do with the IHA.”
The internet wagering/viewing genie is out of the bottle, and it is the only access for fans too remotely located or too physically infirm to attend live racing. Racing should expand that market with the IHA, not abandon it. As one who follows the sport at its highest level and bets for entertainment, I would prefer to compete on a level playing field for all bettors regardless of bankroll size; just as many horsemen would prefer to compete in an environment with uniform medication policies accompanied by more appropriate penalties for violators.
Pope continued, ”The reason we have the problems in the sport is the lack of owner leadership. We need the basic structure of a major league like the other sports. … I apologize for jumping in on those who want to discuss takeout, however, I think that issue belongs in another forum. It would not be a part of the IHA.
… We spend too much time hiding from the truth. The truth is medication, drugs, animal welfare and the details of the right mix of takeout and customer service are not the basic problem. The basic problem is structure, or more specifically, the lack of it.”
One truth Pope can’t hide from is that his plans will have to not only overcome resistance from his fellow horsemen, but also from horseplayers. If nothing else, he must now realize that there are people as determined as he is to put racing back on track, and that they have organized in order to accomplish some of the same objectives. Another truth is that my former colleagues’ reactions had prior momentum. I was still working with the founding HANA team when the Pope agenda got its first airing on the Paulick Report in “POPE TO OWNERS: ‘IT’S YOUR GAME’.” After experiencing a similar reaction to Pope’s remarks in that article, I submitted an opinion piece to the HANA Blog, “Horseplayers to Pope: It’s Our Game Too.” I assume, Mr. Pope either never saw it or felt no response was necessary.
It’s probably no coincidence that, in the absence of my daily dissidence, HANA has progressed well beyond a handful of posters at the www.paceadvantage.com Web site to become a corporate entity with now very public officers, a distinguished advisory board, and an internet sign-up membership that has (to the best of my knowledge) quadrupled since Mr. Pope’s work initially appeared on the Paulick Report. HANA is now led by its president and principal spokesman, Jeff Platt, who is no less logical and persuasive than Mr. Pope in articulating his organization’s concerns and goals. It’s clear to me that these two gentlemen should be talking to one another and developing a new business model that both horsemen and horseplayers can support.
Among the many worthwhile player comments focused on ADWs and takeout, there was one that I am certain deserves wider distribution. Poster BombsAwayBob Grant wrote, “The first track in the country offering strong rebates for bettors making wagers AT THEIR TRACK will be the first one to see their bottom line improve. It will get bettors back to the track, while still allowing full ADW access for their signal.”
Simulcasting and technology helped create the off-track wagering advantage in terms of cost, convenience, and competitiveness. It’s time to reverse that drain by pulling customers back to a future where on-track patrons are viewed and treated as racing’s best customers. Hopefully, Hollywood Park will get the message by next April. What have they got to lose?
Copyright © 2009, The Paulick Report
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Tags: Account Wagering, advance deposit wagering, ADW, betting rebates, fred pope, hana, handicappers, horseplayers, horseplayers association of north america, indulto, jeff platt, pari-mutuel wagering, Paulick Report, racing's business model, Ray Paulick, Simulcasting, simulcasting revenue splits, takeout, thoroughbred owners, www.paceadvantage.com
Posted in Account Wagering, Industry Reform, Regulatory Issues, Simulcasting, Thoroughbred Business, Wagering | 56 Comments »
Saturday, December 20th, 2008
By Ray Paulick
Fred Pope touched a nerve throughout the Thoroughbred industry with his commentary about what he called an “upside down” business model for simulcasting, where the track and horse owners putting on the live race get one-fifth of the takeout, the remainder going to the simulcast site, OTB or ADW taking the bet. If the bet taker/simulcast site is affiliated with a racetrack, its share is usually split with the local horsemen.
The article, published in the Paulick Report on Friday, was a reprint of a speech Pope gave earlier this month at the University of Arizona Symposium on Racing in Tucson, Ariz. The Lexington advertising executive wants to see racing adopt a new business model, one that pays the lion’s share of simulcast revenue to the track and horse owners putting on the live race. Pope has long been an advocate for horse owners to exert greater control over the terms of simulcast contracts.
Though his widely-read article has elicited nearly 90 comments from horse owners, breeders and gamblers whose opinions fall on all sides of the issue, participants in the Daily Paulick Poll voiced overwhelming disapproval of the current business model. To date, only 6% of those who voted say the current model is the right one. Sixty-five percent believe the lion’s share of the simulcast proceeds should go to the track and owners putting on the race, while 27% feel it should be divided evenly between the live track and horsemen and the simulcast site, OTB or ADW and affiliated horsemen at that end.
Comments from horseplayers focused largely on what they believe is an onerous level of takeout, but many of them also feel disenfranchised or taken for granted by an industry that once had a monopoly on gambling and has not done a very good job of competing in this new world of Indian casinos, riverboats, and online gaming, whether it be poker or sports betting through offshore bookmakers. Not many of the horseplayers who commented seem to have much sympathy for horse owners who spend at least $2 billion a year on training costs and compete for half that amount in purses.
Many of those horseplayers want to see takeout reduced, especially on exotic bets such as exactas, trifectas, superfectas or multi-race wagers where the takeout often exceeds 25%. Some of them feel ADW companies should get a large enough share of the takeout so they can be profitable and still offer rebates to their best customers.
The problem with that, as I see it, is that the stronger position the ADW companies have, the greater a percentage of handle will migrate from on-track business to phone or internet wagering. We’re already seeing horseplayers at the track making wagers through ADW companies because some of them will offer rebates. As handle moves from on-track to ADWs, there is less retained revenue for the tracks and local horsemen to put on the show. Less revenue means lower budgets for marketing, capital improvements and technology advancement for tracks, and less incentive for horse owners to stay in the game.
Pope’s proposal may not be without flaws, but the current model clearly is upside down, and any business structure that puts more power in the hands of the bet takers is going to make it even worse.
Copyright © 2008, The Paulick Report
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Tags: Account Wagering, advance deposit wagering, ADW, daily paulick poll, fred pope, Horse Racing, horseplayers, off-track betting, otb, pari-mutuel wagering, Paulick Report, Ray Paulick, symposium on racing, takeout, university of arizona symposium on racing
Posted in Account Wagering, Industry Reform, Simulcasting, Wagering | 56 Comments »
Friday, December 19th, 2008
Fred Pope is one of those rare individuals in racing who does more than identify problems and complain about them; he actually spends a great deal of time working on solutions. Whether it’s the National Thoroughbred Association, an owners-driven organization he created more than a decade ago, or pushing for a "major league" of racing, the Lexington advertising executive has been a strong proponent of horse owners and their rights to get a greater share of simulcasting revenue.
Pope’s current proposal, which he outlined recently at the University of Arizona Symposium on Racing, is for a change in the Interstate Horseracing Act of 1978, the federal law that governs interstate simulcasting. By providing for more rights to the racehorse owners where the live race is run, Pope believes purses and bloodstock prices will greatly increase and the sport of racing will grow. The complete text of his speech follows.
What is your opinion on this subject? Do you believe the lion’s share of takeout from simulcast wagers should go to the business taking the bet (simulcast site, OTB, or ADW company), or to the track and horsemen’s organization where the live race is run? Take the Daily Paulick Poll (located on the left-hand column of the Paulick Report home page) or leave a comment at the bottom of Pope’s article. — Ray Paulick
Correcting the Interstate Horseracing Act
Racing’s Off-Track Business Model Favors Bet Takers. It Should Favor Host Tracks Putting on the Show.
Speech by Fred Pope at Univ. of Arizona Racing Symposium, December 11, 2008
 Let’s start off today with a show of hands. Be honest. How many of you feel that Government should be involved in Thoroughbred racing? I see just one or two hands, so perhaps we should work to get government completely out of Thoroughbred racing.
First, let’s tell government we want them to take back the laws that make it legal to bet on racing. Why should government intrude and force our sport to have a monopoly on legal wagering?
Next, let’s ask Jay Hickey when he returns to Washington to see if we can get the federal government to rescind the Interstate Horseracing Act. Why did government feel the need to give our host tracks expanded distribution across state lines?
And third, for good measure, let’s tell government that we don’t want the exemption they gave us in 2000 from the law that prohibits gambling on the Internet. That ought to do it.
Ladies and gentlemen, the truth is racing is more involved with government than any other sport. Government involvement is at the core of racing’s existence. If it weren’t for government involvement in racing, the only place we would enjoy our sport would be at the County Fair.
I understand why most of you didn’t raise your hand today. Government involvement comes with strings doesn’t it? There’s a yin and a yang to government and politics.
It seems when government steps in and passes a law to do one thing; it inadvertently winds up hurting something else.
That’s why I am here today, to talk about how government’s gift of the Interstate Horseracing Act (IHA), has inadvertently resulted in an Upside Down business model that is killing Thoroughbred racing.
We are all aware of how our once-healthy American automakers are suddenly on the verge of collapse because they failed to take action and correct their business model.
Talking about off-track betting and business models isn’t a very sexy subject. It causes a lot of people to get a glassy look in their eyes; however, that is where 90% of all the money in racing is today. If you want to have a future in racing, or breeding, you need to understand where the money from off-track wagering is going now, and where it needs to start going.
Here’s how wagering under the IHA should have worked. The regulated host tracks and racehorse owners putting on the show would have licensed and paid a small commission to those taking off-track bets on their product. For example, if someone bet $100, the host track and purse account would get about 15% and perhaps pay a 5% commission to the bet takers.
That’s the model used by lotteries. Lotteries pay a 5% commission to the convenience stores punching in the numbers on the lottery bets. It is a very straightforward distribution model. The lotteries and the IHA in racing kicked in about the same time, but last year the lotteries grossed $50 billion and paid out about $2.5 billion to their bet takers. Racing could have used that same distribution model, instead racing invented its own model.
Now, here’s how wagering under the IHA actually happens today. The host track and racehorse owners putting on the show contract and receive only 3% from the people taking bets on their product. The bet takers keep 15% or more for just taking the bet.
Whether the bet takers are other racetracks, or OTBs, or ADWs, or casinos, they keep the majority of the takeout on the host track and racehorse owners’ live racing product.
Why? The short answer is because the bet-takers felt they owned their betting customers. If the bettor was going to wager on other tracks’ races, the bet-taker was going to get the lion’s share. Today, bettors can bypass the receiving tracks and pick up the phone or go online. The genie is out of the bottle and won’t ever go back in again.
The 3% going to the host track is split between the track and its purse account. It isn’t enough to pay for the live show, but 3% is the going rate established by the receiving racetracks taking the bets. Since the Interstate Horseracing Act has a provision that requires approval by the group representing horsemen in the receiving state, the host track has no option, but to accept the going rate of 3%.
Bet Takers Keeping All the Off-Track Money
If you bet $100, only $1.50 goes to purses at the track putting on the live show, but more than $15 stays with the place taking your bet.
You might think the cumulative effect of 3% from lots of sources totals more than the bet-takers receive, but it doesn’t. If $3 million is bet off-track, the host track and purse account split 3%, or $45,000 each, while the off-track bet takers keep $450,000 or more and many have no connection to racing.
This upside down, business model impacts 90% of the handle and it is the reason Thoroughbred racing is dying in America.
The bet-takers are gaming the IHA to the effect that there is no incentive for the host track to produce the live racing show. Just like the American automakers; racing has to correct this model or risk a total collapse of the business.
The potential closing of Hollywood Park is the new reality that no matter how large the market, a host track cannot overcome the upside down business model that is enabled by the wording in the IHA.
The IHA is supposed to help racing by simply expanding the distribution of the host tracks’ product. That is all it was supposed to do. Racing was relatively healthy in 1978 and this new distribution should have seen the sport and business revenue explode. If we had used the normal distribution model like the lotteries, racing too could have $50 billion in handle.
Now that it has been identified, this is a problem we can fix. With the stroke of a pen, the promise of the IHA can be realized. We can turn the upside down business model, right side up.
Racing has a monopoly on legal sports betting. We have virtually national distribution of a wagering product. We have a monopoly on Internet gambling. All we are missing is a real world business model and that comes quickly by correcting the Interstate Horseracing Act.
The American automakers’ business model doesn’t work because labor costs are too high. Even if a labor official knew the business was going to collapse, you can image how hard it would be convince the members to go from $70 an hour to $40 an hour.
And the same in our business, even if receiving track horsemen know the off-track business model means major tracks will fail, it would be hard for them to voluntarily give up making 15% as a bet-taker in order to save the host tracks.
That’s why it will take responsible people who have a national interest in racing to get involved, because few people will ever agree to a haircut in the interest of the sport.
That’s the beauty of correcting the Interstate Horseracing Act. Without state by state turf battles, the national law will fix the problem. Racing’s upside down business model will be turned right side up.
At a time when everything in racing and breeding is heading south, correcting the IHA would see $1 Billion going to the host tracks in the first year. Half, $500 million, would go into racehorse owners’ purses at the host tracks. For breeders it should be noted, that $500 million in racehorse owners’ purses is more than all yearling sales in 2008, and it is reasonable to expect racehorse owners would reinvest that purse money into new racing prospects.
So, here’s what we need to do to correct the Interstate Horseracing Act and have a normal business model for off-track wagering that will restore the business of Thoroughbred racing.
1) Change from the term “horsemen” to “racehorse owners”. There is no reason for trainers to be making business decisions for racehorse owners. This should never have been written into the original legislation. Like in California, the HBPA should be funded for benevolent activities in every state.
2) Eliminate the provision in the IHA requiring approval of horsemen in the receiving state taking the bets. This provision, while well intentioned in 1978, is obsolete today and is responsible for the upside down business model that has evolved over the past thirty years. Approval of racehorse owners at the host track should remain in the IHA.
3) Mandate the host racetrack and host purse account receive a minimum of 50% of the takeout on interstate bets. This will allow the host track and a receiving track taking the bet to share the same amount. All other bet takers, like ADWs and OTBs, will need to contract with the host track and racehorse owners who approve the host track agreements under the IHA.
The Interstate Horseracing Act is business distribution legislation and these corrections, that must be made, are relatively minor amendments. I do not support using the IHA as a vehicle for non-business issues like safety and medication.
Once this new business model for off-track wagering is law, racetracks and racehorse owners putting on the show will have great incentive to package, present and yes, promote their Thoroughbred races.
Under the new business model, the host track will be free to go direct to the betting customers in every racing state. Racing can be a leader in the new economy and take advantage of technology that can deliver the same business model we enjoy with on-track wagering.
The problem is today a bettor can be standing in the paddock at the host track putting on the show and make a phone bet that results in very little money going to that host track and its purses.
After these corrections to the IHA, it will not matter where the bettor happens to be at the moment, the majority of the money will go to the host track putting on the show.
That means if even small tracks, like Turfway Park or Tampa Bay Downs, puts on a good day of racing and attracts wagers of $10 million, they could split up to $2,000,000 with the purse account. That’s how you bring Thoroughbred racing back. And, when racehorse owners start winning these purses, that’s when the breeding business has a firm foundation for the future.
Every track in America will have the opportunity to provide their races to every wagering jurisdiction, with no gatekeepers, or middlemen siphoning-off the fruits of their labor.
This philosophy of owning the bettor and giving the majority of the money to the entity taking the bet is a worldwide problem. We have the technology for live racing to be sold to a worldwide audience, yet because of protectionism and old economy thinking, we do not have a business model to grow the live racing product. Everything today favors who takes the bet, not who produces the live show. Change that premise and you assure the international future of racing.
Leaving the Old-Economy Model and Moving to the New Economy
The day of the franchise that values bet taking is over. It has no place in the new economy.
When racing’s business model moves away from the old economy thinking of we own the bettor, to the new economy realization that we own the show, then our sport has a bright future.
Changing economies are frightening things, particularly with the realization that if you don’t change you die. The new economy for racing, under a business model that favors those putting on the show, will bring innovation and opportunities that are unimaginable today.
Nothing succeeds like a profit motive and corrections to the IHA will bring solid incentives to package, present and promote its races. The sky is the limit for our host tracks.
The unfair advantage racing has been given, time and again by government, has never been realized because of the stranglehold bet-takers have had over the sport.
The Holy Grail of Sports Marketing
A monopoly on gambling, with national distribution and a solid profit margin is the holy grail of sports marketing. How we have screwed this up all these years is a crying shame.
Five years ago, I was hired by a racetrack company to do the most extensive consumer research ever done on Thoroughbred racing. I reviewed the research done by the NTRA, and then set out to find more in-depth answers using a top research firm.
I’m restricted from telling you the results, however, I can tell you this: The research did not support other entertainment or alternative gambling at the tracks. The facilities are not the problem and they are not the solution.
The research did show there is nothing wrong with Thoroughbred racing that cannot be fixed by packaging and presenting a better racing product. The first step though, is to change the business model to make it all possible.
The Kentucky Derby and the Breeders’ Cup have shown us the daily market for racing exceeds $100 million. That’s a good goal for host tracks to aspire to each week.
This current ADW problem is a symptom of how upside down our business model has become. ADW’s should be simple businesses that just handle transactions. Not companies trying to game the IHA with schemes and kickbacks called source market fees. When we correct the IHA, the ADW’s will no longer be a problem.
The real problem that must be solved is between the bet-takers, and the host tracks and racehorse owners putting on the show. Everything else at this time is just noise.
We have the opportunity for a new golden age of Thoroughbred racing, in full partnership with government. This industry is all about jobs and a way of life we all love. This is how we take action and reclaim our sport.
To those who might say we should not risk correcting the Interstate Horseracing Act, I say how can we not risk correcting it? Do we, like the automakers, risk total collapse of our business because we’re afraid to change and act?
We cannot fail to correct the Interstate Horseracing Act now.
Thank you.
© Fred A. Pope 2008
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Tags: Account Wagering, advance deposit wagering, ADW, Breeders' Cup, fred pope, Horse Racing, horsemen's organization, iha, interstate horseracing act, jay hickey, kentucky derby, national thoroughbred association, National Thoroughbred Racing Association, nta, NTRA, off-track betting, otb, pari-mutuel wagering, Paulick Report, pope advertising, Ray Paulick, Simulcasting, symposium on racing, university of arizona racetrack industry program
Posted in Account Wagering, Industry Reform, Regulatory Issues, Simulcasting | 112 Comments »
Tuesday, September 2nd, 2008
By Ray Paulick
The Labor Day announcement that Stonerside Stables has been sold by Robert and Janice McNair to Dubai’s Sheikh Mohammed is troubling news – not over concerns that the sheikh’s Darley operation may become a dominating force in American racing and breeding but because of the symbolism of McNair’s departure from active participation in our sport.
With the exception of a few horses they are retaining, the McNairs sold the multi-state breeding, training and racing operation lock, stock and barrel for an undisclosed sum that surely approaches or exceeds $100 million.
The McNairs began development of the farm and racing stable in 1994, a mere 14 years ago. And now, just like that, they are getting out. Pfft!
Why?
The press release announcing the sale said Robert McNair found it increasingly difficult to devote enough time to Stonerside in light of his ownership of the National Football League’s Houston Texans, a franchise that McNair bid $700 million to buy and which played its first NFL game in 2002, five years after the Houston Oilers moved to Tennessee and were renamed the Titans. Despite going their first six seasons without a winning record, the Houston Texans were appraised by Forbes magazine as the fourth most valuable team in the NFL (behind the Dallas Cowboys, Washington Redskins and New England Patriots) with an estimated value of over $1 billion.
To get the Texans and return the NFL to Houston, McNair outbid entertainment mogul Michael Ovitz and billionaire oilman Marvin Davis, among others, who wanted to bring a franchise back to Los Angeles, which had lost the Rams to St. Louis and the Raiders to Oakland. McNair knew that the NFL was the sports world’s most valuable league, and understood the power that a strong league office, with the support of team owners, had in shared media rights, merchandising, sponsorships, and marketing. Stepping up with a bid of $700 million seemed like a big risk, but now it looks like a bargain.
While McNair was busy starting his NFL team, he also lent his support, time, personal resources and expertise to a project that the Thoroughbred Owners and Breeders Association was trying to launch: the Thoroughbred Championship Tour (TCT). The TCT was a property Thoroughbred owners would create through an investment of $25 million, hosting a series of races showcasing top horses in divisions tied to the Breeders’ Cup at tracks throughout the country. The TCT would control media and wagering rights for those races.
McNair was named chairman of the TCT, which after its public unveiling in 2003 was slow to get off the ground for a variety of reasons, including TOBA’s staffing inadequacies. TOBA board members and TCT officials went to the Breeders’ Cup and National Thoroughbred Racing Association (which at that time were effectively one organization) for support, but they were stonewalled by some of the same people who helped kill previous initiatives, including Fred Pope’s National Thoroughbred Association. Leading the charge against the TCT was G. Watts Humphrey, who along with Will Farish controlled the executive committee of the Breeders’ Cup until its governance was changed and its board elected by nominators.
The stonewalling worked. After a series of meetings among racing organizations that went on for years, TCT announced in 2005 that it was “suspending operations” – which might be a stretch. There never really were any operations…only discussions.
The opposition of Humphrey and other “old guard” Thoroughbred owners and breeders to the TCT and its “new guard” supporters had carryover effects beyond this attempt to create a series of races for the best horses in training. There were hard feelings by people like McNair who were trying to bring change to an industry that has long resisted it. Some in the new guard kept pushing for change through the Breeders’ Cup election and governance process, which still remains under the control of the old guard. Others have backed away from industry initiatives after getting a bad taste in their mouth from their experience with the TCT.
McNair is getting out of the horse business almost entirely, instead putting all of his considerable energy into the NFL, where there is more enlightened leadership and, as a result, heightened opportunities to grow a business.
This much we know: the NFL’s gain is the horse industry’s loss.
Tags: bob mcnair, Breeders' Cup, fred pope, G. Watts Humphrey, houston texans, marvin davis, michael ovitz, national football league, national thoroughbred association, National Thoroughbred Racing Association, nfl, nta, NTRA, robert and janice mcnair, stonerside, TCT, Thoroughbred Championship Tour, Thoroughbred Owners and Breeders Association, TOBA, Will Farish
Posted in Breeders' Cup, Industry Organizations, Industry Reform, National Thoroughbred Racing Association, People, TOBA | 13 Comments »
Thursday, August 14th, 2008
By Ray Paulick
Fred Pope just won’t give up.
For more than 16 years, since he first used advertising space in Bloodhorse magazine to publish an article entitled “Whose Game Is it?” Pope has been trying to convince Thoroughbred owners that they can control their own destiny in racing.
Pope is a Lexington, Ky., advertising agent who for many years was closely associated with Gainesway Farm and its founding owner, John Gaines. Both men loved the power of ideas and both wanted to see Thoroughbred racing grow out of a parochial, tradition-steeped existence that encouraged inertia over creativity. Gaines started the Breeders’ Cup, which he had hoped would become a vehicle to market the sport to a wide audience that currently does not participate in racing. He went to his grave disappointed that his big dream was not fulfilled, even though the Breeders’ Cup has been widely hailed as racing’s best innovation of the 20th century.
Pope saw the power of the event, which at the very least gave racing the championship day it never had. The Breeders’ Cup has evolved from a one-day on-track experience with a relatively large television viewing audience to a two-day event in which racing fans throughout the country can participate through simulcast betting at their local track, OTB or via account wagering. The television audience has plunged in numbers over the 25-year history of the Breeders’ Cup, even as handle has grown substantially.
The bottom line is that the Breeders’ Cup may capture the attention of most racing fans for a weekend, but it isn’t creating very many new enthusiasts for the sport.
Pope believed racing needed more than just one big weekend in the fall to help the sport grow, so he began trying to find ways to define a “major leagues” for racing. He kept going back to the fact that the racehorse owners, the people who own the “talent,” should be in control of the game. “Control” means licensing, scheduling of major races, marketing regulations, contractual agreements over distribution and revenue. It’s the kind of control defined by the most successful major league sports, including the National Football League (controlled by the team owners) or the PGA Tour (controlled by the players).
After studying various sports and how the team owners or players exert control, Pope formed the National Thoroughbred Association, which would create a major league for horse racing by, among other things, reversing what he called the upside-down revenue model currently in place for simulcasting, which now accounts for nearly 90% of wagering. The upside-down model, in brief, pays five times more to the business handling a wager (the simulcast outlet or account wagering company where a bet is made) than it pays to the track and horsemen who puts on the race on which the wager is made.
One of the first people Pope convinced that his idea would work was John Gaines, who along with Pope started convincing some of the most powerful owners in the business to get on-board. Eventually more than 100 owners signed up, each contributing $50,000 to the NTA as seed money, and the NTA was off and running in the summer of 1996. A board of directors was formed and Robert Clay was elected president of the NTA.
(Author’s note: In an article on Breeders’ Cup governance published by the Paulick Report in June, I mistakenly credited Gaines with creating the NTA. Pope deserves full credit for its creation.) Pope brought in two people familiar with the model, Tim Smith and Hamilton Jordan, who had worked together in the Jimmy Carter White House and later on several other projects, including professional tennis, which had been transformed into a sport controlled by the players – not the tournament sites. Smith also had worked as deputy commissioner on the PGA Tour.
In early 1997, as the NTA’s plans continued to be formulated, Jockey Club chairman Dinny Phipps got involved and called Clay and a few others to a private meeting in Palm Beach, Fla. Neither Phipps nor William S Farish, the Jockey Club’s vice chairman, supported the NTA. Farish was also the chairman of the board of publicly traded Churchill Downs and a major consignor of yearlings at Keeneland. The latter role led Farish to have ambivalent feelings about the NTA, he told Gaines privately, because “I have to sell yearlings” to many of the people who had signed up in support of the NTA or who sat on its board of directors.
Clay was almost breathless in his enthusiasm for the “all hands together” approach that Phipps proposed during the Palm Beach meeting, that called for the Jockey Club, Breeders’ Cup and Keeneland to get involved. Other groups eventually were also brought in, including racetracks, and what had been an owner-driven initiative was now, for lack of a better term, a fustercluck of industry organizations which, by their nature, could never paddle in the same direction. Phipps effectively killed the NTA, morphing it into the National Thoroughbred Racing Association, which is now a lobbying organization in Washington, D.C. , and a trade association for the industry. The NTRA is not a league office and has not done anything to transform racing into a major league sport.
As Pope said during a talk he gave to a group of equine attorneys last year, “The NTRA looked like the NTA, sounded like the NTA, and promoted itself with the terms such as ‘Commissioner’ and ‘league office’ but without the basic elements of a Major League. It was a fake major league.
“The NTRA could not package, price, or distribute the sport. It did not have the rights from the racehorse owners, it did not have rights from the racetracks, nor did it seek to change simulcast pricing. Instead of the proven Major League sports structure, the NTRA tried to include not just all of Thoroughbred racing, but also included all of the Thoroughbred industry, as well as other horse breeds and dog racing industries.
“Instead of a real Major League structure, the NTRA presented a fantasy structure selling the premise that if everyone would close their eyes, join hands and sing Koombaya, then Thoroughbred racing would be restored The political operators had everyone drinking the NTRA Kool-aid.
“If Mr. Phipps thought stopping the major league NTA, to start another trade association, then in my opinion he is incompetent. If he did it only to stop the NTA, then he and people who helped him are guilty of something more sinister and owe the industry an apology. Although Mr. Phipps is the acknowledged head of the industry, I have never read about his vision for Thoroughbred racing. Every time someone else has put forward an idea, he has moved to stop it. To the point now, no one has offered anything new in the last ten years.”
Pope made those comments in May 2007. Since then, the industry’s prognosis has gone from bad to worse. This year alone we’ve we had the death of Eight Belles at the Kentucky Derby, the admission by trainer Rick Dutrow that Kentucky Derby winner Big Brown raced on anabolic steroids, medication positives for the trainers of the Horse of the Year, the Kentucky Derby winner and the Kentucky Oaks winner, the possible implosion of Magna Entertainment (the largest racetrack owner in the country), ongoing disputes over simulcasting and account wagering, and Congressional hearings that made the industry’s leaders look incompetent.
I think we are right next to a calamity,” Pope told the Paulick Report.
For that reason, he’s not giving up on the same basic premise that started in 1992 with the question “Whose Game Is It?”
Last month, Pope published an op-ed piece in the Thoroughbred Daily News discussing racing’s upside-down distribution model and the need for owners to get involved. That article got a lot of horse owners talking about the need for change.
I’m afraid we are seeing the total collapse of the economic model that’s in place right now,” Pope told the Paulick Report. “The objective of the NTA was to change from a simulcast buyer’s market to a seller’s market. It’s finally coming to fruition in some very bad ways, and it’s only a matter of how much damage has been done.
In the Aug. 16 issue of Bloodhorse magazine, Pope has repeated that message and has called for Congress to change one word in the Interstate Horseracing Act that will empower owners across the nation.
We have a long list of national organizations, but not a national racehorse owners association,” Pope wrote in a magazine that, coincidentally, is owned by the national Thoroughbred Owners and Breeders Association. Several organizations say they speak for racehorse owners; however, they are actually controlled by breeders, tracks, or trainers. It seems everyone wants to speak for racehorse owners, except racehorse owners.
Currently, the Interstate Horseracing Act gives simulcast approval to what it calls “horsemen,” which has been defined as owners and trainers. Pope wants the word “horsemen” to be changed to “racehorse owners,” mandating that the owners step and get involved in key decisions relating to simulcasting contracts.
One problem is that horse owners, to paraphrase what Robert Clay said many years ago, didn’t join the country club to cut the grass. They joined so they could play golf
Jess Jackson is one owner who believes in Pope’s idea, and that can be viewed as a blessing or as a curse. Jackson is a powerful individual whose written testimony before the Congressional hearing in June included a lengthy article written by Pope. He has access to members of Congress that many others might not have. He is respected and appreciated by some in the industry for what he has done in the area of auction reform, but there are others who may automatically get on the other side of the fence from Jackson on any given issue because they don’t like his tactics.
That shouldn’t be the case. This issue is too important. Racing is in far worse shape than it was in 1996 when Pope and more than 100 owners stepped up to make a difference, only to be shot down by Dinny Phipps and his sycophantic followers.
The idea then was to grow the business by having owners take control of the sport and create a new business model for simulcast distribution. The reality today is that the various parties are fighting over scraps. The focus needs to return to growth, and there is only way for that to occur.
Racehorse owners must support change to the status quo.
Copyright © 2008, The Paulick Report
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Tags: Dinny Phipps, fred pope, Horse Racing, interstate horseracing act, John Gaines, national thoroughbred association, National Thoroughbred Racing Association, nta, NTRA, Ogden Mills Phipps, Paulick Report, Ray Paulick, Robert Clay, Simulcasting, Thoroughbred Owners and Breeders Association, TOBA, william farish
Posted in Breeders' Cup, Industry Organizations, Industry Reform, Jockey Club, Simulcasting | 14 Comments »
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