Posts Tagged ‘John Sikura’

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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By Ray Paulick

The Paulick Report will be live blogging and/or providing frequent updates from Monday’s first session of the Keeneland September Yearling Sale from Lexington, Ky. The sale is scheduled to kick off at 10 a.m. EDT, but as most auction viewers know sessions do not begin on time.

First, a bit of news from John Ferguson, chief bloodstock adviser to Sheikh Mohammed, who is expected to again pace all buyers in expenditures. Ferguson told the Paulick Report that Dubai’s ruler is "here," meaning the United States, though he wasn’t sure when he was expected to arrive in Lexington or on the sale grounds.

Ferguson also said the purchase of Keeneland’s rival sale company, Fasig-Tipton, by an associate of Sheikh Mohammed would have "absolutely" no bearing on his spending decisions at Keeneland. He said he is excited about what Fasig-Tipton will be doing to promote horse racing internationally. "We want a lot of speed boats out there promoting the sport" — as opposed to cruise ships, said Ferguson, who alluded to the numerous slow-moving organizations that can’t seem to get things done. Looking ahead to future sales at Fasg-Tipton, that should be exciting news for breeders. But first, there is this little business of getting some horses sold at Keeneland.

11:30 update… First chuckle of the day when the initial result sheets come out with Morning Wood Farm listed as the buyer of Hip 5, a Ghostzapper filly consigned by Four Star Sales, agent, that brought $185,000. That’s the same "business entity" that purchased Silverbulletday for Mike Pegram for $155,000 at the 1998 Fasig-Tipton July Kentucky yearling sale. Bob Baffert picked out and trained Silverbulletday.

11:;45 update…John Ferguson makes his first purchase of the Keeneland sale, Hip 38, a Storm Cat colt out of Runway Model, by Petionville, sold by Taylor Made Sales Agency for $700,000. Among Runway Model’s racing wins was the Grade 2  Darley Alcibiades at Keeneland. This colt is her first foal.

Looks like the first seven-figure yearling is in the ring, Hip 56, an Unbridled’s Song filly. Hammer price is $1.7 million for the Taylor Made consigned filly on behalf of Aaron and Marie Jones. She is half to champion Speightstown.

 Judging by the size of the crowd in the back ring area, Sheikh Mohammed has arrived. Sure enough, he has, and he’s bought the half sister to Speightstown. Sheikh Mohammed assumed his customary bidding spot along the wall with his advisors nearby. The Coolmore outfit, including Demi O’Byrne, is situated less than 25 feet behind the sheikh.

2:20 update…Alaska had its chance for a "Bridge to Nowhere," and Keeneland looks like it just produced a $7.7-million "Bid to Nowhere." Hip 127, a chestnut colt by A.P. Indy out of Horse of the Year Azeri (by Jade Hunter) has a prolonged bidding battle that finally ends up with a $7.7 million hammer price. The auctioneer says the final bid came from bidspotter Pete’s area right in the front of the press box, but no live bidder can be found by the press horde that snakes down the aisle in search of a buyer. Turns out the buyer’s initials are "R.N.A.," or reserve not attained. Sheikh Mohammed’s camp was bidding on the horse but dropped out (see 3:05 update). There are instant rumors that the colt was purchased privately beforehand, but that’s the nature of the business. Rumors abound, and there is seldom any substantiation. The colt is consigned by Hill ‘n’ Dale Sales Agency, agent.

A $7.7-million buyback certainly figures to be a record, but we’ll let the trade reporters answer that question officially. 

2:45 update…(Bloodhorse reports it is indeed a record, besting by $200,000 the previous high RNA established in 1985 at the now-defunct Keeneland July yearling sale for Ajdal, who went on to become a champion sprinter in England.)

3:05 update…Turns out Sheikh Mohammed and John Ferguson were not bidding on the $7.7 million buy-back, Ferguson tells the Paulick Report. Demi O’Byrne of Coolmore also said he wasn’t involved. So the question is, was any live money on the A.P. Indy colt? Michael Paulson was in attendance, but one back-ring source said he left the area immediately after the colt went through the ring.

A short time later, Gainesway, agent for Jess Jackson’s Stonestreet, sells an A.P. Indy filly out of graded stakes winner Chimichurri for $3.1 million, with Ferguson signing the ticket for Sheikh Mohammed.

5:35 update….The first session is about to wrap up and it will be interesting to see the final numbers from the day. Anecdotally, it seemed to lack any buzz, and several consignors described the action as "spotty" or "uneven."  Going into the day, several leading buyers shared the observation that the 2008 yearling crop wasn’t vintage, at least at the top of the market. Combine that with the worldwide economic slump and the negative publicity that has surrounded horse racing in the United States this year, and it wouldn’t be surprising to see a fairly steep decline in the average.

"This is an emotional business," one consignor said. "You can’t really put a tangible value on an unraced yearling, so we are depending on emotions to drive prices. The emotions surrounding the sport right now are not very good."

One final note. John Sikura, whose Hill ‘n’ Dale Sales Agency consigned the A.P. Indy-Azeri colt Michael Paulson bought back for $7.7 million, spoke briefly about the deal. It seemed clear he wasn’t thrilled being the consignor of a record-priced buyback and insisted there was live money on the colt up the end. "I still don’t know who it was," he said. "We came very close to having the horse sold." Bloodhorse got ahold of Michael Paulson, who said he wants to find a partner and keep a piece of the horse.

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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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It took centuries for the people of Iraq to experience the joys of voting in a democratic election. Thoroughbred breeders only had to wait 25 years.

For over two decades since its inception in 1982 as the brainchild of the late John Gaines, Breeders’ Cup Ltd. had been run under the cloak of darkness, or as Canadian breeder Frank Stronach said, as a “club.” There was an unwieldy, self-perpetuating board numbering 48 individuals and numerous committees dominated by members of the Jockey Club. For most of its 25 years, however, the Breeders’ Cup was controlled by a small executive committee headed by Will Farish, the vice chairman of the Jockey Club, and later by G. Watts Humphrey Jr., a partner in many of Farish’s breeding ventures at Lane’s End Farm and a Jockey Club insider. Meetings of the large board were seen by some board members as nothing more than a good opportunity to catch up on industry gossip, doze and rubber stamp decisions of the executive committee.

Control fell into the hands of the Jockey Club hierarchy at the outset of the Breeders’ Cup when then-powerful Claiborne Farm at first resisted the idea of nominating its stallions to the program, a move that would have prevented it from leaving the starting gate. Gaines, who was never a member of the Jockey Club and often referred sarcastically to its poo-bahs as the “self-appointed guardians of the Turf,” agreed to remove himself from any management role in order to end the acrimony with Claiborne. The farm’s president, Seth Hancock, had very close ties to the Jockey Club’s ruling family, the late Ogden Phipps and son Dinny.

A decision by Farish and Humphrey to reach into the rich coffers of the Breeders’ Cup (estimated conservatively then at $40 million) and provide financial assistance to the fledgling National Thoroughbred Racing Association through a joint operating agreement in 2001 rankled many breeders, who had built the program from scratch with annual foal nominations of $500 and annual stallion nominations equal to a horse’s stud fee. Those breeders had grave concerns over how their money was being spent. Breeders’ Cup purses were being outpaced by a growing number of international races, and under Farish’s leadership (and Breeders’ Cup executives Ted Bassett and D.G. Van Clief Jr., both Jockey Club members) the original seven race program that began in 1984 was unchanged until the addition in 1999 of the Filly & Mare Turf.

Many breeders did not see or understand the merit of propping up the NTRA, an organization formed in 1998 after Dinny Phipps derailed another initiative pushed by Gaines, the owner-driven National Thoroughbred Association, morphing that into a hybrid vehicle driven by a combination of owners, breeders and racetrack executives who could never agree to do anything significant enough to help the industry.

But I digress.

Stronach was among those who began to stir the nest in 2001 making pointed comments at a public forum about both the NTRA and Breeders’ Cup and its boards of directors. By then, his Magna Entertainment owned a number of racetracks, and he threatened to pull them out of the NTRA unless he was satisfied the organizations would make some reforms in governance. Van Clief, then vice chairman of NTRA and president of the Breeders’ Cup was quoted in a Jan. 14, 2001, article at ThoroughbredTimes.com as saying that the Breeders’ Cup was reviewing its methodology for electing directors and hopeful of resolving the issue in “the next few days.”

Those “few days,” however, stretched into weeks, then months, then years. Stronach was otherwise appeased, and his tracks remained NTRA members.

In 2005, when the Breeders’ Cup board rubber-stamped a committee recommendation to increase stallion nomination fees for stallions with 50 or more foals, there was more stirring. John Sikura, owner of Hill ‘n’ Dale Farm, wrote a letter published in The Blood-Horse that was extremely critical of the move. “The focus of the Breeders’ Cup should be on cost containment and fixing their business model so that 20 years after inception, we do not have to alter an agreed revenue sharing formula to fill revenue gaps and create their profitability,” wrote Sikura, who called the change a “luxury tax” on stallions producing more than 50 foals. Sikura agreed that the Breeders’ Cup needed its purses to keep pace with competing races, then added, “At the very least, the Breeders’ Cup must pledge 100% of these additional revenues to purses and realize it is our money they are spending, not theirs.”

The Breeders’ Cup was not strapped for cash. At the time, it had accumulated over $40 million from nominations and revenue from its annual championship day of racing.

Sikura’s letter was a lightning rod for the growing discontent many breeders were feeling over the use of Breeders’ Cup funds in NTRA operations. “That letter really got people fired up,” a current Breeders’ Cup board member told me recently. “People weren’t so much upset about the decision to increase the fees, but how it was made and where the money was going.”

Many people believed the administrative budget for operating the Breeders’ Cup and NTRA had become bloated. “The overhead model was strewn with numerous employees with outrageously high salaries and no financial accountability to the breeders who funded the organization,” said one current board member.

The stallion fee increase came in the wake of a simmering dispute between the ruling members of the Breeders’ Cup/NTRA boards and a group of owners and breeders organized under the banner of the Thoroughbred Owners and Breeders Association who were proposing a race series called the Thoroughbred Championship Tour. Among the big names pushing the TCT series was its chairman, owner-breeder Robert McNair, the owner of the National Football League’s Houston Texans. The series concept was created by Thoroughbred Daily News publisher Barry Weisbord, who a decade earlier had started the American Championship Racing Series, which gained traction on the racing landscape but ultimately failed because of industry squabbling.

TCT backers felt the Breeders’ Cup/NTRA boards were not doing enough to support their proposed series, which never got off the ground and suspended its operations in July 2005. Those backers joined the growing chorus of voices seeking reforms at the Breeders’ Cup, where the people John Gaines called the “self-appointed guardians of the Turf” finally realized that change was inevitable and necessary. The old board altered the corporate bylaws in November 2005, creating a new operating board of 13 members, who would be selected by a larger group of “members and trustees.” Those members and trustees would be elected by Breeders’ Cup foal and stallion nominators under a formula that assigns one vote for each $500 in nominations to the program. (For example, someone who owns a stallion with a stud fee of $10,000 would get 20 votes.”

Finally, 25 years after the Breeders’ Cup was created, the people who funded the program would have the chance to have a say in how it is run. The struggle for control of the Breeders’ Cup was reopened.

Game on.

Editor’s note: The original version of this article incorrectly stated that the National Thoroughbred Association was created by John Gaines. The NTA was solely created in 1993 by advertising executive Fred Pope. Gaines joined Pope in helping push the initiative three years later.

TOMORROW: Part 2. Power-seekers, politicking, deal-making, and clashing egos.

By Ray Paulick

Copyright ©2008, The Paulick Report