Posts Tagged ‘Joseph Shields’

By Ray Paulick

Last week’s decision by the Breeders’ Cup board of directors to suspend the program that put $6 million in purse enhancements into stakes races around the country in 2008 has brought an angry outcry from breeders who nominate their foals and stallions to the Breeders’ Cup in part because of the incentive created by that money. Some are saying they feel betrayed by the board and want a refund on their nominations because the decision was announced after the foal nominations deadline. Others are suggesting the move will cause some breeders to stop nominating stallions and foals in the future. 

A press release issued late Friday said the stakes program has been suspended for 2009 and other cost-cutting measures have been adopted due to “anticipated losses in nominations revenue because of recent trends in the bloodstock market and decreased revenue related to the worldwide economic downturn.” 

Breeders’ Cup president and CEO Greg Avioli told the Paulick Report on Sunday that a $10-million decline in revenues is anticipated: $4 million less in stallion and foal nominations compared with 2008; $3 million less in sponsorship money; and $3 million less in revenue from the two-day world championships, which are scheduled to return to Santa Anita Park in Southern California Nov. 6-7. 

Purses for the world championships will remain at their 2008 level of $25.5 million. The board’s vote on the various budget actions at its Dec. 11 meeting was unanimous, Avioli said. 

The Breeders’ Cup press release failed to disclose that the non-profit organization has lost approximately $11 million in the stock market this year and that its cash reserves have declined by more than 25%, from $40 million at the beginning of 2008 to less than $30 million today. 

Even with those losses, some breeders believe the cash reserves, which many of them view as an “emergency fund” created from their nominations money, should have been used to make up the projected 2009 budget shortfall as an alternative to elimination of the $6 million from the stakes program. Avioli said the board did not want to budget a deficit for 2009 and would not dip into cash reserves to pay operating costs. 

“The projections are for us to go from $50 million to $40 million in revenues,” he said. “That’s what the board was faced with, and it was a simple choice for 2009, once they determined we would not operate at a deficit: reduce championship purses or suspend the stakes program.” 

To help meet the budget reductions, Avioli said, marketing costs for the “Win and You’re In” Breeders’ Cup Challenge Series have been cut from $6 million to $2 million. “That means no national media this year,” he said, “no inserts in major publications. We eliminated all the mid-year ABC telecasts and we are down to two shows on ESPN in the fall, four and five weeks out from the championships. That saved us $500,000.” 

The changes caught many people by surprise, including numerous members of the 48-person Breeders’ Cup board of members and trustees contacted by the Paulick Report. The members and trustees have no specific power other than to elect the 13 members of the Breeders’ Cup board of directors, but some of them feel the smaller operating board should at least consult or poll them on issues as important as the decision to suspend the stakes program. 

STAKES PROGRAM A REASON TO NOMINATE 

“Nobody called me, nobody said a word to me, and there was no discussion about this,” one member/trustee said. “This stakes program is one of the reasons people nominate. The purse supplements give breeders, especially those outside of Kentucky, an incentive to participate. Without this program, many of them will stop nominating their foals and stallions.” 

Another member/trustee who is based outside of Kentucky concurred. “There are a lot of breeders in my state with 40 or 50 foals a year who pick out the 10 best ones and nominate them,” he said, “not because they think they can win one of the big races but because of these smaller Breeders’ Cup stakes around the country. It’s the only reason they nominate.” 

Minnesota-based breeder David Miller wrote the Paulick Report, saying: “As a regional breeder who has nominated his foals for the last few years, these supplements were my only chance to realistically recoup the investment. What is my recourse? The money is paid in and after re-reading the nominations terms, it appears the Breeders’ Cup will be making no refunds under any circumstances.” 

Avioli disagrees that the stakes program has played a major role in nominations. “We’ve done qualitative and quantitative research and we never got results back that the stakes program was the driving reason people nominated,” he said. “The two reasons that came out in research is the opportunity to have a horse be eligible for the championship days and the perceived increased value at sales for Breeders’ Cup nominated horses. This is not something we took lightly when we removed it, and I can’t tell you it’s not going to be restored in the future.”

Kentucky-based breeder Tom Evans, who operates Trackside Farm, made the following comment about the suspension of the program: “As a breeder who annually contributes funding for the Breeders’ Cup, I would appreciate the financial detail as to why the Breeders’ Cup needs to suspend nearly $6 million in co-funding for 2009 stakes races throughout the country. The catch phrase ‘challenging economic environment’ lacks the detail that supporters of the program deserve. And, since the Breeders’ Cup finds it necessary to suspend funding, what measures have they taken to cut costs in other areas such as corporate overhead and executive compensation?”

Avioli — whose compensation package was $517,965 plus another $248,175 in employee benefits in 2006 (the most recent year the Breeders’ Cup IRS Form 990 is available) – said the organization eliminated five full-time positions in the last year and will cut one additional job by the end of 2008. “Our total (2009) compensation budget is basically flat with 2008,” he said. The Breeders’ Cup 2007 annual report showed $3.6 million spent on personnel costs (2008 figures are not available). It is paying $266,160 in 2008 and 2009 to former CEO D.G. Van Clief Jr. as part of an $890,000 severance package he received when he stepped down in 2006. 

WHAT IS THE PURPOSE OF THE CASH RESERVES? 

John Sikura, of Hill ‘n’ Dale Farm in Kentucky, a member/trustee who unsuccessfully sought a seat on the operating board earlier this year, has been an outspoken critic of the Breeders’ Cup board’s handling of its cash reserves. Sikura doesn’t understand why the reserves are not being used to cover anticipated shortfalls in 2009 to keep the stakes program intact. 

“Those reserves are there for times of emergency,” Sikura said. “This is certainly one of those times. They should have funded the program, at the very least through 2009, because people have made reliances on this stakes program, and to have the rug pulled out from under them is wrong. These programs are not secondary to the racetracks or to the people who own horses.” 

Avioli claims the reserves are there to “protect against catastrophic occurrences that would cause cancellation of the championship event” – such as the kind of equine disease outbreak that shut down Australian racing last year or an earthquake or other natural disaster. Business interruption insurance would cover some, but not all, of a catastrophic event, Avioli said. 

“Second, like any organization, you have reserves so that you have security that the organization will continue if unforeseen circumstances arise,” he said. “Say this economy stays down for four or five years and nominations don’t come close to former levels. If you don’t have reserves, what are you doing to do? The question is, what’s the level of the reserves that need to be maintained, and that’s a function of the board of directors.” 

Some believe the board has built its cash reserve fund as a defense against the possibility of a boycott by stallion farms or syndicates that could grow unhappy with the direction of the Breeders’ Cup and stop nominating. 

The cash reserves are overseen by an Investment Committee chaired by G. Watts Humphrey Jr., a board member who for many years served on the Breeders’ Cup Executive Committee with William S. Farish prior to the 2006 changes in governance that brought some semblance of democracy to the organization. Farish’s son, Bill, has served as chairman of the board since 2006. 

The other members of the Investment Committee are Antony Beck, Donald Dizney, Ogden Mills “Dinny” Phipps, Joseph Shields, and recent appointee Satish Sanan. As board chairman, Bill Farish is automatically on every Breeders’ Cup committee, Avioli said. 

Phipps was voted off the board of directors in 2007 and Shields was voted off the board of members and trustees earlier this year. As chairman, Humphrey is authorized to invite anyone he wants, and he appointed Shields and Phipps to the committee. The cash reserves are entrusted to three or four different financial advisers. Contrary to rumors, Phipps’ Bessemer Trust is not one of the groups handling the Breeders’ Cup cash reserves, according to Avioli. 

Critics of the Investment Committee complained that scheduled meetings have been cancelled or postponed this year as the cash reserve fund was battered by market volatility and the global financial crisis that hit in September.”Farish and Humphrey do what they want,” one member/trustee told the Paulick Report. 

Another member/trustee said the cash reserves should not be looked upon as an emergency or catastrophic fund if a large percentage of it is invested in the stock market. “That’s a long-term investment strategy,” he said, “so it makes no sense to call it an emergency fund if it’s in equities.” 

Avioli defended the board’s handling of the cash reserves, even though the Paulick Report learned that at last week’s board meeting the Investment Committee indicated it was likely going to “get out of the equities.” 

“Should the money have ever been invested in the stock market?” Avioli said. “If you say ‘no,’ we wouldn’t have had the $40 million to begin with. If you accept that it was in the market and want to see how it was managed in the last 18 months, I’d say it’s done reasonably well compared with other industries. It’s down from $40 million to $30 million, but given these markets that’s not atrocious.” 

“I’ll bet a lot of the members and trustees don’t even know there is an Investment Committee,” one member/trustee said when learning of the $10-million-plus in losses. “It’s all part of the cloak and dagger secrecy that some of the people still engage in, even after we went through this new process of electing the board. People like the guys who run this committee do whatever they want with it. They can make all the bad decisions and they don’t think they have to be held accountable.” 

Another commented: “There is an unrecognized aristocracy in the United States, and these guys think they are part of the First Family.” 

Sikura is disappointed at the message the Breeders’ Cup board’s decision sends out to the industry. “In times like these, people are looking for some reassurance in the business from some of the industry foundations,” he said. “By taking this action, the Breeders’ Cup board failed to provide that reassurance.” 

Do you have an opinion on the Breeders’ Cup board’s decision to not use some of its $30 million in cash reserves to make up a projected budget shortfall and instead eliminate the $6 million in purse supplements to the Breeders’ Cup Stakes Program? Take the Daily Paulick Poll on the left-hand column of the Paulick Report homepage or leave your comments in the space provided below.

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

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

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

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

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

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

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

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

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

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

By Ray Paulick

Copyright ©2008, The Paulick Report

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The fight for control of the Breeders’ Cup began in earnest in January 2006, shortly after the organization’s board of directors ratified a change in bylaws that would end its self-perpetuating nature and give anyone who nominates a foal or stallion to the program the opportunity to vote in an annual election.

The battle is ongoing, as witnessed by the 21 candidates seeking 12 positions on the 48-person board of members and trustees. Ballots were recently sent to nominators, who will have the option this year for the first time to vote via a secured web site. Results will be announced in July, after which a meeting of the new board of members and trustees will be held to vote for seven of the 14 positions on the board of directors, the group that makes most of the key operational decisions for the Breeders’ Cup.

Until the 2006 change in governance, the Breeders’ Cup had been tightly controlled by an executive committee consisting of a handful of Jockey Club members who stockpiled approximately $40 million in cash reserves but made precious few changes or enhancements since the championship event’s inaugural running in 1984. Thoroughbred breeders unhappy with the event’s status quo and with the Breeders’ Cup’s expensive alliance with the National Thoroughbred Racing Association saw the change in bylaws as an opportunity to bring in new blood and new ideas to the organization in an effort to stimulate growth and interest. Many from the old guard saw it as a threat to their long-established rule.

It became a classic battle of the new guard vs. the establishment. In some cases it was new money, self-made millionaires, against a wealthy group populated with members of what investment wizard Warren Buffett calls the “lucky sperm club.”

The contrast of the two groups is best exemplified by a pair of New Yorkers who are worlds apart in background but share a passion for Thoroughbred racing: Dinny Phipps and Bobby Flay.

Phipps, chairman of the Jockey Club and born into the wealthiest of old-money New York families, is a current trustee and member of the Breeders’ Cup. Until he was voted off the smaller Breeders’ Cup board of directors last July, Phipps was considered one of the most powerful figures in racing.

Flay, seeking election for the first time as a Breeders’ Cup member and trustee, is a high-school dropout who worked his way up from salad maker at a New York restaurant to become a master chef, restaurateur, television celebrity and highly successful businessman.

Phipps is the leader of the racing establishment’s inner circle that has held control over numerous organizations and initiatives. Flay has close ties to Thoroughbred Daily News Publisher Barry Weisbord, one of the industry’s most progressive thinkers but considered by some in the establishment as a thorn in the side.

The primary role for members of the large board that Flay seeks to join is to elect individuals to serve on the 14-member board of directors. There has been intense lobbying, politicking and deal-making among people seeking positions on that small board, beginning with the first election in January 2006, when two separate slates of candidates were circulated.

One slate was pushed by WinStar Farm’s Bill Casner (also the chairman of the Thoroughbred Owners and Breeders Association) and the other by Lane’s End Farm’s Bill Farish, the son of Jockey Club vice chairman Will Farish (the younger Farish is the son-in-law of Phipps). Among other things, Casner’s group was not happy with the Breeders’ Cup operating agreement and relationship with the NTRA and sought more transparency and accountability for the money spent by the Breeders’ Cup on administrative expenses. He and his allies also pushed for the 2006 Breeders’ Cup championship purses to be increased to $20 million.

The Farish slate was victorious, though not overwhelmingly. Six of the board members were establishment figures who were members of the Jockey Club. Farish was elected board chairman and Robert Clay of Three Chimneys Farm as vice chairman. It was Farish’s father who served for many years as chairman of the Breeders’ Cup executive committee that made most of the major decisions for the organization.

Nevertheless, enough critics of the status quo were elected to bring about some of the changes Casner sought. In May 2006, the new Breeders’ Cup board voted to approve $20 million for that year’s championship day purses, and in August the Breeders’ Cup terminated its operating agreement with the NTRA. The new board also reached an agreement with longtime executive D.G. Van Clief Jr. to step down as Breeders’ Cup president. He was replaced by Greg Avioli, an attorney who previously held key positions at the NTRA.

Lobbying, politicking and deal-making has not been limited to the small-board election. Nominators to the Breeders’ Cup program vote for the larger board using a formula of one vote for each $500 they spend on stallion or foal nominations. A farm with $500,000 in annual stud fees gets 1,000 votes, so it quickly became apparent that the largest stallion farms, including Coolmore, Darley, Lane’s End, WinStar, Taylor Made, Three Chimneys, and Gainesway had the most power in electing individuals to the large board of members and trustees. Alliances have been formed among some of the farms to support specific candidates.

Sources said a number of the people elected to the large board have not bothered to attend any of the annual meetings, when members of the smaller board are elected. Instead, they send in proxies to a trusted ally.

According to several board members, Bill Farish has controlled more voting proxies than all of the other members and trustees combined. One current board member (not on this year’s ballot), who spoke on condition of anonymity, was critical of three of the people running for re-election this year: Joseph Shields, Leverett Miller and Maria Niarchos-Gouaze. “I’ve never seen either Joe Shields or Leverett Miller at a meeting,” the board member said. “Frankly, I have no idea who they are, what level of investment they have in the game, why they are on the Breeders’ Cup board of trustees, or why they are running for re-election. Maria Niarchos (Niarchos-Gouaze) is strictly a proxy vote for Bill Farish. Never, to my knowledge, has she been to one meeting in all the years she’s been on the board.”

(For the record, Shields is an investment banker and an owner-breeder who served as co-chairman of the board of the New York Racing Association prior to the federal indictments and bankruptcy proceedings. Miller formerly owned and operated T-Square Stud in Florida, where Shields’ horses have been boarded. Niarchos-Gouaze took over her family’s Thoroughbred operation after the death of her father, Greek shipping magnate Stavros Niarchos. Her horses are boarded at Lane’s End.)

“There is no question that guys like like Lev Miller and Joe Shields are good for votes for the old establishment,” said one of this year’s candidates. “It concerns me that the person with the most muscle tries to stack the board to have their philosophy represented. Doing that loses any free-thinking. How much free or creative thinking can there be if there is just one faction combating another faction.

“There was a lot of politicking last time,” he continued. “The way it’s heavily weighted, the factions know where they have to go to get the votes – the major stallion farms. In the last election, Bill Farish came to me and said here are the candidates I hope you’ll vote for. There’s no slate circulating this time, at least to my knowledge, and I haven’t heard from Bill. Maybe he thinks he’s got it under control and doesn’t need any more votes.”

Following last year’s election of the members and trustees, there was controversy involving Terry Finley, the head of West Point Thoroughbreds. Finley, previously a member of both the small and large boards, did not receive enough votes in the June 2007 election to remain on the large board. It was expected he would have to resign from the smaller board, since membership on the larger board is a requirement.

During the July 2007 meeting of the members and trustees, however, it was decided that Finley could remain on the small board for the duration of his two-year term, which expires this year. In a press release announcing the 2008 member and trustee candidates, the Breeders’ Cup said Finley was running for reelection to the large board—even though he was voted off last year.

Here are the 21 individuals running for the 12 spots on the board of members and trustees:

Helen Alexander–Middlebrook Farm
Doug Cauthen–WinStar Farm
Robert N. Clay–Three Chimneys Farm
Robert Cromartie–Briggs & Cromartie Bloodstock Agency
Bill Farish, Jr.–Lane’s End Farm
Terrence P. Finley–West Point Thoroughbreds, Inc.
Bobby Flay —B Flay Thoroughbreds, Inc.
Lucy Young Hamilton–Overbrook Farm
Arnold Kirkpatrick–Kirkpatrick & Co.
Allan G. Lavin, Jr. –Longfield Farm
James McAlpine–McAlpine Thoroughbreds
Leverett S. Miller –T-Square Stud
Maria Niarchos-Gouaze–Poseidon Services Inc.
Charles Nuckols III–Nuckols Farm
Bill Oppenheim–Bloodstock consultant
Don M. Robinson–Winter Quarter Farm
J.V. Shields, Jr. –Shields & Company
Mark Taylor–Taylor Made Farm
Ric Waldman–Overbrook Farm
Charlotte Weber–Live Oak Stud
Barry Weisbord –Media Vista

Editor’s note: The original version of this article incorrected stated Leverett Miller owns and operates T-Square Stud in Florida. Miller sold the major portion of that farm in December 2006.

Copyright ©2008, The Paulick Report