Posts Tagged ‘thoroughbred’
Monday, December 29th, 2008
By Ray Paulick
One of the first projects that landed on my desk when I joined the Thoroughbred Times as managing editor in 1988 was a feature story on the Jockey Club, the organization historically entrusted with registering Thoroughbreds and being the keeper of the Stud Book. The article was accompanied by a lengthy mail-in survey of Thoroughbred Times readers. The story and the survey results were of great interest, for at the time I had no idea how broadly the Jockey Club reached across the entire industry and how unhappy rank and file breeders then were with the organization’s service, pricing and activities.
It should be noted that there was an agenda to the article. The Thoroughbred Times was then owned by Richard F. Broadbent, whose Bloodstock Research Information Services was facing new competition from a subsidiary of the Jockey Club. There were questions about whether a tax-exempt breed registry like the Jockey Club should create a subsidiary to compete with a private enterprise company like BRIS, which supplied statistical data to breeders, owners and various publications. A few years later, the Jockey Club helped form another for-profit company, Equibase, which competed with the Daily Racing Form to collect racing results (the Form eventually closed its track and field operations and became Equibase’s biggest customer). The Jockey Club has since started other for-profit businesses.
One of the things that struck me was the comparison between how the Jockey Club and the American Quarter Horse Association conduct their business. The Jockey Club is clearly a breed apart from its Quarter Horse counterpart. The AQHA, then and now, is a relatively transparent organization, one whose membership is open and whose leadership is democratically elected through regional and national elections. There is a board of directors, from which comes an executive committee and elected officers. The AQHA has term limits that prevent individuals from maintaining longstanding control of the organization. The AQHA web site publishes a great deal of information about its governance and membership rules, which can be read here.
 By comparison, membership in the Jockey Club has always been by invitation only. Click here for an explanation about membership. It is "governed" by a rotating board of stewards, though that term is used loosely since the Jockey Club has been under the firm control of just two men since 1982, when Ogden Mills “Dinny” Phipps was named chairman and William S. Farish became vice chairman (pictured left). Click here to see the current list of Jockey Club members, stewards, and officers.
The AQHA is a huge organization that maintains the registration of more than five million Quarter Horses, with 135,000 registered in 2007 alone. There are nearly 350,000 AQHA members. According to Internal Revenue Service Form 990 for tax exempt organizations, the AQHA generated $54.4 million in revenue in the 2005-06 fiscal year, the most recent year available. At that time it had $73 million in total assets, including nearly $49 million in investment securities. Click here for the AQHA Form 990.
The AQHA, like the Jockey Club, maintains pedigree records, but also promotes the Quarter Horse breed through horse shows and publishes three magazines (the Quarter Horse Journal, the Quarter Horse Racing Journal, and America’s Horse) that had total circulation of over 400,000 in 2006.
The AQHA charges as little as $25 to register a Quarter Horse foal if done within seven months of birth. The organization is based in Amarillo, Texas, and its highest-paid officer, longtime executive vice president Billie G. Brewer, earned an annual salary of $424,928; treasurer Lee Callaway was paid $221,965 (both figures are from the IRS Form 990.) The two executive salaries represented 5.5% of the AQHA’s total payroll of $11,725,124.
The Jockey Club is also a rich organization, one that is exempt from federal taxes but also has several wholly owned for-profit subsidiaries. The Jockey Club’s 2006 IRS Form 990 states that it registered 37,300 foals that year. The Jockey Club generated $13.2 million in revenue in 2006, the most recent year the figures are available. It claimed $32 million in total assets, including $21.6 million in investment securities. Click here for the Jockey Club Form 990.
In addition, the Jockey Club claimed that its subsidiaries generated over $25.7 million in income for 2006 ($13.7 million by TJC Holdings Inc. & Subsidiaries, which is engaged in information services and software solutions; $4.9 million by The Jockey Club Racing Services, for the collection of Thoroughbred racing data; and $7.1 million by The Jockey Club Technology Services, Inc., for its technology services). Click here for more information on those subsidiaries, which include shared ownership in the data collection company Equibase, and full ownership of TJCIS (The Jockey Club Information Systems and data supplier Equineline), and InCompass Solutions, which provides software systems for racetracks.
The Jockey Club’s IRS Form 990 lists its annual Round Table Conference in Saratoga Springs, N.Y., publication of its Fact Book, and providing financial support to other industry organizations among reasons for its tax-exempt status, in addition to its breed-registry responsibilities.
The Jockey Club charges $200 to register a Thoroughbred foal, considerably higher than the AQHA’s fee. Its last increase was in 2000, when it was upped from $175. The Jockey Club, which for many years was known as the “New York Jockey Club,” relocated its registration department from New York to Kentucky in 1988.
 Its highest-paid officer is president Alan Marzelli (pictured, left), who earned $672,796 in 2006, 58% more than the AQHA’s top executive. The Jockey Club has three executive vice presidents: James Gagliano, with a salary of $256,885; Daniel Fick, $243,546; and Laura Banllaro, $243,804. IRS Form 990 also lists but does not itemize another $542,776 in 2006 pension plan contributions for those officers. The salaries represented 39.1% of the Jockey Club’s total payroll of $3,626,092 (exclusive of its subsidiaries, each of which have its own executive staff and employees).
The Jockey Club’s 2006 tax return came to light recently when an entity called “CTBA Boardwatch” (which generally concerns itself with the inner workings of the California Thoroughbred Breeders Association) distributed IRS Form 990 to numerous individuals. A number of those people contacted the Paulick Report and were outraged over the salaries paid to Marzelli and his three executive vice presidents.
I don’t know the going rate of executive compensation for a tax-exempt company in New York, where three of the four Jockey Club officers are based (only Dan Fick, a former AQHA executive, is located in the Lexington offices of the Jockey Club). Perhaps those numbers are perfectly in line with other non-profits. I would imagine, though, that the going rate for an executive staff is higher in New York than it would be in Kentucky.
It does seem strange to me that the Jockey Club continues to maintain a nicely appointed office in the high-rent district of midtown Manhattan, on 52nd Street just off Park Avenue. I doubt that it’s gotten many walk-in customers seeking to register their foals since the registration department was moved to Lexington more than 20 years ago. It is conveniently located near the headquarters of Bessemer Trust, the Phipps family-run wealth management firm whose offices are just a few blocks away on Fifth Avenue.
I asked Jockey Club communications officer Bob Curran why the Jockey Club continues to have a New York office 20 years after the organization’s primary function was relocated to Lexington. A few days later I received the following statement from Jockey Club president Marzelli: “Beginning in 1989, when the first of our commercial subsidiaries was incorporated, The Jockey Club has created and developed a group of for-profit subsidiaries and strategic partnerships, each designed to serve specific segments within the industry by utilizing highly efficient, state-of-the-art technology platforms. We have built and managed this growing list of technology-based companies with a corporate office based in New York and operations centers in Lexington, Ky., and Mountain View, Calif.”
That didn’t really answer the question “why a New York office is necessary” although it did tell me something I didn’t know; namely, that the Jockey Club now has a division in California’s high-tech Silicon Valley town of Mountain View.
The bigger question is who is the Jockey Club accountable to. Is it simply Phipps and Farish and their hand-picked stewards? Is the breeders who have paid registration fees over the 100-plus years of its existence? Is the Thoroughbred industry at large? If there is accountability to the industry, why isn’t there more transparency in the operational and financial activities of the Jockey Club and its various subsidiaries? Why is its membership so restrictive and its governance so secretive?
James Gagliano, one of the aforementioned executive vice presidents, touched on some of these questions, during the Jockey Club Round Table in August in which he discussed some of the activities of the Jockey Club and its affiliate for-profit companies. Click here to read Gagliano’s remarks.
Are you satisfied that the Jockey Club is properly and responsibly representing the best interests of the Thoroughbred industry? Let us know in the comment section below, or take the Daily Paulick Poll about the Jockey Club and its activities, located on the left-hand column of the Paulick Report home page.
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Tags: Alan Marzelli, american quarter horse association, aqha, bessemer, bessemer trust, billie brewer, billie g. brewer, bloodstock research information services, bob curran, breed registry, bris, california thoroughbred breeders association, ctba, ctba boardwatch, daily racing form, dan fick, Dinny Phipps, equibase, Horse Racing, incompass, james gagliano, Jockey Club, jockey club racing services, jockey club round table, jockey club steward, jockey club survey, jockey club technology services, laura banllaro, Ogden Mills Phipps, Paulick Report, phipps family, quarter horse, Ray Paulick, richard f. broadbent, the jockey club information systems, thoroughbred, Thoroughbred breeding, thoroughbred times, tjc, tjc holdings, tjcis, Will Farish, William S. Farish
Posted in Breeding, Industry Organizations, Jockey Club, daily racing form | 27 Comments »
Thursday, September 4th, 2008
By Ray Paulick
In his wildest dreams, Hal Price Headley could not have imagined what eventually would develop from the 145-acre plot of land and training center on Versailles Road outside of Lexington, Ky., that he was asking his fellow horsemen and Blue Grass residents to buy from John Oliver Keene in 1935. His proposal for “a model race track” was detailed in a 24-page prospectus that outlined why it was important for Lexington to have a new racetrack, how the seed money would be raised, where that money would be spent, what specifically would be acquired, when race meetings would be conducted, and how this new association would be run.
What ensued from Headley’s plan was Keeneland, which evolved from a community-owned, non-profit company, one that grew in size and scope, largely through the acquisition just over a quarter century later of a Thoroughbred auction breeders co-op, and is now a tightly controlled for-profit business that may be the largest Kentucky cash repository this side of Fort Knox.
Headley’s plans for Keeneland were taken to the Blue Grass community at a mass meeting at the old Lafayette Hotel in downtown Lexington on March 20, 1935, at the height of the Great Depression. More than 200 people attended, and “by a virtually unanimous standing vote,” a new committee of 10 members was appointed to move forward “in an effort to procure the funds to finish the plant and finance the first (race) meeting.”
Keene had already built a track for training, and a 258-foot-long stone building that could serve as a clubhouse was nearly completed. But Headley and his fellow planners felt they needed to raise significant funds to complete the purchase and develop the facility to their satisfaction.
To raise the money, the prospectus said, the so-called Committee of Ten decided to sell 3,500 “non-voting preferred shares of stock in Keeneland in units of $100 each, with interest at 6%…It will be the privilege of the association to retire this stock in whatever proportion it can afford at any dividend date, and it is contemplated that the retirement will be effected as rapidly as possible.”
Another 3,500 shares of “voting, no-dividend, no-par common stock” were also offered. Together, according to articles of incorporation filed April 17, 1935, the Keeneland Association had $700,000 in capital stock.
“It is our desire that lovers of the Thoroughbred throughout the country will recognize in this a serious effort to establish a model racetrack, to perpetuate racing in the proper manner and to provide a course which will stand for many years as a symbol of the fine traditions of the sport,” the prospectus said.
“In order to accomplish these ends we shall first ask the aid of sportsmen in building the track. Later we shall ask them to race their horses and to lend their own presence at the meetings. We shall ask the good will and the active cooperation of many, for this is an enterprise which, if it proves successful, will be an everlasting credit to the sport of racing, not only in Kentucky, but throughout America.”
A partial list of those who purchased common stock at the outset included: Richard C. Stoll (three shares), Hal Price Headley (200), Brownell Combs (200), Carneal Kinkead (3), W.R. Embry (3), W.H. Courtney (3), T.H. Kink (3), Wallace Muir (200), A.B. Gay (200), Victor K. Dodge (200), Thomas Piatt (200), A. B. Hancock Jr. (200), L. B. Shouse (200), Frazer D. LeBus (200), Horatio Mason (3), Jack S. Young (200), Barry Shannon (3), Louis Lee Haggin (3), Fred W. Rankin (3), J.N. Camden (3), C.R. Thompson (3), Louie A. Beard (200), and Silas Mason (200).
Headley was made Keeneland’s first president, and the track hosted its first day of racing the following year, Oct. 15, 1936.
A few years later, in February of 1940, new articles of incorporation were filed by a new company known as “Keeneland Race Course,” which would lease property from the Keeneland Association to conduct the two annual race meetings. There were 25 shares of common stock in this new company, with 10 owned by L.A. Beard, and three each by L.L. Haggin II, J. Edward Bassett Jr., Harold Fallon, W. C. Smith, and J.A. Estes.
Additional changes to the articles of incorporation would follow, including a 1950 amendment that dictated Keeneland’s assets, in the event of voluntary or involuntary dissolution, could only be distributed to organizations that were not required to pay federal taxes.
Keeneland itself was tax-exempt, both on a federal and state level, from its inception until 1958, when it had to pay state tax on wagering. The following year, the Internal Revenue Service removed Keeneland’s non-profit status and required the company to begin paying federal taxes.
“This will kill the goose that lays the golden eggs,” said Louie Lee Haggin II, who was president of Keeneland Race Course from 1940-56 and of the Keeneland Association from 1956-70.
That couldn’t be further from the truth, however. In the late 1950s, Keeneland was getting ready to enter an era that would make it the most profitable company in racing, thanks to its takeover of the Breeders’ Sales Company, a co-op started by a group of Kentucky breeders in 1943.
The Breeders’ Sales Company was created during World War II when racing at Saratoga in upstate New York was canceled in 1943 because of travel limitations. The annual summer yearling sale in Saratoga was canceled as well. At the same time, Kentucky horsemen learned they would be unable to ship their yearlings by rail to anywhere in the East and they quickly put together a sale under a tent on the grounds of Keeneland.
The 1943 sale was conducted by officials from Fasig-Tipton, but there were numerous complaints from breeders about the conditions. A meeting of breeders, led by Arthur B. Hancock of Claiborne Farm, was called at the Lafayette Hotel a few weeks after the sale to discuss what future direction they should take. “There have been a lot of gripes about the sale and the sales company,” Hancock was quoted in Bloodhorse magazine as saying. “I haven’t had any trouble personally, but I’ve heard a lot of criticism. Let’s go around the table and see what these gripes are.”
Bloodhorse reported: “Most of the grievances seemed to imply a general pettiness in the management of the sales.”
Within weeks, after discussions with Fasig-Tipton failed to resolve their differences, the breeders voted to form the Breeders’ Sales Company and hoped to build a sale pavilion on the grounds of Keeneland.
According to the Sept. 4, 1943, edition of Bloodhorse, “Mr. Headley, on behalf of Keeneland, offered the ground for such a pavilion, but specified that it must not be in the ownership of a sales company.” Twenty years later, Keeneland played a different tune.
The new company was a true co-op, with any year-end profits derived from the sale commission to be divided among participating breeders on a pro-rata basis. It held its first sale in the summer of 1944 and enjoyed sustained growth, eventually expanding to offer five different sales during the year for racing stock, yearlings and breeding stock.
In 1962, that all changed, when the Breeders’ Sales Company was turned over to Keeneland. There are different stories about who was responsible. Some say Headley insisted the breeders turn it over to Keeneland to prevent the association from going bankrupt. Others have said Leslie Combs of Spendthrift Farm and Howard Reineman of Crown Crest Farm maneuvered to give it to Keeneland, with Combs allegedly maneuvering to become the next president of Keeneland.
No matter who was responsible, the deed was done. In a meeting at the Campbell House in Lexington, approval was given to hand the Breeders’ Sales Company to Keeneland. Small-scale breeders who depended on the year-end profit sharing revenue were upset because they felt they were going to get squeezed. Many of them saw tremendous growth in the Thoroughbred commercial market coming on the horizon.
The decision to give the Breeders’ Sales Company to Keeneland was perhaps the most monumental mistake Thoroughbred breeders collectively have ever made. From 1962 on, after billions of dollars of auction sales, Keeneland has collected hundreds of millions of dollars in profit while many small-scale breeders have struggled.
TOMORROW: Who owns Keeneland, what became of the shareholders, who runs the company, and where does all that money go?
Copyright © 2008, The Paulick Report
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Tags: a.b. gay, a.b. hancock jr., barry shannon, blue grass, breeders' sales company, brownell combs, c.r. thompson, campbell house, carneal kinkead, Claiborne Farm, frazer lebus, fred rankin, hal price headley, harold fallon, horatio mason, howard reineman, j. edward bassett jr., j.a. estes, j.n. camden, jack s. young, john oliver keene, keene, Keeneland, l.b. shouse, l.l. haggin II, lafayette hotel, leslie combs, louie beard, louis lee haggin, Paulick Report, Ray Paulick, richard stoll, silas mason, t.h. kink, thomas piatt, thoroughbred, thoroughbred auction, thoroughbred sale, victor k. dodge, w.c. smith, w.h. courtney, w.r. embry, wallace muir
Posted in Keeneland | 11 Comments »
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