Posts Tagged ‘win and you’re in’

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.

Copyright © 2008, The Paulick Report  

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By Ray Paulick

Saratoga opens, and so do the skies.

That sums up the first several days of the upstate New York Spa’s business, which is not good news for a bankrupt organization that says it will need more bailout money from the state sometime in the next couple of months. Heavy rains washed away numerous turf races and showers even made an unscheduled appearance on Whitney day.

The NYRA has survived far worse weather patterns, including the near-perfect storm of a federal indictment, bankruptcy and a franchise renewal drama whose end-game could have led to a game of "musical boxes" on the front row of those cherished clubhouse seats at Saratoga. In the end, power and tradition won the day for the old guard, thanks to some new guard knee-capping by the dynamic NYRA chairman, Steve Duncker, a Wall Street fightin’ man originally from the anything but hardscrabble suburbs of St. Louis (west, not east St. Loo).

Fortunately for NYRA’s trustees and executives, there are some people around who make them look human, led by the husband-wife team of John Hendrickson and Marylou Whitney, who took backstretch philanthropy into their own hands (with assistance from a group of local businesses and horsemen) by providing weekly banquets and nightly movies for the stable hands.

BUT THE EARTH DOESN’T ACTUALLY CIRCLE around Saratoga in July and August (though some may think it does). There’s also Del Mar, whose first-week business declines had the guys in Hawaiian shirts and sandals looking very grim until a gigantic wave of Pick Six mania washed ashore on the July 26-27 weekend, contributing (along with a free concert and micro-brew festival) to the ninth-highest handle in track history. No one picked all six winners and $1.5 million carries over into Sunday’s Pick Six, promising to make that program a big one, too.

Purse cuts looked imminent, but maybe the surge can work where the Turf meets the Surf.

Incidentally, Del Mar won the head-to-head battle of the gate against Saratoga on Saturday, 32,291 at Del Mar to 29,655 at Saratoga. Saratoga won the handle bout, $25,017,333 at Saratoga to $20,531,679 at Del Mar. Del Mar’s numbers were way up from 2007, when just 24,873 attended on the same day. Saratoga’s were down 9.7% in handle and 5.9% in attendance from 2007 when 31,510 were on hand for the first "Win and You’re In" day and handle was $27,708,217.

HIALEAH PARK’S John Brunetti was among those in the large Del Mar crowd on Saturday (he lives in nearby Rancho Santa Fe). Brunetti told the Paulick Report that he is hoping to bring live racing back to Hialeah Park on his own accord and doesn’t need the help of Halsey Minor, the cash-rich, Internet-savvy Virginian who actually is willing to invest tens of millions of his own cyber dollars into not only reopening Hialeah Park but making it a showplace.

Poor old Mr. B (it could stand for "beleaguered") just doesn’t get it. Brunetti seems to be a very nice man, but he’s been consistently outfoxed by Doug Donn, Ken Dunn, Churchill Downs and even Frank Stronach in the South Florida racing wars, and his same old "woe is me" song to state legislators isn’t going to change things for the better. He hasn’t run a live race at Hialeah since 2001, and he ran many horseplayers years earlier when he jacked up the takeout to unprecedented rates following deregulation.

But there is an unmistakable opportunity to bring Hialeah Park back if Brunetti is willing to put his ego and bluster aside. He could ride off into the sunset a hero as the man who kept the Hialeah Park dream alive long enough for the new sheriff to come into town and clean up.

The Paulick Report will have more on Hialeah and Halsey Minor in the coming week.

DID I MENTION EGO AND BLUSTER? That leads me to Aurora, Ontario, Canada, home of Magna Entertainment, which lost another top manager last week with the resignation of Scott Borgemenke, the vice president of racing. This management change was another in a long line of executive exits in Frank Stronach’s empire detailed in the Paulick Report.

Stronach does some things right … breeding horses, for example. His champion filly, Ginger Punch, was one of the on-track stars at Saratoga during the Breeders’ Cup’s "Win and You’re In" telecast on ABC Saturday afternoon (which featured an entertaining back-and-back forth between Michael Iavarone and Rick Dutrow, the owner-trainer team that handles Big Brown). In winning the Go for Wand under tough circumstances (every jockey in the race tried to keep her boxed up), the daughter of Awesome Again displayed the kind of guts and determination every breeder would like to see in his or her horses. She was impressive.

So was Tracy and Carol Farmer’s 7-year-old Commentator, who ran away with the Whitney in powerful fashion. Hall of Fame trainer Nick Zito said the win was one of the high points of his own career and puts the New York-bred gelding by Distorted Humor in the same league as Kelso and Forego, two legendary geldings from the past.

Heady company indeed. 

Copyright ©2008, The Paulick Report

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