Paulick Report Forum brought to you by Breeders’ Cup: Avioli’s Global Focus

by | 11.17.2010 | 12:48am

The Breeders' Cup has probably undergone more change in the last four years than in the previous 20-plus years since 1982 when John Gaines proposed the idea for a year-end championship event funded by breeders through stallion and foal nominations.

The Breeders' Cup had its first running at Hollywood Park as a seven-race $10-million day in 1984. It expanded to two days in 2006 and now is a 14-race  extravaganza offering purses of $25.5 million.

Yet while the Breeders' Cup has grown, so has its global competition, from Hong Kong and Japan to Australia and Dubai. Recognizing the growth of international racing festivals, Breeders' Cup Trustees, Directors and management looked at how to develop their event from a “world championship” that many didn't think lived up to its billing to something that truly reflects the name.

To that end, earlier this week the Breeders' Cup announced a new global nomination program that solicits stallion nominations from around the world and automatically makes the offspring of nominated non-North American stallions eligible. Starting in 2011, Breeders' Cup also will begin to pay entry fees and subsidize travel expenses for winners of Challenge Series “Win and You're In” races.

Greg Avioli, who has served as president and CEO of the Breeders' Cup since 2006, spoke with the Paulick Report about the new global nominations, the Challenge Series, potential growth areas, and other issues related to the event and the organization.

Part two of the Paulick Report Forum with Avioli will appear Thursday.

What kick-started this process to create new global nominations, and what was the timeline?

Our first hard look at the international nominations process started in 2008 in the context of the pending expiration of the long-term cross-registration agreement with the European Breeders' Fund.  The core provision of that agreement was that European stallions that nominated to the EBF would receive automatic eligibility to the Breeders' Cup and their foals could become eligible by paying a $500 nomination fee. The more we looked at it, the more we realized that a new nominations model focused on creating direct relationships between the Breeders' Cup and international stallion managers had the potential to dramatically increase the international participation in the Breeders' Cup beyond what we could achieve if we stayed with the status quo.
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How did the strategic planning committee overlap with the new global nominations program?

The strategic planning process definitely contributed to the development of the new international nominations plan.  One of the more amazing statistics to committee members from that process was that only 1,200 out of 70,000 Thoroughbreds that were bred each year outside of North America were eligible to run in Breeders' Cup races.  Given those remarkably low numbers, it was clear we had to make some substantive changes if we were to achieve our potential as true global championship.

The first thing many people will say is “Why should American breeders nominate their foals if breeders outside of North America don't have to?
First off we very much appreciate the support that the Breeders' Cup receives from breeders in the U.S. and Canada. In many ways it is really their property and their event.  Going forward we hope and expect our North American nominators will continue to nominate because they see value in the nominations and in the Breeders' Cup.

On a straight dollar for dollar basis we think it's also a good financial deal.  Based on this year's numbers, foal nominators will pay in around $4 million in nomination fees.  Counting the $650,000 in new breeder awards to be paid to Challenge winners and the $1.1 million we will continue to pay in foal nominator awards at the Championships, we will pay out $1.75 million  in breeder awards against what is now total foal nomination payments of around $4 million–more than 40%.

Beyond those direct payments, nominated horses also receive the benefit of increased value at the sales tied to the opportunity to run for the $26 million in Championship purses and participate in the 65 worldwide Challenge races–the winners of which will receive paid entry fees and shipping costs to the Championships.

But you still have a disparity between the North American and international programs
That is true. However, the differences going forward between our international and domestic nominations structures recognize the realities of our competition. The Breeders' Cup World Championships and the majority of Breeders' Cup Challenge races (54 out 66 in 2010) are held in the United States each year and North American bred horses consistently earn the vast majority of the $30 million in purses and incentives that Breeders' Cup distributes. 

It is also clearly much more expensive for an international horse to ship to the Breeders' Cup than to stay home in Europe or run in one of the major racing events in Asia where all shipping and travel costs are generally covered.  In addition to the cost, committing to traveling overseas and back often means substantial recovery time for horses, and we are cognizant of that opportunity cost.

As Coolmore's Clem Murphy said, this new program is designed to make the Breeders' Cup a true world championship, but you obviously also want it to contribute to revenue growth? Incrementally, where do you envision that growth coming from?
In the next year or two, we expect total stallion nominations under the new program will more than double from the current $700,000 we have received under the prior EBF agreement.  The majority of that money would come from top stallion farms in Europe, Japan and Australia that have already committed to the new program.  As the program gets traction in other parts of the world, we project these international revenues could grow beyond $2 million a year.

In addition to international nominations revenues, we believe more international participation will increase the overall Championship revenues from increased handle to new global sponsorships.  While those numbers are harder to quantify, the fact is the expansion of the Championships since 2006 has grown total Championships revenues from under $20 million to over $30 million.  So we have some experience that says further expansion should drive new revenues.

Where do you see the biggest growth potential for international wagering on the Breeders' Cup?
We see two major areas.  The first is exotic or possibly even “jackpot” type wagering from large international commingled pools. There are a number of initiatives right now that are looking at creative ways to link the major pari-mutuel pools in the world.  When that happens the Breeders' Cup would really benefit by having one of the strongest international events.

The second–and related opportunity–is our continued efforts to open up some of the world's largest existing pari-mutuel markets like Japan to allow betting by their residents on international events.  Currently Japan is a completely closed market while other mature markets such as Hong Kong and Australia allow only limited “separate pool” wagering on international events that really prevents their customers from fully participating in the Breeders' Cup.

The stakes program purse enhancements and special stakes were a major part of the program since the inception of the Breeders' Cup. Why are they now being eliminated?
For a number of years the majority of Directors and Trustees have believed that we were simply not getting enough value for the Breeders' Cup or our nominators from the annual allocation of millions of dollars in funding to the year-round stakes program.  This point was highlighted in the strategic planning process where it became apparent that the races in the stakes program were not really connected in any meaningful way to the Championships.
Given limited resources to accomplish our objectives, it was the strong consensus of the Board that the funding from the old stakes program could be better used by reallocating it to make the 65 Challenge races much more meaningful to owners, trainers and breeders. 

The open enrollment period in 2011 to make a horse eligible is certainly unique. Where did the idea come from and who is it designed to help the most—international or domestic breeders?
When the Board preliminarily approved the new international nominations program back in July, it focused on the fact that by itself the effects of the new program would not be felt in terms of more runners for the Championships until 2014–when the foals of 2011 breeding season will first hit the track.

In an effort to expedite the internationalization efforts, the Board tasked management to work with the Nominations Subcommittee chaired by Clem Murphy to develop ways to “jumpstart” the new program. After talking about various alternatives with the Trustees, we ultimately came up with the open enrollment program and the expanded Challenge benefits as ways to increase international Championship runners as early as next year.
The final step in the thought process was expanding the Open Enrollment and Challenge benefits to North America. “While these programs were initially designed as incentives to international participants, after a lot of consideration and debate, we agreed it was in everyone's interest to offer these programs worldwide, based on  overall fairness issues and the benefits they could provide owners in the U.S. and Canada.
Are the nomination deadlines for stallions changing?
The Breeders' Cup North American stallion nomination program will remain unchanged.  Nominations for the upcoming breeding season will continue to close on Dec. 15 and their stud fee will be invoiced in four quarterly installments with those stallions that have 50 or more live foals being assessed a live foal fee in addition to their nomination fee. Under the new international stallion program, Northern Hemisphere stallions will nominate between Jan. 1 and June 30 of 2011 by payment of 50% of their advertised stud fee.  Southern Hemisphere stallions will nominate between June 30 and Dec. 15 by payment of a fee equal to 25% of their advertised stud fee.

You described the current field selection process for the championship races as a bit confusing. Is this something that will be evaluated going forward in order to get more international horses in the starting fields?
The current field selection system is a hybrid of Challenge winners, American graded stakes points earners and horses chosen by our Breeders' Cup Racing Panel–comprised of U.S. and international racing secretaries.  A number of alternatives to the current system have been discussed over the years including factoring in performance in international Group races and the number of spots in each field that should be selected by the Racing Panel that currently selects half of each field.
The ultimate objective remains to have the most qualified and talented runners in each race so that the betting public, race fans and horsemen see the best of the best racing each year in the World Championships.  While the current system is complicated and probably could use some refining, for the most part this is one area that seems to have consistently worked throughout the years so I would not envision major changes.
How do you envision the Challenge Series evolving over the next several years?
In 2011, I think you will see a substantial number of the same races in the Challenge program that we have had in the past few years and that are a good fit on many levels with our Championships and partner tracks.  Internationally that would include the Group I Prix Harras de Fresnay-Le-Buffards Jacque Le Marois that produced the great race this year between Goldikova, Paco Boy and Makfi–all of which are targeting the Breeders' Cup.  Domestically I expect you will continue to see a strong contingent of races from Del Mar, Oak Tree, Keeneland and Belmont.
One idea we are considering is ways to potentially limit the Challenge to a defined number of divisions as a means to provide better structure and promotion for the most marketable horses in the months leading into the Championships.
There are pros and cons to that approach and we haven't come up with the perfect concept but we think it is definitely worth considering in the future.
Was the inclusion of entry fees and travel subsidies to eligible winners of Challenge races done in recognition of the competition from Hong Kong, Japan, and Dubai's international races, where travel fees are paid?
There is no question the Breeders' Cup is at a competitive disadvantage with the connections of some top international horses each year when they assess the total costs of participating in our Championships compared with the all-expense-paid opportunity to participate in Hong Kong or Japan.  We hope the new incentives in terms of the paid entry fees and subsidized shipping costs will be a positive factor in the Breeders' Cup's favor in the future.
Tomorrow: Avioli discusses potential host tracks, including the possibility of a permanent site, exchange wagering and the Breeders' Cup, changes on the board of trustees and directors, governance issues, and the organization's role in the industry.

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