Wednesday, December 6, 2017

What Do the NYTHA Election Results Mean?

The New York Thoroughbred Horsemen's Association (NYTHA) election results are in, and, in my view, it's a definitely mixed bag. With NYTHA President Rick Violette stepping down, after 25 years on the Board of Directors and nearly a decade as President, there was bound to be a change of direction, but the results overall, including the change in owner and trainer spots on the Board, raise some troubling questions.

Replacing Rick as President, having run unopposed, is Joe Appelbaum, who joined the NYTHA Board as an owner-director in 2014. Joe, who runs the Off the Hook pinhooking and racing operation, has lots of energy and has been a fast learner in his first term on the Board. He'll certainly do what he can, and he's been working hard to find solutions for the outrageously expensive workers compensation premiums that make New York the highest-cost state in the country for owners and trainers. But there will inevitably be a steep learning curve.

In the five trainer slots, Pat Kelly and Jimmy Ferraro were voted out, to be replaced by John Kimmel and George Weaver. Linda Rice, Rick Schosberg and Leah Gyarmati were re-elected. Kimmel, with his veterinary background, will be a great addition to the Board. But Pat Kelly's absence will be felt, especially because of his deep web of connections on the backstretch. Pat has been the guy to go to to solve small problems involving backstretch workers, toiling away in obscurity on the Backstretch Violations Panel, staying in touch with the stewards and the NYRA folks who had direct responsibility for what happens on the backstretch. The voters, collectively, made a mistake by not retaining his expertise.

As for the owner slots on the NYTHA Board, again, there was a loss of expertise. Mike Shanley, a former legislative staffer in Albany with a wide range of government contacts, was voted out, and the new Board includes West Point Thoroughbreds' Terry Finley and two of his co-owners, Bob Masiello and former race-caller Tom Durkin. Tina Bond and Jack Brothers were the two incumbent owner-directors to be re-elected.

I often disagreed with Mike Shanley, and thought he was frequently too cautious in confronting NYRA, but his departure, combined with that of Rick Violette, means that NYTHA has lost some 50 years worth of experience on dealing with Albany. Remember that, unlike the situation in all other states, NYTHA has no statutory right to negotiate a contract with NYRA. Elsewhere, horsemen can cut off a track's simulcast signal if they fail to reach agreement with track management on the number of racing days, contributions to the purse account from handle and other relevant issues. In New York, thanks to the lobbying efforts of the Jockey Club grandees some 30 years ago, that right doesn't exist. As a result, issues that would be decided in contract negotiations in other states are, in New York, settled by legislation in Albany. Under Rick's leadership, NYTHA achieved a lot of success there, especially in locking in a significant portion of slot-machine revenues for purses and in getting NYTHA a seat on the "new NYRA" Board of Directors. Future battles in Albany will need to be waged without that accumulated expertise.

Moreover, the election of Terry Finley and his two co-owners (Masiello owns a number of horses in partnership with West Point, and Durkin owns a share of Kentucky Derby winner Always Dreaming) worries me. In Terry's last stint on the NYTHA Board, as an owner-director from 2011 through 2014, he talked a lot about getting more involvement in NYTHA from owners, but produced few results; tellingly, he refused even to provide the names and addresses of his own West Point partners to NYTHA so they could be added to the organization's email list. And then, when he narrowly lost the presidency to Rick in the 2014 election, he first verbally assured Rick that he wouldn't challenge the results, but later reneged on that commitment and embarked on a legal challenge, ultimately dismissed in the courts, that cost the organization more than $200,000. I just can't get over seeing that as a commitment not to NYTHA as an organization, but to the cause of Terry Finley.

I don't know Bob Masiello. I do know Tom Durkin, and I admire his commitment to the welfare of backstretch workers, reflected in his longtime membership on the Board of the Backstretch Employee Service Team (BEST). But the interests of horsepeople often require a willingness to stand up and fight, especially to fight against the suits with little racing acumen who run NYRA these days. I'm just not sure that Terry and his co-owners are up to the task.

A final thought: when I joined the NYTHA Board back in 2002, Linda Rice was the only woman member. Now, there's a better gender balance, with three of the 10 Directors being female. But there's still a complete lack of black and Hispanic owners and trainers on the Board. It's not just window-dressing for its own sake. As we've seen in many other fields, inclusion of diverse life experiences and perspectives makes the entire organization stronger, fairer and better. It didn't happen this time around, but perhaps in the next election cycle, NYTHA should reach out to, for example, Rudy Rodriguez, Charlie Baker or Carlos Martin and get a bit more diversity on the ballot.

Monday, November 13, 2017

FWIW, My Choices in the NYTHA Election

I spent 14 years as a member of the New York Thoroughbred Horsemen's Association (NYTHA) Board of Directors, before leaving in 2016. I was deeply involved in defending horsemen's purse accounts during the NYRA bankruptcy proceedings, in marshaling the evidence for our defense of Lasix -- at least until a better option is available -- and in restoring NYTHA's finances after previous administrations had left us near insolvency. I've also seen NYTHA Board members come and go, and so perhaps I have some perspective on those who are on the NYTHA ballot this time around.

As I noted in my last post, Rick Violette is retiring as NYTHA President, after 25 years on the Board, the last 10 of them as President. Running unopposed to be Rick's successor is Joe Applebaum, a principal in Off the Hook Racing, among other things. Joe has been on the Board the past three years, as an owner-director, and has been very involved a number of efforts, especially dealing with the Jockey Injury Compensation Fund and workers compensation issues generally. He's a good choice, though he faces a steep learning curve.

Seven candidates are running for the five trainer-director slots. Of the incumbents, I think Pat Kelly, Leah Gyarmati, Linda Rice and Rick Schosberg deserve re-election. Pat has for many years been a voice of calm and reason in resolving backstretch issues; Leah has been very helpful on backstretch welfare issues, especially BEST; Linda has effectively managed the scholarship program for the children of backstretch workers; and Rick has been instrumental in establishing and expanding NYTHA's thoroughbred retirement and retraining programs, along with NYTHA executive director Andy Belfiore.

For the remaining spot, I'm casting my vote for recent Breeders Cup winner John Kimmel, who brings a needed veterinarian's perspective to what will undoubtedly be contentious discussions on raceday medication. Nothing against Jimmy Ferraro or George Weaver, the other trainer-director candidates, but the five I prefer all have specific skills and experience that would be helpful to horsemen.

When it comes to owner-directors, there's a real contest. West Point Thoroughbreds' Terry Finley is running for an owner-director spot, as are three other candidates closely associated with Terry, as co-owners, business associates or West Point partners -- Andy Aaron, Tom Durkin and Bob Masiello. In my view, this represents a coordinated attempt by Terry to control the NYTHA Board and needs to be firmly resisted. Terry was a Board member until 2014, when he unsuccessfully ran for NYTHA President against Rick and cost the horsemen's association a quarter of a million dollars defending against his challenge to the election -- a challenge that was ultimately dismissed in the courts. I was a Board member back when Terry was also an owner-director, and, while he had a lot to say, there wasn't much follow-through. On issues he was supposedly concerned with -- updating the NYTHA website and modernizing our membership database, any progress that we've made came only after he'd left the Board. And, tellingly, he refused to share West Point's partner information with NYTHA, a step that would have made it easier to update the membership rolls. I was the other NYTHA owner-director representing a partnership, and I gave all my partner information to the NYTHA office.

Andy, Bob and, especially Tom Durkin, may sincerely believe they have something to contribute to NYTHA, but their close association with Terry, in my view, disqualifies them from consideration. For a less tactful view of the situation, see Indian Charlie's comments. It's not often I agree with staunch Republican Injun Chuck, but he's dead-on on this one.

So, who to vote for? Tina Bond and Jack Brothers are each finishing their first term on the Board. They're both well informed and, especially Tina, willing to educate the Board on matters that they know a lot about. I'm voting for them. I'm also voting for three new candidates that, to my knowledge, aren't associated with Terry Finley: Jim Caterbone, Kim Laudati, and Aron Yagoda. Jim Caterbone was previously a partner in my own Castle Village Farm and now runs horses in his own name, with trainer Gary Sciacca. Jim's a little rough around the edges, but would bring the needed perspective of a blue-collar owner to the Board. Kim is a former trainer who, like John Kimmel, would bring valuable hands-on experience. Aron, a scion of the Streit's matzo dynasty, knows a lot about doing business in New York's high-cost environment, whether that business is baking matzos on the lower east side or racing horses at Belmont and Saratoga. If it turns out that any of these folks are allied with Terry Finley, then I'd vote for long-time Board member Mike Shanley, who has good contacts in Albany, but has been, in my opinion, far too reticent in aggressively asserting horsemen's interests.

Good luck to all.

Tuesday, October 24, 2017

Rick Violette, Ave atque Vale

After 25 years on the Board of the New York Thoroughbred Horsemen's Association (NYTHA), the last 9 years as President, Rick Violette is stepping down. This year, for the first time since the early 1990s Rick's name will not be on the triennial NYTHA election ballot.

My service on the NYTHA Board as an owner-Director overlapped with Rick's for 14 of those 25 years; I also won't be on the NYTHA ballot this year. So it's an appropriate time to take a look back at what Rick, and the rest of us on the Board over those years, have accomplished.

I know some in the business, and especially some in racing's Twittosphere, have decried Rick's positions, and some, including myself, may have been dismayed by his somewhat uninclusive management style, but on balance, I can't imagine that anyone else would have done a better job of steering New York owners and trainers through difficult times.

But first, what exactly is NYTHA? At most tracks in the US, the horsemen's association, by virtue of the Interstate Horseracing Act of 1978 (for the lawyers, 15 U.S.C. secs. 3001 et seq.), has the right to bargain collectively with the track management over terms and conditions of racing; if no agreement is reached, the horsemen have the legal right to block that track's export of its simulcast signal. That's an important right, since 90% of thoroughbred betting now happens online. In New York, however, NYTHA, despite being the official representative of the horsepeople, doesn't have this bargaining right. Thanks, Jockey Club, for slipping in an amendment that applied only to NYRA and NYTHA. As a result, decisions that get made by collective bargaining at most tracks are made in New York in the political arena, fighting over legislation that determines how many race days there are, how much of betting handle goes into the purse account, etc.

And that's where Rick Violette shone. Rick created relationships with the power brokers in Albany, hired effective lobbyists, and generally kept the wolf away from the door to a greater extent than in many other racing jurisdictions. Where California owners and trainers engaged in mutual self-destruction, and Florida horsemen caved in to the corporate might of Churchill Downs Inc. (at Calder) and then to the Stronach empire, Rick was effective in preserving, and even improving, our position in New York.

Here are a few of the things, in vaguely chronological order, that happened on Rick's watch.

1. Rescuing NYTHA's own finances from years of mismanagement. Rick was installed as President in 2008 when a majority of the NYTHA Board rebelled against then-President Richard Bomze's lackadaisical (to put it mildly) stewardship, which had virtually bankrupted the organization. We adopted a serious budget process (I chaired the NYTHA Finance Committee) and, as a result, the organization is now on a sound financial footing and able to put more than $1 million a year into benevolence work, including support of the BEST backstretch health care program, scholarships for children of backstretch workers and, increasingly, thoroughbred retirement and retraining. We've also been able to finance new equipment to improve the quality of drug testing in New York.

2. Establishing the Jockey Injury Compensation Fund. Rick has been the driving force behind setting up and maintaining the JICF, a separate workers compensation pool that covers exercise riders and jockeys on New York tracks. The JICF saved money for both owners and trainers, previously responsible for covering riders' injury expenses, at the bearable cost of 1% or less of the purse account. Sadly, Rick's continuing efforts to expand the notion of a NYRA-wide workers comp pool to backstretch employees in general has been less successful. Trainers today pay as much as 25% of their payroll in workers comp premiums, a major factor in driving up trainers' day rates, which are now at or above $100 a day for trainers stabled at NYRA tracks. It will be up to Rick's successor, Joe Applebaum (who is running unopposed for President) to bring that effort to fruition.

3. The NYRA bankruptcy. In 2006, NYRA filed for bankruptcy protection. That filing threatened millions of dollars technically in NYRA bank accounts but really owed to horse owners who had won purse money at NYRA tracks. NYTHA took a tough stand in bankruptcy (I was the lead plaintiff in a lawsuit we filed) and eventually took that "purse cushion" money out of the reach of NYRA's other creditors and set up a separate trust account, protecting owners large and small. (According to racetrack apochrypha, the issue first came to light when NYRA didn't have enough cash ion hand to honer a high-six-figure withdrawal by Sheikh Mohammed.)

4. Slot machine money. When slots were finally introduced at Aqueduct, years after the authorizing legislation had been approved in Albany, there was considerable uncertainty over how much of their profit would go to the purse account, rewarding owners who had spent years putting on the show while getting back in purses only about half of what it cost to keep their horses in training. Thanks almost entirely to Rick's political work in Albany, the purse account now gets 7.5% of the profit from the Resorts World facility at Aqueduct, which became the most profitable casino operation in North America. As a result, we owners now get back in purses almost 75% of what we pay to keep our horses running, instead of the 50% that we received pre-slots. Such a deal.

5. Lasix. Much to the dismay of animal-rights advocates and other critics, Rick has been a steadfast and effective supporter of the raceday use of Lasix, which reduces fluid levels in horses, reduces weight and lowers blood pressure that, scientific studies generally agree, is a contributory factor in horses' bleeding. When the New York State Wagering and Racing Board (now renamed the Gaming Commission) was seriously considering a proposal to return to the pre-1995 rule that banned raceday Lasix, NYTHA's comprehensive legal submission (I was the principal author) and Rick's forceful advocacy were instrumental in preserving the current rules, at least until a better solution for bleeding appears. While much of the rest of the world disagrees and opposes any raceday drugs, including Lasix, Rick did vigorously and effectively represent his constituency in the Lasix fight.

6. Drug Regulation generally. In addition to being President of NYTHA, Rick has also been President of the national THA, a group of horsemen's associations, mostly in the mid-Atlantic, that have broken away from the hidebound and reflexively anti-change national Horsemen's Benevolent and Protective Association (HBPA). The THA groups have been instrumental in promoting better and more uniform drug regulation, which started in their states and is now an ongoing nationwide effort, though not so effective that the industry grandees -- principally folks associated with The Jockey Club -- haven't been kept from drumming up considerable support for their plan for uniform national regulation by the same group that polices Olympic athletes. Like the effort on workers comp for backstretch employees, this is still a work in progress.

7. Backstretch health care. BEST, originally started as a program for drug and alcohol treatment, had by 2010 blossomed into a more comprehensive medical care effort for backstretch workers. But the $1 million that NYRA was putting into the organization wasn't enough to deliver an effective program to all the folks that needed it. NYTHA (in the persons of Rick, former executive director Jim Gallagher and myself) came to the rescue with another $500,000 (nearly $1 million if one includes the NYTHA dental and vision programs and the $12.50 per start that owners paid directly) and we were instrumental in remaking the BEST Board and installing professional management. BEST now runs free walk-in clinics at Belmont and Saratoga, helps pay workers' health insurance premiums, and offers specialist and hospital care for those without insurance. Sadly, that progress is now threatened by NYRA President Chris Kay's actions in cutting NYRA's contributions.

8. Thoroughbred retirement and retraining. As the fate of horses that have reached the end of their racing careers has become more of a social media issue, NYTHA, through its Take2 and Take the Lead programs, has been a leader among horsemen's organizations supporting a decent post-racetrack life for our athletes. Trainer Rick Schosberg and current NYTHA executive director Andy Belfiore have been doing the heavy lifting on these programs, but Rick has been effective in supporting them and, perhaps from his background as a show-horse rider, has been particularly strong in promoting events for thoroughbreds at horse shows.

That's a lot to have accomplished. True, you can't satisfy all of the people all of the time. If you hang out at the Belmont training track, you'll hear complaints about how Rick doesn't listen enough, and if you go to NYTHA Board meetings, you might be dismayed by the length of the opening monologue. But it's a solid record of accomplishment, and whatever one's disagreements with Rick -- and I certainly have some -- his efforts on behalf of owners and trainers over the years deserve some recognition.

Ave atque vale.

Wednesday, September 27, 2017

Treasury/IRS Finally Recognize Reality

A mere 22 years ago, I wrote a law review article arguing, among other things, that the tax reporting and withholding rules for horse-race betting were punitive and irrational. (For those so inclined, you can find it at 49 Tax Lawyer 1 (1995).)

At the time, the only horse racing insiders with an audience much larger than the seven people who read law review articles and who were making the same case were Andy Beyer and Steve Crist. But, whatever our logical merit, the US Treasury, which writes the regulations that the IRS then enforces, continued on its boneheaded merry way.

Here's what was wrong: the Treasury regulations provided for mandatory IRS reporting any time a bet returned at least $600 at odds of 300-1 or higher. And for mandatory withholding whenever those 300-1 bets produced winnings of $5,000 or more. Where the regulations erred was in treating the winning bet (say, a $2 Pick Six ticket) as a separate entity, and not as part of a larger bet that included all the losing tickets on the same event. So, for example, if someone bet $500 on the Pick Six, with 250 separate $2 tickets, and had one winner, and had the sole winning ticket, returning, say, $75,000, then that winner was subject to withholding, because the IRS treated it as getting $75,000 for $2, odds of 37,499-1, rather than what it really was, $75,000 for $500, or actual odds of 149-1.

Withholding was imposed at 28% -- roughly $21,000 in the case of our $75,000 winner. And in some states, state income tax withholding was added in on top of that. Even without any state tax, though, our happy $75,000 winner would be taking home only $54,000. A nice payday, but a lot less than what she thought she won.

As the popularity of complex exotic wagers -- Pick 4/5/6 bets, superfectas and such -- has grown in this century, the amount of money locked up in withholding has also grown, to perhaps $1 billion a year, as estimated by the National Thoroughbred Racing Association (NTRA). As the late Sen. Everett Dirksen used to say, a billion here, a billion there, pretty soon you're talking about real money. And in the little corner of the economy that's horse racing, $1 billion is pretty close to 10% of total annual handle. To be sure, horseplayers can get some of that withheld money back the next year, when they file their tax returns, either by deducting losses as an itemized deduction on Schedule A of their 1040 or by treating their gambling as a trade or business on Schedule C, The documentation of those losses is easier now, since most serious horseplayers use online accounts that generate a precise record of all their betting -- no more shoeboxes full of losing tickets, many with heel prints on them -- but it still (1) leaves out those bettors who don't itemize deductions and (2) decreases "churn," the ability to recycle wins into more wagering.

Now, finally, thanks in large part to the untiring efforts of Alex Waldrop and others at the NTRA, and to the more than 1,700 comments sent to the Treasury by us ordinary horseplayers, sanity has prevailed. New regulations, published in the Federal Register today and scheduled to become effective in 45 days, on November 11th, take the sensible step of treating all a bettor's wagers on the same opportunity -- say, a Pick Six pool on a given day -- as a single bet. In our example above, the $75,000 winning ticket on a total bet of $500, that would mean the odds would indeed be calculated at 149-1 and the bettor would not face any withholding. So our hypothetical bettor would go home with $75,000, not $54,000, and would most likely put a good chunk of that extra money right back into the parimutuel pools.

So, from November 11th on, the tax environment for horserace (and greyhound and jai alai, if you care) bettors will move one step closer to fairness. It's still not all the way there, for reasons explained in my 1995 article, but every little bit helps. Thanks to all the folks at the NTRA who made this happen, and to David Bergman of the Treasury's legal staff, who wrote the new regulation. Now, all we have to do is wait for those Pick Six carryover days with a positive expectation (when the amount of the carryover exceeds the takeout on new money) -- and actually pick winners.

Sunday, September 24, 2017

Claiming Jail Has Its Day(s) in Court

Most US racing jurisdictions impose some sorts of limits on what an owner can do with a horse that she just claimed. In almost all states, the new owner can't transfer ownership of the just-claimed horse -- except in another claiming race -- for at least 30 days, to avoid possibilities of collusion. In some states, like New York, the owner must run the horse back, if it runs in the first 30 days after the claim, for a price higher than the price at which she claimed it. And in many states, the owner may not enter the horse in a race at another track, or in another state, for the balance of the race meet at which it was claimed or for some specific period, usually 30 or 60 days.

The sum of these limits, which vary a bit from state to state, is usually referred to as "claiming jail," or just "jail." Racetracks and state racing commissions impose the limits, which have their origin more than a century ago in England and the US, in order to prevent raids on the horse population at a track by aggressive claiming owners who then move the horses elsewhere, depleting the horse population available for racing at the original track. Owners who race in more than one jurisdiction may not be happy with the rules, but, by and large, they accept them as part of the bigger picture of the claiming game. If you want to claim horses, then you play by the rules.

Enter Jerry Jamgotchian, the litigation-happy California-based owner who seems to think rules were made for the little people, not for him. Starting in 2011, Jamgotchian has spent years and, probably, hundreds of thousands of dollars, challenging the claiming-jail rules in Kentucky, Pennsylvania and Indiana. Last year, he was soundly rebuffed by a unanimous Kentucky Supreme Court, and the US Supreme Court declined to hear his appeal. Then in August this year, a federal district court in Pennsylvania agreed, upholding that state's claiming-jail rule. But just last week, Jamgotchian finally got a win. The federal district court in Indiana said that state's claiming-jail system violated the Commerce Clause of the US Constitution. So now there's an apparent conflict among the courts and, who knows, this arcane bit of racing regulation may yet make it to the Supreme Court. Can't speak for the rest, but I'm pretty sure Justice Sonia Sotomayor, who looked pretty happy in the "Judge's Chambers" (named for American League home-run leader Aaron Judge) at Yankee Stadium, wouldn't mind spending a day at Belmont.

So how did the three courts arrive at two different results? In each of the cases, Jamgotchian had claimed one or more horses and wanted to race it elsewhere before the relevant race meet ended. And in each case, there was a rule that said no you can't, at least without the stewards' permission. But there were differences, both in the specific facts of the cases and in the wording of the claiming rules in each state. Let's look at each of the cases in a bit more detail, in the order in which they were decided.

In the Kentucky case, Jamgotchian v. Kentucky Horse Racing Commission (488 S.W. 3d 594 (KY 2016), for the legal nerds out there), Jamgotchian had claimed a well-bred filly named Rochitta (Arch-Lady Ilsley by Trempolino) for $40,000 (plus $2,400 tax) at Churchill Downs on May 21, 2011. Something of a bargain, despite the filly's less than stellar career on the race track (one win in 15 starts, earnings of $44,416), since she'd been a $160,000 Keeneland September yearling and went on to be sold as a broodmare prospect in England for $480,000.

But the Kentucky claiming rule provided that:

Unless the Stewards grant permission for a claimed horse to enter and start at an overlapping or conflicting meeting in Kentucky, a horse shall not race elsewhere until the close of entries of the meeting at which it was claimed. 810 Ky. Admin. Regs. (KAR) 1:015 Sec. 6.

In fact, there are no overlapping or conflicting race meetings in Kentucky, as only one track at a time has the right to operate, using dates granted by the Commission. So the rule effectively bans a horse from racing anywhere other than the track at which it was claimed until the end of the meet.

In reality, Rochitta did not race again until after the end of the 2011 Churchill Downs spring meet, showing up in the starting gate next on July 8, 2011, at Presque Isle Downs in Pennsylvania. From there her career continued its downward trajectory, with stops at Mountaineer and Tampa Bay Downs before a subsequent owner realized he had a filly worth a whole lot more in the auction ring than on the track. But while Jamgotchian still owned Rochitta, and while she was still in claiming jail at Churchill, the owner attempted to enter her in a minor stakes at Penn National and in a claiming race at Presque Isle. It's not clear from the Kentucky Supreme Court opinion whether Rochitta was actually entered and then scratched or whether the entries were aborted earlier in the process. In any event, the disgruntled Jamgotchian filed a complaint in court in Kentucky in July, 2011, claiming his constitutional rights were being trampled on. Despite Rochitta's eventual move to the greener pastures of a breeding farm, the case dragged on, as they tend to do, through a trial court decision in November, 2012, an appellate court decision in February, 2014, and finally the Kentucky Supreme Court ruling in May, 2016. The US Supreme Court denied certiorari, , effectively dismissing the final appeal, in November, 2016. All three Kentucky courts held that the state's claiming-jail rule was valid, and that Jamgotchian had suffered no loss of constitutional rights.

In the Pennsylvania case, Jamgotchian v. State Horse Racing Commission (2017 WL 3713395, U.S. Dis. Ct. M.D. PA), Jamgotchian had claimed two horses, Super Humor for $25,000 at Presque Isle on August 29, 2016, and Tiz a Sweep for $25,000 at Presque Isle later in the meet, on September 8, 2016.

Pennsylvania's claiming jail rule, 58 Pa. Code Sec. 163.255, provides that:

If a horse is claimed . . . . nor may it race elsewhere until after the close of the meeting at which it was claimed. The Commission has the authority to waive this section upon application and demonstration that the waiver is in the best interest of horse racing in the Commonwealth.

Unlike Kentucky, Pennsylvania does have overlapping or conflicting race meetings. Penn National, near Harrisburg, and PARX (formerly Philadelphia Park) both race essentially year-round, and the Presque Isle meet in Erie, in late summer, competes with both of them.  Penn National and PARX do divide their racing year into several different "meetings," so claiming jail is not a year-long sentence, but it still can keep a horse on the grounds for a considerable period.

After the claims, Jamgotchian requested a waiver for Super Humor, which was granted by the Pennsylvania Commission, and for Tiz a Sweep, which the Commission deemed moot, since the Presque Isle meet had ended before the Commission ruled on the request. Nonetheless, Jamgotchian filed suit in October, 2016, in federal court in Pennsylvania, making much the same arguments he had raised in Kentucky. On August 29, 2017, the district court, in a relatively brief opinion, rejected his claims that the claiming-jail rule violated the Commerce Clause of the US Constitution. Thus far, no appeal has been filed in that case (checked Westlaw September 24, 2017).

Enter Indiana. In Jamgotchian v. Indiana Horse Racing Commission (2017 WL 4168488, U.S. Dist. Ct. S.D. Ind.), decided just this past Wednesday, September 20th, there were three claimed horses involved.

In a brazen violation of the claiming-jail rule, Jamgotchian claimed Majestic Angel for $25,000 at Indiana Grand on June 16, 2016 and then, without receiving permission from the Indiana stewards, entered the horse for a July 17 allowance/optional claimer at Mountaineer in West Virginia, while the Indiana Grand meet was still in progress, and in which she finished second. Only after the fact did the Indiana stewards become aware the the horse had been moved from Indiana Grand in violation of the claiming-jail rule.

Jamgotchian's other Indiana claims were Found a Diamond, a three-year-old filly haltered for $30,000 on August 3, 2016, and Tiz Dyna, claimed for $25,000 on August 11, 2016. In both cases, Jamgotchian asked the Indiana stewards for permission to race outside Indiana, and in both cases the stewards said no.

Indiana's claiming-jail rule, 71 Ind. Admin. Code 6.5-1-4, Sec. 4(h), provides that:

No horse claimed out out of a claiming race shall race outside of the state of Indiana for a period of sixty (60) days without the permission of the stewards and racing secretary or until the conclusion of the race meet.

Indiana has only one thoroughbred track, Indiana Grand, which in 2016 had a meet that stretched from April until the end of November, so, except for horses claimed in the last two months of the meet, the jail sentence was effectively 60 days. That's similar, in practical terms, to the Kentucky rule, since no Kentucky race meet, except the Turfway winter meet, lasts longer than 60 days.

Once again Jamgotchian had his lawyers file suit, despite his somewhat unclean hands stemming from the Mountaineer entry for Majestic Angel. And this time, mirabile dictu, the federal court agreed with him, holding that the ban on claimed horses' being able to race outside Indiana, even if only for 60 days, was a Commerce Clause violation. Once again, it's too early to know if there will be an appeal, this time by the state. But, although both cases were filed in federal court, their appeals would go to different federal appellate courts, in the Indiana case, to the 7th Circuit in Chicago, and in the Pennsylvania case to the 3rd Circuit in Philadelphia. So it's entirely possible that the two different results will hold up on appeal, in which case the US Supreme Court -- or at least the Justices' law clerks -- might have to learn a little about horse racing.

Do the claiming-jail rules have some sort of (very limited) impact on interstate commerce? Of course they do. Is that impact discriminatory to the extent of being a Constitutional violation? Hardly. But, as any lawyer knows, nothing is certain when you go into court. The Indiana decision thus raises the prospect that, if it is not overturned, as it should be, on appeal, a fundamental element of the legal structure that has governed claiming races for over a century will be abolished. I would hope that, if there is an appeal in the Indiana case, the entire racing industry, especially the lawyer-heavy NTRA, will join in on the side of preserving this particular piece of the status quo. Without it, the Michael Gills and Jerry Jamgotchians of the world could quickly destroy the claiming game as we know it.

Legal nerds please continue. The rest of you can probably stop here.

First, as described above, the claiming-jail rules, and the attendant circumstances of actual race meetings in a particular state, are all a little different. And in law, the facts matter.

For comparison, the New York claiming-jail rule, 9 NYCRR 4063.3, reads as follows:

If a horse is claimed . . . . nor shall such horse race elsewhere until after the close of the meeting at which such horse was claimed.

At NYRA tracks, most race meetings are six to 10 weeks long. The longest, the Aqueduct winter meet, is about three months, so that is the maximum "jail" term for a claimed horse, and it's at the meet that has the greatest difficulty in maintaining a horse population large enough to provide something approaching full fields on race days. Preserving the horse population at a track is by far the strongest justification for the jail rules.

Now, on to the legal reasoning. Jamgotchian's lawsuits all raised the issue of the "dormant" or "negative"  Commerce Clause, something that a few of us remember from law school, but that hardly any lawyer pays much attention to in real life.

Article I, Sec 8, cl. 3 of the US Constitution gives Congress the power to regulate commerce "among the several states." By implication, if Congress has the power to regulate interstate commerce, then the individual states don't have that power, and if they try to set up restrictions on interstate trade, then those restrictions are invalid. See, e.g., Dep't of Revenue of Ky. v. Davis, 553 U.S. 328 (2008). Lots of cases on this issue, most involving some sort of protectionism that favors in-state business and disadvantages out-of-state competitors. E.g., New Energy Co. of Indiana v. Limbach, 486 U.S. 269 (1988).

The claiming-jail rules certainly impose some kind of burden on interstate commerce. Without them, an aggressive claiming owner, named, perhaps, Michael Gill, could simply raid a track, claim dozens of horses, and ship them out of state. See Gill v. Delaware Park LLC, 294 F. Supp. 2d 638 (Dist. Ct. D. Del. 2003). The result of such a raid would be that the track from which the horses were claimed would have a sharp and sudden reduction in its horse population, with the result that the size of its fields, the quality of its racing and, eventually, its betting handle and the state tax revenue derived from that handle would surely decline. It's to avoid these consequences that most states have some sort of claiming-jail rule.

The Kentucky Supreme Court opinion, by far the longest and best-reasoned of the three claiming-jail cases, sets out a number of reasons why the dormant Commerce Clause does not apply to claiming jail.

First, the claiming-jail rule is really, the court points out, part of an implicit contract. In exchange for the right to claim horses, the buyer agrees to abide by the rules, including not transferring ownership of the claimed horse for 30 days, and not racing outside the claiming track for a period without the permission of the stewards or the racing commission. If you want a horse, you can buy one other than through the claiming process -- though it might cost you more, since the seller will want compensation for the possible purse the horse might have earned in the race. 

Second, the Kentucky court pointed out that the claiming-jail rules don't discriminate between in-state and out-of-state residents; everybody's subject to the rules if they claim a horse. 

Third, the court asked whether the rule imposed any incidental burden on interstate commerce. To be sure, it did, if of a brief and fleeting nature, since horses were all released from "jail" within a short period after the claim. In cases of such incidental burdens, the court looked at whether the benefits of the rule -- maintenance of the horse population at a track and the consequent support of state tax revenues from racing as well as support of the industry -- outweigh those incidental burdens. The Kentucky court concluded that they did. The Indiana federal court, after an extremely brief and cursory analysis, reached the opposite conclusion.

Fourth, the Kentucky court looked at other cases on "export embargoes," or state rules that prevented the export from a state of, for example, electricity produced within the state (New England Power Co. v. New Hampshire, 455 U.S. 331 (1982)), cantaloupes that hadn't been processed within the state (Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)), or unprocessed timber (South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82 (1984)). The Kentucky court pointed out how these cases differed from the claiming jail rule:

The differences are those between permanent and temporary, between total and partial, between serious and slight and between inescapable and voluntary. The laws challenged in the Supreme Court cases just referenced forbade export of the article of commerce entirely or forbade it for as long as the would-be exporter failed to do something, such as employ a local processor. Here, Jamgotchian simply had to wait thirty days to transfer his Kentucky-claimed horse, and, only had to wait forty-two days (May 11 to July 1) to race her in another state.

The entire Kentucky Supreme Court opinion, with its careful and lengthy analysis of how the specifics of racing fit into Commerce Clause jurisprudence, is well worth reading. If you don't have access to Westlaw or a similar service, you can find it here. If these cases ever reach the US Supreme Court, I suspect their opinion will look a lot like that of Justice Hughes in Kentucky, where they do know something about horse racing.

Monday, September 11, 2017

Fasig-Tipton's Turf Showcase Sale

With lots of well-heeled European, Middle Eastern and Asian buyers in town for the million-dollar yearlings in Book 1 of the Keeneland September sale -- which started today -- the number two auction company, Fasig-Tipton, tried something new. It held a "turf showcase" yearling sale last night, aimed specifically at foreign buyers, plus those few Americans that actually like turf racing, and featuring yearlings that arguably had turf-oriented pedigrees.

Whatever spin the folks at Fasig-Tipton may put on it -- first time trying a new concept, Keeneland snagged all the best turf pedigrees anyway, etc. -- the sale was by any measure less than a rousing success, failing to pull much cash out of the pockets of those wealthy foreigners. Of 171 yearlings in the catalogue, only 41 (43.3%) were sold, bringing an average price of $68,041 and a median of $52,500. Of the 97 that didn't sell, 71 -- nearly as many as were sold -- failed to meet their reserves (i.e., were "RNA"), and the remaining 26 were scratched from the sale. You can see all the results here. Any time 49% of the horses that go through the ring at an auction fail to sell, as happened last night, that's a sign that someone, usually the sellers, had unrealistic expectations.

Another odd result, given the stated purpose of the sale -- to attract foreign buyers -- was that hardly any of the buyers were in fact foreign. It's impossible to tell for sure, when so many purchases are made by agents, but none of the usual names representing non-US interests showed up in the F-T Turf Showcase results. Nor did the very best American turf pedigrees. There were more War Front babies (4) in the first 20 hips at Keeneland today than in the entire F-T sale (1). Lots of Kitten's Joy, Gio Ponti and Temple City yearlings in both sales, but that just suggests some over-breeding.

Some American buyers may have gotten a good deal, in the absence of serious foreign money. Ahmed Zayat (with, I trust, the advice of my friends Jeff Seder and Patti Miller at EQB) picked up two at the turf showcase, a Real Solution colt for $60,000 and a War Command filly for $75,000. And leading partnership West Point Thoroughbreds snagged a colt by English sire Noble Mission for $85,000. Apart from that, it was the usual mix of owners and agents, and even a pinhhooker, Nick DeMeric, who paid the co-high price of the evening, $250,000, for a Scat Daddy colt. One never sees pinhookers in Book 1 at Keeneland, as they don't have the bottomless bankrolls to compete that other Book 1 buyers seem to possess.

Was the experiment worth it for Fasig-Tipton? My guess would be, probably not. The prices they got, and the buyers they attracted, would be just as likely at the regular F-T yearling sale in October. Credit F-T for trying something new, but not everything new works.

Tuesday, August 22, 2017

Jews in Racing 1 - Sir Ellice Victor Elias Sassoon

"The only race greater than the Jewish race is the Derby."
 -- attributed to Sir E.V. E. Sassoon

Race, and racism, has never been absent from sports. Black jockeys, who won most of the early Kentucky Derbies, were forced out of the sport in the early 1900s by the pressure of Jim Crow zealots. Second-generation Americans, whether Irish, Italian, Jewish or East European, made their names in boxing, only to be supplanted by more recent immigrants and by African-Americans. John Carlos and Tommie Smith were ostracized and blacklisted for their Black Power salute from the podium at the 1968 Olympic games. And even today, Colin Kaepernick is blacklisted by NFL owners for taking a public stand against racism, and Orioles outfielder Adam Jones hears racial taunts when he jogs out to his position in Fenway Park. So racial awareness, and racism, are still alive and well in sports.

Sticking to the oft-given advice to write what you know, my own contribution to this discussion, which will occupy this blog over then next few months, is to chronicle the history of Jews in racing. While not all of us are as religiously observant as, say, Ahmed Zayat, who'll park an RV at the track on Friday so he doesn't violate the proscription against driving on the Sabbath, we all pretty much identify one way or another as Jewish. In my own case, it's the Karl Marx-Rosa Luxemburg-Emma Goldman-Upper West Side school of Judaism, but still, it's an identity.

So these next few posts will take a look at other Jews who've made an impact in horse racing. Owners, trainers, jockeys and gamblers. And, since he may indeed have actually uttered the quote at the top of the screen, what better place to start than with Sir Ellice Victor Elias ("Eve") Sassoon, 3rd Baronet of Bombay and four times winning owner in the (Epsom) Derby?

Yes it's the same family that gave us Vidal Sassoon's hairstyles and Sassoon jeans. The Sassoons were a well-established Jewish merchant family in Baghdad, perhaps having landed there after the expulsion of the Jews from Spain in 1492, or perhaps having more local roots. In the 19th century, Baghdad was part of the Ottoman Empire that was based in Constantinople, and several Sassoons served as financial advisers and treasurers to the resident Ottoman pasha in Baghdad. But the origin of their real money was the opium trade with China. The Sassoons, in fact, put together the first international drug cartel, and then invoked the armed might of Queen Victoria's Royal Navy to protect their interests (along, by then, with those of other British merchants), culminating in the Opium Wars in the mid-19th century, which resulted in the cession of Hong Kong to Britain and the opening up of Chinese ports, especially Shanghai, to western commerce. The World War I poet Siegfried Sassoon was also a family member, though he was disinherited when he had the chutzpah to marry a shiksa. Siegfried did, however, eventually produce "Memoirs of a Fox-Hunting Man," evidencing at least some familiarity with horses.

The Sassoons soon moved from Baghdad to the British Empire, establishing a commercial base in Bombay (as it then was) and earning a peerage from the British Crown. Young Ellice Victor Elias was born in 1881, while the family was traveling from England to India, attended Harrow and Cambridge, served in the Royal Flying Corps in World War I, suffering a leg injury that bothered him the rest of his life, and, on the death of his father in 1924, inherited the colonial peerage.

Sir Victor with unidentified friend
photo from Sassoon archive at SMU

Once settled into his new status as a colonial aristocrat and member of the Indian Legislative Assembly -- even if, as a Jew, he still couldn't get in to the British clubs in India -- E.V.E. Sassoon did what all self-respecting British nobility did, he bought a stud farm and started raising race horses. In Sassoon's case, it was the Bungalow Stud near Newmarket in England, which he promptly renamed as the Eve Stud (today, it's a rest and rehabilitation facility for Sheikh Mohammed's Darley operation).

Sassoon's Derby wins wouldn't come until later. Meanwhile, he moved to Shanghai, becoming the most important foreign real estate mogul in the city, at one point owning some 1,800 different properties. The move was reportedly caused by Sassoon's annoyance that, even in India, he was still subject to British taxation. In Shanghai and Hong Kong, by contrast, he was beyond the reach of the Inland Revenue. From then on, he had to ration the number of days that he spent in England, so as not to become liable to the hated tax man. As a side benefit, the British clubs in Hong Kong and Shanghai          were (marginally) more cosmopolitan than their analogs in India; they admitted Jews, if not Asians.

The gentry at Shanghai Race Course
photo by E.V.E. Sassoon, SMU Archive

Shanghai became something of a refuge in the 1930s for European and Russian Jews fleeing Hitler. Sassoon reportedly was heavily involved in the rescue efforts, sometimes in the face of opposition from others in the Jewish and British expatriate community in Shanghai, who thought everything would be fine under Japanese occupation, because, don't you know, the Japanese are so much more civilized than those dreadful Germans. And Sassoon's active social life continued, with lavish parties and an ever-changing cast of girlfriends, both white and Asian, though, as at least one reported, the old war wound caused some difficulties when it came to the physical.

While Sassoon, and his property holdings, survived World War II, they didn't survive the victory of the Chinese Communist Party in 1949. Seeing the handwriting on the wall, Sassoon had sold off most of his Shanghai property in the mid-1940s and moved to Nassau, Bahamas, where he lived until his death in 1961.

It was from his new base in Nassau that Sassoon made it to the peak of English racing, winning the Derby four times in seven years: Pinza (1953), Crepello (1957), Hard Ridden (1958) and St. Paddy (1960). Only the last of these was a homebred; the others had been purchased at auction, in one case -- Hard Ridden -- for the very low price, even for the time,  of 270 guineas (about $1,500).

Sassoon married late in life -- to his nurse -- and had no children. The racing stable died with him, with the property eventually ending up in the hands of Sheikh Mohammed. He was survived, or rather honored, by horses named for him in Australia, New Zealand and the U.S., the last a gray gelding by Promised Land (in turn by Palestinian), bred by Claiborne Farm in 1970 who went on to race 84 times, with record of 5-13-10 and earnings of $110,152. Sassoon the critter was perhaps less successful than the man for whom he was named, but, judging from that race record, a good deal more hard working.

Party time - Sir E.V.E. Sassoon in Shanghai
Photo: SMU Archive