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

Thursday, July 27, 2017

Partnerships at Belmont: How They Did

Being the obsessive that I am, and knowing that there are a lot of other racing partnerships out there in addition to our own Castle Village Farm, I naturally keep track of how the competition is doing. The result is a spreadsheet for every race meeting on the NYRA circuit, dating back half a dozen years and tracking every partnership that I know of that recruits publicly. I don’t count groups that are family, friends or neighbors, but I do everyone I know of whose website invites interest from new folks.

Even though Castle Village Farm basically sat out this year’s Belmont meet (our one horse stabled at Belmont had some physical issues and started just once), I kept up the scorecard anyway. (I’ll be happy to send you the spreadsheet if you email me directly at CVFRacing@gmail.com.)

There are, of course, methodological issues. What to do when two partnerships co-own a horse? What to do when a partnership owns a horse in a joint venture with another owner? My solution: if a partnership is listed on the program, the race is counted for that partnership. That means some races are counted twice; so be it. And the purse money for a horse with multiple ownership doesn’t all go to that partnership in a multiple-owner situation, but I count the whole purse for each partnership anyway. Not perfect, but it provides a reasonable comparison.

So here’s what I found at the Belmont meet.

Public partnerships accounted for 280 starts during the meet, winning 39 (14%), finishing in the money 44% of the time, and picking up a check (including 4th and 5th-place finishes) 70% of the time. All these percentage are just marginally above the numbers for all starters at the meet.

In the aggregate, partnerships averaged $13,755 per start, but that number is hugely skewed by Tapwrit’s win in the Belmont Stakes for Aron Wellman’s Eclipse Thoroughbred Partners and by wins in the Grade 3 Poker for Ballagh Rocks and the Grade 2 Suburban by Keen Ice, both for Jerry Crawford’s Donegal Racing. A more accurate reflection of how partnerships as a whole did is the median figure for earnings per start, at $5,000. That’s not bad; just about pays the bills for keeping a horse in training (see my most recent analysis of the cost of racing in New York, here.)

Eclipse and Donegal are high-end partnerships; a share in a horse costs $15,000 or more, and often $25,000 or more. How did the other high-end operations do? Sheila Rosenblum’s Lady Sheila group, whose horses are trained by Linda Rice, had an excellent meet, winning 6 of 16 and finishing in the money more than half the time. Team Valor ran only three horses at the meet, but all three finished second in high-level allowances. Centennial had only one win, but eight of their 10 starters finished in the money. And West Point, which ran more horses – 19, many as co-owners – than any other high-end group, had four wins and 52% of their starters in the money. I’d guess the partners in those operations felt reasonably satisfied, even though, in most cases, they’ll never get their initial “investment” back.

Two claiming partnerships dominated the entries at the lower partnership levels, both with decent results. Drawing Away Stable, which started with trainer David Jacobson but left him a couple of years ago, had 32 starters, with six winners (19%) and 14 in-the-money finishes (44%) and earnings per start of $6,888. Final Turn Racing, which took Drawing Away’s place in Jacobson’s barn, had 35 starters, winning four (11%) but finishing in the money 19 times (54%) with earnings per start of $7,033. Both those stables operate on a model where the trainer pays all the expenses and keeps most of the earnings, so partners get a lot of excitement with many entries and win pictures, but don’t really have a major financial stake beyond their initial partnership share.

Overall, 19 partnerships won at least one race. At the bottom end, 11 partnerships didn’t have a single in the money finish, though most of those started three or fewer horses.

Does all this signify anything? What it suggests to me is that racing results are fairly strongly correlated with the cost of the horse that’s doing the racing, notwithstanding the many million-dollar failures in Todd Pletcher’s and Chad Brown’s barns that never even reach the starting gate. But at all levels, what the numbers suggest is that horses have a decent chance of (mostly) paying their way on a New York race track, but that recovering those big yearling or two-year-old purchase prices is an elusive goal.

Caveat emptor.




Thursday, June 22, 2017

End of the Season -- the OBS June 2YO Sale

Ocala Breeders Sales Co. (OBS) held the last sale of the two-year-old auction season last week, concluding the juvenile auction calendar with neither a bang nor a whimper, but rather a continuation of the stabilization that has marked much of this year's sales. (See my reports on earlier two-year-old sales this year here, here, here, here and here.)

Overall, the OBS June sale continued its recent improvement in prices, albeit with a smaller catalog than in recent years. Of the 769 horses listed in the catalog, 424 (55%) sold for an average price of $36,000 and a median price of $19,000, both substantial improvements over last year, when 619 horses sold, most at lower prices. So the June sale, like most of the others on the calendar, continues to adjust to the new reality of smaller foal crops and a stagnant, if not decreasing, pool of potential buyers, especially in the "middle market," between, say, $25,000 and $100,000.

Still, there was some notable action at the high end at OBS June. For example, all five horses sired by Tapit -- North America's leading sire the past three years -- were sold, for an average price of $170,000. Without knowing what those horses' vet reports looked like or what kind of physical appearance they presented, it's hard to know whether the buyers got bargains. But, compared to Tapit's $150,000 stud fee in 2014, the year this season's sales horses were conceived (the fee is $300,000 now), it seems the buyers got a pretty good deal, if only based on their purchases' residual pedigree value.

The most active buyer at the high end of the sale was New York-based trainer Linda Rice, who bought seven horses for an average of $157,000 each. Her top purchase was a $320,000 Midnight Lute colt, who had the co-fastest one-furlong breeze of the sale, in 9 4/5 seconds. One might question the wisdom of breezing a two-year-old at the sale faster than they'll ever run again, but, in the aggregate, the horses that run faster at the sales do go on to do better on the race track than their slower colleagues, so if you're buying in bulk, time does count.

Korean buyers were, as usual, out in abundance at the June sale, buying 19 horses for a total of $864,000, an average of $45,000, including three for $100,000 or more. Not so long ago, the Koreans were looking more at the bottom of the market, with a cap of $20,000 on their bids. Now, they've become a serious middle-market player.

At the bottom of the market, condolences to the 36 horses bought for low prices by C.H.P.R., all destined to be shipped to Puerto Rico and to run for very little money and less food at El Comandante. Having rescued some horses from Puerto Rico, I know the kind of treatment they receive, and it ain't pretty. It's hard to prevent older claiming horses from ending up at Comandante, but perhaps the sales companies could take the small step of prohibiting direct export from the sales to Puerto Rico (and other countries where conditions are known to be unacceptable) before a horse has even had a chance to run on a North American track.

So that's the end of this year's two-year-old sales. All in all, it's probably a relief to breeders, pinhookers,  consignors and the auction houses that things weren't worse, and even seem to have stabilized a bit, especially at the top end of the market. Now, on to the yearling sales, starting next month, and to looking for some of those high-end two-year-olds at Saratoga.

Thursday, June 8, 2017

Why NYRA Is Subject to New York's Freedom of Information law

If you look at the financial statements posted on the New York Racing Association (NYRA) website, you'll see that there are audited financials for every year going back to 2010, as well as quarterly statements for most recent years. In addition, in the section of the website devoted to NYRA Board of Directors meetings, you'll see that the meeting books for most Board meetings over the past half-dozen years include the most recent quarterly financials. In other words, for some years now, NYRA has been operating with admirable financial transparency.

But all that seems to have stopped sometime in 2016. The last quarterly financial report posted on the NYRA website is the one for the second quarter of 2016, there's no annual report for 2016, and the meeting book for the last publicly listed Directors' meeting, held in December 2016, had a budget for 2017, but no actual financial data.

So what's happened? Why is NYRA no longer transparent? From the time "new NYRA" was established in 2011 until mid-2016, it conducted itself as if it were a governmental entity, acting in ways that were consistent with New York State's open meetings law and freedom of information law. As well it should have. "New NYRA" was a creation of legislation in 2011 that rescued old NYRA from bankruptcy, transferred the land under NYRA's race tracks to the State, and gave the state, and in particular, Governor Andrew Cuomo, effective control over appointments to the NYRA Board of Directors, and subjected NYRA to close oversight by the State Budget Department's Franchise Oversight Board.

New legislation this year (2017) changed the composition of the NYRA Board of Directors while at the same time giving the Franchise Oversight Board even greater powers. That legislation was signed by Cuomo as part of the State's 2017-18 budget, but did not go into effect until this week, when "new" Directors -- who in fact were virtually the same as the previous Directors -- were appointed. But, whether NYRA is still a state entity under the new version of the law or not, there should be no question that it was one under the law as it was through the end of 2016 and at least the first quarter of 2017, and that therefore its records for 2016 and prior years should be open to the public. After all, it was our tax money that bailed NYRA out of bankruptcy -- along with a slice of the income from the Resorts World slot machine palace at Aqueduct -- and as taxpayers we should be able to see what's happened to our money.

Several months ago, when I noticed that there were no new financials being posted on the NYRA website, I filed a Freedom of Information Law (FOIL) request for them with NYRA. So far, the only response has been two adjournments of my request, the latest to tomorrow, June 9th. Here's why I think NYRA should make its financials public on its website and therefore should also honor that request and provide its recent financial reports -- which I will be happy to share online if NYRA doesn't post them -- and, more generously, why I think its apparent retreat from transparency is wrong.

New York has two important statutes that promote public access to state agencies. The Open Meetings Law (Sections 100-111 of the Public Officers Law) requires state agencies to conduct their business in public. The Freedom of Information Law (Sections 84-90 of the Public Officers Law) allows the press and individual citizens access to government agencies' records, subject to very limited exceptions. The preamble to FOIL states that:

government is the public's business  and . . . the public, individually and collectively and represented by a free press, should have access to the records of government.

Since FOIL was first enacted in 1974, and especially after amendments in 1977 that significantly broadened its reach, the courts have uniformly said that the statute is to be read liberally, with a presumption that disclosure is valid, and that the exemptions in the law are to be read narrowly.

Under FOIL, an "agency" must disclose its records when requested, unless one of the following exemptions applies:

  • Records specifically exempted by state or federal law;
  • records that would create an unwarranted invasion of someone's personal privacy; 
  • records whose disc;closure would interfere with current or imminent contracts or collective bargaining agreements;
  • records that are trade secrets or whose disclosure would cause serious competitive disadvantage to a private entity that submitted them to the agency;
  • certain law enforcement records;
  • records that could endanger the life or safety of an individual;
  • exam questions and answers;
  • records that would compromise an agency's computer security; and
  • certain intra-agency records, but specifically not including statistical and financial tabulations and records of audits.
If NYRA is an "agency" within the meaning of FOIL, then none of these exceptions would apply to its quarterly financial reports or its annual audited financials.  So the key question is, whether "new NYRA," as created in 2011, is an "agency."

Section 86(3) of the Public Officers Law defines an agency for purposes of FOIL as:

(A)ny state or municipal department, board, bureau, division, committee, public authority, public corporation, council, office or other governmental entity performing governmental or proprietary functions for the state. . . 

Obviously, NYRA isn't a direct state agency like, say, the Governor's Office or the Department of Taxation and Finance. But that's not necessary for an entity to be subject to FOIL. Generally, even private or semi-private entities can by "agencies" for purposes of FOIL if they are so involved with the state that it makes sense to bring them within the reach of FOIL.

New York's highest court, the Court of Appeals, has not yet ruled on whether NYRA or any entity like NYRA is subject to FOIL, but in 2009, the next level court, the Appellate Division in western New York, laid out a six-factor test to be used in determining whether FOIL applies to something that's not, strictly speaking, a government department. In the absence of a state-wide rule from the Court of Appeals, and in the absence of any competing rulings from other Appellate Divisions, that ruling is precedent in all of the state. Let's look at that test and see how it might apply to NYRA.

First, is the entity required to disclose its annual budget? In NYRA's case, the answer is yes; the budget must be submitted to the State Franchise Review Board for approval.

Second, does the entity maintain offices in a public building? In 2011, when "new NYRA" was established, old NYRA ceded whatever rights it had to the land under its racetracks it the State. So, while the grandstands may belong to NYRA, the land under them belongs to the state. This factor is also on the side of NYRA's being an "agency" for purposes of FOIL.

Third, is the entity subject to a government entity's approval over hiring and firing? This factor says NYRA is not an "agency."

Fourth, does the entity have a Board comprised primarily of government officials? Only two of the 17 NYRA Board members in the 2011-June 6 2017 period were actually government officials, but of the 17, eight were nominated by the Governor and two each by the State Assembly Speaker and State Senate Majority Leader, so 12 of the 17 slots were filled by government appointees. Comes down on the side of NYRA being subject to FOIL.

Fifth: was the entity created by a government agency? "New NYRA" was created by the state legislature, through amendments to the State Racing, Pari-Mutuel Wagering and Gaming Act in 2011. Without the authorizing legislation, it wouldn't exist. Another factor for FOIL.

Finally, does the entity describe itself as an agent of a governmental agency? NYRA hasn't explicitly said so, but it has structured itself as if it believes itself to be subject to FOIL. It has appointed a records access officer and an appeals officer, as required by the FOIL statute, and, up through the end of 2016, it conducted its Board meetings in public, as required by the Open Meetings Law.

On balance, then, NYRA was right when it decided back in 2011 that it should act like a public entity. Nothing changed between then and yesterday-- although the balance of factors may be different going forward now that "new" Directors have been appointed in accordance with the 2017 budget legislation -- and NYRA should continue to make its financial records public and hold its Board meetings in the open. I'm hoping NYRA's lawyers reach the same conclusion.

Tuesday, May 30, 2017

Barr-Tonko ver. 2.0: Better, But Is It Good Enough?

Last week, Congress members Andy Barr of Kentucky and Paul Tonko of New York introduced a considerably revised version of their "Horse Racing Integrity Act." (You can read the full text of the new bill here. It has been referred to the House Energy & Commerce Committee for hearings) The first version of the bill had been introduced back in 2015, with the support of racing's aristocracy, like The Jockey Club, had aroused heated opposition from most horsemen's organizations, and had then languished in the bowels of a do-nothing Congress. I commented on some of the serious problems with that earlier bill here and here.

Since 2015, a few things have changed. First, Republicans now control both houses of Congress and the White House, and Congressman Barr is a former intern for Mitch McConnell, now the Senate majority leader. That can't help but improve the new bill's chances for passage. Second, the states are still a ways from enacting uniform rules that apply to all racing, everywhere; the supposedly ongoing movement toward uniformity was one of the strong arguments last time around for holding off on federal legislation. Third, there has been no end to publicly visible doping disasters. For example, the recent fiasco in Florida, resulting in the tossing out of more than 100 drug positives (including four for uber-trainer Todd Pletcher) suggested that at least some states can't be trusted to police doping on their own. While some of the arguments for federal regulation remain specious -- foreign buyers are still showing up in big numbers to buy US bloodstock, despite dire warnings to the contrary from US racing's grandees, for example -- there is a serious case to be made that US racing needs uniform regulation and that the states can't be trusted to get the job done.

The new version of Barr-Tonko is a considerable improvement over its predecessor. It responds to some, though not all, of the complaints addressed to the 2015 version, and it allows, although does not require, that the contentious issue of race-day Lasix be put aside, at least initially. The question for those of us in the industry is whether the changes make the bill good enough to support, or at least to live with. Industry opposition to federal legislation will just make it look like all of us want to keep on drugging our poor horses. That public perception may not be racing's most serious problem; I would argue that outrageously high takeout is much more responsible for our slow but sure decline. But it couldn't hurt if the public believed that doping was under control. So let's see if Barr-Tonko ver. 2.0 is good enough.

The new bill cures one major defect in the original by including standardbreds and quarter horses, as well as thoroughbreds. Under the old version, state racing commissions would still have been responsible for non-thoroughbred doping control, leading to different standards and duplication of effort. This is a major improvement.

Second, the new bill explicitly preserves, in its current form, the Interstate Horseracing Act of 1978, which regulates simulcasting and gives horsemen's organizations (except at NYRA tracks in New York) a veto power over signal distribution, forcing the tracks to negotiate with their horsemen. Most industry participants (except, naturally, for the corporate suits in charge of many tracks) think that the 1978 Act's system works reasonably well.

Third, the new bill adds people with actual industry experience to the Board of the new "Horseracing Anti-Doping and Medication Control Authority" that it sets up to be the federal enforcement agency. The earlier version's conflict-of-interest rules had virtually ruled out anyone who knew anything about racing. Under the new bill, the Authority would be run, and its rules approved, by a Board of 13, including the CEO of the U.S. Anti-Doping Agency (USADA), Travis Tygart, plus 6 people from the current USADA Board and six more from horse racing, including a regulator, a former racetrack executive, an owner or breeder, a trainer, a jockey and an equine vet. The Authority would still dominated by USADA folks with no particular knowledge of horses, but its management structure would be better than before.

Fourth, the new Authority would be situated within the ambit of the Federal Trade Commission, and sanctions imposed by the Authority could be appealed to an administrative law judge appointed by the FTC and ultimately to the full commission. That certainly provides a lot of due process for those accused of doping, but it might well result in a process that is no faster than the existing situation, where a trainer who lawyers up can often postpone sanctions for four years or more while appealing an already-slow racing commission determination. I would have liked to see a much quicker timetable built into the legislation.

Fifth, the new bill keeps alive the possibility of reverting to state regulation, but only if there is an interstate compact among states accounting for 90% of all starts in the US and adopting uniform rules. That's a nice feature, directly challenging the horsemen's argument that everyone should just wait while we pursue the ever-elusive uniformity. The bill also allows the Authority to delegate its enforcement functions to state regulatory agencies, if it finds them capable.

Sixth, the new bill, while still applying to all participants in the industry (except breeders and consignors -- see below), allows the proposed Authority to continue the policy of trainer responsibility for medication violations. It was unclear in the earlier version whether there would be any kind of absolute responsibility on anyone's part for a drug violation.

Finally, the new bill allows the Authority to hold off on banning race-day Lasix, at least for a while, by incorporating the existing uniform rules promulgated by the Association of Racing Commissioners (the North American regulatory group), which permits Lasix use. Still, by referring repeatedly to "international standards," the bill's bias toward outlawing race-day Lasix has not gone away. But at least that becomes a fight for another day.

So what's still wrong with the new bill? A lot less than previously.

First, the bill still does not cover breeders and sales consignors. Those of us who remember the days of the incredible shrinking two-year-old, when a horse bulked up on steroids would come home from the sale and promptly lose 100 pounds or more, might want a bit more protection against whatever it is that unsavory consignors will think of next.

Second, the bill still puts all the cost of federal regulation on horse owners, through a per-start fee. In fact, it explicitly forbids funding through a takeout increase. From the bettor's point of view, that's a good thing, but from a horse owner's, it's just one more cost in what's already a money-losing enterprise (See my analysis of the costs of thoroughbred ownership here). It's true that in many states owners already pay some or all of the cost of state regulation and drug testing, but the bill is likely to increase the total cost burden on owners nationwide.

That's it. Apart from the fear that what the legislation is really about is banning Lasix, this is a pretty good bill. For those of us in a state like New York, where corruption rules in the state capitol and getting anything done requires massive lobbying (aka contributing to politicians' campaign funds), federal regulation, even in an era of Trumpian kleptocracy, might not be any more burdensome.

Congratulations to Congressmen Barr and Tonko for listening to those of us who criticized the earlier bill and for incorporating many -- though not all -- of our suggestions. Also, they, or their drafters, have made the new version a lot clearer and easier to understand. As a former legislative drafter myself, I appreciate that effort.

Finally, some totally unsolicited and probably unwelcome advice to Eric Hamelback of the national HBPA and Rick Violette of the Thoroughbred Horsemen's Association: don't fight this one. The bill is good enough to live with, and opposing it will just reinforce the public view that we're all incorrigible drug pushers.