Wednesday, March 31, 2010

Some Sensible Ideas for NYC OTB

The New York City Off-Track Betting Corp. (NYC OTB), the only bookmaker in recorded history to consistently lose money, is in bankruptcy. Its chairman, Sandy Frucher, has proposed making it solvent through the simple remedy of not bothering to pay the racetracks and the horsemen anything. Unless of course, NYC OTB miraculously turns a profit, in which case the folks who put on the show would get some fraction of that profit.

As we all know, it's easy for creative accounting to either manufacture or disguise a profit, so it's hard to imagine that NYC OTB would have much incentive to be profitable. After all, as NYC OTB is a state-owned corporation, any profit wouldn't stay in the pockets of Frucher and the myriad other managers anyway.

Thanks to my Castle Village Farm partner Peggy Rees Smith, though, for pointing out that there are some good ideas out there for cleaning up the OTB mess, even if New York politicians aren't willing to do the obvious and just close it down and let NYRA take over its phone and internet operations. In particular, Peggy spotted this letter, from NY Assembly racing and wagering committee chair Gary Pretlow, to Assembly Speaker Shelley Silver, outlining a variety of measures NYC OTB could take almost immediately to cut costs and return to profitability.

Here, in his own words, are Pretlow's recommendations:

  • NYCOTB management is bloated, expending over $12 million per year in payroll. I recommend reducing the annual administrative payroll to $1,300,000, inclusive of fringe benefits, thus resulting in net savings of $8,300,000 in salaries and $1,700,000 in fringe benefits.

  • Since NYCOTB is no longer the property of New York City, it is my recommendation that the 2% surcharge which currently is paid to New York City be retained by the state. This change will generate an additional $10-$15 million in revenue.

  • The lease at 1501 Broadway currently serving as headquarters for New York City OTB must be abandoned, to result in a net savings of $2.5 million in rental payments. The Manhattan office currently houses the telephone operations, which should be moved to Aqueduct Racetrack along with the scaled-down management team.

  • NYCOTB should discontinue its television production to yield a net savings of $2 million. I've spoken with Capital OTB management and they are willing and capable of sending the signal they produce to the city to be shown on channel 71, at virtually no cost.

  • The city of New York has over 40,000 police officers who do a capable job of patrolling the entire city. I would urge that we eliminate the security forces employed by OTB, with the exception of those necessary for transferring of money. Allowing the city police to do their job would result in a net savings of $2 million.

  • NYCOTB currently operates 54 branches. It is my recommendation that the three branches on Staten Island be consolidated into one, which would result in the saving of over $1 million. I am also advocating the closure of at least five unprofitable OTB branch locations, including 991 2nd Avenue, which alone loses over $1 million per year and is attached to another OTB with a restaurant. These closings would generate an additional $5 million in savings.

  • Overtime at NYCOTB has run rampant. In an effort to save on overtime payments it is my recommendation is to work with the unions to achieve work rule changes. Currently individuals receive double time on Sundays if they work a Saturday. My recommendation is to eliminate Saturday-Sunday work assignments and reduce the number of part-timers. I would recommend that branch OTB clerks' work schedules consist of 3 successive 12 hour days, being Sunday- Monday-Tuesday or, Thursday-Friday-Saturday. Wednesday should be staffed by part-timers or per diem workers. The same should hold true for managers at the OTB parlors. This change would save $3 million in OTB clerk's payroll and $2 million for OTB management's payroll, for total saving of $5 million in overtime.

  • Also recommended is that the State Office of General Services examine all leases with the intention of renegotiation. If a landlord is uncooperative, NYS should consider closing that location. I estimate a savings of at least another $1 million from renegotiated leases.

  • NYCOTB currently operates a 50,000 square foot warehouse in Queens. Not seeing much need for this warehouse, my recommendation is to close the warehouse and retain five employees which should be assigned to the Aqueduct location. This would generate a $3 million savings.

  • NYCOTB currently employs approximately 15 individuals per branch, an extremely rich staffing pattern. With the work rule changes I am urging, the numbers can be limited to no more than nine OTB employees per location on average, in order to save several million dollars.

  • NYCOTB should reduce the usage of out-of-state tracks by at least 50% and show more in-state races. This will mitigate the eliminated payment for hold harmless and generate a net savings of $7 million. New York City OTB currently spends $37 million on simulcasting. Given its financial distress and continued impending closure, the contracts OTB has for receiving telecasts ought to be considered eligible to be renegotiated to generate a saving of approximately $3 million more.

  • NYCOTB currently has 80 vehicles. It is my recommendation that at least 60 of them be immediately sold at an average of $15,000 per vehicle. This and the annual cost of up keep savings of $6,700 would generate a $1 million cash infusion from the sale and a $400,000 annual savings on maintenance and insurance.

  • Payroll should be handled by the state comptroller's office or outsourced, creating additional savings of $1 million.

    The common sense in these proposals is obvious. Even a fraction of them would be sufficient to allow NYC OTB to be profitable. Beyond that, Pretlow also suggests that there be a statewide tote company, collectively owned by the six OTBs, and that there be statewide TV coverage of racing, rather than a different show for each of the six OTBs. And, while he suggests that the amounts that OTB currently owes to NYRA and other tracks be repaid, he does suggest stretching out the repayment over, in NYRA's case, 10 years. I'd love to see that money (some $15 million for NYRA) in the purse account now, but 10 years is better than never.

    Probably all far too sensible for Pretlow's ideas to be put into practice, but one can only hope.

    Oh, and by the way, Albany, we're still waiting for those slots at Aqueduct, in case you've forgotten.

Tuesday, March 23, 2010

Betrayal in Maryland

The auction of Laurel and Pimlico and the rest of Magna Entertainment's Maryland properties has been cancelled, and Magna's lawyers went to bankruptcy court today with a revised reorganization plan that would leave Frank Stronach in control of Maryland racing for the foreseeable future.

The auction was to have been held Thursday, March 25th.

According to the Blood-Horse (which posted its story about an hour and a half after mine), Stronach's captive company, MI Developments, will pay $13 million to cover secured claims by the PNC Bank, $6 million for unsecured creditors of the Maryland tracks, and $5 million to the DeFrancis family, as a buyout of their claim to a share of slots revenue. In addition, Stronach's lawyers last week secured agreement from the unsecured creditors committee in the larger Magna entertainment bankruptcy to settle the creditors' pending lawsuit for a payment of $89 million, also to come from MI Developments.

More details are available at the Baltimore Sun site, and in this press release, issued Tuesday afternoon by MI Developments. The press release claims that the plan to hold on to the Maryland properties has the approval of a special committee of the MI Developments Board of Directors, including representatives of the minority shareholders who have been distraught in the past over Stronach's use of their money to fund his unprofitable racetrack empire. The press release also portrays the takeover of the Maryland tracks by MI Developments as principally a real-estate play, saying that "we are excited about the development opportunities" on the 565 acres in Maryland owned by the Maryland Jockey Club. Doesn't bode well for the continuation of lots of race days. The scheme also includes a condition that the Maryland Jockey Club's racing operations return to profitability within three years, and that accumulated losses in that three-year period not exceed $15 million. I have no idea how this will be accomplished.

As I've pointed out earlier, MI developments is a real estate holding company, and its minority shareholders are anything but happy with Stronach's use of their money to support his race track habit. With Frank once again pledging other people's money to settle his debts, I wonder if there'll be a new shareholder revolt, despite the apparent approval of today's plan by the special committee of the MI Developments Board.

The Maryland deal stinks. There were other bidders prepared to offer up to $100 million in cash, and, right up until the close of business yesterday, Stronach's lawyers were lying to them and saying that the auction was going forward. In the class that I teach at Touro Law School, I just yesterday went over the provisions of the Rules of Professional Responsibility about lying to others when you're a lawyer. Maybe I should have my students draft a complaint to the relevant authorities.

Wednesday, March 17, 2010

Rally to Save NY Racing Sunday March 21 at Belmont

New York racing is facing a crisis. There are still no slots at Aqueduct, nine years after the concept was approved by the Legislature, and the latest attempt to select a casino operator has ended in a political farce. New York City OTB is in bankruptcy, owes NYRA and horse owners some $14 million, and wants to solve its problems by having us give them the simulcast signal for nothing. And New York State, which promised NYRA an additional $30 million in operating funds if slots weren't underway by March 2009(!), has shown no sign of coming up with the money, even though it's that state's fault that the slots aren't there. If nothing happens, NYRA really will run out of money sometime later this year.

NYRA, the horsemen and NY breeders all need the state government to step up to its responsibilities right now, before we have to start cancelling racing days and lowering purses even further. New York racing and breeding directly provides some 35,000 jobs at the tracks and on the farms. If the industry dies, or even is put on hold for a while as Albany dithers, many of these jobs will be lost forever. Already, upstate farms are closing, sending their mares out of state, or putting their operations on hold. Some of the big operations that have already shut down, suspended operation or are on the precipice include those of premier pinhooker Becky Thomas and leading NY breeder Joe McMahon. Further delay will only make things worse.

As part of our efforts to make New York politicians aware of the urgency of the situation, the New York Thoroughbred Horsemen's Association (I'm a member of the Board of Directors) and the New York Thoroughbred Breeders are holding a rally this Sunday, March 21st at Belmont. It will be from noon to 2 pm on the apron in front of the Belmont Cafe, near the finish line. Belmont's Gate 5, on Hempstead Avenue, will be open, and there will be plenty of parking available. We're hoping for a large turnout that will demonstrate to Albany that the ongoing delay and inaction have real costs -- jobs lost forever.

All thoroughbred owners who race in New York, and breeders based in New York who depend on the continuation of NY-bred racing to support their breeding operation have a stake in the health of New York racing. Sunday's rally is a chance to join with the rest of the racing community and show Albany that we need them to make good on their promises. It's certainly true that New York racing needs changes; in the long run, we should probably have fewer racing days and fewer NY-bred foals. But, if Albany continues its malign neglect of the industry, there won't be any long run to worry about. I'm not sure what it takes to get the folks in Albany to abandon their solipsistic power games and pay attention to the real jobs at stake here, but Sunday's rally is at least a place to start.

Come join us at Belmont on Sunday.

Tuesday, March 9, 2010

A Closer Look at the Calder Sale

Initial reports on the Fasig-Tipton sale of two-year-olds in training at Calder last week were cautiously optimistic. For example, the Daily Racing Form focused on the increase in the average and median price for those horses that actually sold, and devoted much of its story to positive comments from, who else, Fasig-Tipton's Boyd Browning, and from the lucky consignors who sold the $2.3 milion sale topper, a colt by Distorted Humor out of Tomisue's Delight.

But, on closer examination, the numbers from the sale look rather like US unemployment figures; the rate of decline may be slowing, but any real upturn isn't in sight yet.

For a start, the auction grossed $3 million less than in 2009, and nearly $40 million less than just four years ago, in 2006 (though that year's $62 million total was inflated by the lunatic bidding war between John Ferguson and Demi O'Byrne for the $16 million colt who subsequently became the lifelong maiden The Green Monkey).

True, this year's catalog for the premier two-year-old sale was substantially smaller than in recent years -- 237 horses in the catalog for 2010, compared to 271 last year, and 308 back in 2006. That accounts for the lower gross. But even with more selectivity on the part of Fasig-Tipton, the proportion of catalogued horses that were actually sold (i.e., after subtracting both scratches and horses that failed to meet their reserve --"RNAs") failed to improve from the 38% level where it's been stuck since 2008. In contrast, in the boom year of 2006, fully 50% of the horses catalogued were actually sold. The failure to improve the percentage sold even when the catalog itself is shrinking is definitely a worrisome sign.

And the actual number of horses sold at this boutique auction continued its steady drop, from 154 in 2006, to 111 last year, to just 91 this year. The market may have been there for a good horse, as several consignors and Fasig-Tipton folks said, but evidently buyers' definitions of what a good horse looks like are getting more stringent.

Another interesting way to analyze the data from the sale is to look at some of the major buyers who've been active at Fasig-Tipton Calder, and see whether those who are becoming less active are being replaced by new buyers with equal resources. The short answer is no, they're not. Let's fill in some of the details.

The top end of every thoroughbred sale is dominated by Sheikh Mohammed of Dubai, usually in the person of his bloodstock agent John Ferguson, and by the Coolmore powerhouse of Ireland, bidding through Demi O'Byrne. Dubai interests, of course, now own Fasig-Tipton, so it wouldn't be surprising to see that Ferguson continued to buy actively at F-T Calder. After all, he'd bought five back in 2006, nine in 2007, five in 2008 and six in 2009, big numbers for a sale this small. But this year, Ferguson signed for only two horses. And the Coolmore contingent, who'd bought six back in 2006, including the ill-fated The Green Monkey, also bought only two this year.

The sale topper this year was bought by Jess Jackson, who's been a buyer at every F-T Calder sale since at least 2006. But this year he bought only that one horse, compared to as many as four back in 2006. And Public Storage mogul B. Wayne Hughes, who's been among the leading buyers at this sale for years, didn't buy a single horse.

Another familiar name missing from the sale list was Ahmed Zayat, who'd bought at each of the past three sales. It's just possible that the Fifth Third Bank and the Bankruptcy Court might have clipped his wings a bit.

Some of the slack in recent years had been taken up by high-end racing partnerships, looking for horses likely to make it to the racetrack soon enough to head off partners' complaints about the delays. Cot Campbell's Dogwood, for instance, has been a regular buyer at F-T Calder; he bought nothing this year. Centennial and Sovereign bought one each. West Point, bucking the trend, bought four, the most they've ever purchased at this sale. But the partnership operations as a group have not stepped up to fill the gap left by the retreat of the big individual buyers.

The most stable part of the demand for high-end horses seemed to come from British and Japanese buyers, who've been a mainstay of this sale for years, and who continue to purchase at least 15% of the horses sold. It's difficult to put precise numbers on the sales to foreign owners, since many of them operate through agents, and the ultimate buyer's name isn't disclosed on the sales reports, but that portion of the market seems considerably more stable and secure than the North American segment.

Overall, the sales results support the proposition that the US racing industry needs to continue its shrinkage -- fewer foals, fewer horses sold at auction, fewer tracks, fewer race days. There's still way too much product out there, whether it's the horses themselves or the races being run with five-horse fields and nobody watching. It's a process that's ongoing, and without some sort of centralized coordination, it's a process that's going to leave a lot of good, conscientious horsemen and women out in the cold. Some of the consignors who entered those 146 horses that didn't sell at Fasig-Tipton Calder could well be among them.

Saturday, March 6, 2010

The Cost of Ownership in New York

My Thoroughbred Bloggers Alliance colleague "CanGamble" recently posted his annual analysis of how much it costs to keep a horse in training in Ontario, and, therefore, how much the horse needs to earn in purse money for the owner to break even. According to that analysis, An owner who bases his or her horse at Woodbine can break even with just $26,750 in purses -- and that's in those cute little Canadian dollars. At today's exchange rate, that's barely $26,000 real (i.e., US) dollars.

Those of us who race in New York aren't so fortunate. I've gone over the last year's bills from our three trainers and myriad vets, and here's my analysis of what it costs to keep a horse in training at the NYRA tracks:

Let's assume that the horse is based at the race track for nine months a year, stays sound (increasingly unlikely), races 10 times, and gets a three-month vacation. Most owners and trainers probably can't afford to give the horse the time off, but that would represent good horsemanship, and it's an ideal to strive for.

Training Costs at NYRA tracks average about $90 a day. So, for nine months, that's $24,660. Down time on the farm is a lot less, but not cheap. Probably $40 a day on average, or another $3,640.

Most NYRA-based trainers now charge extra for tack, supplies and feed supplements. They simply can't break even themselves, even on the $90 day rate. Those bills have been on the order of $200 a month for our horses. So let's add another $1,800 to our total

Van costs are significant, even if your horse doesn't ship to non-NYRA tracks. Uo and back to Saratoga averages $800, and out and back to the farm, though it depends on the distance, is probably another $500. So, a total of $1,300 for vans.

Vet bills are highly erratic and unpredictable. Ours have ranged from $50 to $1,000 a month. A reasonable average is about $350 a month when the horse is at the race track, and perhaps $50 a month on the farm. That's a total of $3,300.

Farriers charge about $160 per shoeing. That's $1,600 for the year, once a month at the track plus one new set of shoes before the horse leaves the farm.

Raceday charges are a new item on most trainers' bills, thanks to the silly detention barn system in effect at NYRA tracks, which forces the trainer to pay a groom to hang out all day in the detention barn with the horse before the race. The trainers pass that cost on to the owner, currently at an average of about $110 a race. That's another $1,100.

So, before our horse earns a penny in purse money, our base cost for the year is $37,400. And if the horse does earn a few pennies, a pretty good proportion of those pennies disappear along the way before the owner can pull the balance from the horsemen's bookkeeper account. Here's how things work in New York.

The trainer typically gets 10% of all purse money, plus an extra 1-2% for the barn staff when the horse wins. Let's say 11% overall.

The jockey gets (approximately) 10% of a win purse, 5% for second and third, and $100 a ride for anything else. Because the win purse is so much (60%) of total purse money, and because the $100 a ride is a very big percentage of what the horse earns if it finishes 6th or worse, the jockeys' percentage overall is something like 18% of total purses.

Then there is an astonishing number of other deductions before the owner sees any cash. Here's what NYRA and/or the trainer deduct from the purse:

$12.50 for backstretch insurance;
$2.50 for the Jockey Club
1% of the purse for the backstretch pension fund;
2% of the purse for NYTHA, the horsemen's association (most of this goes to backstretch benevolence);
0.75% of the purse for the Jockey Injury Compensation Fund, which covers jockeys and exercise riders;
$20 for state-administered lasix;
$10 for the NY State Racing & Wagering Board
$23 for the pony to post
$5 to the Ferdinand Fund for thoroughbred retirement (this last is voluntary).

Adding it all up, that's on average another 5% off the gross purse. Taking into account the trainer's 11% and the jockey's 8%, that means a total of 24% of the purse goes somewhere other than to to horse's owner.

So, to earn the $37,400 that we said earlier our horse needs to stay in training in New York, even with a three-month vacation, that horse actually needs purse earnings of $49,210. What the hell, call it $50,000 even to cover the cost of a few win pictures ($25 each from the track photographer) and a few celebratory drinks.

To put it another way, that means an allowance horse or high level claimer racing on the NYRA circuit needs to win two races a year, and a lower level claiming horse probably needs to win three or four races, just to break even.

Tough game.

Thursday, March 4, 2010

Bill Turner Honored in Barbados, if not in the Hall of Fame

Bill Turner, the only living thoroughbred trainer to win the Triple Crown, is in Barbados this weekend, being honored by the island's racing establishment at a Triple Crown Forum on Friday and then at the 29th running of Barbados's biggest race, the Sandy Lane Gold Cup, on Saturday. Details of the trip are here.

But, while the Barbados Turf Club recognizes Turner's stature in the game, the same recognition hasn't come from the US racing establishment, in the persons of the Racing Hall of Fame's nominating committee. That committee is now engaged in its annual ritual of selecting nominees for the Hall, and it's high time they gave Bill a shot.

In addition to training Seattle Slew and some other pretty nice horses, Bill has trained a number of good New York-breds for my Castle Village Farm over the past decade, including Hollie Hughes Handicap winner Introspect, and multiple stakes-placed filly Just Zip It. You might also have heard of some of the stakes winners he's had for other owners in the years since Seattle Slew: Punch Line, Czaravich, Strike Gold, Play On, Night Fax, Gaviola, Finery, Eze, Dust Bucket, and Dry Martini, just to name those that have won graded races.

But Bill has never been given a real shot at the Hall of Fame, even though the Hall has welcomed other trainers who are definitely not his equal in understanding how a race horse thinks and develops. I suppose the rap on Bill is that he had only the one big horse -- Seattle Slew. But Sonny Hine is in the Hall, and his one big horse, Skip Away, wasn't as dominating as Slew. Or how about Mesh Tenney, also in the Hall, who had Swaps and, does anyone remember his other winners? Then there's the unforgettable (sic) Harry Trotsek, elected to the Hall in 1984, who had only one Eclipse Award winner, the equally (sic) unforgettable turf winner Stan.

The point isn't to diss some of the less-worthy inhabitants of the Hall of Fame, but merely to point out that Bill has the credentials to be there, and should be, while he's still alive to enjoy it. (Bill celebrated his 70th birthday earlier this week, and he's been training race horses for over 40 years.) Bill certainly has had his one big horse -- Slew was bigger and more successful than most, and it was Bill's training in the colt's two- and three-year-old years that got him there -- and he's had lots more stakes winners besides, more than or as many as quite a lot of those who already have their plaques on Union Avenue in Saratoga. At a time when our sport needs some heroes, it wouldn't be a bad idea at all to remind people of Seattle Slew and Bill Turner by inducting Bill into the Hall this summer.

So, enjoy Barbardos, Bill and let's hope the nominating committee for the Hall comes to its senses this year. But then, hurry up and get back to training our new three-year-old!

More details on Bill Turner's career are available here, here and here.

And if you want to get in touch with any or all of the Hall of Fame nominating committee, here they are:

Edward L. Bowen, chairman of the committee and, president of the Grayson-Jockey Club Research Foundation, freelance writer and a trustee of the Museum; Cot Campbell, president of Dogwood Stable and a Museum trustee; Steve Crist, publisher and columnist, Daily Racing Form; Jane Goldstein, turf writer and the retired Santa Anita Park publicist; Russ Harris, handicapper and turf writer, New York Daily News; Jay Hovdey, executive columnist, Daily Racing Form; Dan Liebman, editor-in-chief, The Blood-Horse; Neil Milbert, formerly a turf writer at the Chicago Tribune now a freelance writer; Leverett Miller, owner-breeder and Museum trustee; William Nack, freelance turf writer and author; Jay Privman, national correspondent, Daily Racing Form, and television analyst of racing; Jennie Rees, turf writer and columnist, The Courier-Journal in Louisville, Kentucky; John Sparkman, bloodstock/sales editor, Thoroughbred Times; Clark Spencer, turf writer, Miami Herald; Michael Veitch, turf writer and columnist, The Saratogian and Daily Racing Form; John T. von Stade, Chairman of the Board of Trustees, National Museum of Racing and Hall of Fame.

In this wired age, I'm sure we can all reach out to them to do the right thing.