tag:blogger.com,1999:blog-73518913833525206412024-03-06T15:03:02.316-05:00The Business of RacingA look at the economics of breeding, selling and racing thoroughbreds, and at the various players in the racing game, from race track operators to state governments to those of us who are crazy enough to own and/or place a bet on these gorgeous, courageous equine athletes.Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.comBlogger184125tag:blogger.com,1999:blog-7351891383352520641.post-3658630155514659282020-09-14T11:47:00.000-04:002020-09-14T11:47:07.802-04:00Saratoga and Del Mar Meets: What the Numbers Tell Us<p>(published on pastthewire.com, September 14, 2020)</p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> </span></b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">The Saratoga and Del Mar summer meets traditionally mark a bright spot on racing’s long annual calendar. The summer boutique meets have for decades attracted horses and fans from around the country, drawn by high purses, good racing and the vacation atmosphere. So, in this year’s virus-challenged sports environment, the question was whether those race meets, taking place in front of empty grandstands, could once again generate their typical excitement and carry the game for a while.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The results are decidedly mixed. NYRA’s Saratoga meet recorded better-than-anticipated handle, though the return to the track and to the purse account were substantially below what would have been achieved with a grandstand and back yard full of racegoers. Del Mar, on the other hand, cut its number of racing days by a quarter and suffered some falloff in handle and purses. Here are the details.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> At Saratoga, total betting handle for the 40-day meet was $702.5 million, a decline of only 0.4% from last year’s record total of $705.3 million. Daily handle this year averaged $17,563,387, a drop of 2.9% from last year; the 2019 meet had only 39 race days because of a rain-out. At first glance, not too bad considering the circumstances.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> But the absence of on-track race fans had a bigger impact on NYRA’s bottom line. The track keeps the whole of the (average) 20% takeout on bets made at the race track and through NYRA’s own online betting platform, NYRABets, but, for all those bets made through other outlets, NYRA and its horsemen keep only 6-8%, leaving the rest for the bet processors and for rebates to big bettors. This year. NYRABets handled $64,384,833 (including over $600,000 from a smart promotion that sold betting cards through the local Stewart’s convenience shops). But in 2019, NYRABets and on-track handle totaled $146,618,750. That shift of $80 million-plus to non-NYRA betting outlets this year meant a decline of some $5-6 million in NYRA’s bottom line and the horsemen’s purse account, the latter already under pressure from the virus-driven closure of the Resorts World casino at Aqueduct, which typically generates some 38% of the purse money.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There were a few negative signs. Field size at Saratoga declined by 6.4%, from 7.9 last year to 7.4 in 2020. And the number of claims dropped substantially. Saratoga is usually a claiming frenzy, as new horses arrive from around the country and owners and trainers drop their horses so they can get a win at the Spa. But this year, hardly any out-of-town horses showed up, except for stakes races. The numbers tell the story: in 2019, 524 claim slips were dropped, resulting in 231 claims. (There are fewer claims than claim slips, because many of the slips are for the same horse, resulting in “shakes” of the dice to determine which of the claimants gets the horse.) This year, only 368 claim slips dropped, and 179 claims were made, a decline of more than 20% in each category.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify; text-indent: 0.5in;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">But still, Saratoga did at least as well as any informed observers could have predicted and, most importantly, did it without recording a single positive virus test among employees, trainers, owners or, to the best of our knowledge, anyone else who managed to get to the track. The casino has now re-opened, albeit at only 25% capacity, and the Belmont fall meet has cut race days and lowered stakes purses, so NYRA and the horsemen will be able to carry on at least a bit longer.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The Del Mar meet tells a different story, despite an unexpected increase in field size from 8.0 last year to 8.4 in 2020. Immediately after the meet closed, the track sent out press releases reporting a “handle” increase to some $466.7 million, up some 8% from 2019, despite nine fewer race days this year. But “handle” means something different in California. In most of the world, it means the amount bet on that track’s own races; any amount the track receives from bets that patrons make on other tracks is reported as a separate item. But in California, any bets made by California residents on any track are counted as part of the California handle. Bets placed in California on a race at Saratoga, then, will show up in the Saratoga handle, legitimately, as a bet made on a Saratoga race, and then will be counted again, perhaps not quite so legitimately, in the Del Mar handle. This year, because the Kentucky Derby occurred during the Del Mar meet, the $24-million-plus that was bet by Californians on the Derby through the Del Mar wagering hub all showed up as additional Del Mar handle. If the Derby had been run in May as usual, Del Mar would have lost out on that sizeable “handle” increase.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Backing out that double counting, some $319.6 million was bet this year on the 282 races actually run on the Del Mar track, compared to $33.8 million on 297 races last year; that’s a handle decline of about 4.2%. Looking at the Del Mar figures in historical perspective, total handle 20 years ago was $394.2 million. Adjusting for inflation, which would make that 20-year-old number $595 million in today’s dollars, there’s been a drop of almost 50% over the past 20 years. And with no casino subsidy to keep purses up and the lights turned on, it’s getting harder to see how Del Mar remains, in the long run, a going concern.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And now, into the fall. We’ll have the highlights of the Preakness and the Breeders Cup, and undoubtedly some memorable races at Belmont, but this year’s impact on racing isn’t over yet. Some 20 tracks that usually host race meets haven’t even run this year, and others, including such onetime jewels as Arlington Park, are on the chopping block. Hard to see at this point how 2021 will be better than this year.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Note: Like everyone else who reports on racing handle, I owe an enormous debt of gratitude to the Twitter source “@o_crunk,” whose numbers continually pierce the veil of corporate press releases.<o:p></o:p></span></p>Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-28009915017939917092020-08-27T13:57:00.005-04:002020-08-27T13:57:47.550-04:00Can a Good Bloodstock Agent Help an Owner Make a Profit?<p> <i>Here's my most recent column, posted on pastthewire.com on August 26, 2020:</i></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify; text-indent: 0.5in;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">Many of my columns at pastthewire.com this year have pointed out how hard it is for a thoroughbred owner to make money. Yearlings and two-year-olds, especially those with good pedigrees or fast breezes, sell for much more than it’s likely they will earn on the race track; training and vet expenses keep going up; and purses, even when supplemented by casino revenues, haven’t even kept up with inflation. For some owners, that doesn’t matter. They have more money than they know what to do with (well, I suppose they could pay a lot more in taxes, but that’s for another column); what they want is a good horse, a Kentucky Derby or Breeders Cup runner.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Lots of owners, though, just love horses and racing and are willing to lose a bit of money to be involved in the game. And some owners actually hope, against all the evidence, to make a profit. But for both these groups, the idea of losing millions a year for decades has limited appeal. They might not need racing to pay their mortgages, but they’d prefer not to lose too much. Is there anything a current or aspiring owner like that can do to improve their odds of success?<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Most buyers who are looking for a stakes-level horse buy at the major yearling and two-year-old sales, and most use a bloodstock agent either to buy for them or to advise on their purchases. Sometimes an agent will work for a single client, like Demi O’Byrne for Coolmore or John Ferguson for Sheikh Mohammed’s Godolphin empire. More often, a bloodstock agent will work for a variety of clients, somehow balancing their interests as the agent evaluates thoroughbred prospects. Some agents are good people who’ve spent their lives in the racing world and who have an eye for a promising horse. Others are more skilled at verbally romancing clients than at picking out good horses. And sometimes they’re just thieves, agents who take kickbacks from consignors in exchange for bidding on a horse, or who collude with the seller to bid up the price of a horse far beyond its actual value. To protect pastthewire.com from lawsuits, I won’t name these bad actors here, but we know who you are.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, lesson 1 for the aspiring buyer: avoid the bad agents. But even if you can find a good, honest agent, can you have a decent chance of at least breaking even? Perhaps surprisingly, the answer is yes.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> For nearly 20 years, I’ve been friends with, and occasionally worked with, Jeff Seder and Patti Miller, who operate as EQB, Inc., evaluating and buying young horses at all the major US thoroughbred auctions. I’ve owned a few horses in partnership with them, and my NY-bred stakes winner Introspect spent a winter vacation at their Pennsylvania farm. Jeff has spent many years developing sophisticated evaluation tools, including a heart-scan database for comparing prospects to known winners, and slow-motion video for seeing how those two-year-olds breeze. By marrying those tools with Patti’s eye for a good horse and her expertise in administering heart scans, EQB has managed the unthinkable: horses they’ve bought for their clients, in the aggregate, actually make money.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> At my request, Jeff put together two spreadsheets. One shows the results for every horse EQB bought in 2016 – horses that are now five and six years old, so we can have a reasonable idea of how they turned out. The other shows all their results for the horses they bought for Ahmed Zayat in the years before American Pharoah’s Triple Crown. These data show that, when you include both racetrack earnings and the amounts that owners received when selling the horses as broodmare or stallion prospects, it’s possible to come out ahead.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> In 2016, EQB bought 65 horses, at prices ranging from $10,000 to $675,000, for a total of $9,478,500, an average of just under $146,000, with none of those million-dollar disappointments that prominent owners often purchase. Six of those 65 horses never raced. The remaining 59 have, so far, made a total of 735 starts and earned a total of $7,011,536, an average of $120,889. Among the 2016 cohort were multiple graded stakes winners Keeper of the Stars (Zayat) and Jersey Justice (Maggi Moss). Altogether, 13 of the 59 horses that made it to the race track were stakes winners or graded-stakes placed. Even if those horses weren’t profitable – and most of them were – Those owners would have been pretty satisfied to have raced and won at high levels. And those were just the 2016 purchases; taking a longer view, EQB has bought more than 40 graded-stakes winners over the past decade.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> While the $7 million those horses earned on the track doesn’t recoup the $9 million-plus that went to buy them, especially taking into account an estimated $3.5 million in training expenses, the owners did come out ahead because their income didn’t end there. For good horses, resale proceeds are a major source of income. Some horses were claimed away, for a total of $420,000, and many others were sold at auction or privately, as breeding prospects. In total, claiming and resale proceeds were $10,033,200. Add that to the race track earnings, subtract the estimated expenses, and the owners as a group come out more than $4 million ahead.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The Zayat data show similar results. In the years 2005 through 2009, EQB bought 129 yearlings and two-year-olds for Zayat, spending a total of $31,647,000 (average of just over $145,000). Those four years’ purchases included graded-stakes winners Point Ashley, Baroness Thatcher, Z Fortune, Maimonides Zensational, Eskendereya, Nehro, Justin Philip and Pioneer of the Nile. (American Pharoah was a Zayat homebred that Jeff convinced Zayat not to let go at the sales, so the Triple Crown winner’s figures aren’t included in the totals, though EQB did buy American Pharoah’s dam for Zayat.) In total, the horses earned $13,279,506 on the track, a far cry from what they cost, and even further from the total their owners spent after adding in an estimated $9,900,000 in training and other costs. But the horses turned out to be high-class thoroughbreds that brought big prices when sold at breeding-stock sales. Half a dozen of the horses sold for more than $1 million, and a number became stallions, producing ongoing income for Zayat and, more recently, his creditors. Even without including that ongoing stallion value, Zayat appears to have realized over $41 million from the resale of those EQB horses once they came off the race track. Add all those numbers up and it appears that Zayat realized an overall profit of at least $12 million on those $31 million in purchases, a profit of some 30% after accounting for the expenses of racing the horses. Zayat also used agents other than EQB to buy horses; suffice it to say those purchases didn’t turn out so well.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> [If anyone wants the spreadsheets underlying these figures, feel from to DM me on Twitter, at @cvfpartnerships, and I can email them to you.]<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, will you make money in horse racing? Probably not. But can you? Yes, especially with the help of an honest and accomplished agent buying the horses for you. As the EQB figures show, those agents are out there, but <i>caveat emptor</i>.<o:p></o:p></span></p>Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-90166809453582629882020-08-11T11:43:00.000-04:002020-08-11T11:43:05.851-04:00Midway Through the Saratoga Meet - By the Numbers<p> <b style="font-family: Calibri, sans-serif; font-size: 12pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> </span></b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px; text-align: justify;">We’re midway through this year’s Saratoga-without-fans race meet. Eighteen days of racing in the book, 21 scheduled in the final four weeks of the meet. At this same point in last year’s meet, we’d had 17 ½ days of racing. So, while it’s not a perfect comparison – for example, the Travers Stakes fell into the first half of the meet this year, instead of its usual position on the penultimate weekend – there’s enough similarity so that comparing numbers from last year and this can yield some tentative conclusions.</span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> First, the good news. Total betting handle through the first four weeks of the meet this year is just under $354 million, compared to $314 million at the same point last year. That’s a 12.8% increase from one year to the next, ignoring the paltry 1% inflation over the past 12 months. But that’s also with some advantages that last year’s Saratoga meet didn’t have: national television coverage on Fox Sports every day; a roughly $6 million boost in handle from this past Sunday’s mandatory distribution of the Jackpot Pick 6 pool; the shift of the Travers to the first half of the meet – though this year’s Travers Day handle was $39.47 million, a 24% decline from the $52.14 million wagered on the 2019 edition of the race; and the luck of having less damage from the cancellation this year of a Wednesday card, compared to last year, when the weather required that a full Saturday card plus most of a Thursday card had to be cancelled. Making some very rough adjustments for these differences would cut the increase in handle from 2019 to 2020 from $40 million to something more like $10 million, or only about 3% of last year’s adjusted number. That’s better than falling short, but it’s not spectacular. [Note: all handle figures have been calculated from Equibase race charts, available online.]<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Now for the not-so-good news. Last year 20% of the Saratoga handle was bet on-track or through NYRA’s own ADW operation, NYRABets. This year, with no fans at the race track, only 9% of total handle is coming through NYRABets, despite NYRA publicity about thousands of new online accounts being opened. Here’s why that matters: NYRA’s blended on-track takeout rate is about 20% (yes, we all know that’s too high, but that’s a story for another day). But NYRA receives only somewhere between 6% and 8% of the money bet off-track through outlets other than its own NYRABets. So, if everything else had been the same, each dollar that was bet through, say, TVG or Twin Spires by someone who last year bet that same dollar in person at Saratoga would return 12 cents less to NYRA and to the horsemen’s purse account.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Now everything isn’t the same, so maybe the damage isn’t quite as serious as it might look at first glance. I don’t have access to NYRA’s contracts with its off-track betting partners (NYRA no longer appears to consider itself a New York State agency, which would have made it subject to the state’s open-records laws). But let’s say that, as one of the country’s premier race tracks, it’s able to get an average of 7% of what’s bet through non-NYRA outlets.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify; text-indent: 0.5in;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">So, we can calculate, using the above numbers, that this year NYRA and the horsemen have so far earned about $6.34 million from NYRABets wagering and $22.56 million from the 90%-plus of the handle that’s bet elsewhere, for a total of $28.9 million. Last year, when total handle (not counting any adjustments) was a good deal less at this point in the meet, NYRA and the horsemen had received $11.56 million from the (much larger) share of total handle that was bet on-track, and $17.92 million from bets made at other locations, for a total of $29.5 million. In other words, the nearly 13% jump in total handle to date at this year’s Saratoga meet has actually resulted in less money available for NYRA operations and for the purse account. And that’s not counting the loss in ticket sales and concession income from the 20,000-plus fans who went to the races on an average day last year.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Perhaps that’s not so bad. NYRA’s operating costs are surely lower this year (again, we don’t know, since NYRA no longer releases financial reports), and purses have been cut some, in anticipation of lower revenue. And the lingering mystique of Saratoga probably means that a stay-at-home Saratoga-at-Belmont meet would have handled substantially less money. But, while NYRA itself saved money, compared to last year, that wasn’t the case for the owners and trainers who sent their horses and their grooms and hotwalkers up to Saratoga to run for purses that aren’t as good as last year’s. A number of trainers have told me their daily costs are 10-20% higher at Saratoga than at Belmont.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Looking beyond Saratoga, then, long-term omens are not optimistic. The <i>Blood-Horse</i> reports that total US thoroughbred handle through July this year was $6.15 billion, a 7% decline from last year. Of course, there are lots of reasons for that difference: among them the lockdown of racing in March and April and the shift of the Kentucky Oaks and Derby to September. But racing was the only gambling game in town, indeed the only major televised sport, for quite a while in the first half of the year, and one might have expected it to capture some of the dollars that couldn’t be bet on other sports. Now, with at least some of those sports and sports books coming back, it’s hard to see where more betting handle will come from.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Twenty years ago, total handle on US thoroughbred races was $13.7 billion, of which 17% was bet on-track. Last year, the total was $11.0 billion, of which only 8% was on-track wagering. In nominal, non-inflation-adjusted dollars, that’s nearly a 20% decline in two decades. When you factor in inflation, the decline is nearly 50%. Looks, sadly, an awful lot like the buggy-whip industry in 1900-1920.<o:p></o:p></span></p>Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-5204062729685149272020-07-29T17:44:00.001-04:002020-07-29T17:44:29.879-04:00<div align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">The Two-Year-Old Money Pit<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn<o:p></o:p></span></b></div>
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<i><span style="font-family: Garamond, serif; font-size: 14pt;">“Expensive horses don’t always run well. It’s a risk [buyers] are willing to take. They have plenty of money. What they don’t have is a good horse.”<o:p></o:p></span></i></div>
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<i><span style="font-family: Garamond, serif; font-size: 14pt;"> ---Francis Vanlangendonck, Summerfield Sales.<o:p></o:p></span></i></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> Back in the spring of 2005, two bidders with plenty of money – Demi O’Byrne for the Irish colossus Coolmore and John Ferguson for Sheikh Mohammed of Dubai – hooked up at the Fasig-Tipton two-year-old sale at Calder and pushed the price of a Forestry colt, who’d breezed an eighth of a mile in a then-unimaginable 9 4/5 seconds, to the absurd level of $16 million. Coolmore’s was the winning bid for a colt they named The Green Monkey, after a golf course in Barbados that some of the Coolmore principals frequented. It was then, and still remains, the highest price ever paid for a two-year-old thoroughbred.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> As things turned out, The Green Monkey wasn’t much of a racehorse. The best he could do was one third-place finish in just three lifetime starts, earning a total of $10,440. He was then retired to an equally ignominious stud career in Florida, which was cut short by health problems. He did, it is true, sire the winner of the Panamanian filly triple crown, as well as two US black-type winners, but that must have been a bit less than his buyers expected back in 2005. He was euthanized in 2017.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> The Green Monkey is just the most egregious example of how an expensive two-year-old may not always run well. But he’s far from the only one. My friends at <u>Two-Year-Old Sales Preview Watch</u> have been parsing the data on these sales and have produced a number of very interesting lists of the success, or lack of it, that various buyers have had with juvenile auction purposes. (You can reach them on their Facebook page or directly at </span><a href="mailto:previewatch@yahoo.com" style="color: #954f72;"><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;">previewatch@yahoo.com</span></a><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> if you’re so inclined.) <span style="color: red;">[Steve – shouldn’t there be 2 w’s in preview watch?] </span>I’ve updated their list to be sure I’ve included the very latest earnings for all the horses, and I’ve added in the revenue when horses were sold as broodmare or stallion prospects, but even so, the figures strongly suggest that buying a two-year-old for a lot of money is a very good strategy for losing a lot of money.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> Let’s consider the results for juveniles purchased for six- and seven-figures in the past decade from a number of vantage points; we’ll look at the results that a couple of major buyers have had, then at the results for two-year-olds that were so impressive at the sales that they rated a story in the <i>BloodHorse</i>. Whichever way you break down the statistics, it isn’t pretty.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> Let’s start with the buyers. Perhaps the biggest purchaser of expensive two-year-olds over the past decade has been Terry Finley’s West Point Thoroughbreds partnerships, either alone or in partnership with other owners. From 2014 through 2019, West Point bought 48 six-figure juveniles and one – this year’s three-year-old Chestertown – for seven figures. More than a third of these horses are still in training, including the aforementioned Chestertown, who most recently finished sixth, beaten 15 lengths, in the Peter Pan Stakes at Saratoga. So, there’s still lots of room for the group as a whole to increase its earnings. But the aggregate picture is not positive: over those six years, West Point and its partners paid $16,758,000 for the 49 auction purchases, an average of $342,000. Those same horses have, thus far, earned $4,962,848 on the race track, an average of $101,282. That might be a respectable number for a horse one bought for, say, $25,000, but it’s not great for a horse that cost well over $300,000. Those 49 horses have so far won a total of 87 races, about 1.8 per horse, and have made a total of 487 starts, well below the national average. Those statistics of wins and starts per horse look even worse if one subtracts out the numbers for those horses that were claimed away from West Point and that have recorded many more starts and wins, albeit at lower levels, for their subsequent owners.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> West Point, to be sure, has some success stories. Their current four-year-old Galilean, a $650,000 purchase two years ago, just won another stakes on the West Coast and has already earned over half a million dollars. West Point bought the now five-year-old Seven Trumpets, a stakes winner and Grade One-placed son of Tiznow’s son Morning Line, for $205,000 in 2017, and so far, the horse has earned $516,684 and perhaps has some residual value as a stallion prospect. And the recently retired Gunmetal Gray, who more than covered his $225,000 purchase price with earnings of $284,700 (not taking into account training costs) was also, at last report, being evaluated as a potential stallion. The Grade One-placed mare Best Performance was sold as a broodmare prospect for $560,000, after earning $398,448 on the track, more than covering her $350,000 purchase price. But overall, only six of those 49 expensive two-year-old even earned enough on the race track to match what West Point paid for them, and in two of those cases, the lifetime earnings include purses earned after the horses were claimed away from West Point.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> Now let’s take a look at another kind of buyer, the wealthy entrepreneur. Robert and Lawana Low got their money from Low’s Prime, Inc., a highly successful trucking company. Over the years they’ve spent a lot of that income on thoroughbreds, the best known of which may be the ill-starred Magnum Moon, who won the Rebel Stakes and the Arkansas Derby before finishing 19<sup>th</sup> in the 2018 Kentucky Derby and never racing again. Magnum Moon contracted laminitis and was euthanized in 2019.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> The Lows buy many of their horses as yearlings, but over the past two decades, they’ve purchased 21 juveniles at auction, most recently paying $1,200,000 last year for the Liam’s Map colt Colonel Liam, who won a first-level allowance at Saratoga just last week. Aside from Colonel Liam, only one other of those 21 juvenile purchases – the Grade 3-placed Intrepid Heart - is still running in their name, so it’s pretty safe to make a judgment on how they’ve done.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> All told, the Lows paid $7,962,000 for those 21 horses, an average of just under $380,000 per horse. And, over their careers, the horses earned $3,173,979, or just under 40% of their purchase prices, without adjusting for the likely expensive training bills for 21 horses. Another caveat, a substantial share of those earnings came after the Lows lost the horses to claims or sold them privately; nine of the 21 juvenile purchases are currently racing or ended their careers in some other owner’s silks.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> Still, the money they spent did get them some good horses. In addition to the three-year-old Colonel Liam, who could still, in racetrack parlance, be “any kind,” Steppenwolfer was third in the 2006 Kentucky Derby, Intrepid Heart and Federal Case were graded-stakes placed, and Agent Di Nozzo was a stakes winner before sliding down the claiming ladder. So, the Lows may well have gotten enough good horses to be satisfied with their monetary losses.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> Here’s another way of looking at the data: what two-year-olds generated enough buzz, whether by way of fast breezes or high auction prices, to get written up in the <i>BloodHorse? </i>From 2008 through 2019, there were just 20 juveniles sold at auction who got that treatment. They ranged in sale price from the $2 million that West Point Thoroughbreds paid last year for Chestertown down to $250,000 for Angelcents, who was eased in the stretch in her second lifetime start and never raced again.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> In the aggregate, those 20 juveniles cost $19,390,000, an average of just under $1 million each. On the race track, they earned a total of $3,542,409, an average of $177,120. But that average is a bit misleading. Nearly half the total purse earnings, $1.5 million, came from a single horse, Carpe Diem, winner of the Blue Grass and the Tampa Bay Derby, who now stands at Winstar Farm in Kentucky. And even Carpe Diem’s earnings on the track were less than his purchase price of $1,600,000. Backing Carpe Diem’s numbers out, the other 19 horses cost a total of $17,790,000 and earned just $2,022,609 on the track<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> One striking statistic from these 20 well-publicized juveniles is how little they actually raced. Three of the 20 never reached the starting gate at all, and the group as a whole averaged less than seven starts per horse. Most of these horses breezed very fast, but very few were at all durable in training. Only three of the 20, in fact, had as many as 12 lifetime starts. Were there some stakes horses in this elite group? Of course; half a dozen stakes winners or stakes-placed. And a couple – the aforementioned Carpe Diem and the broodmare Black Canary, who sold for $675,000 when she was done racing – went on to lucrative careers off the track. But perhaps there’s a better, or at least a cheaper, way to get a good horse?<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> So, what’s the takeaway re two-year-old sales? If you have all the money in the world and don’t mind redistributing some of it to breeders, pinhookers and (possibly unscrupulous) bloodstock agents, then by all means go into the market. There are some good horses out there. But there are a lot more horses that you’ll spend six figures on and eventually let go for a $16,000 claim than there are expensive horses who will actually earn back their cost.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 37.3333px;"> As I’ve shown in previous columns here at <i>pastthewire.com</i> and on my <i>Business of Racing</i> blog, most thoroughbred owners lose money on most of their horses. But if you’re of a mind to lose a lot of money quickly, then buying an expensive two-year-old is a pretty good strategy.<o:p></o:p></span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-70523731975483523152020-07-19T17:57:00.000-04:002020-07-19T17:57:10.035-04:00<div align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">Coronavirus Relief for Gamblers?<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn</span></b><span style="font-family: Garamond, serif; font-size: 14pt;"><o:p></o:p></span></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;"><i>(Originally published April 18, 2020, at pastthewire.com)</i></span></b></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> With many (most?) tracks and virtually all casinos in the US closed because of the COVID-19 pandemic, what’s a degenerate gambler to do? One could – and judging from the comments on Twitter, many do – bet on Will Rogers Downs on the days when Tampa, Gulfstream and Oaklawn are dark. But Tampa is closing this weekend, and Oaklawn will close in early May, with no guarantees as to which, if any, of the major tracks will pick up the slack. Can a racetrack regular survive just watching the television feed of the post drag at Gulfstream?<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Maybe not, but if that racetrack (or race book or poker room) regular can qualify as a professional gambler, then the recently enacted CARES Act for coronavirus relief might actually offer some help. Of course, as you’ve probably heard, the CARES Act relief package for small business has already run out of money, but let’s be optimistic – because if we weren’t we wouldn’t be gambling in the first place, would we? – and assume that Congress will get around to authorizing more money for the program. When that happens, and the loan spigot is turned on again, here’s how a devoted gambler might get some help.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> First, the CARES Act relief applies only to small business, including sole proprietors. So, you have to be in the “trade or business” of gambling. More than 30 years ago, The US Supreme Court, in the <i>Groetzinger</i> case, decided that gambling could indeed be a trade or business, if certain criteria were met. The gambler has to approach betting in a businesslike manner, keep good records, adjust betting methods to reflect changing circumstances, and have a profit objective. That last test – the profit objective – doesn’t have to be realistic, just held in good faith. The courts have even held that a slot machine player, gambling against the house, can be in the trade or business of gambling, as long as she kept good records, changed her playing strategy from time to time, and continued to believe, even in the face of the evidence, that she’d eventually win.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Second, gambling can’t be just a hobby. A professional gambler, to qualify under the Internal Revenue Code and the CARES Act, needs to show some expertise, operate in a businesslike manner, devote a significant amount of time and effort to the task, and actually rely on gambling, not other income, for at least some portion of living expenses. There’s a built-in presumption that, if you show a profit for at least three of the past five years, whatever you’re doing is more than a hobby.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, let’s say one meets all these criteria. You spend eight or more hours a day with TVG on the screen, make your wagers through a high-rebate ADW account and actually, at least some of the time, squeeze out a bit of a profit. When you’re reduced to playing Will Rogers and Gulfstream, it’s as if you were the proprietor of a high-end restaurant and all of a sudden you can only offer half a dozen take-out dishes to be picked up on the sidewalk. In other words, your business opportunities have been drastically limited.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> That’s where the CARES Act could come to the rescue. Under the act, $349 billion was appropriated for small businesses, specifically including independent contractors and sole proprietors. So, the fact that a gambler doesn’t have any employees doesn’t bar assistance. In fact – at least when there’s some more money in the federal pipeline – a gambler deprived of chances to bet by COVID-19 can actually qualify for two different kinds of small-business assistance.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The most attractive option is the Paycheck Protection Program, a loan that can cover up to 2.5 months’ worth of “payroll,” carries an interest rate of just 1%, and can be entirely forgiven if in fact the money is used for “payroll.”<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> But wait, a professional gambler doesn’t have a payroll, just a bankroll. Well, the Small Business Administration regulations say that’s OK, “net earnings from self-employment” count as payroll for this purpose. Just calculate your average win for that 2.5-month period. The only restriction is that it can’t be at an annual rate of more than $100,000. And you have to show some proof, like tax returns or other records, that you were actually making what you’re claiming.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And our professional gambler can also apply for a $10,000 “Economic Injury Disaster Loan” to cover other costs. That might even buy a few Daily Racing Forms and maybe a Clockers’ Report or two.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There is one potential hiccup: an old regulation, dating back 25 years, bars SBA loans to businesses that derive more than one-third of their income from gambling. It looks like it was intended to bar SBA loans to small casinos, and maybe to ADW facilities. But the CARES Act is, to say the least, ambiguous about whether all the old SBA restrictions apply to these new loans, and the guidance issued so far is replete with statements that the legislation is intended to expand the pool of eligible borrowers. So find a good lawyer and give it a shot.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> But what about those degenerates still betting Will Rogers Downs? COVID-19 hasn’t totally shut down US racing. Not a problem. The CARES Act merely requires that a borrower certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Surely someone who normally bets NYRA, Churchill and Santa Anita could make that statement in good faith.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, all you full-time horseplayers out there: if you’re feeling limited by the current menu of tracks to bet on, just write your Congress members and get some more money in the Small Business Administration pipeline. It’s a safer bet than the 1 horse in the 6<sup>th</sup> at Will Rogers.<o:p></o:p></span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-5481081300020628502020-07-19T17:55:00.003-04:002020-07-19T17:55:42.915-04:00<div align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">Churchill Downs Inc.’s Annual Report:<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Can Racetrack Financials Tell Us Anything at All?<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn<o:p></o:p></span></b></div>
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<span style="font-family: Garamond, serif;"><span style="font-size: 18.6667px;"><b><i>(Originally published April 30, 2020, at pastthewire.com)</i></b></span></span></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> </span></b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">A decade ago, the three largest US racetrack companies – Churchill Downs, Inc., the New York Racing Association and Frank Stronach’s Magna Entertainment – all issued financial reports that made at least some of their operations transparent. Then, in 2011, Stronach took his racetrack business private, which meant that it no longer released public financial reports. And in 2016, NYRA, which had been operating as a quasi-governmental limited-profit entity, decided it was no longer subject to New York State’s Freedom of Information Law and stopped making its financials public. And now, with its 2019 annual financial report and first-quarter 2020 results, just released this week, Churchill has so thoroughly muddied its presentation of data that you can no longer make any meaningful statements about how its individual racetracks are doing.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There are probably good reasons to hide or at least muddy the information. Owning a race track is not exactly a big money maker these days. Most tracks are living on slot-machine welfare; the tracks’ share of betting handle (“takeout”) covers less and less of the ever-growing amount needed for purses and for keeping the doors open. And betting handle itself has declined steeply in real, inflation-adjusted dollars. So, for most tracks, it’s probably true that no financial news – at least to the public – is good news.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Now, back to that Churchill Downs Inc. financial report for 2019. For more than a decade, Churchill has steadily become less a racing company and more a “gaming” entity, deriving ever more revenue from slot machines at its tracks and from stand-alone casinos. It also created Twin Spires, the largest US online horse-race betting operation, accounting for about 15% of total US handle. So, for some years actual live horse races – apart from the two days a year of the Kentucky Oaks and Derby – have been, if anything, a minor annoyance for the corporate types at CDI headquarters in Louisville, along the lines of “well, I guess we have to run these damn races to keep our casino licenses.”<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> With its 2019 Annual Report and SEC Form 10-K filing, Churchill Downs Inc. completed its transition away from being a horse racing business. Instead of the financial reporting by individual tracks that had been included in earlier reports, CDI has now divided its business into four broad segments, with horse racing unevenly distributed among them: (1) Churchill Downs itself and the Derby City slots emporium in Louisville; (2) “Online Wagering,” primarily the Twin Spires ADW operation, plus a nascent sports-betting business; (3) “Gaming,” which is a mash-up of some straight casinos plus the Presque Isle and Fair Grounds tracks-cum-casinos; and (4) “All Other,” which includes Arlington Park and Turfway, CDI’s two tracks without attached casinos, as well as the new track in Oak Grove, Tennessee, and CDI’s United Tote business. So, four business segments, with race tracks scattered across three of them. I guess it makes sense to the corporate execs, but it’s damn hard to look at the financials and say very much about how the racetrack business is doing.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> At the corporate level, CDI is doing just fine, or at least it was before the coronavirus postponed this year’s Derby and Oaks, delayed the start of Churchill’s spring meet and shuttered all the company’s casinos. The company’s share price, which reached a high of $168 last year before closing out the year at $137, has fallen, like virtually all US stock prices, to a current level of just over $100, but that’s still a huge gain over the past five years; through the end of 2019, in fact, the share price had registered a compound growth rate of 34% a year since 2014, substantially out-performing the broader market.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Underlying that share price was a steady gain in net revenue, to a total of $1.33 billion in 2019, and in net income from continuing operations, to $216 million last year. Not surprisingly, relatively little of that income comes directly from horse racing anymore. Looking just at net revenue – because the annual report doesn’t show net income (i.e., revenue less expenses) by individual tracks or casinos – the Churchill Downs track accounted for about 15% of the company’s receipts, mostly from Derby-Oaks weekend in May. Twin Spires alone accounted for half again as much – 22% of the company’s total, while the various casino operations including Fair Grounds and Presque Isle and the new Derby City venue in Louisville, pulled in 59% of total corporate revenue. And that “all other” category of Arlington Park, Turfway and United Tote added up to not much more than a footnote, with barely 5% of corporate revenue and a net loss when expenses are factored in.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The coronavirus pandemic, of course, put a temporary hold on CDI’s continued efforts to grow outside racing. With all its casinos closed by mid-March and with the Derby postponed, net earnings for the first quarter were essentially zero, although revenue took only a 5% hit from last year. And CDI drew down some $700 million from a revolving loan facility in the first quarter, giving it enough cash to weather the year, even as it floated plans to allow at least some spectators at the track for the rescheduled Derby-Oaks weekend September 4<sup>th</sup> and 5<sup>th</sup>.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, that weekend aside, Churchill Downs Inc. is, for all intents and purposes, a casino and online betting company. And that probably suits the top executives just fine. It’s not a coincidence that CDI’s metamorphosis from an entity focused on racing – at one point it hosted lengthy meets at Hollywood Park and Calder as well as at Churchill – to one that’s all about casinos and online betting coincides with the arrival of three alumni of famed corporate honcho Jack Welch’s General Electric Company, a fearsome financial giant in past decades. Both Churchill CEO William Carstanjen and Chief Operating Officer William Mudd came to CDI directly from GE, Carstanjen in 2005, the same year CDI sold Hollywood Park, and Chief Financial Officer Marcia Dall started out at GE before spending some years with insurance companies en route to CDI. None of the three top execs have any particular ties to horse racing, and only Mudd has links to Kentucky. As it turned out, importing three top execs from General Electric probably reflected the CDI Board’s decision to pivot away from racing; if the company were still run by people who actually cared about horse racing, they might not have moved so fast to adapt the company to the new business reality.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And those top executives have done very well personally while shepherding CDI out of its old reliance on racing and into the new world of casino and online gambling. Last year Carstanjen earned $10.6 million in total compensation – an astonishing 447 times the median compensation ($23,670 a year) of a CDI employee - while Mudd and Dall picked up $5.3 million and $2.6 million respectively. The three top execs collectively own more than $100 million in CDI stock. Yes, the folks in the executive suite did a good job – at least for the shareholders, if not necessarily for the horsemen at CDI’s various tracks – but still, 447 times the median salary?<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Compared to CDI, The Stronach Group and NYRA must seem to be terribly old-fashioned, actually thinking that horse racing is what they’re about. Perhaps they still make money at the race track, but in the absence of public financial reports, we’ll never know, though NYRA’s last public financial reports, in 2015 and 2016, suggested it was pretty close to break-even. Meanwhile, what is clear is that the Churchill Downs Inc. of today would hardly be recognizable to Col. Matt Winn, the Churchill Downs President who, a century ago, made the Kentucky Derby into the world’s pre-eminent horse race. The Twin Spires may still be on the cover of CDI’s annual report, but, recognizing reality, the company is no longer about racing.<o:p></o:p></span></div>
Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-29503760912052301202020-07-19T17:51:00.002-04:002020-07-19T17:51:32.142-04:00<div align="center" class="MsoNormal" style="font-family: Cambria, serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">Why Trainers Are Quitting the Game<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">(<i>Originally published March 6, 2020, at pastthewire.com)</i></span></b></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Amid all the rest of the chaos in racing over the past few weeks, two of New York’s leading trainers, Kiaran McLaughlin and Gary Contessa, announced that they’re closing their barns and leaving the work that each of them has done for more than 20 years. They’re not leaving racing entirely – McLaughlin has become a jockey agent, and Contessa is hoping to join racetrack management – but they each concluded that it’s impossible to make a living as a trainer, especially as a trainer based in New York, in the current economic environment.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> McLaughlin and Contessa aren’t exactly low-profile horsemen. McLaughlin, who trains for Shadwell and other prominent owners, is the trainer of 2006 Horse of the Year Invasor, as well as Belmont Stakes winner Jazil, Met Mile winner and hot new sire Frosted, and Woodward winner Alpha. In his career, he’s won 1,577 races from 7,707 starts – a 20% success rate – and his horses have earned $120 million. And Contessa was for many years the king of the New York claiming circuit, with 17 race-meet titles as the winningest trainer at NYRA meetings and four New York trainer-of-the-year awards. Over the years, he’s won 2,364 races from 18,147 starts, a 13% strike rate, with total earnings of $84 million.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> But now the economics of racing in New York have caught up with them. Whether at McLaughlin’s elite level or in Contessa’s blue-collar barn, it’s just become too hard to make a go of a job that requires 24/7 attention 365 days a year.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Over the years, I’ve often chatted with McLaughlin as we watched horses working on the Belmont training track. More recently, I had a long talk with Contessa about the costs of training in 2020. Both trainers were on the Board of the New York Thoroughbred Horsemen’s Association during the 14 years that I was a Director. Here’s what I learned.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Trainers in New York charge their owners anywhere from $100 (Contessa) to $125 (McLaughlin) a day to care for the owners’ horses. After adding in the other costs that owners bear – vet bills, van charges, insurance, trainers’ and jockey’s fees when horses earn money, etc. – that means a horse has to earn somewhere in the neighborhood of $65,000 a year in purse money for the owner to break even, but that’s another story. What about the trainer who’s getting that daily fee?<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> New York is probably the most expensive jurisdiction in North America, if not in the world, for thoroughbred trainers. Any trainer’s biggest cost is labor. In New York, the minimum wage is $15 an hour. And if the trainer has even one foreign employee on an H-2B visa (temporary foreign workers), then the trainer must pay all employees – not just those on the H-2B visas - the “prevailing wage,” which in New York is $20.20 an hour. And most trainers depend on H-2B visa workers for a significant part of their workers. So, in practice, all but the smallest trainers are paying everyone at least $20.20 an hour.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, trainers pay hot walkers $30,000-$40,000 a year, and grooms, who tend to work longer hours, get $40,000-$50,000. In addition, trainers also pay assistants, exercise riders and, in larger barns like McLaughlin’s and Contessa’s, night watchmen. At a ratio of about six horses per hot walker and four horses per groom, and factoring in employment taxes, freelance services like bookkeeping, and workers compensation insurance, Contessa calculated that labor costs alone add up to $109 per horse per day, or almost 10% more than he was charging his owners. And that’s before feeding the horses. Hay, straw (or other bedding) and feed amount to another $23-25 per day per horse. And there aren’t any meaningful economies of scale. Every four horses means another groom; every six means another hotwalker. In addition, trainers buy various supplements, anti-ulcer treatments, etc. to keep their horses in shape, and they buy tack and other barn supplies. Sometimes these costs are passed on to the owners on the monthly bill, but not always.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, even without the supplements, tack and supplies, it costs a trainer in New York more than $130 a day to care for each horse. For the 35 horses that Contessa had in his barn early this year, that translates to losing more than $30,000 <i>a month</i>, or $360,000 a year, on the day rate. Now it’s true that trainers do get a share of what their horses earn on the track; the usual figure is about 10% of earnings. Historically, most public trainers have aimed to break even on the day rate and take home that 10% of horses’ earnings to cover their living expenses, their kids’ college funds, their own medical bills, really all the necessities of life. But when you’re already bleeding $30 per day per horse, that formula doesn’t work. Contessa, for example, won 30 races last year, with total purses of $2,352,769. Not his best year ever, but a pretty decent result. But 10% of that wouldn’t even cover his day-rate shortfall. McLaughlin has a bigger cushion, since he probably loses less per day per horse, and since his owners send him more high-profile stakes horses, but even he is no longer confident that training can provide the income he needs to support his family.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Add to these ongoing issues the effect of recent New York State and federal labor department investigations, which not only required trainers to start keeping accurate time records for their worker and pay overtime but also went back as much as five years to identify workers who had not been paid what the law required. Both McLaughlin and Contessa are facing six-figure fines for past timekeeping and payment errors; there’s no way those amounts can be made up from future earnings.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And don’t forget the owners who somehow never manage to pay their bills. Recent publicity about Ahmed Zayat’s stiffing Rudy Rodriguez and Mike Maker, and about upstart big-spending owner Phoenix Thoroughbreds actually being a money-laundering operation is just the tip of the iceberg; every trainer I know in New York has at one time or another had to take over ownership of a horse whose owner had stopped paying the bills.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So it’s no surprise that these talented trainers have finally decided to leave. If anything, the surprise is that so many New York-based trainers are still in the game, mortgaging their houses and juggling the bills to continue taking care of the horses they love. With New York racing currently on hold, as Aqueduct is repurposed into a coronavirus hospital, I suspect we’ll see many more trainers finally accepting economic reality and looking for jobs that actually pay a salary.<o:p></o:p></span></div>
Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-82717346983270924942020-07-19T12:59:00.001-04:002020-07-19T12:59:28.088-04:00<div align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">OBS Spring – A Tale of Two Sales<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> </span></b><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">“OBS Holds Its Own as Sales Hum to Life” – <i>Daily Racing Form<o:p></o:p></i></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt;">“It’s just a continuing move of the industry in trying to get back to normal” – <i>OBS Sales Director Ted Wojchiechowski<o:p></o:p></i></span></div>
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<i><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> </span></i><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">Looking at the industry media’s coverage of the just-concluded Ocala Breeders Sales Co.’s spring sale of two-year-olds in training – a sale delayed from its usual April dates to mid-June because of the COVID-19 pandemic – one might conclude that things aren’t so bad after all. The equivalent OBS sale in 2019 set records, so no one would have expected this year’s offering to improve on that. And, at a cursory glance, this year’s auction wasn’t <i>that</i> bad.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And it’s true: if one just looks at the gross figures for the sale, well, it doesn’t seem so bad. The most up-to-date figures show that 641 horses were sold (out of a total of 1315 in the catalogue, or 48.7%, compared to 674 out of 1221 (55.2%) last year. Gross sales volume this year was reported as $59.3 million, compared to $72.9 million in April 2019, a drop of nearly 19%. Average price this year was $92,527, a decline of 14.5% from last year, and the median dropped from $60,000 in 2019 to $50,000 this year. And both sales reported three million-dollar juveniles. (These numbers include quite a few “post-sale” private purchases of horses that failed to meet their reserve but were then bought on the sales grounds before their consignors had to ship them back home; final numbers may change slightly from those reported so far.)<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, if one looked just at those summary figures, it might seem that a bloodbath had been averted, and that the sale was just a market correction after last year’s irrational exuberance. But in fact, this year’s sale <i>was</i> a bloodbath. That’s because the just-concluded auction was in fact two separate sales rolled into one. First, there was the usual OBS spring sale, with 1,231 horses in the original catalogue. Then, tacked onto that, there was a sale of another 84 supplemental nominees, virtually all of them horses that had been listed for sale at the prestigious Fasig-Tipton Gulfstream sale that was scheduled for the end of March but cancelled because of the pandemic. If we look at those two sales separately, then the scope of the carnage becomes much more apparent.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> First, the regular OBS spring sale. Of those 1,231 horses listed, 612 were sold, or just under 50%. Another 124 failed to meet their reserve in the ring and were not sold before they left the sales grounds. The rest were scratched, either before the breeze show or after turning in sub-par breezes. In contrast, last year 674 of the 1,221 horses listed, or 55.2%, were actually sold. Gross proceeds for the 612 sold this year were $48 million, compared to $72.9 million last year, a decline of more than one-third. Average price this year was $78,423, a drop of 27.5% from 2019, and the median dropped to $45,000 from last year’s $60,000. All in all, one could say that this year’s spring sale was off by about a quarter from last year, And, perhaps most important, sellers, mostly pinhookers who buy weanlings and yearlings and then try to resell the horses as two-year-olds, left the grounds with $25 million less than they did last year. That’s $25 million less that they’ll be able to bring to the yearling sales that start up again next month.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Treating the supplemental auction of Gulfstream sale refugees as a separate sale, 29 of the 84 horses listed in the catalogue were sold, another 13 failed to meet their reserve, and exactly half, or 42 horses were scratched. Many of those were in fact bought privately by bloodstock agents roaming the Ocala area in the weeks before the sale, though typically at prices that just let the consignors break even on their costs and expenses. The 29 horses that sold at OBS brought a total of $11,315,000, for an average of $390,172 and a median price of $280,000. And they included two of the three million-dollar babies in the overall sale, leaving the regular catalogue with just one, compared to last year’s three seven-figure sales.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> It’s probably unfair to compare this year’s OBS supplemental sale to last year’s Fasig-Tipton Gulfstream auction, since many of the Gulfstream horses were in fact sold elsewhere. But last year’s Gulfstream sale did average $493,475, with a median of $375,000, So this year’s Gulfstream-at-OBS results are down about the same percentage from last year as this year’s regular OBS spring sale is from its edition of a year ago. Not counting those horses that may have been sold privately, there’s another $18 million that pinhookers had last year but don’t have this year when they go shopping again.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Two big juvenile sales remain: Fasig-Tipton’s Midlantic auction at Timonium MD at the end of June, and OBS’s June sale, now rescheduled for early July. More of the Gulfstream sale refugees will go through the ring at Timonium, and more two-year-olds will be sold privately or end up being raced by their current owners, but the OBS spring results suggest that there will be a lot less money available when large numbers of yearlings go on sale in the fall. And that means the decade-long decline in the size of the North American foal crop may not yet have bottomed out. If so, fewer foals will continue to mean fewer race days and fewer race tracks. With all the major tracks now returning to racing, albeit mostly without spectators, and with cash-short state governments likely to take a new look at casino subsidies for tracks when those casinos re-open, the outlook for the remaining minor-league tracks is anything but healthy.<o:p></o:p></span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-22655223203630167982020-07-19T12:58:00.001-04:002020-07-19T12:58:00.479-04:00<div align="center" class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">Two-Year-Old Sale Season<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Draws to a Close<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn<o:p></o:p></span></b></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> With the Ocala Breeders Sales Co.’s July sale in the books, the mightily challenged 2020 two-year-old thoroughbred sales season is finally over, much, I suspect, to the relief of the dozens of pinhookers and sale consignors who weathered this year’s chaos. Whatever spin OBS and Fasig-Tipton, the only major players in the juvenile auction market, put on this year’s results, really the best one can say about them is, it could have been worse.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> First, to recap the just-concluded OBS July sale. This was the third of OBS’s annual juvenile auctions, and it’s the one that usually draws horses with either lesser talent or later birthdays, meaning that they’re not far enough along in training to make the earlier sales. This year, the OBS July catalog included a few refugees from sales that were cancelled entirely by the coronavirus pandemic, though most of those refugees had landed earlier, at the OBS Spring sale, held in early June, or the Fasig-Tipton Timonium sale, held late last month.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Overall, at the OBS July auction, 521 of the 1,114 horses in the catalog were sold (46.8%), for a total of $15,911,800. That’s an average of $30,541 and a median price of $13,000. By way of comparison, at the 2019 OBS June sale, 615 of the 1059 horses in the catalog were sold (58%) for a total of $21,349,300, an average of $34,714 and a median of $17,000. The declines in gross, average and median were in line with what we’d seen at all the post-pandemic juvenile auctions, a falling-off of roughly 25% from last year’s numbers.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> But when we look at the two-year-old sale season as a whole and take into account the effect of sales that were held in 2019 but didn’t occur at all this year, the picture becomes somewhat darker. Not counting the small regional sales, which don’t have much impact on the national figures, there were three significant juvenile auctions in 2019 that didn’t even happen in 2020 – Fasig-Tipton’s Santa Anita and Gulfstream sales and Keeneland’s April juvenile event. So, this year’s sales calendar was reduced to only four auctions from the seven major sales that were held last year.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Adding up the figures from all those sales, 1,764 two-year-olds were sold at auction this year, compared to 2,120 last year, a decline of 16.8%. For a sense of perspective, the US thoroughbred foal crop in 2018, when this year’s juveniles were born, was 19,925, a decline of only 3.3% from the 2017 total. So, a lot fewer of the available foals were actually sold at auction this year.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And adding up the dollars from all the major sales, this year’s two-year-olds sold for a total of $126,824,800, compared to last year’s total of $185,961,500. That’s a decline in one year of nearly 32%, or some $59 million. Sounds a lot like many other sectors of the economy during the pandemic.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> To be sure, some of those missing horses were sold privately, as bloodstock agents roamed the farms and training centers around Ocala. So perhaps the financial loss was a bit less than appears just from the auction statistics. But the year-on-year shortfall is certainly at least $40 million, which is money that pinhookers won’t have as they return to the yearling sales that start up this month and that reach a peak, especially for pinhookers, at the huge Keeneland September sale. The decline in the foal crop from 2018 to 2019 was only 700 horses, or just over 3%, according to the Jockey Club’s best estimate, so it looks like there will be a lot less money chasing pretty much the same number of yearlings. And while the Coolmore juggernaut marches on apace, some of the other traditional big players in the yearling market (think, e.g., Sheikh Mohammed or Ahmed Zayat) have troubles of their own. If only Jeff Bezos or Mark Zuckerberg, or even Bill Gates or Warren Buffett, liked horse racing!<o:p></o:p></span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-36632997602232152022020-07-19T12:56:00.001-04:002020-07-19T12:56:38.136-04:00<div align="center" class="MsoNormal" style="font-family: Cambria, serif; font-size: 12pt; margin: 0in 0in 0.0001pt; text-align: center;">
<b><span style="font-family: Garamond, serif; font-size: 14pt;">F-T Timonium 2YO Sale –<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">A Deeper Dive into the Numbers<o:p></o:p></span></b></div>
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<b><span style="font-family: Garamond, serif; font-size: 14pt;">Steve Zorn</span></b><span style="font-family: Garamond, serif; font-size: 14pt;"><o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The <i>BloodHorse, </i>ever optimistic, reported that this week’s results from the Fasig-Tipton sale of two-year-olds in training at Timonium MD is “a sign that the juvenile market may be turning the corner.” In other words, the sale wasn’t quite as bad for sellers as the Ocala Breeders Sales Co. auction two weeks ago had been. What corner it is that the market is turning remains, however, to be seen.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Overall, 303 of the 563 horses in the Timonium catalog were sold, for a total of $23,572,500, or an average of just under $78,000 and a median price of $40,000. That compares to last year’s Timonium sale, held at its usual spot in the calendar just after the Preakness and undeterred by the coronavirus, when 326 juveniles sold for an average of just over $90,000 and a median price of $43,000.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> At this week’s Timonium auction, 72 horses went through the ring but failed to meet their reserve, and another 188 were scratched. So roughly 54% of all the horses originally listed for sale actually found new homes. That’s better than at the two earlier 2YO sales this year, but well below the numbers for prior years.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And, as in. the case of the recent OBS sale, the Timonium numbers were inflated by the presence of premium horses that had been rerouted from the cancelled Fasig-Tipton Gulfstream sale, the industry’s top market for two-year-olds. At Timonium, 23 of the horses sold had originally been listed in the Gulfstream catalog. Those 23 brought an average price of $133,300, compared to roughly $74,000 for the non-Gulfstream offerings. Once the Gulfstream horses have been taken out of the calculations, we’re left with a decline of 17% from last year’s Timonium average .<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Over the past several decades, two-year-old sales have evolved from a means of selling horses raised on the farms near Ocala – the original impetus for the formation of OBS – into a segment of the thoroughbred market that is principally the domain of “pinhookers” – consignors who buy weanlings or yearlings in order to sell, or at least try to sell, them a year or two later as two-year-olds. At this week’s Timonium sale, for example, 65% of all the horses sold were offered by pinhookers. If they are to have two-year-olds to sell next year, the pinhookers have to return to the yearling market, which in this year’s compressed timetable starts up again in just a few weeks. And, to buy those yearlings , the pinhookers need to have in hand the money they’ve made at the juvenile auctions. So, let’s see how pinhookers did at the Timonium sale. Spoiler alert: it was not a great year for pinhooking.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> In total, there were 196 horses pinhooked horses (horses had previously been sold through a weanling or yearling auction) sold at Timonium.. In addition, 47 pinhooks failed to meet their reserves in the ring and went back to their consignors. And another 21 pinhooks were scratched and never made it into the ring at all.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, how did the pinhookers do? Those 196 horses that sold brought a total of $16,814,000. And the amount paid for those same horses as weanlings or yearlings was only $10,087,500. Sounds like a healthy profit for less than a year’s work, right? But wait; one also needs to factor in the pinhookers’ costs for transporting and training the horses and staffing the sales grounds, and the commission on the sales that Fasig-Tipton, like all auction houses, takes off the top. While we don’t know for sure how much each consignor spends to bring a horse to auction, $15,000 per horse is probably a minimum. All that work getting a horse ready to breeze an eighth of a mile in 10 seconds flat requires lots of help on the farm, and grooms, hotwalkers, riders, managers and all the other people needed to staff a farm have to be paid. Not to mention the sizeable capital investments that pinhookers have put into their training centers in Ocala and elsewhere. So, let’s say the cost for those 196 horses at $15,000 apiece was $2,940,000, and the Fasig-Tipton 5% commission was $840,700. That brings the pinhookers’ total costs for buying, training and selling the horses they sold at Timonium to $13,868,200, leaving them with an overall profit – just on the horses that were sold – of $2,945,800. Still not bad, but a lot less than appeared at first glance.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And that entire profit of just under $3 million was accounted for by just eight “home runs” – horses that sold for $200,000 or more above what it had cost to buy and train them up to the sale. All the other pinhooks, some 188 horses, basically broke even.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And that’s before we even consider the horses that were scratched or that failed to meet their reserves. The 21 horses that were scratched had cost their consignors $1,370,500 to buy as yearlings, even before training expenses; and, the 47 that failed to meet their reserve had cost $3,435,700, again before factoring in training costs. So that’s almost $5 million in unrecovered capital expense right there.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Not all those horses are a complete loss for the pinhookers. Some have been or will be sold off the farm, and some will be raced by their owners. But it’s likely they’ll be a net loss for the pinhookers who bought them as weanlings or yearlings; we just don’t know how much of a loss. The aggregate loss will probably be on or close to the same order of magnitude as that $3 million putative pinhooker profit that we just saw at Timonium.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There’s one more big two-year-old sale on the calendar before the yearling season starts: the OBS auction, scheduled for July 14-16 this summer, with more than a thousand juveniles in the catalog. That sale, held in June in more normal years, is typically the last chance for pinhookers to unload unpromising or slow-developing horses. It’s unlikely we’ll see results there that will provide much reason for optimism when the yearling market starts up later in July.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Over the past 30 year, the number of thoroughbreds born each year in North America has declined from 40,000 in 1990 to 35,000 in 2000, to 26,000 in 2010, after the financial crash, and to just under 20,000 in 2018, when this year’s two-year-olds were born. Over the same time, the number of races has declined as well, though not by nearly as large a percentage, with the result that average field size has declined from nearly nine horses per race 30 years ago to around 7.5 horses per race today. With pinhookers, who drive the breed-to-sell portion of the thoroughbred breeding industry, struggling to hold their heads above water in this difficult year, it’s unlikely they’ll be fueling a wave of enthusiasm in the upcoming yearling sales season.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> As the foal-crop figures show, breeders have already cut back, and many smaller operations have been pushed out of the business. We haven’t seen quite so much consolidation among pinhookers yet, but this season’s two-year-old sales results aren’t a good sign for the folks who didn’t manage this year to hit a home run or two.<sub><o:p></o:p></sub></span></div>
Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-88997829500588015872020-06-04T13:14:00.004-04:002020-06-04T13:14:54.797-04:00Pre-Coronavirus Preview of 2YO Sales Season<i>This piece was published at pastthewire.com just before the March 17-18, 2020 OBS sale of two-year-olds in training.</i><div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">Thanks to pastthewire.com for asking me to contribute. I’ll be writing about the business of racing, as I’ve done over the years in my blog of the same name. And, since we’re just about to start the two-year-old sales season, let’s take a look at how those sales came to be.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Back in 1953, there were exactly four thoroughbred farms in Marion County, Florida. The 1953 foal crop in Florida was all of 79 horses. But one of those, Needles, went on the win the Kentucky Derby and the Belmont Stakes, then retired to stud in Florida, and the state’s breeding industry was born.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Based largely on Needles’s success, the Ocala-area farms changed the way young horses are sold. Before World War II, and continuing into the 1950s, most thoroughbreds were raced by their breeders, who were typically wealthy individuals with their own farms. Some foals would be sold at yearling auctions, but the game was mostly breed-to-race. Then, in the 1950s, newly rich owners came into racing, seeking glory on the track without the years of breeding. Ultimately, that led to the emergence of two-year-old (in racing parlance, “juveniles”) sales, offering horses that were almost ready to race.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">In 1958, Ocala Stud sold its entire two-year-old crop off the farm, and the Florida Breeders Sales Co. began selling two-year-olds at Hialeah; often those two-year-olds would be racing there within days or weeks. Fast-forward to 1974, when the late Norman Casse and his fellow Ocala breeding pioneers decided to organize their own sales company; Ocala Breeders Sales Co. (OBS) held its first juvenile sale in January 1975. Forty-five years later, two-year-old sales are a major part of the thoroughbred marketplace. This year’s two-year-old sales season starts in Ocala March 17 and 18, to be followed by OBS sales in April and June, by Fasig-Tipton sales at Gulfstream in April, Timonium MD in May and at Santa Anita in June, by a Keeneland sale in April, and by a variety of small regional auctions.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> From being non-existent some 60 years ago, two-year-old sales have become big business. Last year, 2,312 juveniles, or roughly 10% of the foal crop, were sold at auction, with an average price of over $90,000. Yearling sales are still a bigger piece of the market – almost 7,000 yearlings were sold at auction last year – but the juvenile sales are a major element in what’s now a year-round sales calendar. And the sales have created a previously unknown industry – pinhooking, in which horse traders buy yearlings or weanlings and then resell them at the two-year-old sales. Pinhooking operations may now outnumber breeding farms in the Ocala area, relying on the warmer Florida weather and the high levels of calcium in the grass to develop horses quickly, so they look like promising athletes by the time the sales come around in the spring.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> As the sales have matured, the demands of buyers have escalated. Nowadays, bloodstock agents sit up in the grandstand and hand-time not merely the 1- or 2-furlong breeze that each horse runs, but also the horse’s “gallop-out” around the turn after the finish line. Buyers use slow-motion video and ultrasound scans of horses’ hearts in addition to the traditional physical inspections and review of vet records. And buyers are very, very picky. At most of the sales, barely half of the horses listed in the catalogue end up going to new homes. The rest are either scratched by their consignors because they couldn’t meet the demanding prep schedule or don’t draw a bid higher than the seller’s reserve price.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The key to selling a horse for lots of money at a two-year-old sale is for the horse to breeze fast – very fast. The bullet breezes at the sales are typically close to 10 seconds flat for an eighth of a mile and 21 seconds for a quarter, faster than those horses will ever run again. And while there’s a general correlation between fast breezes and later success on the racetrack, it’s only a modest one, and the opportunity for mistakes abounds. Back in 2006, at the Fasig-Tipton sale at Calder, a Forestry colt subsequently named The Green Monkey recorded the fastest breeze of the sale and prompted a bidding war between the Coolmore juggernaut from Ireland and Sheikh Mohammed al Maktoum of Dubai, pushing the horse’s price to a world-record $16 million. The Green Monkey, running in Coolmore silks, never won a race, earning a grand total of $10,000 on the track, and was quickly retired to an ignominious stud career in Florida. It’s easy to make mistakes; maybe if Coolmore and the Sheikh’s people had focused a little more, they would have noticed that the colt did his 9.8-second breeze in a rotary gallop, which can’t possibly be sustained for any real race distance. But, oh well, it’s only money.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Occasionally, sellers try to convince prospective buyers that the hell-bent-for-leather breeze is a bad idea, and return to the original juvenile sale format, where horses just galloped past the crowd. Pinhooker Kip Elser has had some success doing that recently, and Frank Stronach tried for some years to sell his Adena Springs Farm’s juveniles at the farm with just a gallop show, but mostly speed still rules, not necessarily to the benefit of the horses that are pushed hard to make the sale in time, rather than going through a longer period of gradual bone development.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> This year’s OBS March sale has catalogued some 681 horses, a sizeable increase from recent years, including half a dozen by Triple Crown winner American Pharoah and one by Frankel, arguably the best horse of this century. Virtually all the leading North American sires are well represented, and there are more Kentucky-breds in the catalogue than Florida-breds. So, even as the Florida foal crop has declined drastically since the 2008 financial crash, OBS’s sales business, designed originally as a way of marketing the state’s own foals, has morphed into what amounts to a nationwide profit center. Thanks, pinhookers.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> At last year’s March sale, 306 of the 577 horses originally listed in the catalogue ended up being sold, at an average price of nearly $147,000. With an expanded catalogue this year, it may be hard to match that average. I’ll be writing about what actually happens at this year’s sales, and we’ll see. If you have a weanling or yearling that doesn’t sell, there are always the two-year-old sales. But if your two-year-old doesn’t sell, suddenly you have very few options. So it’s a high-pressure situation; it’ll be interesting to see who the winners and losers turn out to be.<o:p></o:p></span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-45387724751037069452020-06-03T12:06:00.001-04:002020-06-03T12:06:03.159-04:00OBS March Sale: Unsettling Indications for the Market<i>This post was first published in pastthewire.com in March, 2020. </i><a data-saferedirecturl="https://www.google.com/url?q=https://pastthewire.com/obs-march-sale-unsettling-indications-for-the-market/&source=gmail&ust=1591223671008000&usg=AFQjCNF5WiGvY8wFPC0G4qYAAbpIenv5mg" href="https://pastthewire.com/obs-march-sale-unsettling-indications-for-the-market/" style="background-color: white; color: #1155cc; font-family: Arial, Helvetica, sans-serif; font-size: small;" target="_blank">https://pastthewire.com/obs-<wbr></wbr>march-sale-unsettling-<wbr></wbr>indications-for-the-market/</a><br />
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">This week’s sale of two-year-olds in training at Ocala Breeders Sales Co. was never going to set any records. As Nicole Russo carefully wrote in the Daily Racing Form, “the market was expected to show restraint.” But I suspect that few anticipated the extent of the debacle that actually occurred. In brief: the average price for horses that were sold dropped 34% from last year, from $144,603 to $95,585. The median price, typically a more representative reflection of the sale as a whole, dropped 37.5%, from $80,000 to $50,000. Of the 485 horses that actually went through the auction ring, only 291 were sold – a buyback rate of 40%, compared to just 24% last year. And those 291 sales represented less than 43% of the total number of 681 horses that were in the sales catalogue to begin with, the first time in my memory that fewer than half the horses listed actually found new homes. While some horses in the catalogue, as always, were scratched for physical reasons, or because they just breezed too slowly, it appears a good number were withdrawn because their owners correctly anticipated a poor market.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There are three overlapping reasons for the declines. First, the sale took place against the backdrop of the coronavirus pandemic, which both limited the number of buyers who felt comfortable going to Ocala – though OBS did provide expanded telephone bidding – and created a huge amount of uncertainty. Will there even be places to race the two-year-olds that one is buying?<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Second, the stock market is in free fall, down some 30% from its high point. And the sort of people who buy expensive racehorses are also the sort of people who have a lot of wealth in the market. So seeing their portfolios drop dramatically might, to say the least, inhibit their willingness to throw money at unproven thoroughbreds.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Third, even without the possibly temporary hiccup of the coronavirus and stock market crash, racing itself doesn’t have a rosy outlook. Betting handle has been flat – actually declining in inflation-adjusted dollars – for many years, and the recent explosion in sports-book betting on other contests threatens even that modest current handle. In addition, clusters of breakdowns - at Aqueduct in 2011, at Santa Anita last year - have strengthened public support for abolishing racing altogether. The recent indictments of “super-trainers” Jason Servis and Jorge Navarro and other racing insiders just adds to the public perception that racing is crooked, not to mention cruel.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Still, with the cancellation of the Fasig-Tipton Gulfstream sale and the Keeneland April sale, OBS March was the only place a buyer could look for a high-quality two-year-old that might be ready to race early in the year (assuming that there will be anywhere to race). So it’s a bit surprising that the top prices at the sale were only in the $600,000 range, plus or minus. In most years, there are at least a few million-dollar babies. Last year, for example, the sale topper in March went for $2 million, and none of the five most expensive horses at that sale sold for less than $800,000. There can’t be that much difference in quality from one year to another, so the decline in buyers’ willingness to pay foolishly high prices for horses that probably won’t earn that money back on the race track – remember The Green Monkey! – must in large part result from the three uncertainty factors listed above – the virus, the stock market, and racing’s own uncertain future.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The OBS March results have unsettling implications for the rest of the thoroughbred sales season. Pinhookers, who buy weanlings and yearlings and then try to sell them at a profit as two-year-olds, need the money from those sales to finance another round of yearling buying. With the Gulfstream and Keeneland sales cancelled – though Fasig-Tipton did add another sale in June at Timonium, MD – it’s getting harder to see where pinhooking consignors will hit those home runs that fuel their next round of buying. Combine that with what’s likely to be a continuing stock-market miasma, and breeders who are sending their yearlings to the summer and fall sales must already be having palpitations. The breeding industry went through one much-needed round of contraction after the financial crash of 2008, with the result that the US thoroughbred foal crop is currently down roughly 50% from its peak. By the time this year’s trifecta of virus, stock market and scandal have played out, thoroughbred racing and breeding may become even more of a niche industry than it already is.<o:p></o:p></span></div>
Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-17621122925194958542020-06-02T12:46:00.001-04:002020-06-02T12:46:47.072-04:00Can New York Horsemen Afford to Go to Saratoga This Year?(The following was published on May 14, 2020 at pastthewire.com. <a href="https://pastthewire.com/can-new-york-horsemen-afford-to-go-to-saratoga-this-year/">https://pastthewire.com/can-new-york-horsemen-afford-to-go-to-saratoga-this-year/</a>)<br />
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">The lockdown of major US race tracks appears to be easing, albeit minus in-person spectators. Churchill Downs opens its spring meet this weekend; Golden Gate in northern California is already running; Santa Anita has published its first post-coronavirus condition book and is taking entries for this coming Friday, even without final government approval. On the East Coast, though, things are moving a bit more slowly. Monmouth Park has announced plans to start racing on the July 4<sup>th</sup> weekend, but neither the Maryland Jockey Club, which operates Laurel and Pimlico, nor the New York Racing Association (NYRA) have been able to convince their state regulators to give them firm opening dates.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> In New York, training continues on the Belmont backstretch, with strong health and safety protocols in place. NYRA has submitted reopening plans to the state, but the famously racing-unfriendly Governor Andrew Cuomo is in no hurry to move those plans to the top of his inbox. And while we can reasonably expect the go-ahead for racing at Belmont sometime within the next month or so, the future of this year’s Saratoga meet remains entirely up in the air.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> This past weekend, broadcaster Mike Francesa caused a Twitter storm by announcing that the Saratoga meet had been cancelled, only to be met by an immediate denial from NYRA public relations chief Pat McKenna, who posted that “</span><span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">NYRA is seeking to resume live racing at Belmont Park in the absence of fans and we have prepared operating plans that follow the same model for Saratoga should that be necessary.” But, with Saratoga’s scheduled opening day of July 16 barely two months away, NYRA is sending decidedly mixed signals. Ticket sales are on hold, reflecting the likelihood of racing without spectators, if, indeed, there’s racing at all. And the Saratoga calendar on the NYRA website is blank for July and August.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> NYRA management clearly wants to run a Saratoga meet of some kind. Last year’s all-sources handle for the 39-day meet (one race day was lost to the weather) was $705 million, an average of better than $18 million a day. And, unusually for racing in the US, that number has steadily increased in recent years, since NYRA went to a 40-day Saratoga meet in 2010. Over the past nine years, total Saratoga handle increased 28%. Even adjusting for inflation, that’s a 9% increase, at a time when US racing’s overall inflation-adjusted handle has been in steady decline.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, Saratoga, along with a few other bright spots, like Churchill’s Oaks-Derby weekend and the boutique meets at Keenland, Del Mar and Kentucky Downs, is a part of the racing calendar that no one would like to cancel. But, if the meet has to go ahead without spectators and without the purse supplements that flow from the currently-closed Resorts World casino at Aqueduct, can New York’s long-suffering owners and trainers actually afford to go there?<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> While it’s true that Saratoga purses are the highest in the country (except for the very short Kentucky Downs meet), those purses weren’t enough even last year to attract the usual complement of out-of-town horsemen, and the racing office was scrambling to fill cards from early in the meet. Hard to imagine that $90,000 for maiden specials and $98,000 for an N3X allowance wouldn’t be a sufficient draw, but that’s what happened. And the competition isn’t getting any easier. The condition book for the Churchill Downs meet this year, for example, has purses of $79,000 for maiden specials and $83,000 for an N2X allowance, pretty close to what Saratoga was offering last year.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> The new Churchill condition book does show a small purse decrease from last year, but only a small one – about $6,000 for those allowances, only $2,000 or so for the bread-and-butter claiming races. And the Santa Anita condition book has somewhat larger reductions: from $65,000 to $50,000 for maiden specials and from $43,000 to $29,000 for $25,000 claimers. But neither of those tracks is as dependent on slots money as is NYRA. If Saratoga does run this year, could it even match Churchill’s figures?<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There are two major elements in the Saratoga purse structure that are problematic this year: the lack of casino money and the lack of on-track betting. Casino money is easy to account for; in normal times, Resorts World accounts for 39% of the NYRA purse account. If that money doesn’t come back and can’t be replaced from other sources, those $90,000 maiden races would be at $55,000, back where they were in 2010 before the slot-machine dollars started flowing. And all other purses would take a similar hit.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> On-track betting is a little trickier. Unlike most tracks, Saratoga still earns a significant portion of its handle from on-track betting (including betting on the in-house NYRABets account). Last year, $146.6 million of the total $705 million, or 20.8%, was bet on-track. That compares with a national average of something less than 10% that’s actually bet on-track in the US. And on-track betting is way more lucrative than off-track. NYRA gets, on average, 20% of everything that’s bet on-track (that 20% is the blended “takeout” over all the different kinds of bets that are offered). That’s then divided up among the state, track operations and the horsemen’s purse account. In contrast, only about 8% of what’s bet off-track comes back to NYRA as host fees; the rest goes to ADW operators like Churchill’s Twin Spires or TVG, who actually take the bets, and in rebates to the big players who wouldn’t bet a dollar if they had to play into a real 20% takeout.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, if Saratoga runs without spectators, it will probably get only a small fraction – through its NYRABets accounts – of that $146.6 million it took in on-track last year. And, because of the difference between takeout and host fees, for every on-track dollar it loses, it will have to pull in about $2.50 in new off-track betting. To replace the entire lost on-track handle, then, NYRA would need something like $365 million in new off-track betting, over and above the $558 million that it already generated off-track last year.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Possible? Yes; the last months have shown that there’s an appetite for televised racing, and Saratoga would certainly be the star attraction of the summer season. But, realistically, could NYRA actually generate a 65% increase in off-track betting, above last year’s already high level. Doubtful.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So, let’s say, for the sake of argument, that a Saratoga meet could hit last year’s handle total - $705 million – but that it would be all off-track. That would reduce NYRA;’s take from betting by about $18 million, or, very roughly, by about a quarter of the total retained by NYRA last year. Applying that to the 61% of purses that are still bankrolled by the takeout, that’s another 15% hit to the purse account. So, our $90,000 maiden, reduced to $55,000 by the absence of slot money, now drops to somewhere around $42,000.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Would any horse owners or trainers head to Saratoga for a condition book that featured $42,000 maiden specials, $50,000 N2X allowances and $25,000 claimers that had purses equal to the claiming price? Given the costs of operating in New York, which I discussed in two recent posts on pastthewire.com, the answer has to be no.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> So if there is to be a Saratoga meet this year, and if it is to be without spectators and slot-machine money, then NYRA will have to do what Churchill Downs has apparently done with its new condition book: use its cash reserves to keep racing going while it hopes for an eventual recovery. The Churchill condition book does have some small purse decreases from the equivalent period last year – a $6,000 drop for maiden specials and allowances, only $1,000 or $2,000 for claiming races – but nothing like the adjustments that NYRA would have to make. And Churchill has the advantage of having plenty of cash; it drew down a $700 million loan facility at the beginning of this year and doesn’t have to pay the money back until 2024. Though NYRA no longer publishes its financial statements, it’s safe to say that it has nowhere near the financial security net of Churchill.<o:p></o:p></span></div>
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<span style="background: white; color: #14171a; font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> NYRA CEO Dave O’Rourke came in as a finance guy in 2008 and understands the numbers as well as anyone. Can he find the money to make a spectator-less Saratoga meet doable? We shall see.</span><span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"><o:p></o:p></span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-50221161819020563522020-06-01T22:14:00.004-04:002020-06-01T22:14:29.520-04:00Two-Year-Old Sales Start Up Again<div class="MsoNormal" style="font-family: Cambria, serif; font-size: 12pt; line-height: 24px; margin: 0in 0in 0.0001pt; text-align: justify;">
<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;">The last time I looked at two-year-olds-in-training sales, the market had virtually collapsed, in the shadow of a looming pandemic and a stock market crash. At the Ocala Breeders Sales Co.’s March sale – the only one held so far this year – both average and median price dropped more than a third from last year, and more than half the horses listed in the catalog went home unsold. After a decade of steadily rising prices – last year some 2,200 juveniles were sold at auction for an average price of more than $94,000 – the game of musical chairs had stopped, and only a lucky few had somewhere to sit. </span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> Since then, the coronavirus has caused the cancellation of the marquee Fasig-Tipton Gulfstream sale, as well as the high-level Keeneland 2YO sale. Other fixtures on the calendar, including the Fasig-Tipton Timonium sale and the OBS April and June sales, have been pushed back.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> But now, ready or not, most states are reopening their economies, and the sales are back. OBS will offer its April catalogue from June 9-12, fattened with about half the horses that would have been through the ring at the aborted Gulfstream sale. Fasig-Tipton has rescheduled its Timonium sale, also with a bevy of Gulfstream sale refugees, for June 29-30, and the OBS June sale, usually the last chance for sellers to find a home for their juveniles, will now be held July 14-17, just before the annual yearling sales season begins.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> It’s hard to predict how the market will respond. There are definitely some major negatives. Racing, albeit without fans, has pretty much rebounded from the closings in March and April, but total nationwide betting handle, all of it by phone or online, is just about what it was on corresponding days last year. That’s a discouraging fact, given that all other sports betting and casino gambling has been shut down, leaving potential gamblers nowhere else to go. Even in the absence of other sports, and of betting on those sports, racing seems to have made few new fans. And, from a horseman’s perspective, purses are down at all the major tracks that are restarting racing, reflecting the loss of slot revenue and on-track handle. The stock market has made back some, though by no means all, of its pandemic losses, but market uncertainty may still deter some big spenders.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> With a truncated two-year-old racing season, with no particular reason for optimism about racing’s long-term future, and with uncertainty caused by the coronavirus by no means abating, it’s hard for sellers and the auction companies to be optimistic about this year’s remaining sales. Most consignors are probably not so much looking for the home run that will buy them a new yacht, but rather just hoping to get enough of their working capital back so they can return to the yearling auctions this summer and fall and stock up, at least to some degree, for next year.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> There are, it’s true, some reasons for at least mild excitement. The breeze show for the June OBS sale is already underway, with consignors pushing their two-year-olds to run a furlong in 10 seconds flat or faster, and a quarter in 21, even though that’s something the horses will never have to do again. And OBS has tried to make it easier, both for potential buyers who are reluctant to attend in person, by permitting online bidding, and for consignors, by waiving its commission on horses that fail to reach their reserve on the auction ring. Fasig-Tipton has taken even greater steps to accommodate those who don’t want to attend in person, putting the x-rays of sales horses online for prospective buyers and their vets.<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> And there are some interesting new sires that will be represented at the sales. Two Kentucky Derby winners, California Chrome and Nyquist, have their first juveniles ready this year, as do Grade 1 winners Frosted and Runhappy, whose yearlings sold last year for averages of $160,000 and $200,000 respectively. But will two-year-old buyers pay the same kind of premium that pinhookers were offering for those horses as yearlings last year?<o:p></o:p></span></div>
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<span style="font-family: Garamond, serif; font-size: 14pt; line-height: 28px;"> When the OBS sale results are in, at the end of next week, they’ll require some careful analysis. For one thing, those refugees from the F-T Gulfstream sale will undoubtedly skew the figures higher than they otherwise would have been. Even on the first days of the OBS sale breeze show, four of the seven horses recording bullet works (including a ridiculous 9.4 seconds for an eighth and 20.1 for a quarter) were supplemental entries, added to the OBS catalog after the Gulfstream sale had been cancelled. Probably the best approach to analyzing next week’s sale would be to divide the results into two categories, one for the horses originally catalogued for the spring sale and the other for the supplemental nominations. Both those categories, I suspect, will continue or even extend the trend of the OBS March sale, with high numbers of unsold horses and declining average and median prices. The silver lining? For those blue-collar owners and trainers who have managed to stay in the game, there will be a lot of two-year-olds on offer for not much money that could well turn out to be decent race horses.<o:p></o:p></span></div>
Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-79564314503778169622019-07-08T22:24:00.000-04:002019-07-08T23:42:31.311-04:00Does NYRA Owe Jerry Hollendorfer Due Process?On June 22, soon after the fourth horse this year from Hall of Fame trainer Jerry Hollendorfer's barn was fatally injured at Santa Anita, the Stronach Group, owners of the Santa Anita track as well as Golden Gate Fields in Northern California, announced that Hollendorfer was being ejected and would be denied stalls and entries at all their tracks. On June 23, the New York Racing Association, where Hollendorfer had a few horses stabled at Belmont, said, in a statement from NYRA's communications director Pat McKenna, that his horses would be welcome at the upcoming Saratoga meet. But on June 29, NYRA, without any public or private hearing or any other element of due process. reversed position and told Hollendorfer that he could no longer enter horses at NYRA tracks. NYRA's McKenna and its Vice President for Racing Martin Panza, declined comment on the reversal.<br />
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In the event, the owners of Hollendorfer's New York-based horses, OXO Racing, promptly contracted with Hollendorfer's New York-based assistant, Don Chatlos, to train its horses; Chatlos was given stalls at Saratoga; and several OXO horses ran at Belmont on the closing weekend of that track's Spring-Summer meet.<br />
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The Hollendorfer issue poses an early challenge for new NYRA CEO Dave O'Rourke, who was confirmed in the top job only a few months ago, following the firing of former NYRA CEO Chris Kay for using NYRA personal for gardening and other chores at Kay's private residence.<br />
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O'Rourke, who came to NYRA a decade ago without any racing background, has been a quick and effective study in his decade at the track. He's been primarily responsible for overseeing the growth of NYRA's ADW betting arm, NYRABets, and for expanding the track's television presence, as well as for gaining control of its finances. Two areas that he hasn't ventured into, though, at least before his appointment as CEO, were legal affairs and racing operations. The Hollendorfer ban will require that he take charge in these arenas as well.<br />
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Hollendorfer's exclusion by the Stronach Group and by NYRA raises an important legal issue. Can a race track take away a trainer's livelihood without any sort of due process. Certainly, if a state agency were to suspend or revoke a trainer's license, it would have to provide some sort of due process. In fact, in New York, a trainer's appeal of a license suspension can drag on for years, muting the impact of the suspension; by the time a final appeal verdict is rendered, most people in racing will have forgotten what the original cause of the disciplinary action even was.<br />
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Did Hollendorfer use illegal drugs on his horses? Neither the Stronach Group nor NYRA made that accusation; they just said go away. But if one race track owner controls a significant share of a regional market, as Stronach does in California, Florida and Maryland, and as NYRA does in New York, isn't saying go away tantamount to depriving a trainer of his or her livelihood, and, if so, shouldn't the trainer have some sort of recourse?<br />
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In New York, the courts, both state and federal, have consistently held NYRA, in all its various pre- and post-bankruptcy permutations, to be so significantly entwined with the State of New York that NYRA's actions should be held to the same due-process standards as those that apply to state agencies.<br />
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As far back as 1973, New York's highest court held, in the case of trainer Buddy Jacobson, that NYRA was required to provide at least some justification before revoking or suspending the right of someone who held a New York State racing license to pursue their profession on the track. Similar decisions have required NYRA to provide due process in the case of veterinarians (Michael Galvin), jockeys (Larry Saumell) and other backstretch workers who hold state licenses. The cases distinguish NYRA, on the one hand, from small privately owned harness tracks, because NYRA has a near monopoly on thoroughbred racing in the state and because NYRA and its finances are so thoroughly intertwined with the state. In addition, NYRA has certain powers (such as appointing its own police force) that are typically held only by government entities, and ultimately any profit that NYRA is left with reverts to the state.<br />
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NYRA was reorganized once again in 2017, and no cases have decided whether the current incarnation should still be treated like a government agency for due-process purposes, but the earlier cases all dealt with versions of NYRA that were considerably less government-like than the current one. So is NYRA still a public agency? If the issue ever goes to court, I think the answer is inevitably, yes.<br />
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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. In the wake of the legislation, "new NYRA" live-streamed its Board of Directors meetings and made them open, if somewhat inconvenient to the public, and posted its annual and quarterly financial reports on its website. In other words, it acted like a state entity.<br />
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New legislation in 2017 changed way NYRA Directors are appointed -- creating an essentially self-perpetuating Board instead of one appointed by Albany -- 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 the fall of 2017, when "new" Directors -- who in fact were virtually the same as the previous Directors -- were appointed.<br />
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In 2017, NYRA ceased posting the financial reports and stopped streaming Board of Directors meetings. It has not issued any sort of formal statement rejecting its status as a quasi-governmental entity, but it (or at least the people who decide how to treat Board meetings and financial reports) is certainly acting as if it believes itself to be a private corporation, not subject to the higher standards placed on government.<br />
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On balance, NYRA was right when it decided back in 2011 that it should act like a public entity. Nothing of legal significance has changed between then and now, except for the change in the way NYRA Directors are appointed. But Michael Del Giudice, a longtime Cuomo adviser, in both official and unofficial roles, remains chair of the NYRA Board. The current Board is a mix of people with multiple state jobs on their resumes (Del Giudice, Joe Spinelli and Vincent Tese), Jockey Club grandees (Stuart Janney, Ogden Phipps II and Earle Mack) and new members appointed by those same primarily government appointees who were on the old Board after 2011. Because of the self-perpetuating nature of the new NYRA Board, where the old, government-appointed Directors select their replacements and fill other vacancies, nothing much has changed. It's inconceivable that a Board nominee whom Andrew Cuomo opposed would be chosen.<br />
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I suspect that new CEO Dave O'Rourke did not play a major role in the Hollendorfer decision(s). And in practical terms, the one case probably doesn't matter a whole lot. OXO Racing's half-dozen or so horses based in New York won't be deprived of the opportunity to run. Don Chatlos, a veteran trainer, will get a turn in the spotlight, and the impact on Jerry Hollendorfer will be far less than the impact on him from the Stronach Group's ban in California. And Hollendorfer probably doesn't, at age 73, have the time or inclination to pursue a multi-year legal action in New York.<br />
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But if NYRA takes no further action, the denial of stalls and entries would set a very bad precedent and set up potentially embarrassing challenges in the future. NYRA has been recognized as a state actor for nearly half a century, and thus has been required to provide some minimal due process before depriving racing license holders of their livelihoods. Due process isn't so hard. A notice of charges, an opportunity for a meaningful hearing, and a right of appeal will do the job very nicely. As I suggested six(!) years ago at the Saratoga Racing and Gaming Law Symposium, it wouldn't be that difficult. And it would be a good model for other tracks around the country to follow.<br />
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I trust Dave O'Rourke will rapidly get a handle on the legal and racing decision-making at NYRA and that he will use the goodwill accompanying his rise to the top to make NYRA a model, not just for good racing but also for good citizenship, by enshrining due process for those who make the show possible.Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-45127386495497577932018-04-12T17:19:00.000-04:002018-04-12T18:17:37.548-04:00F-T Gulfstream 2YO Sale -- Picky, PickyThe movable feast that is the Fasig-Tipton Florida two-year-old sale (at Calder for many years, then Palm Meadows, now Gulfstream) moved on the calendar this year as well. Long the first of the juvenile sales, F-T Florida was moved back to March 28th, leaving the debut spot to Ocala Breeders Sales Co.'s March selected sale. (For my analysis of that sale, see <a href="http://businessofracing.blogspot.com/2018/03/2yo-sale-season-gets-started.html">here</a>.)<br />
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Did the change in timing make much of a difference in results? If you look at the typical indicators, the sale can be reported as a success. Both the average price for the 61 horses sold ($385,000) and the median ($295,000) were comfortably above last year's numbers at the same sale, although the buyback (RNA) rate was 33%, more than double last year's 14%.In a sale that typically produces multiple million-dollar babies, there were three this year.<br />
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But on some other measures, not so much. Originally, there were 166 horses catalogued for the sale. Of those, 75 were scratched before the auction began, in many cases because their breezes weren't fast enough to attract buyers' attention. Including those scratches in the calculation means that the sale's clearance rate -- horses sold as a percentage of the catalogue -- was only 36.7%, well below last year's 44%. So, as has become the pattern in these select sales, buyers concentrated on the very best prospects, leaving a bunch of potentially good but not great race horses to head home without a new owner.<br />
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At the very top of the sale were the usual suspects. Barbara Banke of Stonestreet went to $1,200,000 for Hip 9, a Medaglia D'Oro filly out of the stakes-placed Distorted Humor mare Mi Vida. New shooter Larry Best of OXO Equine also spent $1,200,000, in his case for an Into Mischief colt. Best entered racing only two years ago, spending at the top of the market. So far, his most successful purchase has been the three-year-old colt Instilled Regard, who won the LeComte Stakes at the Fair Grounds earlier this year and who has earned in purses about half the $1 million-plus that Best paid for him last year. The third million-dollar horse was Hip 31, a Scat Daddy colt out of New York-bred stakes winner Risky Rachel. In the absence of Coolmore's usual Irish buying crew, Todd Pletcher signed the ticket for the colt.<br />
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Coolmore and its longterm rival, Sheikh Mohammed's Godolphin operation, were very low-key at the Gulfstream sale, compared to their very visible presence some years past. It was Coolmore's Demi O'Byrne, remember, who went to a ridiculous $16,000,000 some years ago for a colt that became The Green Monkey, who's now 11 years old and still a maiden. Coolmore is in the business of making stallions, and this year's purchase might be seen as an attempt to find a replacement for Scat Daddy, who died at the early age of 11 and whose final crop are two-year-olds this year.<br />
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As usual, buyers concentrated on the horses that breezed the fastest. One consignor who tried to buck the trend was Kip Elser of Kirkwood Stables, who sent five horses to the sale and, instead of breezing against the clock, just had them gallop through the stretch -- the way two-year-old sales used to be done. Elser sold three of the five, although for relatively modest prices, and the other two were RNAs. Some years past, Frank Stronach tried a similar approach at his Adena Springs sale, but never managed to wean the major buyers away from their stopwatches. Since horses breeze faster at the juvenile sales than they'll ever run in their racing careers, and since there's only the most tenuous correlation between horses that breeze fast and those that do well on the race track, it would be good to see some other important consignors follow Elser's lead and reject the time-trial competition.<br />
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There were some nice horses that were scratched out of the Gulfstream sale. You might look for them at Fasig-Tipton's follow-up at Timonium in May.<br />
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With Barretts' California sale out of the way already, and with Keeneland no longer hosting a juvenile auction, the next big two-year-old auction will be OBS's April extravaganza, from April 24th through the 27th, with some 1222 horses in the catalog. Usually lots to choose from for buyers at all levels in that sale, so one would expect the clearance rate to be a lot higher than in the select sales. We shall see.Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-33989435168041650762018-03-19T11:39:00.000-04:002018-03-19T11:39:03.330-04:002YO Sale Season Gets StartedThe two-year-old sale season has returned, with neither a bang nor a whimper. In contrast to prior years, when the Fasig-Tipton South Florida sale led off the calendar, this year the Ocala Breeders Sales Co.'s March sale was first, with the elite Fasig-Tipton sale, now hosted by Gulfstream, moving to the end of the month.<br />
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Whether the timing change affected results is unclear. Overall, the OBS results were pretty similar to last year's OBS March sale: 261 of the 573 horses originally catalogued were sold, for a 45.5% clearance rate. Those 261 include 44, an unusually high 17% of the total number sold, that were bought privately after failing to attain their reserve in the auction ring. Those "post-sale" purchases, as the sales companies describe them, are almost all for a price less than the sellers wanted, i.e., below the reserve, but were enough to convince the sellers not to take the horses home and try again later.<br />
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One hundred and two of the horses that actually went through the sale were listed as RNAs (reserve not attained) and did not sell privately before they left the sales grounds. That number was 17.8% of the total catalog. Using the sales companies' preferred measure of success, that meant that the "buy-back" or RNA rate was 28% of the horses that actually went through the ring. But another 210 horses originally catalogued for sale were scratched, many after poor breezes or after they failed to attract enough potential buyers to take a look at them in the days before the sale. So, looking at the catalogue as a whole, of the 573 horses originally listed, 45.5% sold (including "post-sales"), 17.8% were RNAs and 36.7% were scratched. Those numbers are roughly in line with the higher-quality sales in 2017.<br />
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The average price for horses sold at OBS March was $164,854, a decline of more than 12% from last year's $187,741, but the median price increased from $95,000 in 2017 to $105,000 this year, a 10.5% jump. The decline in the average reflects a slight weakening at the top of the market. At last year's OBS March sale, five horses sold for $1 million or more, and another four went for between $900,000 and $1 million. This year, the top price was $875,000 (for a Scat Daddy filly).Those million-dollar babies pulled the average up last year, but this year there were comparatively more sales in the $200,000-$400,000 range, pulling the median up.<br />
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As always at the two-year-old sales, blistering quarter-horse speed was at a premium. An astonishing 95 horses breezed an eighth of a mile in 10.0 seconds or less, 17 of them recording a time of 9.4. Another 11 "stretched out" to a quarter of a mile in less than 21 seconds. Reminder: a dozen years ago, The Green Monkey recorded one of the first-ever 9.4 breezes, at the Fasig-Tipton then-Calder sale. He sold for a record $16 million -- after Godolphin's John Ferguson and Coolmore's Demi O'Byrne engaged in conspicuous displays of masculinity for some 15 minutes -- and never won a race.<br />
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Nine of those horses with sub-10 furlongs or sub-21 quarters ended up in the list of the top 20 highest-priced horses at the Ocala sale, including the $875,000 sale-topping Scat Daddy filly. While it's true that, in the aggregate, the horses that breeze faster at the two-year-old sales do better on the race track than those that don't breeze well, it's also true that pressuring a horse to run faster than it ever will again, at a time when some of the horses aren't even 24 months old, can't help but contribute to unsoundness and shorter careers. Everyone knows this, but the buyers -- and especially the agents -- with the big bucks still want to see speed. As the late Pete Seeger said in another context, when will they ever learn?Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-35011654485425309952018-03-07T15:39:00.000-05:002018-03-07T15:39:40.290-05:00CDI - The Darth Vader of Racing?It's no surprise that corporations act in the interest of their <strike>shareholders</strike> top executives. Other constituencies or stakeholders -- employees, customers, cities and states where the corporations do business -- are just obstacles to be placated or overcome on the way to ever-higher profits. That's called capitalism.<br />
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But still. One hopes, dreams, deludes oneself that perhaps racing is different. So many of us are in the game for reasons other than profit-making. If we wanted to make money, there are a lot of better ways to do it. But we love the horses, we love the thrill of the race, we love the radical democracy of the racing world, where the opinion of a dark-skinned immigrant working a minimum-wage job has just as much value as that of a white male Wall Street lawyer. Yes, we need someone to run the tracks (although perhaps a not-for-profit model of some sort would be better than corporate ownership anyway), but this really isn't a game for unbridled (sic) capitalist greed.<br />
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So what happens when a corporation does own race tracks? The most egregious example is Churchill Downs, Inc. (CDI, to distinguish the corporation from the eponymous race track), about whose foibles I've written quite a few times. CDI's latest move, reported in the <a href="https://www.paulickreport.com/news/ray-s-paddock/florida-lawmakers-race-pass-gambling-bill-churchill-downs-calder-look-toward-jai-alai/">Paulick Report</a> and on <a href="http://floridapolitics.com/archives/258309-another-gambling-deal-emerges">floridapolitics.com</a>, is to obtain a jai alai permit for its Calder property in South Florida. That would allow CDI to dispense entirely with messy, inconvenient horse racing at Calder and substitute something that's a lot cheaper -- though of course no one bets on it -- as a means of retaining what it really wants, the slot machines and other "gaming" at the site. CDI has already demolished the grandstand and the barn area at Calder, and merely rents the track out to Frank Stronach's Gulfstream to keep the racing dates that are required for it to maintain its gaming license. But even that seems too much for a corporate executive suit(e) so narrowly focused on <strike>the bottom line</strike> their bonuses and stock options. To a corporation like CDI, racing is a necessary evil, because many jurisdictions foolishly, in CDI's view, condition the award of the slot machine and other gaming licenses on running actual real live horses at least a few days a year.<br />
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We've become inured to outrages from CDI. Buying and selling race tracks as if they were lifeless interchangeable machine parts, raising takeout on bettors, treating horse people as unwelcome interlopers in the horsefolk's's own world, etc. etc. But it wasn't always so. Perhaps a little history is in order.<br />
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Today's CDI is the inheritor of the fabled Churchill Downs track in Louisville created by one Kentucky Colonel, M. Lewis Clark, and made famous by another, Matt Winn, whose never-ceasing public relations efforts made the Kentucky Derby (presented by whoever this year's paying sponsor might be) into the one horse race that almost everyone in America knows about. While in its early years, Churchill was loosely affiliated with other tracks, especially Latonia (now Turfway) in northern Kentucky, it ran from 1875 until 1991 as pretty much a stand-alone operation whose business, whose only business, was horse racing.<br />
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<tr><td class="tr-caption" style="text-align: center;">Matt Winn</td></tr>
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Starting in 1991, as full-card simulcasting seemed to be the industry's new savior, CDI went into expansion mode, buying the Louisville Downs harness track, which it converted into a simulcast and training facility. Then in 1994 it bought Hoosier Park in Indiana, in 1995 Ellis Park in western Kentucky, in 1998 Hollywood Park in California and Calder Race Course in Florida, in 2000 Arlington Park near Chicago (by way of merger) and in 2004 Fair Grounds in New Orleans. Just looking at the acquisitions, one might be forgiven for thinking that CDI was actually interested in horse racing.<br />
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Not so, and certainly not so after Bob Evans became the company's CEO in 2006. Evans does breed a few horses, as do most rich folks in Kentucky, but all his pre-CDI business experience had nothing to do with racing; he was an executive at Caterpillar and involved in a number of investment firms. (Rather like current New York Racing Association CEO Chris Kay, who also knew nothing about racing when he got the job, having worked at Toys R Us and Universal Studios.)<br />
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Beginning with Evans's reign, CDI stopped being a horse racing company and became what it is today, a casino and online betting company that still, because of those pesky state lawmakers!, has to operate a few race tracks. CDI sold Hollywood Park, which was later torn down to make way for a new football stadium. By the end of 2006 it had also sold Ellis park and Hoosier Park. At the same time, it started opening up race track slot machine parlors, beginning in 2007 at Fair Grounds and then in 2010 at Calder. In 2007, it also launched the Twin Spires online betting platform, which now makes more money for the corporation that does actual horse racing. CDI even bought a couple of stand-alone casinos in Mississippi between 2010 and 2012. And while it did acquire another race track, the Miami Valley harness oval, that was only because the Ohio legislature had just authorized slot machines at that state's tracks.<br />
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Evans's move away from racing has pretty much been endorsed by his successor, Bill Carstanjen, who took over in 2014. Carstanjen did reverse the 2014 purchase of Big Fish Games, which distributed such online hits as Gummy Drop!, and he did oversee the purchase this year of Presque Isle Downs in Erie, PA, but apparently that was to acquire Presque Isle's slots license more than for its under-the-radar racing program.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLhO_Ry3ernEl2JJMBVKFxSZYKWrsjn3gWrKImd6hzj_nkzt_izkMJhSTZ34Tfgd1AY73GUHFQEd_-6uT6-0F0iNEjI0dREcGbw5oCY4BJDmoAYG0iwFuQmotCWH2JK6RQmIeMzYriGoUQ/s1600/SlotMachineapk.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="210" data-original-width="280" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLhO_Ry3ernEl2JJMBVKFxSZYKWrsjn3gWrKImd6hzj_nkzt_izkMJhSTZ34Tfgd1AY73GUHFQEd_-6uT6-0F0iNEjI0dREcGbw5oCY4BJDmoAYG0iwFuQmotCWH2JK6RQmIeMzYriGoUQ/s1600/SlotMachineapk.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Does this look like a race horse?</td></tr>
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Along the way, CDI has managed to enrage horsepeople, with its my-way-or-the-highway approach (something I saw first-hand after CDI bought Calder); bettors, by raising takeout; horse owners, by treating the owners of Kentucky Derby hopefuls as cash cows and not welcomed guests, and even other race tracks, as in its ham-handed efforts to squelch the innovative Kentucky Downs track.<br />
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Carstanjen, the current CEO, has been with CDI since 2005. Before that, he was at General Electric, not known for its horse racing expertise, but well known for its executive pay packages. In 2016, he made a mere $5.5 million in cash and company stock (eat your heart out, Chris Kay!). The numbers for 2017 aren't out yet, but are likely to be higher.<br />
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Under both Evans and Carstanjen, Churchill Downs Inc. has acted like a corporation. And that's a pity.Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-52728327406567386672018-02-21T14:20:00.000-05:002018-02-21T14:20:58.691-05:00So You Want to Buy a Derby HorseIt's that time of the year again. Kentucky Derby preps almost every weekend. Top 10/12/20 lists abounding. Rich folks without a horse on the Derby trail waving money around to try to buy a piece of one. So why not ask, if you want a Derby horse, what'll it cost you and where can you find it?<br />
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For a thoroughly unscientific study, let's look at the 21 horses with 10 points or more, as of February 22nd, on the <a href="http://www.drf.com/news/kentucky-derby-2018-point-standings">Kentucky Derby leader board</a>. I've omitted only one from the full list of 22, the filly Paved, who's not nominated to the Triple Crown and almost certainly won't be in the Derby starting gate.<br />
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Where did these 21 come from, what did they cost, and what does that say about the market?<br />
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Five of the 21 -- Noble Indy, Bravazo, Firenze Fire, Avery Island and Enticed -- are homebreds, with four of the five from the elite fields of Goldolphin, Calumet and Winstar (the fifth, Firenze Fire, was bred and is raced by Ron Lombardi's Mr. Amore Stable, and in any event has a bit more of a sprinter pedigree than one would like to see in a Derby contender). Back in 2014, when this year's Derby crop was being conceived, the homebreds' sires' published stud fees were:<br />
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Medaglia d'Oro (Bolt d'Oro) $100,000<br />
Awesome Again (Bravazo) $75,000<br />
Street Sense (Avery Island) $40,000<br />
Take Charge Indy (Noble Indy) $20,000<br />
Poseidon's Warrior (Firenze Fire) $6,500.<br />
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Not quite the top of the market, though Medaglia d'Oro's fee was in the top echelon. And generally proving, as California Chrome did, that a Derby horse can come from anywhere (but don't look for Firenze Fire to throw a lot of classic horses as a stallion).<br />
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What about the other 16 horses, the ones that are being raced by someone other than their breeders? One, Mourinho, was sold privately as a two-year-old, for $675,000, with the breeder apparently retaining a minority interest. The other 15 all went through public auctions, as yearlings, as two-year-olds, or in a few cases as both.<br />
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Fourteen of the Derby points leaders sold as yearlings in 2016, mostly at the Keeneland September sale, with a few selling at the Fasig-Tipton Saratoga auction. Prices ranged from $1,000,000 for Breeders Cup Juvenile winner and two-year-old champion Good Magic to $20,000 for My Boy Jack, winner of this past weekend's Southwest Stakes at Oaklawn, and $30,000 for Snapper Sinclair, second to longshot Bravazo in Saturday's Risen Star at the Fair Grounds. The aggregate sale price for all 14 horses that went through yearling auctions was $3,693,000, an average of $264,000.<br />
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Four horses were sold at two-year-old auctions last year, for prices ranging from $1,050,000 for Instilled Regard (4th in Saturday's Risen Star) down to $180,000 for the pinhooked Snapper Sinclair. In total, the four juvenile sales brought $2,190,000, an average of $548,000.<br />
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A decade ago, in <a href="https://therail.blogs.nytimes.com/2008/05/01/two-year-old-sales-can-now-lead-to-derby/">a piece for the New York Times' "At the Rail" blog</a>, I predicted that two-year-old sales would increase in prominence as a source of Derby Trail horses. That year (2008), six horses in the Derby field, including the winner, Big Brown, came through the two-year-old market and a seventh was entered in a juvenile sale but didn't meet its reserve. This year, assuming that some two-year-old sales grads don't jump up in the Derby points standings at the last minute, only four of the top 20 will come from juvenile auctions. What happened, other than my making a bad prediction?<br />
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First, the collapse of the thoroughbred market after the 2008 financial crisis meant that there were just fewer good horses. The North American foal crop declined from more than 38,000 in 2005, when the 2008 Derby horses were born, to just under 23,000 in 2015, a drop of 40%. While the decline primarily meant that fewer not-so-fast horses were being born, as unproductive mares were retired, it had at least some impact on the top of the market as well. Anecdotally, agents and high-end buyers say that it's tougher now than it was a decade or two ago to find a real classic horse, and that they have to pay more to get it. So perhaps, once someone buys a top yearling, the buyer may be a bit more likely to hold onto it rather than pinhook it into a juvenile sale. Logical, even if I haven't done the studies required to prove the hypothesis.<br />
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Second, buyers of elite horses may be learning that the two-year-old auctions are a mixed blessing. On the one hand, a buyer can see how a horse runs on the track and how it has developed from a yearling and have a much better idea of what it will look like as a race horse. On the other hand, the rigorous training necessary to get a yearling two the two-year-old sales, where they breeze an eighth or a quarter of a mile faster than they ever will again, may put too much pressure on young, developing bones and lead to later soundness issues. Here's what I wrote ten years ago, all of it still unfortunately true:<br />
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<i>As the importance of these sales grew, so did the role of “pinhookers,” who buy yearlings and then train them over the winter in Florida and sell them as two-year-olds. And so has the importance of the “breezes,” when these young horses run an eighth or a quarter of a mile before the sale. A difference of a few fifths of a second in a breeze time can be worth hundreds of thousands of dollars when the horse enters the auction ring, and the difference between profit or loss for the pinhooker who risked millions buying those yearlings.</i></div>
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<i>Horses at the sales routinely run an eighth of a mile in 10 seconds flat, with the occasional breeze in 9.8 seconds, which will bring the seller millions. That’s a lot faster than horses run in races, and no indicator at all of how they might do going a mile and a quarter in May of their three-year-old year. If you go to the breeze shows before the sales, you’ll see dozens of trainers and bloodstock agents clocking not just the breeze, but also the “gallop out,” how the horse runs for the eighth or quarter of a mile after the wire. Not to mention the extra-slow-motion videos that the truly serious buyers and agents use, the vet exams, heart scans and similar attempts to separate the very best from the merely good.</i></div>
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Perhaps some buyers have learned the lessons provided by two-year-old sales graduates and have decided that buying a yearling and controlling its training on the horse's own timetable rather than that of the sales is the best way to get to the Kentucky Derby. We shall see.</div>
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<br />Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-70975309446123763462018-01-03T13:12:00.000-05:002018-01-03T13:21:16.537-05:00No More Gummy Drops for Churchill<div style="text-align: justify;">
<span style="background-color: #fff2cc;">Last November, Churchill Downs Inc. (CDI), the slot-machine and bet-taking company that happens to host the Kentucky Derby, <a href="http://www.kentucky.com/news/business/article187171508.html">announced</a> that it was selling its largest single asset, something called Big Fish Games. Superficially, as <a href="http://www.kentucky.com/news/business/article187171508.html">the story in the Lexington Herald-Leader</a> and other media outlets suggested, it appears that the Churchill suits had made a nice short-term profit. They bought Big Fish, whose best known offering is something called Gummy Drop!, a game apparently played by millions on their phones, for $885 million less than four years ago. The sale of Big Fish, to a subsidiary of the Australian-based Aristocrat Leisure Ltd., is for an announced price of $990 million, which would represent a profit of $105 million, a 12% gain, over what CDI paid for Big Fish, not counting whatever profits Big Fish contributed to the CDI bottom line over the past few years. Lots of potential adjustments to the price, <a href="https://www.sec.gov/Archives/edgar/data/20212/000002021217000048/exhibit21stockpurchaseagre.htm">according to the contract</a>, but still, CDI is making a nice bit of change.</span></div>
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<span style="background-color: #fff2cc;"><span style="background-color: #fff2cc;">The reality is a bit more complicated. For one thing, the sale of Big Fish seems to represent a sharp U-turn in CDI's corporate strategy. Just a few months ago, when </span><a href="http://businessofracing.blogspot.com/2017/04/from-horse-racing-to-gummy-drop.html" style="background-color: #fff2cc;">I looked at CDI's annual report for 2016</a><span style="background-color: #fff2cc;">, it appeared that the suits (including pant suits; Churchill's CFO is a woman) in Churchill's executive suite were committed to a strategy that downplayed racing and that focussed on people mindlessly watching video screens, whether those screens were on their phones or on slot machines in CDI's casinos. Now, if one is to believe the </span><a href="http://markets.businessinsider.com/news/stocks/Churchill-Downs-Incorporated-Announces-Agreement-to-Sell-Big-Fish-Games-Inc-to-Aristocrat-Technologies-Inc-for-US-990-million-1009972313" style="background-color: #fff2cc;">press release</a><span style="background-color: #fff2cc;"> announcing the sale, CDI "</span><span style="background-color: #fff2cc; font-family: inherit;"><span style="background-color: white; color: #222222;">will refocus our strategy on our core assets and capabilities including growing the Kentucky Derby, expanding the casino segment, </span><span class="skimlinks-unlinked" style="box-sizing: border-box; color: #222222;">TwinSpires.com</span><span style="background-color: white; color: #222222;"> and other forms of real money gaming, and maximizing our thoroughbred racing operations." For a company that has a well deserved reputation in the industry for its cavalier treatment of bettors and horsemen, focusing on racing seems, well, odd.</span></span></span></div>
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<span style="font-family: inherit;"><span style="background-color: #fff2cc; color: #222222;">In addition, Big Fish Games, if not responsible for all of CDI's profits, has certainly been a big element in leading the company's stock to ever greater heights in the market. In December, 2014, just before the acquisition, Churchill stock was selling at $93 a share. Today, the price is nearly $240. That's an increase of more than 150% in just three years, way better than any of the major market averages. Must make the bean-counters in the CDI executive suite proud -- as well as seriously enhancing the value of their stock options. So why jettison a piece of the company that has been an integral part of the stock price run-up?</span></span></div>
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<span style="background-color: #fff2cc; color: #222222; font-family: inherit;">Theory No. 1: One possible reason is to take CDI at its word; maybe they really do want to refocus on racing. Well, actually they don't say racing. They say Kentucky Derby. I suspect they'd happily dump all their other racing dates, whether at Churchill Downs itself, the Fair Grounds or Arlington, just as they've already dumped Calder, if only they could keep two days for the Derby and the Kentucky Oaks.</span></div>
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<span style="background-color: #fff2cc; color: #222222; font-family: inherit;">What they actually said was that they were refocusing on the Derby, their in-house ADW, Twin Spires, and on casinos, with an afterthought of "maximizing our . . . racing operations." Maximizing what, exactly? If it's profit, then a two-day Derby and Oaks season would be ideal; racing probably loses money for CDI over the balance of the calendar. And not having to deal with those irritating horse people would be a big plus.</span></div>
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<span style="background-color: #fff2cc; color: #222222; font-family: inherit;">So, on that theory, What CDI is really doing is focussing on Twin Spires and on its casinos around the country. Could be a good strategy; with online betting on all sports, not just racing, looking ever more likely, Twin Spires and its well developed betting technology would be in a good position to capture a significant share of that emerging market. As for casinos, well, they're showing some signs of market saturation, but it's still a highly lucrative sector for CDI, producing just over 25% of the company's net revenue in the nine months ending September 30, 2016. (CDI's annual figures for 2017 won't be available until sometime in February.)</span></div>
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<span style="background-color: #fff2cc; color: #222222; font-family: inherit;">Theory No. 2: The execs want to boost the stock price, and getting a bunch of cash that can be used to buy back shares (a tactic that normally increases the prices of the remaining outstanding shares) is a quick and effective way to do that. The CDI press release announcing the Big Fish sale says that up to $500 million of the cash they'll get in the sale can be used for stock repurchases. That's almost 14% of CDI's current market capitalization of $3.6 billion. Enough to move the share price and, not so incidentally, the value of the executives' stock options. Never underestimate the power of short-term personal gain.</span></div>
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<span style="background-color: #fff2cc; color: #222222; font-family: inherit;">Theory No. 3: The traditional corporate suits in Louisville finally realized that they would never domesticate the video-game millennials in Seattle. Before CDI bought the company in 2014, Big Fish had been around for a dozen years, part of the West Coast computer culture. All the photos I've seen of CDI execs seem to include white shirts and ties; not many of those in evidence at Big Fish. Sometimes it's just too difficult to keep the children in line. It wouldn't be the first time that a corporate merger foundered on the shoals of clashing cultures.</span></div>
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<span style="background-color: #fff2cc;"><span style="color: #222222; font-family: inherit;">Theory No. 4: Get out while the getting's good. In 2017, for the first time since the CDI acquisition in 2014, Big Fish's net revenue declined (from $370 million for the first nine months of 2016 to $342 million for the corresponding period in 2017, a drop of 7.5%). The video game market is notoriously volatile, and Big Fish itself is no stranger to ups and downs; it suffered a </span><a href="https://www.geekwire.com/2013/full-memo-big-fish-ceo-announces-job-cuts-closure-ireland-bc-facilities-cancellation-cloud-games-business/" style="font-family: inherit;">severe retrenchment</a><span style="color: #222222; font-family: inherit;"> in 2013, perhaps precipitating the sale to CDI. Is the revenue decline in 2017 a sign of worse to come? If the CDI execs thought so, now would be a great time to divest.</span></span></div>
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<span style="background-color: #fff2cc; color: #222222; font-family: inherit;">I don't have an inside source in the CDI boardroom (or, for that matter, in any other racing industry corporate headquarters), so I don't know which of these theories is right, or if, perhaps, they all are in some degree. I lean toward Nos. 2 and 4, enhancing the CDI share price and getting out ahead of potential disaster. But, then, I'm oh so cynical when it comes to corporate motives.</span></div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-22647936508999788062017-12-21T15:47:00.002-05:002017-12-21T15:47:34.322-05:00The GOP Tax Bill, Horses, and the Rest of Us<div style="text-align: justify;">
Someday soon, the ignorant, incurious, lazy, lying, racist, sexist, narcissistic, sociopathic, kleptocratic dotard who, incredibly, is President of the United States will sign the Republican tax bill, making it, at least until the 2018 election, the law of the land.</div>
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For those still reading, I don't intend to rehash here the many odious features of the bill. They have been analyzed well by experts <a href="https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.551ef6d4c984">here</a>, <a href="https://www.nytimes.com/2017/12/21/opinion/republican-tax-bill-trump-corker.html?_r=0">here</a> and <a href="http://www.latimes.com/business/la-fi-tax-returns-update-20171220-htmlstory.html">here</a>, among many other places. A complete summary of the bill, by the usually reliable lawyers at my former firm, is <a href="https://sullcrom.com/siteFiles/Publications/SC_Publication_US_Tax_Reform_12_20_17.pdf">here</a>. In this piece, I just want to consider (1) what the bill does for (mostly rich) thoroughbred breeders and owners; (2) what it does for, or perhaps to, gamblers; and (3) what those of us in New York, California and other Blue states targeted by the GOP with its limit on state and local tax deductions can do to sabotage the bastards.</div>
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<b>I. Impact on Breeders and Owner</b>s</div>
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Like every one of the 535 members of Congress, I have not read every word in the new tax bill. I have, however, read the horse-relevant sections, and my conclusions are much the same as those of the National Thoroughbred Racing Association, which lobbied hard for the provisions and whose analysis can be found <a href="https://www.ntra.com/tax-bill-benefits-thoroughbred-breeders-and-owners-doubles-certain-depreciation-benefits-retains-miscellaneous-loss-deduction-for-horseplayers/">here</a>.</div>
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First, the bill accelerates what was already a favorable depreciation regime for owners and breeders. Under the new legislation, the maximum "Section 179 deduction," which permits immediate deduction of capital expenses -- rather than having to depreciate them over a period of years -- is increased from $500,000 to $1 million, and eligibility for the deduction is extended to businesses with up to $2.5 million in income, increased from current-law $2 million.<br />
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Second, for operations that are too big to benefit from Section 179, the bill expands "bonus depreciation," which allows 100% expensing of both new and used property in the first year it is placed in service -- including yearlings, breeding stock and farm equipment.<br />
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Third, the bill shortens the depreciable life for farm machinery and equipment from seven to five years and allows farms to use a faster depreciation schedule that front-loads the tax deductions in the first couple of years. Race horses already benefit from an accelerated three-year depreciation schedule.<br />
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Taken together, all these provisions significantly increase the ability of breeders, and to some extent owners, to write off their capital expenses faster, thereby reducing their tax bills in the short term. And in the long term, as economist John Maynard Keynes said, we're all dead.<br />
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Fourth, the bill reduces the nominal corporate tax rate from 35% to 21%. For those breeding operations organized as corporations, that means an immediate cash windfall. Trump and his sycophants say that will lead to increases in jobs and wages. More likely, it means that the farm owner or corporate CEO will be driving that new Maserati SUV.<br />
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Fifth, for the majority of breeders and racing stables that are organized as partnerships, limited liability companies and "S" corporations, the bill exempts roughly a quarter of income from tax, under the "pass-through" provisions that have been in the news. Coupled with the reduction in the top personal income tax rate, that means a successful breeder or owner would pay tax at less than a 30% rate, compared to nearly 40% under current law.<br />
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Sixth, the bill doubles the estate tax exemption from $11 million to $22 million, resulting in a windfall of more than $4 million (at the 40% estate tax rate) for the heirs of those who are smart enough to die before the Democrats retake Congress and return (I hope) to a sensible, progressive estate tax that makes deserving heirs like Paris Hilton or Donald Trump Jr. actually work for a living.<br />
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All of this, I guess, is good news for the country-club set and other richies, a few of whom do in fact participate in racing. And, while their new-gotten gains are unlikely to be translated into wage increases for their employees, they may be tempted to spend more for high-end race horses. Whether that does any good for the rest of the industry is quite another question.<br />
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<b>II. Effect on Gamblers</b></div>
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As we all know, the tax treatment of gambling on horse racing has been unfair for years. The NTRA scored a major victory earlier this year, <a href="http://businessofracing.blogspot.com/2017/09/treasuryirs-finally-recognize-reality.html">when the Treasury Department revised regulations</a> to reduce withholding and the issuance of W-2G income-reporting forms with respect to exotic bet payoffs. There's already some, as yet inconclusive, evidence that the change has increased "churn," the amount that horseplayers put back into the mutuel pools.</div>
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The new tax bill leaves intact another unfair piece of tax law affecting gamblers, by requiring that gambling losses be used to offset gambling winnings only by way of an itemized deduction. With the elimination of the personal exemption and the doubling of the standard deduction to $24,000, fewer taxpayers will itemize deductions and, therefore, fewer will be in a position to offset their gambling winnings. Balancing that, perhaps, is the fact that, as a result of the regulations change, fewer taxpayers will receive W2-G forms at the end of the year and therefore feel that they have to report gambling winnings at all. So in this, as in many of its provisions, the new bill actively encourages tax cheating. Good work GOP.</div>
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In addition, for the relatively small number of people who can convince the IRS that they are in the "trade or business" of gambling, the bill effectively eliminates the possibility that they could have a loss in one year carried forward or back to reduce taxes in other, profitable years. It does so by lumping in such a gambler's ordinary expenses, like travel and lodging, along with winnings in the amount that can be offset by losing tickets, so that those additional expenses cannot be used to create a tax loss in any year. Nobody's going to win an election campaign by promising to make things better for professional gamblers, but, still, it ain't fair. If you trade in pork bellies or Bitcoin futures, you can deduct those expenses, but not if you trade in the chances of number 6 in the feature.</div>
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<b>III. The Bill's "Fuck You" to Blue States</b></div>
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As we all know by now, the bill limits the deductibility of state and local taxes (SALT) to $10,000, with no doubling for a married couple's joint return. This is just pure vengeful payback aimed at states like New York and California that have (a) lots of Democratic voters, (b) relatively high property values and, hence, property taxes; and (c) high state and local income taxes that support decent public services. For ordinary middle-class taxpayers in these states, the bill will mean a significant loss of itemized deductions and, therefore, a significant increase in the amount of federal tax that they'll owe. Every taxpayer's situation is different, but broadly, taxpayers with household income of between $75,000 and $600,000 in New York City, where I live, are virtually certain to face federal tax increases because of this one provision.</div>
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(The bill also reduces the amount of a mortgage that will qualify for the mortgage interest deduction from $1 million to $750,000. I'm less outraged by this, though it will affect some homeowners in New York and California; people with million-dollar homes aren't the most deserving objects of our concern.)</div>
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But, because the bill was rushed through Congress, there's a gigantic loophole that, with the cooperation of state and local governments, could completely eliminate the SALT limitation. The estimable Martin Sullivan, chief economist of Tax Analysts and a former Treasury and Joint Committee on Taxation staff member, laid out the strategy yesterday <a href="https://twitter.com/M_SullivanTax/status/943487675172048898">on Twitter</a>. A state or local government sets up a charitable fund to carry out government functions, then gives a taxpayer a 100% credit against state taxes for "contributions" to that fund. The state gets just as much money, the taxpayer gets a reduced state or local tax bill and can come in under the Republicans' punitive $10,000 limitation. Such a system is already partially in place in Arizona and Maryland and has been endorsed by the IRS in its taxpayer publications and in an IRS chief counsel's memorandum and a Tax Court case, both dating to 2011. </div>
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So now it's up to us to make sure that our state and local officials know about the loophole and that they promptly take steps, in the 2018 legislative sessions, to provide relief for their endangered taxpayers. Let's fight back against the rape of Blue states by the <a href="https://www.urbandictionary.com/define.php?term=troglodyte">troglodytes</a> in Washington.</div>
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Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-53058256927869023912017-12-06T15:15:00.000-05:002017-12-06T15:15:05.119-05:00What Do the NYTHA Election Results Mean?<div style="text-align: justify;">
The New York Thoroughbred Horsemen's Association (NYTHA) <a href="http://tharacing.com/new-york-thoroughbred-horsemens-association-election-results/">election results</a> 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.</div>
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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.</div>
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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.</div>
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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.</div>
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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.</div>
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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.</div>
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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.</div>
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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.</div>
Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-80500002175004390662017-11-13T15:52:00.001-05:002017-11-13T15:52:23.807-05:00FWIW, My Choices in the NYTHA ElectionI 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.<br />
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As I noted in my <a href="http://businessofracing.blogspot.com/2017/10/rick-violette-ave-atque-vale.html">last post</a>, 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.<br />
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Seven candidates are running for the five trainer-director slots. Of the incumbents, I think <b>Pat Kelly</b>, <b>Leah Gyarmati, Linda Rice </b>and <b>Rick Schosberg </b>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.<br />
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For the remaining spot, I'm casting my vote for recent Breeders Cup winner <b>John Kimmel</b>, 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.<br />
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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.<br />
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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 <a href="https://www.indiancharlie.com/2017/11/09/friday-november-10-2017/">Indian Charlie's comments</a>. It's not often I agree with staunch Republican Injun Chuck, but he's dead-on on this one.<br />
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So, who to vote <i>for</i>? <b>Tina Bond </b>and <b>Jack Brothers</b> 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: <b>Jim Caterbone</b>, <b>Kim Laudati</b>, and <b>Aron Yagoda.</b> 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 <b>Mike Shanley</b>, who has good contacts in Albany, but has been, in my opinion, far too reticent in aggressively asserting horsemen's interests.<br />
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Good luck to all.<br />
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<br />Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-25410907015494490062017-10-24T18:10:00.001-04:002017-10-24T18:10:36.284-04:00Rick Violette, Ave atque ValeAfter 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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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Here are a few of the things, in vaguely chronological order, that happened on Rick's watch.<br />
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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.<br />
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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.<br />
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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.)<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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Ave atque vale.Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0tag:blogger.com,1999:blog-7351891383352520641.post-37567073988191096982017-09-27T11:51:00.000-04:002017-09-27T11:51:25.337-04:00Treasury/IRS Finally Recognize RealityA 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 <i>Tax Lawyer </i>1 (1995).)<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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. <a href="https://www.federalregister.gov/documents/2017/09/27/2017-20720/withholding-on-payments-of-certain-gambling-winnings">New regulations</a>, 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.<br />
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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.Steve Zornhttp://www.blogger.com/profile/00290710261555708639noreply@blogger.com0