The Business of Racing

There He Goes Again: Stronach's $10 a Share Scheme

2012-01-04T03:19:00.001-05:00

Frank (center) and friends

As readers of this blog know, I have no love for Frank Stronach, or for what he's done to racing. I've discussed some of his more egregious conduct here, here, here and here, just for starters.

Stronach is already the highest-paid executive in his adopted country of Canada, where he emigrated from his native Osterreich. Now Frank has come up with yet another approach to separating racing fans and would-be thoroughbred owners from their money. On December 28, 2011, companies controlled by Stronach filed six registration statements with the US Securities and Exchange Commission; each registration was for a separate corporation, each named for successful Stronach horses: Awesome Again, Red Bullet, Ghostzapper, Macho Uno, Perfect Sting and Ginger Punch. Each of the corporations proposes to sell $4,050,000 worth of $10 shares to the public. The balance of each corporation's total capitalization of $4,500,000 will be held by another Stronach entity called Golden Pegasus, giving Frank effective control of each company.

Each of the corporations will own 20 brand-new two-year-olds, which were purchased at auction last year by yet another Stronach company. The new corporations will have racing rights to the horses only for their two-year-old seasons and for their three-year-old year up until November, 2013, when the horses will be sold and the proceeds, if any, distributed to the shareholders. That's a very strange provision, since it puts enormous pressure on the trainers to produce early results, possibly at the expense of a horse's longer-term career. Also, a significant portion of good horses' earning come in their fourth and subsequent years, so shareholders won't get the full benefit of those earnings.

[All six registration statements are substantially the same, except for the identity of the horses. The one that I've reviewed thoroughly, and that I discuss in detail in this post, is for the Awesome Again Racing Corp. and is on file here.]

Frank's last ride in the market

Announcement of the Stronach offerings has drawn a bit of press interest, and was welcomed by industry chronicler Ray Paulick on his web site, which also quotes West Point Thoroughbreds chief Terry Finley as saying that Stronach's plan is good for racing. There's been a vigorous debate in the comments section of the Paulick piece.

I've read all the comments, and I've applied my law-trained eye to the SEC registration statement. Alas, there's only one conclusion I can draw: this is just one more Stronach scheme to separate those in the racing industry from their money and add that money to Frank's own obscene hoard.

Before turning to the specifics revealed by the SEC filings, a bit of disclosure. I'm racing manager of Castle Village Farm, a modest thoroughbred partnership operation based in New York. We communicate regularly with our partners by email, we host them at the barn and the training track every week, they're all welcome in the paddock and the winners circle on race days, we provide detailed monthly financial reports on our modest expenses, and we don't mark the horses up much when we buy them for resale to the partners. In other words, we, and some other small partnership operations, offer a real racetrack experience, at an affordable price, for someone who might want to get in the game with only $1,000 or so. But if heavy advertising and misguided press enthusiasm steer prospective owners to bottomless pits like Stronach's corporations, that'll deprive those of us who do offer real ownership experience the chance to introduce new partners to the game in a way that will encourage them to stay involved. Enough said.

Now for the details of the Stronach offering.

Each of the six new corporations is offering $4,050,000 at $10 a share, with a total target investment for each of $4,050,000. The offering is initially open for only 90 days from December 28, 2011, but each corporation has the option of extending the offering for another 90 days, into late June, 2012. If the target investment isn't subscribed by then, so the SEC filing states, all money will be returned to the prospective investors.

Each corporation owns 20 new two-year-olds, purchased last year at an average of $60,000 or so each. If the full amount of $4,500,000 is subscribed (including Stronach's own 10%), the $1.2 million or so in purchase prices will be paid back to a Stronach corporation.

The horses are currently in training at Stronach's Adena Springs complex in Florida. As of December 23, 2011, each new corporation is paying a Stronach entity some $150 a day for training and routine vet costs (there's a $100,000 reserve for "emergency" vet bills). That sounds way too high for training-center costs; $60-75 a day would be much more reasonable, even including routine vet work and farriers. Even when the horses move to trainers' barns at various racetracks, that sounds high, at least compared to what I know to be the actual trainer and vet charges in New York, which must be the most expensive locale in the US to train at. That $150 a day will be charged every day except when horses are on injury layups; then the charge drops to $60 a day, somewhat closer to reality. Although the SEC registration statement says that Golden Pegasus, the Stronach entity that collects the $150 a day, will return any profit above 10% to the shareholders, Golden Pegasus itself will be paying training bills to Adena Springs, another Stronach entity. That's called transfer pricing, hiding the profit in deals between various corporate subsidiaries. Shareholders shouldn't expect to see much in the way of a profit rebate from Golden Pegasus.

Initial expenses of the stock offering are estimated at about $200,000; naturally, one has to engage a big national law firm to do stuff like this. In Frank's case, that firm is Akerman Senterfitt, a politically-connected Florida-based operation. So, six times $200,000 equals well over a million. Not a bad few days' work for the lawyers and accountants.

Overall, the SEC filings estimate that $1.2 million of the $4.05 million initial capital in each corporation will be used to pay for the horses, $1.8 million will go for the (inflated) training and vet costs, and $1.1 million for "administrative and legal" expenses. Good deal, apparently for the lawyers, since administrative expenses are minimal. The corporations' only employees are longtime Stronach horseman Jack Brothers, CEO of each of the six corporations, and CFO Lyle Strachan. Brothers is supposed to get $25,000 a year from each corporation, for a total of $150,000, and Strachan $16,667, for a total of $100,000. Mysteriously, the registration statements report that the corporations have begun charging $1,150 a day -- an annual total of $420,000 for each corporation. Care to explain the discrepancy, Frank?

Brothers, Strachan and others in the deal are already on a Stronach payroll, somewhere in the labyrinth of interlocking companies that Stronach controls. In addition, the horses assigned to the corporations were initially chosen by a "selection team" that included Adena Springs' house vet, Dr. Peter Kazakevicius, as well as two principals in the Kentucky-based Hidden Brook Farm. Interestingly, Jack Brothers and others associated with the new Stronach venture are also listed on Hidden Brook's web site. Conflict of interest anyone? And each corporation's Board of Directors is composed -- surprise! --almost entirely of veteran Stronach employees and cronies

The offering statements also say that the horses will race primarily at Stronach-owned tracks -- Santa Anita, Gulfstream and Maryland -- assuming that Stronach hasn't destroyed Maryland racing before the horses reach the starting gate. Is that the best way to maximize shareholder value, when the most prestigious, value-enhancing races are in New York and Kentucky?

As it must, the SEC registration statement cites a long list of risk factors. It starts off the list with the following instructive statement, which is actually a pretty good model for any racing partnership to adopt:

"Investing in thoroughbred racehorses is a speculative activity, and the most frequent financial outcome from ownership of a thoroughbred racehorse or an equity interest in a thoughbred racehorse is the partial or total loss of invested capital."

That's certainly true. On average, a racehorse in the US earns about half as much as its annual training, vet and other maintenance costs. And well over 90% of all racehorses lose money for their owners, even before taking into account the amount the owner paid to acquire the horse. The last time I looked, some two years ago, a horse racing in New York had to earn about $50,000 to break even. And that's without the high fees, administrative charges and other burdens that Stronach proposes to impose on his investors. Just the administrative costs alone would raise that number to something like $75,000 -- before taking into account the amounts paid initially for the horses. And since the investor gets only the horse's (usually abbreviated) two-year-old season and perhaps 80% of its three-year-old year, I'd be astonished if more than two or three at most of the 20 horses in each corporation end up paying their way.

Nothing in the offering document offers investors much of a racetrack experience, either. And Stronach has a track record here. Comments from embittered veterans of his previous partnership vehicle, Adena Springs Joint Ventures, complained in their comments on the Paulick Report that they had virtually no hands-on involvement with their horses. That stands in sharp contrast to the situation with most successful racing partnerships, that offer their partners much more of an up close and personal experience, including barn visits, hospitality at the track, regular updates on their horses, etc. So let's see: a near-guaranteed loss of money, plus no direct involvement with your horse: sure sounds like a winning formula to me. But presumably the shareholders can get win photos, if they pay for them.

Supporters of the Stronach proposal have compared it to racing clubs in Japan, which are structured along similar, if not quite so rapacious, lines, or to the fan ownership of shares in the effectively not-for-profit Green Bay Packers. But there are key differences. Japanese purses are far higher than in the US, costs are lower, and a greater percentage of horses actually pay for themselves. And the Packers are the kind of community institution that inspires fan loyalty; can anyone say that about Frank Stronach and a group of 20 anonymous horses?

Speaking of those horses, I had a quick look through the list of yearlings attached to the Awesome Again Racing Corp. offering statement. Looks like the list is heavy with precociousness and speed orientation, which at least is consistent with the emphasis on racing at two and three. And not too many of Stronach's own sires are represented. Of the 20 horses, whose purchase price averaged just over $60,000, three were bought for more than $100,000 each, and a majority cost less than $50,000. That's not generally regarded as the most likely point in the market to find a big horse.

Lots more detail available in the SEC files, but that's enough to scare me off. And I'm even one of the few who made a profit vis-a-vis Stronach; I got in and out of his now-worthless Magna Entertainment Corp. stock a few years ago with a profit of all of $100. Thanks for small favors, Frank, but, as George Bush once lamentably tried to say, fool me once, shame on you; fool me twice, shame on me.

Does the Queen want to buy a few shares?

Hong Kong 3: Drug Rules and Horse Care

2011-12-30T07:56:00.000-05:00

When it comes to drug use, Hong Kong is one of the strictest racing jurisdictions in the world. No medications are allowed. Period. And some drugs -- Lasix, for example -- can't even be used in training.

At the same time, Hong Kong is among the most transparent jurisdictions regarding the physical condition of horses entered in races. The Hong Kong Jockey Club's web site has a link to complete veterinary information for every horse entered in every race, and in far more detail than is available to US bettors. For example, a look at Sunday's upcoming card at Sha Tin shows reports on which horses showed up lame after a race, which had fevers, which showed mucus or traces of blood in the trachea, which ones had fractured bones, which ones had suspensory injuries, and much more. I'm not sure whether all that information would actually help a bettor, though I find it valuable in explaining layoff lines, but it can't hurt.

Hong Kong, of course, has many inherent advantages over the US when it comes to regulating drugs. As I mentioned in the first of these posts, the Hong Kong Jockey Club is racing's sole regulator, enforcer, operator, and virtually sole employer. All the vets work for the Jockey Club, as do all the grooms. No trainers with private vets to make everyone suspicious. That makes things a lot easier to police. And the HKJC's drug testing lab, with a professional staff of 40, is a match for just about any of the labs in the US. Given the small number of racing days, Hong Kong almost certainly tests a higher proportion of horses than any US jurisdiction. It's not just the winners and a few random horses from each race that are tested, but also any horse that, in the opinion of the stewards, fails to perform to expectations.

Another advantage Hong Kong has in being able to ensure clean racing is that it screens horses before they can be imported into the jurisdiction. Once a member of the Jockey Club wins the annual lottery giving him or her the right to import a horse, that owner has to secure the Jockey Club's approval for the actual import. That screening process keeps out unsound horses and tends to insure a homogeneous, competitive supply of horses in the barns.

A further advantage is that older horses have a guaranteed retirement option; they don't have to be held together with drugs and tape while they slide down the claiming ladder. The Jockey Club requires each owner to post a HK$40,000 (US$5,000) deposit when the owner imports a horse. If the owner can arrange a confirmed retirement placing for the horse, the deposit is refunded. If not, the Jockey Club adds some of its own funds and itself arranges for retraining of the horse and finding a new career for it in China. In some cases, the Jockey Club will pay as much as another HK$80,000 on top of the owner's deposit. It's a great plan, and not just because it has the ancillary effect of reducing drug use in older horses. The US could do well to emulate such a plan, with mandatory contributions toward retirement by each thoroughbred's breeder and each subsequent owner.

Still, even with all these advantages, Hong Kong race horses aren't paragons of health. The incidence of actual bleeding during or immediately after a race is very high by world standards -- 4.6 per 1,000 runners. That compares to 2.0 per thousand in the US before widespread use of Lasix and only 0.7 per thousand currently. Dr. Brian Stewart of the Hong Kong Jockey Club attributes the high rate primarily to pollution and high humidity in an urban training environment. And, interestingly, there's less bleeding at the evening meetings at Happy Valley, when temperatures and humidity tend to be lower. Horses also tend to lose weight on the van trip over to Happy Valley from their barns at Sha Tin. I can understand that; I'm sure I lose weight just through stress and fear every time I take a long taxi ride in Hong Kong. Dr. Stewart's full report on bleeding at Hong Kong tracks can be found here.

Some of the pollution problem -- and Hong Kong is certainly a lot more polluted than New York, Chicago or Los Angeles, thanks both to too many cars on the road and to industrial pollution blowing over from China -- may be alleviated in a couple of years when the Jockey Club opens its Conghua training center in China, about three hours' drive from Hong Kong. The training center will have room for 400 horses, allowing them to be rotated out of the crowded racetrack training environment at Sha Tin, and will have a mile and a quarter turf course, a six-furlong uphill turf gallop and two synthetic training tracks, as well as swimming pools and turn-out paddocks. I can feel the envy of those who train even at Fair Hill or Saratoga, much less Belmont and Aqueduct. In any event, getting horses out of Hong Kong for a part of each season should help the bleeding problem.

Part of the opposition to Lasix on the part of the Hong Kong Jockey Club is based on their vets' firm belief that Lasix is a masking agent for some other drugs. That's a belief that most US equine vets strongly reject; the US lab chiefs say that their testing has advanced to the point where Lasix is no longer effective in hiding other drug use. That's a scientific argument that I don't have the knowledge to have an opinion on, and one, I suspect, that will remain unresolved.

Could the US go to a racing environment that's as drug-free as Hong Kong's? Should it? After all, Hong Kong has an incidence of serious bleeding that's more than six times as high as that in the US. But those are questions for another day. For now, with only one or two more trips to the racetrack left before we return to New York, I'm just content to enjoy the high-quality racing and the spectacular customer service in Hong Kong.

See you at Aqueduct.

Hong Kong 2: The Race Track Experience

2011-12-29T02:04:00.018-05:00

The beer garden at Happy Valley

Critics, consultants and industry insiders in US horse racing agonize over how to make race-going a fan-friendly, exciting experience, one that newcomers will enjoy and want to repeat. In Hong Kong, they've figured out how to do that. True, the circumstances are different, and Hong Kong racing doesn't face the kind of competition from other spectator sports and gambling options that tracks in the US face, but, nonetheless, perhaps there's something to be learned from looking at how it's done elsewhere.

This is the second of three reports based on several visits to each of the Hong Kong race tracks. Yesterday's dealt with the economics of Hong Kong racing. Tomorrow's will deal with care of horses, medication rules, and equine retirement.

Happy Valley

The urban racetrack is an unprepossessing species in America. Aqueduct, Hawthorne, Pimlico. Blighted neighborhoods, wind whistling through near-empty stands, a few thousand patrons whose median age is deceased.

Not so in Hong Kong. Happy Valley, the in-town racecourse that runs on Wednesday evenings, is close to the center of the city, a short walk from a major subway stop, in an upscale neighborhood, with the track surrounded by expensive high-rises. And going to the races, with 30,000 or more fellow racing fans, is fun.

As for the track itself, think Aqueduct on steroids. No, not that kind of steroids; Hong Kong has just about the tightest drug rules in the world. But take an urban race track with a mid-week meeting, fill it with 30,000 or more people, build the stands 8 stories high, surround the track with skyscraper apartment buildings, throw in a beer garden for the expatriates, and you have Happy Valley. It's Hong Kong's second track, home to mid-week night racing, mostly for average-quality horses, and with few of the top-quality stakes that are mostly run at the other Hong Kong track, Sha Tin, out in the New Territories.

While visiting Hong Kong, we've seen both extremes of the accommodations at Happy Valley. Thanks to Bill Nader and Anny Kwan, we enjoyed the luxury of the Hong Kong Jockey Club's executive box high up in the members' stand (aka club house, but in fact so much more), with a serious buffet and excellent wine. The huge members' stand has a wide variety of restaurants, lounges and viewing areas; ours was but one of many. And on another visit, we paid our HK$10 (about US$1.25) grandstand admission and watched the races from the commotion of the stretch-side beer garden, where a fully costumed Santa Claus was standing at the rail yelling his heart out for Number 5, and from the balcony just off the food court on the second floor. Two nights of good, competitive racing, with full fields -- Hong Kong averages 12.4 horses per race, compared to just under 8 at most of the major US tracks -- and lots of good betting opportunities.

The betting menu at the Hong Kong tracks is a bit more extensive than at most US tracks. All races offer win and place (i.e., 1st, 2nd or 3rd) betting, plus quiniellas and "place quiniellas" (pick any two of the top 3 horses) and trifectas (called "tierce" in Hong Kong). No exacta or superfecta betting, but quiniella-type bets on the top 3 in any order ("trio") and the top 4 in any order ("First 4"). The biggest single-race pool (which is typically the exacta pool in the US) is the trio.

Rolling doubles and Pick 3 bets are also available, with consolation payoffs if you hit the first leg (or first two in the Pick 3) and finish second in the last leg. The big high-payoff exotics are the double trio (hit the trio in two consecutive races) and, especially, the triple trio (hit it in three consecutive races). The latter builds up a jackpot, much like the Pick Six at US tracks. It's not easy to get the three top finishers three races in a row, when the average field size is more than 12; as of the end of Tuesday's race card, the Triple Trio jackpot was over HK$14 million (almost US$2 million). There's also a Pick Six, which pays off if you get either the first or second-place horse in six consecutive races, with a bonus for getting all six winners; that bonus, as of Tuesday, was over HK$10 million.

The Happy Valley walking ring is on the apron, rather than behind the track, allowing lots of grandstand patrons -- at least those who aren't enthralled by the beer garden festivities -- to get a last look before placing their bets. In contrast to Sha Tin, though, the HK$10 racetrackers don't have the chance for seats on the finish line; that's clubhouse, or, in HK parlance, members' stand, territory.

Down the stretch at Sha Tin

Sha Tin

If Happy Valley is Aqueduct on steroids, then Sha Tin, out in the New Territories north of Kowloon, is a combination of Belmont, Churchill Downs and Santa Anita, done better. Mountains in the background, a la Santa Anita, stands eight stories high, a la Churchill, and a dedicated race track train, a la Belmont (though the one to Sha Tin was a lot more crowded, even on a relatively off day). The Sha Tin facility holds 80,000 or more, with excellent unreserved seating and remarkable restaurant facilities for those willing to pay a bit more. The high-rise stands offer great views of the track from the balconies, and the infield tote board is long enough to show lots more payoff and pool data than is typical at most US tracks.

For Hong Kong's big racing day, the Cathay Pacific Hong Kong International Races on December 11th, we watched from the "Champions' Circle," set up for the day with a lavish buffet, lots of TV monitors, and easy access to the balconies facing the track and the walking ring behind the stands. A spectacular day of racing, from which American race track executives could learn. Take care of your foreign visitors, make a show of awarding the trophies, and, perhaps most impressive, have lots of helpful, friendly customer-service folks all over the track to help out the once-a-year visitors and, perhaps, turn them into regular racegoers.

Customer service is generally more friendly in Hong Kong than, say, in New York, but the Hong Kong Jockey Club puts a lot of time and effort into service, both at the track and in maintaining contact with its customers. Even by Hong Kong standards, it does well. Whether at the betting windows in the Champions Circle or at the (somewhat primitive-feeling) betting machines in the grandstand, there was always a mutuels information person within reach for the confused tourist. Try finding either of those (the friendly information person or the tourist) at Aqueduct in February.

And the information available to the serious bettor is significantly more complete at the Hong Kong tracks than in the US. The Jockey Club web site and most of the newspapers' racing sections include reports on horses that have bled in workouts or races and on horses that turned up lame or with other injuries. That contrasts with the general lack of explanation for a layoff that's found in the Daily Racing Form or track programs in the US. Equipment changes and additions are also more comprehensively reported. In the US, the only equipment generally reported in the Form are blinkers and front bandages. In Hong Kong, there's also notification of, among other things, shadow rolls, figure-eight nosebands, the horse's weight (not just the assigned jockey weight) and a fair number of other equipment issues that may or may not make a difference, but certainly project an air of complete transparency.

The Form doesn't show as many prior races as in the US, and there's no precise equivalent of Beyer Speed Figures or the Ragozin or Thorograph Sheets for figure players, but in all other respects, the information provided to the Hong Kong bettor (at least the English-speaking variety; I can't comment on what's available in Chinese, but it certainly looked co-extensive with the English version) seems more thorough and complete than in the US.

As for medication notes, that's easy. None allowed. More on that tomorrow.

Hong Kong 1. Where Even the Owners Make Money

2011-12-27T20:47:00.006-05:00

Sha Tin Racecourse on a busy day

Through a combination of fortuitous circumstances, my wife and I are lucky enough to be spending a month in Hong Kong, visiting our daughter, who works here, grading our law school exams far from the pleas of worried students, and, not so incidentally, checking out the Hong Kong racing scene.

Thanks to the kindness of Hong Kong Jockey Club Executive Director of Racing Bill Nader, formerly chief operating officer of NYRA, and Bill's assistant, Anny Kwan, we've enjoyed the best accommodations that Sha Tin and Happy Valley race courses have to offer, and we've also just wandered around in the grandstand at each track, absorbing the ambiance of being a regular racing fan.

So, for those who haven't had the chance to see Hong Kong racing in person, here are three blog postings on our experience, and how the Hong Kong scene compares with American racing. Today's post covers the economics of racing in Hong Kong; subsequent posts will deal with the experience of racegoing at the Sha Tin and Happy Valley tracks and with the medication and related issues.

First, the money.

Hong Kong has 83 racing days a season, typically a weekend day at the sprawling Sha Tin track in the New Territories north of Hong Kong proper, and a Wednesday night meet at close-in Happy Valley on Hong Kong island. For those 83 days, total handle is roughly HK$1 billion (US$128 million)per racecard; HK$81.9 billion for the most recent fiscal year. Counting betting on soccer and the lottery, both of which also flow through the HKJC coffers, total annual handle for the HKJC is upwards of HK$130 billion (US$ 17 billion).

Yesterday's 10-race card at Sha Tin -- a typical race day with mostly what would be mid-level claiming and allowances races in the US and a couple of high-level allowance/small stakes as the features (albeit with a purse of US$175,000 on the "small" stakes) -- drew 26,580 to the track, which felt comfortably busy, but by no means crowded, and attracted total handle of HK$ 1,113,121,195 (US$142 million). Of that, roughly 10% is typically bet on-track, with the rest on the HKJC's phone and computer networks and in the 100-plus OTB storefronts. No matter; all the takeout from each wagering platform flows through to the HKJC.

Takeout averages 18.5%, marginally less than the US average, but in the same general range as most US tracks. That produces net revenue of nearly HK$24 billion, of which nearly two-thirds goes to the Hong Kong government in the form of taxes. The remaining one-third is split roughly equally between money for operations and purses on the one hand and charitable contributions on the other, making the Jockey Club by far the most important philanthropist in Hong Kong. Some idea of the scope of HKJC's charitable efforts can be seen here. And the most recent annual report of the HKJC is available here.

Unlike US horse racing, the HKJC has an effective monopoly on legal gambling in its jurisdiction. The nearest casinos are in Macao, an hour away by high-speed ferry. And those casinos, while glitzy, are no match for the better gambling palaces in Las Vegas, Atlantic City, or even for establishments like Foxwood's in Connecticut, all of which siphon off money from US tracks. The HKJC also runs Hong Kong's lottery, although total lottery handle is less than a quarter of what's bet on the ponies. And the HKJC has, since 2003, enjoyed a monopoly on sports betting -- principally on overseas soccer -- that previously flowed to illegal bookmakers. Moreover, there are few organized sporting event in Hong Kong to divert attention away from the races; no pro football or basketball, no college sports with crazed alums tailgating before the big game, etc. Not even any standardbreds pulling silly little carts (aka harness racing). The thoroughbreds are just about the only game in town.

Like Keeneland, NYRA and the Oak Tree Racing Association, the Hong Kong Jockey Club is effectively a self-perpetuating not-for-profit corporation. It has no shareholders, and is governed by a self-selected leadership, presumably with the tacit approval of the government. Unlike Keeneland, NYRA and Oak Tree, however, the HKJC is the entire show as regards racing. It puts on the races, owns the facilities, employs just about everyone in the business except for horse owners and trainers (even the grooms and hotwalkers are HKJC employees), runs the vast network of OTBs and phone and online wagering, and, perhaps most important of all, is its own regulator, setting the rules, running the testing laboratory and meting out punishments. A bit lacking in checks and balances and in due process, at least to American eyes? Perhaps, but it works.

Total purses in the 2010-11 racing season were HK$785 million; just about US$100 million. The total number of starters for the 83 racing days was 9,502, and the average horse based in Hong Kong made 7.4 starts during the year -- also comparable with the US -- so earnings per start, a key measure of owners' financial health, was HK$82,600, or roughly US$10,500, and the average earnings per horse were HK$611,000, or US$ 78,300.

According to Bill Nader -- I wasn't able to verify these numbers independently, but I have no reason to doubt them -- the all-in cost of keeping a horse in training in Hong Kong is about US$45,000. Once again, that's comparable to training and vet costs at New York race tracks. Factoring in the jockeys' and trainers' commissions on purse money, that means that a horse based in Hong Kong probably needs to earn US$60,000 or so to break even. So, with actual purse money per horse averaging more than that, it appears that a majority of Hong Kong-based horses actually pay for themselves.

If only that were true in the US. According to the US Jockey Club's statistics, purse money for American horses comes to roughly 50% of the cost of maintaining our race horses in training, not counting the initial cost of breeding or purchasing the horses.

And owners aren't the only ones in the game who do well. For example, grooms, who are employed directly by the HKJC and assigned to trainers (no worries about the trainer missing a payroll or failing to pay his workers comp. premium) earn on the order of US$5,000 a month, plus a share of their horses' winnings, for caring for a maximum of three horses each. I know a fair number of US trainers who'd be happy with monthly earnings of that much, and few grooms in the US earn more than half that amount, usually for taking care of at least four horses. Not all grooms in Hong Kong may be driving Mercedes, but at least a few are.

And the Hong Kong government does very well from racing. Hong Kong is generally a low-tax jurisdiction; my daughter, who was paying something like 35% of her income in income and FICA taxes when she worked at CNN in Atlanta, now pays only 15%, the maximum personal tax rate in Hong Kong. But racing is the government's cash cow. Over 7% of total government revenue traces back to the HKJC, mostly in the form of very high taxes on betting handle; in addition, the HKJC pays a small tax in lieu of income tax on its annual surplus. The wagering taxes are so high, in fact, that the HKJC's annual report rails against the danger that the current rate of taxation might someday make Hong Kong gambling uncompetitive, compared to Macao and to unregulated internet gaming options.

In the long run, the demands of government may impinge on the financial success of Hong Kong racing. But that's true in the US as well, as financially strapped state governments look covetously at the slot-machine revenues that have been keeping so many race tracks afloat. In the short run, the Hong Kong Jockey Club's monopoly on legal gambling, combined with a public extremely fond of wagering -- according to Nader, 80% of adults in Hong Kong are HKJC customers, and roughly 20% are regulars -- presage a continuation of a racing business in which almost everyone, except, of course, the poor bettor, wins. So far this year, business at the track is up about 10% over last year, so the sun isn't showing any sign of setting soon.

Next: the Hong Kong race track experience.

Terrorists on the Backstretch?

2011-10-18T20:55:00.002-04:00

Six New York-based trainers have sued the Department of Homeland Security over its refusal to grant seasonal work visas to backstretch workers. The lawsuit, filed October 7th in Federal Court in Brooklyn, in the court district that includes Belmont and Aqueduct race tracks, claims that the government's refusal to renew the temporary visas means that it will rapidly become impossible for trainers to find enough workers to take care of the horses currently in their barns, much less care for any new arrivals.

The story is mis-reported here in the Daily News. Contrary to what the News says, the lawsuit was not filed by the NY Thoroughbred Horsemen's Association (disclosure: I'm a member of the NYTHA Board of Directors), but rather by six individual trainers. The lead plaintiff is Kiaran McLaughlin, and the other five who've joined in the lawsuit are Shug McGaughey, Bill Mott, Mike Hushion, John Kimmel and Bruce Brown (more disclosure: Bruce trains horses for my partnership group, Castle Village Farm). But NYTHA has discussed the issue and is certainly supporting the trainers' position.

For years, hot walkers and grooms from Mexico and other Latin American countries have been routinely approved for so-called H-2B visas. Those visas permit foreign workers to be employed in the US for temporary periods (usually a year or less, but sometimes as long as three years) if (1) the prospective employer can show that there are no US workers able and willing to do the work, and (2) the work is temporary in nature, which includes seasonal work, a one-time or intermittent need for extra workers, or a peak-load need for a defined period.

Nothwithstanding that racetrack work has become virtually year-round, Latino backstretch help has, until the last year, continued to be employed under these temporary visas. Most workers regularly went home to Mexico or elsewhere, reapplied for a new visa, and then came back to the track again.

But recently, la migra, aka the Immigration and Customs Enforcement division of the Department of Homeland Security, has decided that backstretch workers are not so temporary after all, and are therefore ineligible for the "temporary" H-2B visas. When visa approvals slowed down last year, trainers initially thought that it was just a case of bureaucratic ineptitude, possibly with a bit of terrorism phobia mixed in. But apparently the new government position represents a permanent policy shift. And, with no other readily available option for securing help, the trainers felt they had no option but to go to court.

Why won't a few of the millions of unemployed US citizens and legal residents take the jobs at the track? The pay is a bit above minimum wage, starting at around $300 a week. Not much, but then, as long as you don't have a family with you, you can get free housing in the run-down dorms on the backstretch. (Any day now, once the slot machine money starts rolling in, NYRA will build clean, modern high-rise dorms at Belmont and Saratoga, along the lines that Frank Stronach has built at Gulfstream and Palm Meadows. Meanwhile, even in the New York real estate market, the backstretch dorms aren't exactly luxury apartments.) And, in New York, anyway, you get free medical care, through the BEST Backstretch charity organization (yet more disclosure, I'm also a Director of BEST).

Of course, you have to get up around 4 am or so and be at the barn by 4:30. This is not fun in mid-February, in the cold and the dark. And, if your trainer is well-organized, you might get one day off a week; in return, you sometimes work late on a race day.

And, most important, you have to know what you're doing around a horse. Trainers don't, in general, make enough money to bear the cost of training neophytes. They want workers who know not to stand on the off side of a horse, who know how to pick hooves, put bandages on and tack up the horse. They want hot walkers who can hold onto the shank and keep a 1,200-pound animal under control, and then remember to rake the shedrow so the barn will impress the owners. A lot of it is dull, repetitive work, and there's not much of a career path; few grooms and hotwalkers move on to be assistant trainers or trainers in their own right.

So, more and more, trainers at most US tracks have come to depend on a steady flow of Mexican and other Latino workers, many of whom have grown up with horses, know what they're doing, and will work for long hours and low pay to improve the lot of their families back home. With the change in position by la migra, that employment pipeline is being closed, and the future of racing in New York, which appeared bright for the last few days after the announcement that the Aqueduct racino would open within weeks, is once more under a cloud.

I don't know nearly enough immigration law to have an opinion on the trainers' likelihood of success in the lawsuit, but it does seem to me a tough sell. The track jobs need year-round workers, but if US residents can't or won't do the work, who will? And trainers and horse owners, many of whom are losing money already, just aren't in a position to provide a drastic wage increase.

More on the economics of training and owning in upcoming posts.

Not Ready for Prime Time?

2011-10-08T12:35:00.000-04:00

The powers that be at the New York Racing Association, not to mention nouveau uber-owner Mike Repole, have risen up to protest the Breeders Cup's decision to hold its 2012 edition at Santa Anita. Last Saturday, NYRA returned to the glory days of old with a "Super Saturday" card that included six graded stakes, five of them Grade 1s and the 6th, the Grade 2 Kelso, featuring Repole's local hero, Uncle Mo. Repole, who also had Stay Thirsty running in the Jockey Club Gold Cup, celebrated in the Belmont Room with 50 or 60 of his closest friends.

Compared to the average Saturday at Belmont, the results were more than satisfactory. Attendance, on a day when rain threatened all afternoon and finally arrived late in the day, was a solid, if not overwhelming, 10,481. And all-sources handle was a very healthy $16.7 million.

On the same day, Santa Anita, running its own Breeders Cup preview card, had four Grade 1 stakes in an 11-race card, featuring Bob Baffert's Game On Dude and the filly Blind Luck. On a sunny day in Southern California, Attendance was 16,013, and total handle was $11.7 million.

Santa Anita also bested the Belmont numbers in field size. On the East Coast, only 80 horses ran in the 11 races, an average field of 7.3; for the six graded stakes, the field size was a puny 5.8. On the West Coast, Santa Anita averaged 9.4 horses per race, even with an average of only 7.5 starters in the four stakes races.

A closer look at the figures for handle suggests that the "talent-centric" focus of NYRA -- attract the best horses and they will come, might have trumped the "track-centric" approach of Santa Anita. The latter is surely a more pleasant place to watch the races; even on a sunny day, Belmont is a too-big, rambling plant, with a track that's so big it's hard to see the runners on the backstretch, even with binoculars. And, because Belmont's main track is a mile and a half, hardly any races start in front of the grandstand. Everything up to a mile and an eighth on the main track starts on the backstretch.

But the money certainly flowed for the big races. Each of the five Grade 1 stakes at Belmont took in at least $1.6 million in handle on the various bets keyed to that race. And the Jockey Club Gold Cup drew $2.6 million, including $670,000 for the all-stakes Pick 4. In Santa Anita, in contrast, the per-race handle on the four Grade 1 stakes ranged from $1.1 million to $1.3 million.

But Super Saturday also showed why Belmont may not quite be in shape to deserve the Breeders Cup. As on many big days, the weather was atrocious. Not as bad, perhaps, as the rain-drenched Breeders Cup at Monmouth in 2007, but certainly not a fun day to be out in the fresh air. Field size was reduced by a number of scratches due to weather and track conditions, especially in the stakes races. Belmont, where the grandstand faces north, into the winter wind, has neither heating nor air conditioning. Back in a different era, plans were made to make at least some of the grandstand more weather-friendly, but those plans fell victim to NYRA's then-impending bankruptcy and to reported cronyism or worse in the awarding of contracts. As a result, Belmont is far less fan-friendly than Santa Anita, where one can usually count on the weather to be good, or even Churchill, whose mammoth plant has lots of room inside if the weather turns chilly or wet.

And, despite a relatively recent makeover that walled off the furthest reaches of the grandstand side and slapped some fresh paint around, much of Belmont still reminds one of a bus station in a Rust Belt city. NYRA has done what it could with the money it has, replacing outmoded television screens with up-to-date flat screens, and installing an absolutely terrific infield tote board cum video display. But that's just not enough.

What does Belmont need to qualify as a deserving host for future Breeders Cups? Not much. Start by tearing up the track and replacing it with a mile-and-an-eighth oval, like Churchill and Aqueduct, so more races will start and finish in front of the grandstand. Then tear down the existing grandstand and replace it with something that works for "crowds" of 10,000 in spring and fall but that's expandable for the Belmont Stakes and the Breeders Cup -- and make sure the new plant is weatherized. Oh, and add lights, as Churchill has done, so that, eventually, racing can join the rest of professional sports and stage its championships in the evening, when they might draw a decent television audience.

So, Mike Repole, if you want to see the Cup back at Belmont, all it would take is a few hundred million, give or take a few hundred million. Otherwise, NYRA's pitch for future BCs is reduced to "it's our turn."

How Much Cheating?

2011-09-09T22:27:00.001-04:00

Big kerfuffle over at the Paulick Report on the just-released report from the Association of Racing Commissioners International (RCI) on drug test results from 2010. The report says that, of some 324,000-plus samples taken from horses last year, only 47 were found to contain Class 1 or 2 drugs -- those that have been determined to enhance performance and not to have any therapeutic use in horses, or in which the therapeutic effect is outweighed by the performance-enhancing potential.

Most of the commentators at Paulick's site think that the RCI report amounts to a whitewash. To a certain extent they have a point; the report specifically excludes Lasix, which has both therapeutic AND performance-enhancing effects. But the bulk of the criticism seems to be that, well, of course there aren't many positive tests, because the real cheaters are using brand-new designer drugs that can't even be tested for.It's a clever bit of logic; if you can't find the drug in the lab, that just proves that it's there.

I'm not a scientist. Don't even play one on TV. And I had enough trouble understanding all the scientific arguments at last June's "Summit" at Belmont, discussed here. But the extraordinarily low number of positive tests does seem to me to reinforce the impression that I get hanging out on the backstretch of NYRA tracks; most horsemen are serious about their craft and honest, following the rules as best they can. If Lasix is legal, why not use it, as it's clear that it helps a lot of horses run faster. By the way, kudos to trainer Kiaran McLaughlin, who, with the support of his Darley and Shadwell owners, is trying to go without Lasix for his new two-year-olds. Kiaran's giving up a powerful weapon, but he might gain some valuable knowledge if Lasix is eventually banned.

The state-by-state results in the RCI study are interesting. New York accounted for 15% of all the tests, but many fewer positives, with a positive-test score of only 0.011 percent. For the US as a whole, the rate was 0.49%. Only New Jersey had a lower positive rate than New York, with 0.08%.

At the other end of the spectrum, the positive rate in Minnesota was 3.26% and in Arizona it was 2.54%. Other states with more than 1% of tests returning positives were Colorado, Montana, Michigan, Nebraska, North Dakota (a stunning 7%, but a very small sample size), Ohio, Oklahoma and West Virginia.

Among the other major racing jurisdictions, California reported a positive rate of 0.25%, and Florida was at 0.84%. Kentucky appears to test far fewer horses than either New York or California, and reported that its rate for drug positives exceeded the national average at 0.75%. No surprise there for those who heed the rumors. Kentucky didn't even order a test of Life at Ten after last year's Breeders Cup debacle.

The RCI report doesn't name names and doesn't really address the problem of getting serious with those few trainers who do break the rules. At last report, Dick Dutrow and Patrick Biancone are still racing in New York. A simple, nationwide "three strikes and you're out" policy for Class 1 and 2 drug violations would be a really good idea.

Lasix: What Is To Be Done?

2011-06-17T15:13:00.003-04:00

My previous two posts (here and here) dealt with the scientific evidence regarding Lasix use in thoroughbreds and with the policies of the racing world outside North America. Here’s a brief summary of what we know, as presented at the open-to-the-public Monday session of the NTRA.AAEP/RMTC “Summit” on Lasix:

Most horses bleed.

Very few horses (less than 1%) bleed at a level that seriously impairs their racing ability.

Lasix works; it reduces both the incidence and the severity of bleeding, though it doesn’t eliminate low-grade bleeding.

Horses run better with Lasix than without it; whether you call the drug a “performance enhancer,” “performance enabler,” or “performance optimizer,” horses that get Lasix run faster.

Lasix does not appear to interfere with testing for other drugs.

The rest of this post discusses what the US and Canada, the principal holdouts that allow race-day use of Lasix, should do. Two principal camps have emerged. One, led by the Jockey Club and a number of prominent owners, is calling for the rapid elimination of race-day Lasix. The other, probably representing the majority of US trainers and horsemen’s associations, contends that North America should continue to permit race-day Lasix or even that other countries should also permit it.

(Before going on, I should probably note that my views don’t necessarily – in fact I’m sure they don’t – represent the official views of the New York Thoroughbred Horsemen’s Association, even though I ‘m a member of the NYTHA Board of Directors.)

The horsemen’s case for Lasix appears to have two basic elements. First, they argue, Lasix is actually good for the horse. By reducing the incidence and the severity of bleeding, Lasix spares horses from the pain that severe bleeding inflicts and enables a racehorse to perform up to its potential. Second, the racing environment is so much different in the US, as compared to most of the rest of the world, that’s it’s a case of comparing apples and oranges . In this view, the fact that the rest of the world eschews Lasix has no bearing on what’s right for the US.

What are the merits of these arguments? Of course, all (or almost all) of us in the game want to spare horses unnecessary pain. Most of us are in racing because we love horses; if we were in it solely for the money, there’d be serious cause to question our sanity, as most owners, and some trainers, actually lose money. And the use of Lasix apparently does spare horses some pain, particularly by reducing what would otherwise be painful Class 3 or 4 bleeding, or the even more severe bleeding that’s visible at the nostrils (bilateral epitaxis, in vet-speak) to a milder Class 1 or 2 smattering of blood in the trachea after a race. But if sparing some horses – fewer than 1% show Class 3 or 4 bleeding or bilateral epitaxis in a strict no-Lasix jurisdiction like Hong Kong – then the logical question to ask is why 95% or more of US starters race with Lasix? In most countries that ban the drug, repeated bleeders are simply banned from racing. And in most of those jurisdictions where racing is allowed in training, but not on race day, trainers report that they treat fewer than 10% of their horses with the drug.

As for the argument that racing permits horses to run to their potential, that all depends on how one defines “potential.” In the days before anti-bleeding medication, “bleeders” were shunned by owners and systematically removed from the gene pool. (Of course, not all bleeders were so identified; the great trainer Woody Stephens had his grooms carry a red towel, so they could wipe away the evidence of bleeding before anyone noticed.) And the argument is a slippery one; what about the use of painkillers to permit a horse to run to its potential despite internal warnings that something’s amiss? Bute and other pain meds aren’t permitted on race day in most US jurisdictions, though they're frequently used in training. If Lasix reduces pain in the lungs from bleeding, why not allow drugs that reduce pain elsewhere?

And the gene pool inevitably suffers. As Denis Egan, head of the Irish racing authority, noted at Monday’s drug summit, many foreign buyers and breeders view US-bred thoroughbreds as suspect, and not as sound as their foreign-bred counterparts, despite figures that show that the number of starts per horse per year is pretty much the same all over. There’s also a concern, as yet not proven by scientific research, that long-term Lasix use reduces calcium and therefore leads to more brittle bones. Many US trainers acknowledge a decline in soundness and durability as well. My conversations with Allen Jerkens at the rail of the Belmont training track certainly bear this out; the “Chief” says most current US race horses couldn’t stand up to the intensity of training that he used to give all his charges in decades past. On the other hand, repeated bleeding episodes, which might be avoided with widespread Lasix use, have been proven to produce scarring of the lungs and remodeling of the pulmonary blood vessels, both of which reduce lung function and make a horse prone to even more bleeding.

Regardless of what’s happening elsewhere, horses in the US do run less often and have shorter careers than they used to. Not all, or even most, of this decline can be blamed solely on Lasix. Breeding to sire lines prone to unsoundness (especially Mr. Prospector and Northern Dancer); corrective surgery on foals that don’t look good enough for the sale ring; kid-glove treatment of babies, denying them the opportunity to run around in the field as much as they used to; and trainers’ concerns for a high win percentage to attract owners, thus largely eliminating the old practice of racing a horse into shape, all play a part. And the rapid expansion of the foal crop in response to the boom market of the 1970s and 1980s meant that many more questionable mares were kept in production. But Lasix also enters into the equation. According to data presented at the Summit, bleeding is to some degree an inherited trait, and the more horses whose bleeding was controlled by Lasix go to the breeding shed, the more that trait will tend to appear in subsequent generation.

Despite all those negatives, US trainers’ argument that racing here differs from the rest of the world has some merit. Our industry differs significantly from other countries'. First, we run many more races per year – too many -- with (necessarily) shorter fields. We run much more on dirt, and less on turf, than other countries; it’s plausible that horses’ inhaling dirt and blowback from synthetic tracks leads to more lung problems than racing on grass. We have many more minor-league tracks, where the horse population consists disproportionately of older horses with an accumulation of infirmities; see the all-too-true description of the barely-fictionalized Mountaineer in Jaimy Gordon’s National Book Award-winning novel, Lord of Misrule. We have a lot more owners who don’t have inherited or self-made real wealth and therefore can’t afford to make a small fortune in racing by starting out with a big fortune. The local building contractor who, with a few pals, owns a couple of claimers, or the partnerships that appeal to average race fans, don’t like to see their horses shipped out to the farm for R&R; that means bills to pay with no purse money coming in. We have too many horses, even with the recent reduction in matings and foals crops following the 2008 financial crisis. And, three decades into the legal Lasix era, we have too many trainers and too many vets who’ve never had to manage bleeding without chemical assistance; a lot of lore in the heads of old-time trainers and vets has simply been lost.

For all these reasons, Lasix makes a good bit of sense in US racing.

But we have a problem of political and public perception that seems to me more important than a narrow balancing of the day-to-day pluses and minuses of Lasix. Even though, as reported by the NTRA’s pollster at the Summit, more racing fans today perceive the game as fair, and drug use under control, than was true three years ago, before the elimination of some steroids and the increased concern for track safety in the wake of Eight Belles’ collapse at the end of that year’s Kentucky Derby, drug use is still a huge perception problem. While most sports are seen as relatively clean, horse racing and cycling still carry a stigma, facts notwithstanding.

And the perception can lead to huge over-reaction. The bill currently before Congress that would require horses to race “drug-free,” whatever that means, and impose draconian penalties on even inadvertent violations, is a case in point. If racing doesn’t act, the public will continue to act, by betting ever-less on US racing, and the political system will impose its own over-the-top solutions. What a leader does in this situation is figure out where the followers (in this case the public that still cares about racing) is going and get out in front of them.

Part of the perception problem is that the public and politicians see vets entering horses’ stalls with a Lasix injection and assume that the vet could be giving a whole lot of other meds as well. The New York Racing Association has actually solved that problem by requiring that Lasix shots be given only by the official track vets, and not letting private vets in the stall before a race, but that’s an initiative no one knows about and is hardly likely to change the views who have weak knowledge and strong opinions.

Even if Lasix is good for horses, human athletes run or play through pain all the time; in fact, being able to do that is part of the definition of a great athlete. Humans, as contrasted to horses, are supposed to have some choice in the matter (though try telling that to an NFL lineman trying to hang onto his roster spot). Not all thoroughbreds are great athletes, and maybe some just shouldn’t be racing.

At the Summit, a variety of trainers and vets described training regimens that seemed to reduce the incidence of bleeding without resorting to race-day Lasix. These ranged from training horses away from the race track to at least giving them periodic breaks, both of which reduced the stress induced by full-time residence at the track. Stress levels do seem to be correlated with bleeding. Also, training patterns in most countries appear to involve more stamina work and less high-speed sprint breezes, in which a horse is performing at close to 100% of its potential. Even where horses are stabled at the track, the use of dust-free bedding and other similar management techniques can help ease the problem.

Given the current state of US racing, it’s not economically feasible for all owners and trainers to adopt such measures immediately. Owners at tracks where the win purse is $5,000 can’t afford to take their horses out of training, and trainers whose horses are primarily low-level claimers face the same pressure. Abolition of race-day Lasix might work for the upper end of the business, where owners either make a lot of money with their horses or have a lot of money to take care of them. That’s why the suggestion that graded stakes in the US become Lasix-free isn’t a bad starting point. Trainer Richard Mandella, one of the Summit participants, said he could live with such a ban. So that’s one place to begin. Another is with new two-year-olds. Two-year-old racing has already begun this year, but perhaps, starting with next year’s crop, Lasix could be banned in any race restricted to horses of a particular age: two-year-olds beginning in 2012, three-year-olds in 2013, etc. , for a phase-in period of perhaps five years, by which time most of the Lasix habitués would be retired. Or perhaps that ban would take effect only at, say, major league and “Triple A”-level tracks, perhaps those offering $125,000 and up in average overnight purses.

Whatever good Lasix does, we’re prisoners of public and politicians’ opinions. If we can’t change them, and the last decade suggests that we’ve had only limited success in that endeavor, than we need to adjust to save the industry. Trainers will need to develop new methods of dealing with bleeding, owners will have to adjust to new patterns for a horse’s career. The status quo regarding Lasix, no matter how justifiable it is in scientific terms, just can’t be maintained.

Lasix: What the Rest of the World Does

2011-06-15T14:40:00.002-04:00

Yesterday's post addressed some of the scientific findings regarding Lasix use. Gina Rarick, an American who trains in France, where Lasix cannot be used on race day, but is permissible in training, wrote to ask whether the discussion at the NTRA/AAEP/RMTC "Summit" had dealt with the possibility that repeated Lasix use contributes to the leaching of calcium and other minerals from the horse's system and therefore to increasing fragility in a horse's musculo-skeletal system and, ultimately, to a higher rate of fatal breakdowns. Good question. My own, admittedly amateur, review of the available information suggests that it is definitely established that the use of Lasix lowers a horse's levels of calcium in the blood. What's not so clear is whether that short-term calcium loss translates into long-term bone fragility and more frequent breakdowns. Lots of opinions on the subject, but, at least as far as I can determine, not a whole lot of science. I'd love to see a well-designed study on the topic.

Science notwithstanding, it's true that, for whatever reason, the US and Canada stand alone among major racing jurisdictions in permitting race-day use of Lasix. Here's what other major racing countries do, as reported to the "Summit":

Australia: No race-day Lasix permitted, with a suggested withdrawal time of 48 hours (in practice, that means that a prudent trainer won't give a horse Lasix less than 4-5 days before a race). Trainers are permitted to use Lasix for horses in training, and some do before a breeze. Horses are reported as "bleeders" only if they show bilateral epitaxis (bleeding from both nostrils), either after a race or in training. Bleeding that is evident only on scoping, even at the performance-affecting 3/4 levels, doesn't count. If a horse is observed bleeding, then it's taken out of training for at least three months and isn't permitted to race again for at least three months, and then only after a 5/8ths-mile gallop with no bleeding.

France : Similar to Australia -- no race-day Lasix with a 48-hour withdrawal time, but Lasix use permitted in training at the trainer's discretion. No specific rules on barring horses that have been observed to bleed, but tthey do have to pass a vet exam before being allowed to race again.

Germany: Lasix appears to be banned both on race day and in training, and horses are banned for breeding purposes if they've ever raced on drugs, or if they've ever bled.

Hong Kong: The Hong Kong Jockey Club, which runs the tracks, licenses owners, trainers and jockeys, makes and administers the rules, and runs the test lab (a collection of power in a single entity that, I suspect, makes Frank Stronach salivate), does not permit Lasix either on race day or in training. There are two categories of "bleeders." If a horse bleeds from the nostrils, it's categorized as an "official bleeder" and cannot race for at least three months, pending an official vet exam. After a third bleeding episode, the horse is barred from racing for life. The second category is a horse that appears to the stewards to have performed below expectations, in which case the stewards can order a vet exam and, if the horse scores a 3 or 4 rating for blood in the trachea, then they're required to have an official vet exam after a track gallop and can't be entered in a race for at least two weeks. In the past five years, Hong Kong reports that 0.5% of all horses were "official bleeders," and another 0.6% were reported as having "substantial blood in the trachea." Over the same time period, just under 1% of the Hong Kong race horse population was compusorily retired because of bleeding.

Ireland: No Lasix on race day, though it can be used in training. The definition of bleeding is very tight, with only horses that bleed visibly at the nostrils being classified as bleeders and subject to mandatory time off before returning to the races. Under that definition, only some 0.15% of starters are labeled as bleeders.

Japan: Lasix is banned for 10 days prior to race day, though it may be used in training, subject to the 10-day limit. Bleeding is defined as visibly bleeding from the nostrils, with no specific rules about blood that's visible on a scope. Horses that bleed visibly are barred from racing for one month in the first instance, two months in the second, and three months in the third. Visible bleeding was reported in between 0.1% and 0.2% in most recent racing years in Japan.

Singapore: No Lasix permitted on race day, though it can be used in training up to 3 1/2 days prior to a race. Bleeding is defined as in Hong Kong, but is reported to occur in less than 0.5% of starters.

UAE (Dubai): No drugs permitted within 48 hours of post time, with a recommended three-day withdrawal period for Lasix, but Lasix is allowed in training. As in most of the other jurisdictions, bleeding is defined as bleeding visibly at the nostrils, and horses are barered from racing for gradually longer periods after each bleeding episode. The prevalence of bleeders is somewhat higher than in other jurisdictions, perhaps because of the climate, at about 0.4% of all starters.

United Kingdom: No Lasix on race day, though it can be used in training.

To summarize: all the major racing jurisdictions outside North America ban the use of Lasix on race day. Most jurisdictions, Hong Kong and Germany excepted, permit the use of Lasix in training, as long as it's not given within a defined period prior to a race. And most of the jurisdictions report very low rates of "bleeding," by which they almost all mean that a horse bleeds visibly from both nostrils; the rates range from a low of one per 1,000 starters up to a high, in Hong Kong and Singapore, of perhaps five per 1,000 starts.

So how can we reconcile the fact that, according to the South African study that I reported on yesterday, "most horses bleed," with the very low rates of bleeding reported in non-Lasix countries?

A few possible explanations stand out, though there's little science so far to prove or disprove any of them.

First, training practices differ substantially as between North America and most of the rest of the world. Here, most horses train at the race track, are exercised for comparatively short times, and get comparatively more speed work, with racing-speed breezes. Elsewhere, it's more common to train away from the track, in a less pressured atmosphere. It's notable that the relatively higher rates of bleeding in non-Lasix jurisdictions occur in those places -- Hong Kong, Singapore and Dubai -- where horses do train at the race track.

Second, most jurisdictions' definitions of bleeding don't include horses that score a 3 or 4 when scoped, even though those hores are clearly compromised in performance. According to the South African study, nearly 10% of horses have serious tracheal bleeding without Lasix (reduced to essentially zero with Lasix), enough to affect their racing performance.

Third, there's much more dirt racing in the US than elsewhere. It's not clear how that affects the tendency to bleed, and the South African study was conducted with turf racing, not on dirt.

Fourth, there are racing style, distance and pedigree differences. More races in the US are at short distances, with horses running at maximum effort all the way. In many turf-racing jurisdictions, horses tend to gallop along, at less than maximum effort, for a good part of the race

Could US racing survive without race-day Lasix? It would undoubtedly require major changes in training patterns and, ultimately, in breeding patterns as well. Is it possible? That's a question for tomoorow's post.

The Science of Lasix: a View from the "Summit"

2011-06-14T16:47:00.003-04:00

There has already been considerable media coverage of this week’s “International Summit on Race Day Medication, EIPH and the Racehorse.” (See, e.g., here,here, and here.) But most of these reports offer the always-tempting us vs. them scenario: “rest of world presses US to eliminate race-day meds.” In fact, the summit was far more informative, and thought-provoking, than that simplistic view suggests. So informative and thought-provoking, in fact, that I will be reporting on it in a series of three blog posts. Today: the science of Lasix and EIPH (“bleeding” in race horses. Next, what the rest of the world actually does. And, finally, some thoughts on how to resolve the conflict between foreign and media pressure to ban all race-days drugs with the economic realities of racing in the US.

(Lots of the presentations at the Summit have been posted online here, so I'll forego the pictures of bloody trachea and scarred lungs.)

I had earlier commented on the Lasix issue, among other drug-related problems in racing, in a piece for the New York Times’ The Rail blog. I’m delighted that attending the “summit” yesterday deepened my understanding of Lasix and its costs and benefits. But, as we’ll see, understanding a problem doesn’t necessarily lead to a solution.

On to the science of Lasix, a topic almost entirely absent from the media reports on the summit.

The first question is how many race horses bleed under the stress of a race or a high-speed breeze? The answer depends on how you define “bleed.” If it means actually bleeding from the nostrils, then the answer is about 1%. If it mains showing even a trace of blood in the trachea when a horse is “scoped” after a race, then the answer is somewhere near 80%, plus or minus 10%. Obviously, the definition that you use determines the scope of the problem and therefore the appropriate solution.

Fortunately, there’s now pretty good evidence to help define the issue better. A recent study of several hundred race horses in South Africa, conducted by researchers from the US, Australia and South Africa and frequently cited at the Summit, used the common veterinary practice of grading bleeding that shows up when a horse is scoped on a scale of 1-4. In the study, 79% of horses showed some signs of blood after racing without Lasix, but so did 57% of those that raced with Lasix. So, while Lasix does reduce both the incidence and the severity of bleeding in a majority of horses, it doesn’t eliminate it. What Lasix does do is to reduce the pressure on the very thin capillaries in the horse’s lung by some 15-20%. And that in turn reduces the “remodeling” of blood vessels and scarring of the lung tissue, making them less likely to bleed next time.

Most horses that “bleed” have a score of 1 or 2 on the 1-4 scale. In the opinion of most of the vets who spoke at yesterday’s meeting, a score of 1 has no impact on a horse’s racing performance, and a score of 2 is more or less on the borderline for performance-affecting. All the vets agreed that severe bleeding (a score of 3 or 4) definitely has an impact on racing performance, as does actual bleeding from the nostril, which is seen in only 1% or so of horses. In the South African study, 20% of horses without Lasix didn’t bleed at all, another 45% bled only to the 1 level, and another25% at the 2 level. In contrast, among horses treated with Lasix pre-race, 43% didn’t bleed at all, 48% bled at the 1 level, and only 9% bled at the 2 level. Thus, some 9% of the horses in the study that did not get Lasix bled at a level that all vets agreed clearly compromised their racing performance, while none of those treated with Lasix bled at that level. Lasix “works,” and in this study at least, it created a level playing field by letting horses that are more likely to bleed perform up to their potential. In that sense, Lasix can be thought of as a performance “enabler” or “optimizer.”

Bleeding also tends to get worse over time, so a horse that starts on Lasix presumably has a lower lifetime incidence of bleeding than one that races without the drug. That effect, though, doesn’t seem to translate into more starts per season or per racing career. Since the introduction of Lasix as a permitted drug in the US, starts per season and starts per career, as reported in the Jockey Club’s Fact Book, have declined by some 25%, to a level that’s on a par with most of the rest of the (non-Lasix) world. One can’t necessarily blame the use of Lasix for the decline in the number of starts, but Lasix apparently hasn’t helped.

Of course, Lasix is also a performance enhancer. Horses treated with Lasix, in the aggregate, perform better than those without the drug. Part of the difference reflects Lasix’s ability to suppress the kind of bleeding that would otherwise interfere with a horse’s performance. And part undoubtedly reflects Lasix’s reduction in a horse’s weight; in the South African study, horses treated with Lasix lost an average of 28 pounds pre-race, while those treated with a placebo lost only 12 pounds. That 16-pound advantage would be considered significant by almost any handicapper. Whatever the mechanism, horses on Lasix do better. That’s why 95% of US race horses run on Lasix, even though, based on the South African study, fewer than 10% of those horses would bleed at a level that substantially interfered with their performance if they raced without the drug.

One thing that Lasix does not do, the vets at the Summit agreed, is mask other drugs that racing authorities test for. Modern testing techniques are very sophisticated, and the only jurisdiction that still believes Lasix interferes with other drug testing is Hong Kong, where Lasix is not permitted at any time, not just when a horse is racing. Hong Kong notwithstanding, the experts at the Summit convinced me that the “masking” argument is no longer valid as a reason for getting rid of race-day Lasix.

One of the most interesting aspects of yesterday’s scientific discussion was the surprising (for me at least) finding that the Flair nasal strip has much the same effect on bleeding as Lasix does. While the Flair’s human equivalent, the Breathe Right strip, appears to have little or no effect on human athletes’ performance, several of the vets in attendance yesterday said that the Flair strip did help in horses. Some trainers used the Flair strip a few years ago, but it seems to have fallen out of fashion and has been banned in some racing jurisdictions, even though its manufacturer is a sponsor of the NTRA’s Safety and Integrity Alliance. If its efficacy is confirmed by additional scientific studies, the Flair strip might be a viable substitute for Lasix.

Tomorrow: how other countries deal with bleeding.

What Were the Koreans Thinking?

2011-05-25T18:11:00.002-04:00

This week's Fasig-Tipton Timonium sale of two-year-olds in training is being reported as at least a modest success. The average price was down only slightly from last year ($47,263 versus $47,984 in 2010), the median was down 7.4%, from 27,000 to $25,000, and the percentage of horses in the catalog that were actually sold (subtracting both RNAs and scratches) was down 10 points, from 68.2% of last year's catalog of 400 horses to only 57.2% of this year's enlarged catalog of 600. I guess that, in a difficult market for sellers, modest losses count as success.

[Note that my numbers differ slightly from those reported in the Blood-Horse; mine are calculated from the official sale report released by Fasig-Tipton, which can be found here.]

Perhaps the most bizarre element in the Timonium sale was the eager participation of Korean buyers at the lower end of the market. Koreans, bidding principally through the K.O.I.D. purchasing agency, bought 46 of the 343 horses sold, or nearly one of every seven two-year-olds that went to new owners. Kudos to Fasig-Tipton for attracting a new group of buyers; without the Koreans' participation, the overall numbers would certainly have been even lower.

But the way the Koreans bid and bought was truly bizarre. Of the 46 horses they purchased (including two "post-sale" purchases recorded in the official totals, and including two horses bought not by K.O.I.D., but by buyers with Korean names and no previous presence in the US market), 33 of them -- more than 70% -- were bought for a single price, exactly $20,000. Overall, the Koreans' average price was $19,935 and the median was, unsurprisingly, $20,000.

There is simply no way that kind of distribution occurs in a normal auction. The Koreans may well have set a limit of $20,000 for most of their purchases; they bought only five horses for more than that, the highest a Mineshaft filly for $45,000. But a $20,000 limit doesn't mean one should pay $20,000 for virtually every horse, which is what these neophyte buyers did.

So here's what I think happened. Early on the first day of the sale, Monday, at least a few consignors noted that the Korean bidders were going to $20,000, but no higher, and not often lower; only three of their 30 Monday purchases were for less than that magic number. So, I suspect, when consignors saw how the Koreans were bidding, the consignors or breeders kept pushing the bidding up to $20,000, or set their reserves at $19,999 (in which case the auctioneer will pull bids out of the air up to one step below the reserve price). The Koreans followed their game plan, which apparently was to pay up to $20,000 for anything they wanted, and a lot of sellers went home very happy with anywhere from $2,000 to $10,000 more than they would have gotten without those locked-in bids.

How much extra did the Koreans pay? Let's say an average of $5,000 each for the 33 horses they bought right at that magic $20,000 figure. That's a total of $165,000. Not a lot, perhaps in the overall scheme of the Korean economy, or even of the overall auction totals, but a very nice bonus for the consignors who caught on. $165,000 can buy a lot of hay.

Just as the Arab, European and Japanese buyers in the American bloodstock market over the years, I suspect the Koreans will learn too, and the good old boys selling horses will need to find ever-newer marks. But that's capitalism, right?

Cuomo Picks an Easy Target

2011-02-02T09:45:00.007-05:00

New York Governor Andrew Cuomo proposed a state budget yesterday, in an attempt to close a $10 billion budget gap. While the Governor decided to end the state income tax surcharge on the rich (taxpayers with incomes over $250,000), his budget imposes draconian cuts on the poor, through massive reductions in Medicaid and in state support for low-income school districts.

But, despite his "no new taxes" pledge, the governor did manage to find a target from which to extract a little more revenue -- horse owners. Cuomo's budget (see pp. 70-72) proposes a 2.75% "fee" on gross purses earned at the track, with the money (some $3 million by my calculation, just from NYRA tracks; $7.6 million overall) earmarked for the support of the state Racing and Wagering Board. The Racing Board, which also charges licensing fees to everyone in the industry, reportedly has only a $2 million annual deficit, so it's not quite clear where the extra money will go.

While Wall Street fat cats with eight-figure incomes are spared any pain under the budget, and in fact get a tax reduction, it seems that thoroughbred owners must be even richer, since, the Governor thinks, they can bear this new tax. Well, perhaps we can. Most of us lose money anyway-- nationwide, purses amount to roughly half the cost of keeping our thoroughbreds in training, not to mention the cost of buying or breeding the horses in the first place -- so what's a few more dollars? I guess the governor is counting on our love of horses and of the spectacle of racing to overcome our rational analysis of what he's doing.

But for some of us, this might just be the last straw. Those of us who race at NYRA tracks already pay a $10 per start fee to the Racing and Wagering Board, or almost $200,000 a year. The new levy would add $3 million to that.

I previously calculated the cost of owning a thoroughbred race horse that runs in New York. That calculation showed that a horse needed to earn roughly $64,750 a year in purse money for the owner to break even. Fortunately, the elimination of the hated detention-barn system has reduced owners' costs a bit. Without the new levy, it would take only (sic) $63,300 in earning for a New York owner to break even. But the effect of the new levy in the Cuomo budget is to raise that amount to $65,700.

At the same time, NYRA purses have been more or less stagnant, at least for those of us who race through the winter on the Aqueduct inner track. Way back in 2002, we (Castle Village Farm) were lucky enough to have a horse that won his New York-bred N1X and N2X allowances in successive efforts on the inner track. The purse for those races was $43,000 for the N1X and $45,000 for the N2X. This month's condition book for Aqueduct shows that the purse for the NY-bred N1X is $40,000-$41,000 (an extra $1,000 for races at a mile or over) and $42,000-$43,000 for the N2X. True, purses at Saratoga have improved a lot, and those at Belmont to some degree, but a lot of blue-collar horsemen and small-scale owners depend on Aqueduct for a large proportion of their earnings.

And our costs have by no means been stagnant. Back in 2002, we paid our trainers a basic day rate of $65. Today, it's $90 a day per horse, nearly a 40% increase, and, even at that rate, trainers generally don't make any money on the day rate. Vet costs have increased, if not quite as much, although some of the costs, for expensive supplements like Gastrogard and Legend, are passed through to the owners on their trainers' bills. And workers' compensation costs, under the quasi-monopoly enjoyed by the New York State Insurance Fund, have risen even faster. So, over the past decade, the average cost of ownership has increased by perhaps 35-40%, while purse money, at least at Aqueduct, has decreased by nearly 6%. Guess we just have to grin and bear it and wait yet some more for slot machine revenues to start flowing into the purse account.

A further issue with Cuomo's proposed 2.75% purse levy is that it applies only to horse owners, and not to the race tracks or to the state's remaining OTBs, both of which are also subject to the Racing and Wagering Board's jurisdiction and both of whose activities generate a significant portion of the Board's workload. For bets placed at the track, or on NYRA Rewards, the net takeout, after state taxes, is split between NYRA and the purse account. For bets placed at the OTBs, the takeout goes primarily to local governments and the OTBs, and the small amount that's left is split between NYRA and purses. So why should the levy apply only to the purse account? If the regulatory costs were borne proportionately by all those subject to regulation, it would be a much fairer proposal.

In the grand scheme of things, I suppose the purse levy isn't all that important. Medicaid recipients who stand to lose their home health care, and underprivileged children in poor school districts who will be jammed into ever-larger classes surely have it worse than race horse owners. But the proposed levy is still a symptom of the ignorance and unconcern with which New York's political class views the racing industry.

One Unnecessary Death is Too Many - UPDATE

2011-01-21T17:08:00.005-05:00

UPDATE: When racing resumed today, after a snow day, the rails to the outer track remained closed while horse were on the inner track. Gotta give credit to NYRA for moving quickly once the problem was pointed out to them.

With apologies to Bob:

Yes, ’n’ how many deaths will it take till he knows
That too many horses have died?
The answer, my friend, is blowin’ in the wind
The answer is blowin’ in the wind

One unnecessary death of a thoroughbred is one too many. Yesterday at Aqueduct there was almost another one. Luckily, and no thanks to NYRA, the horse escaped injury. Since it was my – and my partners in Castle Village Farm’s – horse, I guess I take it personally.

Here’s what happened. Our horse, Iguazu, was entered in Aqueduct’s 3^rd race, a $35,000 maiden claiming sprint on the Aqueduct inner track. Iguazu, a four-year-old by Smoke Glacken, missed his entire three-year-old season with knee problems, and yesterday would have been his third start since the layoff, coming after good 2^nd- and 3^rd-place finishes in the prior races. With a six-horse field, and only one “ringer,” (a Todd Pletcher drop-down), the small but enthusiastic group of partners in attendance had dreams of the winners’ circle.

But Iguazu, calm in the paddock and the post parade, became agitated in the starting gate and broke through the barrier, taking off around the track minus jockey David Cohen, who was unhurt and who returned to win the next race. Whether the presence of an assistant starter flicking his whip behind the gate had anything to do with Iguazu’s false start is something we’ll never know, since Iguazu is unlikely to tell us, but using whips at the gate is a dangerous practice, and something that rarely if ever happened when super horseman Bobby Duncan was NYRA’s starter.

In the event, Iguazu took off around the inner track, and the NYRA outriders apparently decided that, rather than giving chase, they’d let him have a seven-furlong workout. So the outriders congregated down on the clubhouse turn, where, it seemed, it should be relatively easy to corral a loose and presumably somewhat tired horse. But NYRA’s outrider crew, like the starting gate staff, seems to have fallen off from the days when it was the best in the country. Even though Iguazu slowed down and cantered into the trap the outriders had set up, somehow they failed to grab him and in fact set him off at a gallop once again, this time in the opposite direction, back toward the finish line in front of the grandstand. Iguazu, by this point thoroughly confused, burst through the temporary rail separating the inner track from the paddock area and then, to our horror, galloped on through a gap in the rail that blocked off the Aqueduct main track, which is closed in winter and which was under a layer of ice and snow.

Earlier this season, another horse had escaped onto the main track, skidded on the icy surface and crashed into a pole, fracturing bones and having to be put down. After that incident, NYRA supposedly adopted a policy that would keep horses off the outer track, putting up temporary rails to seal off the two gaps where horses could cross to the outer. Except that the policy itself seemed to have a gap in it.

The racing gods must have been watching, though, because Iguazu made it around the ice-covered main track and down the ramp into the barn area, where he was eventually caught by a backstretch worker near Barn 7. He returned safely to trainer Bruce Brown’s barn at Belmont, where today he seems in good shape and eager to return to the races. A brief report on the incident by Dave Grening of the Daily Racing Form is here.

Most of us in this business are not expecting to make money. As my previous posts have shown, it’s very difficult indeed to make a profit owning race horses in New York. We’re in the game because we love horses, and we love the thrill of the winners’ circle. So, when something stupid and unnecessary threatens the safety of our horses, we understandably get upset.

And allowing Iguazu to get on the hazardous outer track yesterday was unnecessary and showed both incompetence (possibly by the gate crew and certainly by the outriders) and stupidity (in designing a “safety” policy that is in fact unsafe).

I wrote to NYRA CEO Charlie Hayward this morning, seeking an explanation of why Iguazu had been permitted to get onto the outer track. To NYRA’s credit, I received a very prompt answer from NYRA’s horsemen’s liaison, former trainer Bruce Johnstone. Here’s Bruce’s email, and my reply:

Steve:

I have been made aware of your concerns regarding our “not having the rail in place”. Please let me lead you through our premise as regards this situation. As pointed out this temporary rail was put into place after a previous bad outcome to a horse getting loose crossing the Main track prior to entering the Inner. The procedure is for the gaps in each temporary rail to be closed prior to the horses leaving the Paddock on the way to the Inner. When the horses have all entered the Inner, the gap rail is put into place. The attendant then opens the aforementioned gaps in both temporary rails on the Main. The reason for this is, when the race commences the field is being followed by both the human ambulance on the Inner and the Track Veterinarian on the Main. The gaps on the main are open in case an injury occurs past the wire and the vet needs to attend to the horse. In addition the horse ambulance is positioned on the Main and if needed it has access to Inner through this gap. Having said all this it didn’t help you as your horse took it to another level. If you would like to further discuss this you can reach me at –[deleted] – Hoping this gives you some picture of an actual protocol in place. Also glad he wasn’t injured.

And here’s my reply:

Bruce:

I understand the protocol. But I just think it's incredibly stupid, as it totally negates the reason for having the rail in place to begin with. Why not just position the track vet's SUV on the inner track to start with, If there's enough room for the ambulance on the inner track, there should be enough room for the vet as well. As for the horse ambulance, it would be a matter of seconds to have someone open the gaps on the main if there's an injury.

I understand NYRA's policy, but it ain't nearly good enough. How many dead horses will it take to come up with something better?

Steve Zorn

Well, my pointing out the fallacies in NYRA’s “protocol” may yet produce changes that will protect other horses. A subsequent message from Bruce Johnstone comments that “you are not offbase in your thoughts” and promises that he’ll be consulting with the powers that be at NYRA, in this case apparently Racing Secretary P J Campo and NYRA Executive VP/Chief Operating Officer Hal Handel. We’ll see.

I wonder if, on this as on so many other decisions, NYRA bothered to consult anyone who actually knew anything about horses. If they’d talked to almost any trainer beforehand, it’s hard to imagine that they wouldn’t have been nudged toward something closer to my suggestions that would have actually increased safety, rather than leaving a large gap for a scared horse to run through.

Sorry about going on at this length, but when it’s your horse that’s almost killed by someone else’s stupidity, it’s difficult not to be upset.

The Ever Less Durable Race Horse

2010-11-16T17:36:00.001-05:00

Very comprehensive article by Bill Finley in the Thoroughbred Daily News Magazine today with much detail about what we already know. The modern thoroughbred, at least in the US, runs less often each year, and far less often over a career, than race horses did half a century, or even a generation, ago.

The statistics, many from the Jockey Club Fact Book, are absolutely clear. In 1950, the 22,388 horses that raced averaged 10.9 starts for the year; in 2009, that average was 6.23 starts, a decline of 43%. In the same period, the number of races run has doubled, from 26,932 in 1950 to 54,121 last year, and the number of thoroughbreds that actually started at least one race during the year has increased by 220%, from 22,388 to 71,662.

As I and many others have said before, that's too many horses and too many races. Even with the huge increase in the foal crop over the years (now beginning, at last, to shrink), average field size has actually decreased since 1950, from 9.07 starters per race to 8.27 last year, a decrease of 9%.

And the number of starts that a horse makes in its career also continues to decline, to somewhere in the mid-teens. Clearly, horses today don't run as often or for as long. Finley's article raises some possible reasons.

The first possibility, which one often hears around the backstretch is that "we're not breeding as tough a horse as we used to." That's correct to some degree, but not in the sense that equine genetics have somehow changed over the past half-century. Evolution doesn't happen that fast. Horses have been around for thousands of years, and thoroughbreds have been around for hundreds of years. It's not that thoroughbred genetics are suddenly falling apart, but rather that the particular thoroughbreds being bred, and hence their descendants that are populating North American race tracks, are being systematically selected for a combination of precociousness, speed and, as part of the package, a lack of durability. Since the explosion of the bloodstock market in the 1970s and 1980s made it more profitable to breed than to race, and since the emergence of Mr. Prospector as the dominant sales stallion, the particular gene combinations embodied in North American race horses have indeed changed, and we see the results breaking down on the track every day.

This tendency is exaggerated by the rush to stud of stallions that didn't even have double-digit numbers of races before they were retired to cash in at the breeding shed. Take, for example, some of the new stallions for 2011. As Jeff Scott points out in today's Saratogian, the top two stallions for next year, Blame and Quality Road, each have only 13 lifetime starts, and Quality Road showed both distance limitations and temperament problems during that brief racing career. Good luck with his colts in the classics. As for some other stallions-to-be, Wood Memorial winner Eskendereya, sprint sensation Majesticperfection, and Iowa Derby winner Concord Point each "retire" after exactly six lifetime starts, while Travers winner Afleet Express is the grand old man of three-year-old retirees, with seven starts.I guess the theory, even in a down market, is breed 'em to 150-200 mares a year, rake in the money for three years, until someone notices how their progeny are actually doing, then ship them off to Japan, Korea, China, Turkey, etc.

Speaking of shipping, we've been exporting many more thoroughbreds from the US than we've been importing for many years. Last year, more than 3,000 horses were exported, while fewer than 1,000 were imported. And the flow has been systematically skewed, with longer-distance pedigrees leaving, until the point has been reached that there are hardly any true distance sires remaining in the US. That's reflected in the paucity of distance races at US tracks as compared to, well, anywhere.

But even taking into account the shift in breeding patterns, there are other factors that affect race horses' durability and frequency of running. The use of Lasix and other drugs is justified by vets and trainers who say that horses need it to race. If that were true, why are horses running so much less frequently now that they're all on Lasix? For a start, Lasix causes a horse to lose something like 30 pounds of fluids, and it takes several weeks for the horse to regain that weight. And, in place of the half-century old cure for aches and pains and bleeding -- giving the horse time off -- trainers now use Lasix and other drugs to squeeze as many starts as they can out of a horse before it falls apart completely.

A third reason for fewer starts per horse, at least according to Finley, is trainers' focus on keeping their win percentage up. The old practice of racing a horse into shape might have worked when owners' attention spans lasted the length of a horse's career, rather than just to the next race. But today, trainers don't want to run unless they have a good shot at finishing in the money and keeping their numbers up. If one trainer doesn't do that, he or she will very soon lose business to someone who does, and who, as a result, has better numbers. So horses sit in the barn until just the right race comes up.

Some of these problems are pretty intractable. Many of the newer owners in the game want results, and they want them now. (I'm not immune to this myself; anyone running a racing partnership knows that keeping the partners happy with wins and in-the-money finishes in very very important.)

But some of the trends can be reversed. Fewer foals. Fewer races. A ban on raceday medication, like that in most of the rest of the world, introduced over time to allow breeders and buyers to adjust to the new requirements, might well shift breeding patterns to emphasize toughness. Purse subsidies skewed to longer-distance races might make some distance stallions viable. All these changes would take time to percolate through the system that's evolved over the past half-century, but they could result in the return of the tough, durable horses of yesteryear.

Errors of Omission

2010-11-07T23:19:00.001-05:00

In more chivalrous times, or at least so one would like to think, those in positions of power and authority who did wrong would offer their resignations, or, in Japan at least, their lives, as tokens of atonement. If that grand old tradition were still in vogue, here's a list of those who should, as of Monday morning, be without a job:

Churchill Downs CEO Bob Evans and track president Kevin Flannery, for not exercising their authority to bar local favorite Calvin Borel from the premises after his outrageous brawling Friday afternoon.

Chief Steward John Veitch for letting Borel off with a $5,000 slap on the wrist and, more importantly, for failing to protect the bettors' interests in the Ladies Classic by scratching Life at Ten, declaring her a non-starter, or having her run for purse money only.

Track Superintendent Ray Lehr, for letting the BC turf races be run on a course that many jockeys said was less than ideal and that may have led to the death of Rough Sailing, whose feet went out from under him in the clubhouse turn of the Juvenile Turf and who later was put down because of a broken right humerus (the long bone in the upper part of the foreleg).

And, last, but by no means least, BC President Greg Avioli, his general counsel and his high-profile Lexington KY law firm, for failing to negotiate a television contract with ABC/ESPN that would have prevented the ludicrous gap in national TV coverage at 3:30, when ESPN continued to show a football game as coverage was supposed to switch from ABC.

These are the biggest two days in North American racing, and they were run by folks who appeared not to know what they were doing. Just step aside, guys; replacements couldn't do any worse.

Let's take the issues one at a time.

First, Calvin Borel. His conduct in the paddock after the BC Marathon was completely out of control. (Story and revealing video here.)Fighting like that would get you a red card in soccer, the heave-ho in baseball, ejection from the game in football or basketball, and, well, OK, a five-minute major penalty, maybe, in hockey. And it should have resulted in Borel's being thrown out of the ball game -- the Breeders Cup -- as well. Trainer John Sadler, whose filly Tell a Kelly was the fourth choice in the Juvenile Fillies and which finished a lackluster 7th with Borel aboard, had no hesitation in telling the TV audience he wished he'd been able to change jockeys, so it probably wouldn't have been much, if any, of a disadvantage to require new riders on the horses that Borel had been named on. In his four Breeders Cup rides after the fight, Borel finished 7th, 9th, 10th and 9th, so it's not as if any of the many other talented riders available at Churchill this weekend would have done worse.

Perhaps the stewards were constrained by the requirements of due process; they would have had to give Borel and hearing, and perhaps allow for an appeal before applying any penalty. (in the event, they didn't even try to do that after the fact, getting Borel to waive his rights to a hearing and settle for a $5,000 fine, an amount that, for an athlete at his level, is trivial.)

But Churchill Downs management had no such limitations. As another Churchill Downs Inc. track, Calder, showed back in 2006, track management has an absolute right to bar anyone from the premises for any reason at all, or for no reason. When track management finds a convicted illegal gambler on the premises, track security escorts him to the gate and makes sure he's not allowed in. Borel's flouting of the ordinary rules of sportsmanship and civility, notwithstanding the purported apology so obviously drafted by his wife, Lisa, should have earned him no better treatment.

By the way, Javier Castellano, who clearly did start the chain of events by moving his horse to the right without bothering to notice that there was another horse in the way, also waived his right to a hearing and settled for a six-day suspension for careless riding and a $2,500 fine for his part in the brawl, which, as far as I could see, consisted of trying to get away from the crazed Borel.

Moving right along -- we'll ignore the incident when the starting gate crew couldn't figure out which stall in the gate to start with and ended up with one horse left over -- we come to Friday's finale, the Ladies Classic. ESPN was all over this story, with Jerry Bailey noticing problems with Life at Ten as the filly was warming up, and asking John Velazquez about the situation as John was out on the track before the race. ESPN's Randy Moss said later that ESPN had passed along the comments to the stewards before the race. Given that, whether Velazquez said anything to the track vets is immaterial.

A jockey's responsibility in a situation like that is to protect his horse, himself, and the other jockeys and horses in a race. It's not the jockey's job to worry about the betting public. The same is true for a trainer. That's why we have stewards; it's their job to take the interests of the bettors into account, and to protect those bettors from, among other things, the distorting effects of information being available to some, but not all, of the public. In the Ladies Classic, the total handle on the race (excluding the Pick 6 pool, which had already been made moot by longshots in prior races) was about $10.7 million. Since Life at Ten went off at odds of 3.8-1, that implies that she accounted for about 17% of all bets on the race (after taking the takeout rate into account). In other words, roughly $1.8 million was bet on a horse that, as anyone watching ESPN before the race knew, had absolutely no chance. Or, to put it another way, the stewards' failure to act on the information available to them stole $1.8 million from the betting public. Bank robbers who take that much tend to be put away for a very long time indeed.

And it's not as if chief steward John Veitch and his crew didn't have options. They have the authority to order a scratch, or they could have had Life at Ten run for purse money only, with all bets on her refunded. Even after the race, they probably had the authority to have Life at Ten declared a non-starter, again resulting in a refund. Ah, but that would have cost $1.8 million in handle, and we certainly wouldn't want that, would we?

On to Saturday.

Before the Juvenile Turf, we had already heard several comments on the television coverage regarding the state of the Churchill turf course, mostly to the effect that it was very firm underneath, but "pulling away," or words to that effect, on top. Watching the replay of Rough Sailing's fall, it looks exactly like the kind of accident that would occur if the turf surface pulled away as the horse's feet hit the ground. Rough Sailing's left rear just went sideways, toward the outside rail; jockey Rosie Napravnik was lucky to be thrown clear, rather than landing under the horse, and lucky that her horse was toward the outside and toward the rear of the pack, so the following horses didn't fall over her. At least one account of the race said Rough Sailing fell after hitting a "soft spot" in the turf course.

Could it have been just an unlucky accident, with no fault attributable to the turf course? Sure. The horse was going into a turn, and not all horses, especially not lightly raced two-year-olds, necessarily know how to navigate the turns. But where we'd already heard worries about the condition of the turf course, I'd like to see some sort of an investigation that would see if Lehr and his crew had really done all they could to make the course as safe as it should have been for racing's biggest day.

And, finally, on the to embarrassment of losing the national TV feed for 15-20 minutes. The Breeders Cup had already agreed to a silly split-network approach for Saturday, with the first two hours being shown on ABC and the rest scheduled for the main ESPN channel. That's dumb enough to begin with; why make viewers work to change channels and stick with the show? We all know from behavioral economics research that the default option -- in this case, not even bothering to hit the remote control button -- always has its adherents, so it was likely that the BC would lose some viewers with the channel switch even if all had gone well. but, when the appointed hour came, those of us with sufficient motivation to change the channel were greeted with -- football. Michigan and Illinois were seemingly incapable of beating each other, and college football seems to have dispensed with the idea of a tie, so the teams were battling on into a third overtime, still on camera. At some point before the gates opened for the next BC race, at 3:56 pm, the BC was back on ESPN, but one has to think that considerable damage had been done. For some non-negligible number of casual viewers, the combination of having to change channels and then finding the wrong sport when they did change would have been enough to divert them from racing for the rest of the day. Hell of a way to encourage new fans.

Just as it's unfair to blame John Velazquez or Todd Pletcher for the Life at Ten debacle, it's unfair to blame ESPN for the TV interruption. The network's job is to maximize ratings, and I'm sure that sticking with Michigan-Illinois did just that. It was the Breeders Cup management's job to get a TV contract that guaranteed continuous coverage -- preferably on the same channel. They failed, miserably.

I'm teaching a law school course this semester on drafting contracts. One of the things my students, 10 weeks into the semester, already know is how important it is to think through all the contingencies, the what-ifs, that might arise, and to provide for them in the contract. Now, BC President and CEO Greg Avioli has a law degree from a pretty good school (the University of North Carolina), and has actually been a lawyer involved in racing, as general counsel to the National Thoroughbred Racing Association (NTRA). So I have to assume that he knows how to read a contract. But apparently, neither Avioli nor any BC in-house or out-house lawyer thought to cover the perfectly predictable contingency of another event running late on ESPN.

The solution isn't rocket science. ESPN could have shifted the BC to another of its many channels, or it could have shifted the balance of the football game, or ABC could have stayed with the racing coverage until ESPN was available. The point is that it was the Breeders Cup's responsibility to make sure one of those things happened, by providing for it in the TV contract. If you can't do as well as my third-year law students, you shouldn't be drawing down $507,000 a year as head of the BC.

In between the screw-ups, by the way, there was some pretty good racing. Just seems like a hell of a way to run a railroad.

Keeneland -- The View from the Trenches

2010-09-17T09:18:00.003-04:00

For the past few years, I've been lucky enough to work as part of the EQB buying team at the Keeneland September yearling sale. EQB, run by my friends Jeff Seder and Patti Miller, has one of the best records in the business for picking out a high percentage of stakes-quality horses at reasonable (whatever that means in the horse market) prices. Everyone can find the million-dollar horse at a sale. But finding the $150,000 horse that's just as good requires a bit more skill.

EQB certainly has the credentials. Among its recent purchases, are Ahmed Zayat's Eskendereya, Zensational, Mushka and J Be K; George Strawbridge's Eclipse Award winners Forever Together and Informed Decision; Ken Ramsey's General Quarters; Bruce Lunsford's Madcap Escapade; and Bill Heiligbrodt's Lady Tak.

This year, EQB is not buying for Zayat, but has a new client, someone who's been in racing for years but is now looking for his Kentucky Derby horse. He's given us a pretty big bankroll to work with, but wants it spent wisely -- no Green Monkeys or Seattle Dancers.

So, how do you find the $200,000 -- or even $50,000 -- Derby horse?

First, by trying to work harder than anyone else. We're probably the only group that actually looks at every horse offered in Books 1 through 4 of the sale. That's 3,185 horses in the catalog, maybe a few less than 3,000 after scratches. To look at that many, and pick out the good ones, requires a fair bit of work, and a fair bit of organization. Besides Patti and Jeff, the EQB team includes two spotters, who do the first looks at every horse and produce short lists for Patti to check, someone to hold the horses in the stall when Patti does ultrasounds of their hearts, a vet to review the records in the repository and scope horses, the invaluable Angie to run the computer analyses of the heart scans and to integrate all the data, and me, to coordinate what everyone's doing and to try to keep everyone sane in the chaos of the sale.

Horses in the sale are spread out over 49 barns, and a lot of success depends on just making sure that someone goes to every one of those barns. We start every morning by dividing the barns up between the spotters, then Patti and I start with second looks at horses identified the day before by the spotters, narrowing the lists down, looking for a racy, two-turn kind of horse, with a big stride and no obvious flaws. Sometimes we get help from those consignors that we trust to be honest and just point us in the direction of the horses that they know are serious candidates; some consignors, on the other hand, try to give us a "short list" that consists of everything in the barn.

The horses that survive these second looks go on the list for heart scans that same day. Somewhere between 2 and 4 pm, Patti gets started doing the rounds of the barns again, with "George," the ancient but still functional ultrasound machine. The scans are done somewhere around 9 or 10 pm, and then Angie stays up until early in the morning processing the data. Then it all starts all over again.

The next morning, the list is cut down further, after the vet reports on flaws that we just can't live with. Then we consult with client, get some guidelines for how much we can bid on those horses that are still on the list, and, in between looking at horses for the next day or two of the sale, run back to the sales pavilion to bid on today's list.

Eating is a challenge, especially since the consignors have gotten a lot less generous in putting out lunch at the barns. Pat Costello's Paramount still offers healthy sandwich wraps, and a couple of barns have pizza for the customers, but the lavish lunch spreads of days gone by are nowhere to be seen. Surviving on cookies and coffee is probably not to be recommended, but that's what's there when you get hungry.

Still, we've been doing pretty well so far, with 17 horses bought, for $3,070,000, over the first six days of the sale. That makes us the 3rd leading buyer to date, and the one among the top buyers with by far the lowest average (just over $180,000 per horse) price. So far, so good.

Now, on to Book 3.

The State of New York Racing

2010-09-02T11:45:00.002-04:00

First NYRA, now the Jockey Club. I'm beginning to wonder what's getting intop these pillars of the establishment when they start doing things right.

In NYRA's case, it was the comments by Chairman Steve Duncker and CEO Charlie Hayward on the need to reduce takeout. Now, as announced at the Jockey Club Round table two weeks ago, the Jockey Club has released statistical fact books on each of the major racing jurisdictions. Breaking down the data state-by-state makes it a lot easier to zero in on trends in the business and to make some predictions about where we're going.

Take New York, for instance. The New York Fact Book for 2010 -- data through the end of 2009 -- shows in stark detail how the industry has shrunk, back to a level of perhaps two decades ago.

Take as a starting point the number of New York mares bred each year. From a high of 2,749 in 2003, that number dropped to 1,599 in 2009, the lowest in at least 20 years, and, based on anecdotal evidence, I'm sure that it will turn out to be even lower in 2010. With a breeding rate that';s barely half the peak level of only a few years ago, that means there are a lot of farms going out of business and a lot of jobs being lost, probably forever, as the racing industry is certainly going to downsize on a permanent basis.

Similarly, the number of stallions based in New York has declined by two-thirds, from 236 in 1991 to only 81 last year. While the average New York stallion's book size has doubled, from 9.1 in 1991 to 19.7 in 2009, that still doesan't compensate for the loss of stallions and mares.

New York's foal crop was 1,684 in 2008, down from a peak of 2,024 in 2004. New York also appears to be losing ground vis-a-vis other states; its foal crop in 2008 accounted for 4.7% of the national total, compared to 5.4% just six years ago. That's a significant reduction in market share.

Increasingly, New York-based mares are being sent to out-of-state stallions. For the 2004 New York foal crop, roughly 65% were sired by stallions standing in the state, while for the 2008 crop, just over 50% had New York-based sires. The big shift was to Kentucky, whose stallions accounted for about 25% of the New York foal crop in 2004 but for 40% just four years later, in 2008.

Moving from breeding to racing, the news is similarly discouraging. Purses in New York reached a peak (in non-inflation-adjusted dollars) in 2005, at $154 million. Last year, they totaled $133 million, about a 15% decline. And the average purse per race, despite big increases by NYRA at Saratoga last year, dropped from $41,229 in 2005 to just $34,832 last year. That's the lowest level since 2000, even before taking inflation into account. And horse owners' costs have certainly increased since them; trainers' day rates are generally 20% higher than a decade ago, not even counting the increasing number of extra charges that trainers tack onto their bills these days.

Meanwhile, as we all are aware, the average number of starts per horse per year continues to decline. From 9.3 starts per horse in 1991, when Lasix was still illegal in New York, the number has dropped to just 6.9 last year, a decline of 26%. More evidence, if such is needed, that the use of Lasix does nothing to extend horses' racing careers. Similarly, the average number of lifetime starts per horse has dropped from 28 for foals born in 1991 to 18 or so for those born in 2003, who would have been six years old last year. Again, the decline correlates very well with the introduction of Lasix in New York.

Auction prices for NY-bred yearlings peaked in 2007, at an average of $38,116. Last year, that average dropped by nearly 30%, to $26,931. With Keeneland and Timonium sales still to go, it's too early to estimate the 2010 number, but the average at last month's Saratoga Fasig-Tipton NY-bred sale, which usually catalogs the cream of the New York crop, was down a couple of percent from 2009, so it's unlikely there will be any overall increase when all the numbers are in this year.

So, the evidence is in. The decline in racing generally hasn't spared New York, even though NYRA presents the best racing product in North America. And the endless dithering in Albany, taking nine years to approve a slot machine operator for Aqueduct, coupled with the follies of the bankrupt New York City OTB Corp., have surely made things worse. Painful as it may be, perhaps it's time to contemplate a more orderly downsizing of the industry in the state -- fewer racing dates, coupled with a better distribution system for the simulcast signal. At least that might provide some stability for those left in the business and allow them to do a little planning for the smaller future that we all face.

NYRA Gets It Right

2010-08-22T15:36:00.003-04:00

Spent the morning at the annual Jockey Club Round Table on Matters Pertaining to Racing, the annual get-together of the rich and famous organized by Dinny Phipps and Co. at the famed Gideon Putnam Hotel in Saratoga. Was definitely underdressed for the occasion -- Steve Crist and I seemed to be the only males not wearing ties -- but nonetheless picked up all sorts of interesting info, which will be grist for a series of upcoming blog posts.

But first, congratulations to New York Racing Association chairman Steve Duncker, who managed to include three really good points in his brief presentation.

First, Duncker ended his Power Point slide show with a sincere, and very prominent, "Thank You" to the owners and trainers who, by sending their best horses to race in New York, help maintain the state's position as the country's pre-eminent racing venue. (As an example, 36% of all the Grade 1 stakes races in the US are run at NYRA tracks.) Even for those who ofrten disagree with NYRA management, it's nice to be appreciated.

More substantively, Duncker pointed out that our product -- betting on horse racing, is grossly overpriced, and has been getting more expensive. From a blended takout rate of 15% a few decades ago, NYRA's takeout is now at a level of 19.8%. That's undoubtedly one of the factors causing the rankings of NYRA tracks by HANA, the Horseplayers' Association of North America, to be well below what would be suggested by the quality of New York racing. In those ratings, Saratoga ranks 16th of 69 rated tracks (Keeneland is rated No. 1), and Aqueduct and Belmont languish at 26th and 27th, respectively.

In contrast to the nearly 20% that NYRA charges the bettor, Duncker pointed out that the price of other forms of gambling is much cheaper. The "takeout" on craps averages 2%, on blackjack 3%, on slot machines, 6%, and on casino poker tournaments, 8%. No surprise that we're losing the business of the numerate younger generation.

Duncker acknowledged the problems with reducing takeout -- how to accommodate rebates for the "whales" who provide a large share of total handle, how to fairly split the pie among purses, track operators and off-track bet takers, etc. But even raising the issue in public represents a huge step forward, especiallly at the same time that California seems to be moving in the wrong direction with a major takeout increase.

Duncker's other really smart point was to analyze race track results by how much in handle is generated by each dollar of purse money. It's a great metric, one that I've used myself in looking at how the Saratoga and Monmouth meets compare, and one that would certainly be expected of a former Goldman Sachs partner, as Duncker is, but it's the first time I've heard this sort of rigorous quantitative analysis from a racetrack official. Just compare this approach to the blatherings of, say, Frank Stronach.

NYRA, unsurprisingly, is way ahead of the rest of US race tracks on this measure. Each dollar of purses at NYRA tracks, according to Duncker, generates $22 in total handle. That's twice as much or more than at any other track, and, with slot machine revenue finally in the foreseeable future in New York, augurs well for the continued viability of racing in New York. (According to data presented by Duncker at the Round Table, a "conservative" estimate of slots revenue from the Aqueduct racino would add $13,000 to the average overnight purse in New York. Who knows, it might even be possible to think about breaking even with a good horse.)

I'm sure there will be lots to disagree about in the future, but for now, Steve Duncker and NYRA seem to have gotten a few things right.

Saratoga v. Monmouth: weekend 1

2010-07-27T17:26:00.002-04:00

Well, Monmouth had Rachel Alexandra, and Saratoga had so much rain that it flooded out Danny Meyer's hot new Shake Shack restaurant. But, no surprise, guess which track had the better performance on July 23-25, Saratoga's opening weekend?

For the three days, Saratoga had paid attendance of 62,243, versus Monmouth's 28,365. Even on Saturday, with Rachel Alexandra at the shore, Monmouth drew only 12,859. The same day, with the highlight at saratoga the Coaching Club American Oaks, won by Devil May Care, Saratoga drew 20,352.

On-track handle for the three days at Monmouth was $1,975,627. At Saratoga, where there were 6 fewer races, on-track handle was more than four times as much, at $8,638,566. Similarly, all-sources handle for the weekend at Monmouth was $24,130,504, while at Saratoga it was $43,431,852. Monmouth did much better, comparatively, on its simulcast, OTB and ADW betting, but even with Rachel Alexandra running Saturday, it didn't equal Saratoga's handle on any of the three days.

For Monmouth, off-track betting accounts for about 92% of total handle, while for Saratoga, "only" 80% of the handle comes from off-track. That means that the blended takeout rate returned to the track is somewhat lower for Monmouth than at the NYRA track. To some degree, that imbalance may be made up by what Monmouth retains from its patrons' bets on other tracks' simulcasts, but, given the lowish attendance at Monmouth, I suspect the balance is still well in NYRA's favor.

Monmouth ran its usual 36 races over the weekend, with an average field size of 9.3, and an average purse, including the $400,000 extorted by Jess Jackson as an appearance fee for Rachel Alexandra, of $69,103. At Saratoga, over 30 races, the average field size was a very healthy 8.7 -- way up from Belmont's 7.0 despite a bunch of off-the-turf races -- and the average purse was $57,237, not all that much behind Monmouth.

The quality of racing was much higher, at least for this weekend, at Saratoga than it had been at Belmont. Only 6 of Saratoga's 30 races were claimers, including one maiden claimer and four "conditioned" races (N2L, N3L, etc.) At Monmouth, more than half the races -- 20 out of 36 -- were claimers, including seven maiden claiming events. That's part of the reason that Monmouth's per-race purse average was so (relatively) low. Yes, there are $80,000 allowances in the condition book, but for every one they ran at Monmouth, they carded three claiming races.

Actual claims made were 15 at Monmouth, or about 0.75 per claiming race, and 8 at Saratoga, or 1.33 per race (in both cases not counting the allowance/optional claimers, which I classified as allowances). That's a lot more active claim box at Saratoga than had been the case back at Belmont.

I'm not sure yet what this all means; I'll keep watching the two meets and see if we can draw any grand conclusions. For now, though, Saratoga seems to be, at a minimum, holding its own against the Monmouth challenge.

(If anyone wants the spreadsheet from which these figures were derived, just let me know, with your email address.)

Monmouth vs. Belmont: the Numbers

2010-07-17T22:37:00.000-04:00

Much has been made of this year's big increases in attendance, handle, field size and purses registered by Monmouth Park in its innovative three-day-a-week race meet. Halfway through the summer meet, attendance is up 13% over last year, at 10,500 a day; all-sources handle has more than doubled, from $3.5 million a day last year to $7.7 million; and on-track handle is up 43%, much more than the corresponding increase in on-track attendance. So, it seems, Monmouth's ballyhooed "million dollars a day" in purses for a shorter meet appears to be the wave of the future.

Meanwhile, the New York Racing Association's Belmont spring-summer meet seems to have been lost in the financial mess that is New York racing, with the performance of the horses and the track buried by news of the state government's continuing ineptitude over putting slot machines at Aqueduct, a mere nine years after they were authorized, and of the continuing failure of New York City Off-Track Betting Corp. to pay the race tracks and horse owners what it owes.

But a comparison of the data for the two meets, Monmouth and Belmont, reveals that there still may be some life in New York racing -- enough life so that, with a modicum of responsibility from Albany and a little innovation in trhe racing office and in marketing, NYRA might well have some hope for the future.

To compare the two race meetings, I looked at the data for the past four weekends, from June 18th through July 11th -- including the July 4th holiday -- for the two tracks. That's 13 racing days at each track. The comparison showed some interesting numbers:

Handle: Monmouth had total all-sources handle of $98.2 million for the 13 race days, an average of $7.6 million daily, or $629,000 for each of the 156 races run during the four weeks. Belmont, on the same 13 days, had a total handle of $112 million, or $8.6 million and $882,000 per race. Belmont ran a total of 127 races on the 13 days -- mostly 9- and 10-race cards, compared to the 12 races daily at Monmouth.

Field Size: The edge in handle for Belmont is even more impressive when one takes into account that Monmouth averaged 9.0 starters per race during the period, while Belmont barely managed 7.0 starters. Since handle generally increases in an almost linear relationship with field size, it's clear that Belmont would have done even better had it managed to come closer to its long-term target of eight starters per race.

Some of the difference in field size was unquestionably accounted for by the high purses offered at Monmouth, as well as the guarantee of a $1,500 payout for every starter at Monmouth. When you can pick up a $1,500 check for finishing 8th in a $5,000 claimer, the Monmouth entry box looks pretty attractive.

Purses: Monmouth had been touting "a million a day" in purses, and it's true that the condition book did add up to $1 million each day -- but only if you considered not only the 12 races that were actually run, but also the races in the book that weren't used and the extras put up by the racing secretary. In fact, for the 13 days in question, actual purses awarded topped $1 million on only two days, and the average was $807,000 a day, or $67,300 per race. True, that was a lot more than was paid out at Belmont, where purses averaged $452,000 a day, or $46,300 per race. But with higher purses on offer by NYRA at the upcoming Saratoga meet, the per-race difference may not be as big as some New York-based owners and trainers feared.

Quality of Races: There were some striking differences between the two tracks in the type and quality of the races offered. In the 13 days, Monmouth offered 17 stakes races, compared to only 7 at Belmont. Monmouth had 36 allowances (23% of all races), of which 11 were for the limited pool of New Jersey-breds. Belmont, in the same period, ran 31 allowances (24% of the total), of which 12 were for its much larger pool of state-breds. Monmouth had 20 maiden special weights, nine of them for state-breds.a, while Belmont had 26, 15 of which were for NY-breds. Belmont had 20 maiden claimers (16% of its total), compared to only 18 at Monmouth (11.5%).

The big difference was in the nature and quality of the claiming races. Apart from the maiden claimers, Monmouth ran 63 claiming races (40% of its total), while Belmont ran 35 (28%). But Monmouth's races were almost entirely open claimers, spread reasonably equally over the price spectrum: 15 at claiming prices above $25,000, 22 at $10,000-$25,000, and 25 below $10,000. In New York, by contrast, racing secretary P J Campo continues his infatuation with conditioned claimers -- races for non-winners of two or three lifetime, for horses that haven't won in six months, etc. Of the 35 claiming races at Belmont, 27 -- nearly 80% -- were conditioned claimers. A few years ago, New York didn't run any of these races. Now it runs nothing but. I don't know whether P J could fill a racing card without resorting to the conditioned claimers, but the anemic 7.0 starters per race average over my study period suggests he might not have done any worse had he stuck to the traditional open claiming structure. And he would have had the added excitement of lots more claiming activity. At Monmouth, in the 13 racing days from June 18th through July 11th, 109 horses were claimed -- more than 8 per day. At Belmont, total claims for the same 13 racing days were 14, barely one per day. There just aren't the races at Belmont with attractive claim prospects, and the trainer making a claim doesn't have the options for future races that would be available with a more traditional claiming structure.

No wonder I've been having a hard time finding a suitable claim for my claiming partnership. If it weren't that we all want to race in New York, I'd be looking at Monmouth. And most people who want to make new claims are already there. I don't know if Charlie Hayward and P J Campo consciously set out to destroy the claiming game in New York, but, whether intentional or not, that's what they're doing.

As the figures above show, NYRA and the Belmont meet held up pretty well against Monmouth's challenge. But claiming is an important part of a race meeting, and by stifling claiming activity through a surfeit of conditioned claimers, NYRA is endangering the longer-term health of an important segment of the industry.

The NYRA Audit - No Good Deed Goes Unpunished

2010-07-13T14:30:00.000-04:00

Earlier this year, displaying the political sense that has so often eluded it, the New York Racing Association (NYRA) agreed to turn over its financial records to State Comptroller Thomas DiNapoli so the latter could conduct an audit of NYRA's shaky finances. NYRA had previously unleashed its stable of pit-bull lawyers in an effort to block the Comptroller's request, a position that drew widespread criticism, and the turnaround in February seemed a smart move. Perhaps it even helped NYRA convince the otherwise clueless politicians in Albany that they had to make good on their contractual promises to advance NYRA the money it was losing as a result of the state's endless dithering on awarding a contract for slot machines at Aqueduct.

But yesterday, the other shoe dropped. Comptroller DiNapoli released his audit of NYRA, complete with a scare-laden press release. DiNapoli concluded that NYRA should somehow scale back the level of its operations to what would be sustainable without slots revenue and without the $20 million or so that's owed to it by the bankrupt New York City OTB Corp.:

"given NYRA’s spending patterns and its continued reliance on VLT revenue that failed to materialize, NYRA would have run out of cash (i.e., not have had sufficient cash to pay its operating expenses) sometime in early June 2010, if it had not secured external financing. Even with this State financial assistance, however, NYRA could again experience a cash shortfall in 2011 if the Aqueduct VLT facility does not become operational and its expenses are not further curtailed."

Not mentioned is the state's own role in causing the slots-revenue screw-up, a fact tacitly acknowledged by the Legislature earlier this year when it advanced NYRA some $25 million to get through the next 12 months -- a sum significantly below the amount that NYRA would have received had the Aqueduct racino been up and running, and considerably below what the State itself contractually promised to NYRA in the bankruptcy settlement in 2008.

I suppose NYRA could cut back to a level supported only by on-track and simulcast wagering, without either the NYC OTB money or the slots revenue. If that happens, watch out for traffic jams of horse vans heading out of the Belmont stable area for Monmouth, Philadelphia, Delaware and, who knows, maybe even Ellis Park. It would be racing, but it wouldn't be the world-class racing that has made New York most prestigious place to race for more than a century.

The State authorized the Aqueduct racino in 2001. Nine years later, it's about to fail in yet another attempt to name the racino operator. This will be the fourth aborted attempt, and the smart money is on dumping the decision in the lap of the next Governor, who won't even take office until January. Back in 2008, the state promised NYRA $2 million-plus a month for each month after April, 2009 that the slots weren't operating. If the state keeps its promise and pays the money, there's no NYRA fiscal crisis. If the slots are running and the NYC OTB situation is solved, NYRA looks like a healthy, profitable enterprise. But DiNapoli, originally appointed by his buddies in Legislature back in 2007, over the opposition of ill-fated Governor Eliot Spitzer, has to run for re-election this year. And I guess he thinks he'll get some votes by projecting a tough-guy image and beating up on all those rich horse owners in NYRA.

DiNapoli's solutions to the problem are generally as wrong-headed as his analysis of the problems. And in fact, the proposed solutions would come nowhere near solving the revenue problem caused by the delay in slot-machine revenue and the continuing failure of NYC OTB to pay NYRA what it owes.

For example, DiNapoli says NYRA should end the free horse-van service that conveys horses stabled at one track to another NYRA track when they're entered in a race at the latter. He suggests either ending the service completely or charging horse owners for it. Either "solution" is absurd. NYRA is far from alone in providing free transportation between tracks. Churchill Downs Inc. does it between Churchill and Arlington, Churchill and Keeneland do it for each other, the Southern California tracks pay for buses to whichever track is running at the time, Gulfstream buses horses from the Palm Meadows training center, and the Maryland tracks provide buses between Pimlico, Laurel and the Bowie training center. In every case, the distances involved are far greater than the 10 miles between Aqueduct and Belmont.

Now, what about having the owners pay for the van. Let's see, we already pay $100 a day or more to send a groom with our horses to the ill-conceived security barn, and we pay upwards of 4% of the purse in various required charges taken out by NYRA before we get our money, not counting the jockey's fee and the trainer's 10% (now, sometimes, 12-13%) commission. So sure, let's add another $100 or so each way for the van. Just one more reason, if one were needed, to head on down the Jersey Turnpike to Monmouth. At least down there, every starter is guaranteed a minimum of $1,500. In New York, all the starters that finish worse than 5th collectively receive 2% of the purse. So, if you're in a $40,000 race with a field of 12, and you don't finish in the top five, the owner gets the princely sum of $114 -- and has to pay a jockey fee of $100, a variety of fees for Lasix, for the NY State Racing and Wagering Board, $100 or more to the trainer as a race-day fee to cover the cost of the groom, $23 for the pony to take the horse to the starting gate, etc. etc. Enough.

As it is, NYRA is averaging just about 7 horses per race at Belmont this spring, while Monmouth is averaging close to 10., Anything that further reduces field size at NYRA tracks is a really bad idea.

(The Comptroller's report does have a ray of light, though. It states that NYRA will be saving upwards of $1 million by eliminating the detention barn at Aqueduct. For those not familiar with the situation, one of the "reforms" introduced as NYRA emerged from criminal indictment and bankruptcy a while back was to required horses entered in races to be transferred to a holding barn six hours before their races, so the state could presumably monitor the giving of illegal drugs. A good public relations move, perhaps, to shore up NYRA's image and reassure bettors, but an unmitigated disaster for owners, trainers and horses. The detention barn, as noted, increases costs, and has an unpredictable effect on some horses. Many horses react badly to being taken out of their usual comfort zone, which encompasses their barn and the race track. And, in summer, the holding barn can be brutally hot, leading some horses to "wash out." Good to know it won't be coming back at Aqueduct, but how about getting rid of it at Saratoga and for the Belmont fall meet as well? New York already has the most comprehensive pre- and post-race drug testing in the country; the holding barn at this point is an expensive anachronism.))

Another of DiNapoli's recommendations was to reduct the compensation of the state-mandated "integrity monitor" for NYRA, the law firm of Getnick & Getnick. They receive $125,000 a month, or $1.5 million a year. DiNapoli says billing them at an hourly rate might save a few hundred thousand. As NYRA Trustee James Heffernan points out in his reply to the audit report, the Comptroller appears not to understand either (a) that the arrangement with G&G was previously approved by the state or (b) that it IS in fact based on billable hours, with unused hours carried forward. Now, personally, I think that the whole contract is probably a waste of time and effort, but, since the State required it, it's a bit odd for a state official to be criticizing it.

NYRA is running an operating deficit of some $30 million a year. Funny, that's just about what the slot machines would produce, if the state could ever get its act together and anoint an operator. All the rest is nickel-and-dime stuff. Tom DiNapoli's energy would be better spent investigating what his former colleagues in the Legislature were due to get for the thousands of "member items" stuffed into the state budget and, so far at least, vetoed by lame-duck Governor David Paterson. Don't hold your breath waiting for that audit, though.

Suppose They Gave a Party ...

2010-06-29T12:25:00.002-04:00

Tom Precious of the Blood-Horse is reporting that Delaware North, one of the six registered bidders for the long-delayed Aqueduct slot machine contract, is pulling out of the bidding. Bids are due at 4 pm today in the latest attempt to name a racino operator.

Delaware North is one of the more experienced slot-machine operators among the six potential bidders, with some 10,000 slot machines scattered across the US, including the racino at the upstate New York Finger Lakes track. Presumably, the company knows how to do its sums before making a bid, so its last-minute decision to pull out is, well, troubling.

Although no one at Delaware North was speaking publicly, Precious cites unnamed sources as saying that the reasons for the pullout included the 1% cut in operator fees included in the latest version of the New York state budget, the requirement that the winning bidder pony up $300 million BEFORE negotiating a final agreement with the state, and doubts as to whether New York State can manage to borrow the $350 million it's supposed to come up with to finance construction of the Aqueduct racino. Sound like good reasons to me, although the $300 million up-front payment has been part of the deal from the beginning of this round of bidding, so there's no cause for surprise there.

The real reason, it seems to me, is likely that Delaware North has spent the past month observing the New York state government in action, and what it's seen has certainly not been encouraging. The state may indeed have a budget sometime later today, but, if I were an investor about to put $300 million into a venture dependent on the Albany Follies, I'd certainly be having second thought.

Still three and a half hours before the bidding deadline. Wonder how many others among the bidding groups -- Penn National, S.L. Green Realty Corp., Empire City Casino/Yonkers Raceway, Genting New York, and Clairvest Group -- will also have second thoughts. Could be a pretty small party by the deadline.

Churchill's Ongoing Makeover

2010-06-18T17:34:00.000-04:00

Now that Churchill Downs Inc.'s annual meeting is over, it's an opportune time to take a close look at the leading US race track operator's financials. As we've pointed out here in prior years, Churchill has a long-term strategy of increasing the profits from its online betting operations (Twin Spires and the newly merged YouBet) and casino gambling (in Louisiana, and now at Calder in Florida), while managing the ongoing decline of revenue from live racing. That trend continues to be evident in Churchill's numbers the calendar year 2009 and for the first quarter of 2010.

In fact, it appears that the trend is accelerating. In comments at yesterday's annual meeting, and in an interview with the Lexington KY Courier-Journal, Churchill CEO Bob Evans (definitely not a racing guy) said that the future of live racing at Arlington Park in Chicago -- without slot machines and without access to loans from the Illinois state government -- was in serious doubt, ands, even more surprising, said that there was a good chance that the number of live racing days would be reduced at Churchill Downs itself. Churchill, according to Evans, is starting a review of all its live racing sites -- Churchill Downs, Arlington, the Fair Grounds and Calder -- with a view to determining how much, and , to cut racing days. And, even before that review gets underway, Churchill has already reduced its racing dates for 2010 as compared to last year -- 4 fewer at Churchill Downs, 2 fewer at Calder, 7 fewer at Arlington and 6 fewer at the Fair Grounds, for a total reduction of 19 days, or about 5%.

That may be bad news for owners and trainers, but it's apparently good news for the shareholders. Churchill's stock price is currently well over $34 a share, significantly up from the $20 low point it reached in 2009.

Churchill's shift of emphasis from live racing to online wagering and slot machines has been underway for some time. In 2006, live racing accounted for 88% of the company's revenue; in 2009, that percentage was only 53%, and in the first quarter of 2010, for the first time, non-racing sources for more than half of all revenue.

Even with the recent reductions, Churchill still runs some 4,100 races a year at its four tracks, or about 8% of the US total. That makes it the largest single track operator in the country, even as it looks to steadily reduce its dependence on live racing.

In its place, and, to a considerable extent, in competition with its own live product, Churchill is expanding its online and off-track wagering operations. The company runs a network of OTBs in Kentucky, Illinois and Louisiana (New Yorkers take note: some places have figured out that having the tracks own the OTBs might actually work). It also owns the expanding Twin Spires online wagering platform, now merging with Youbet.com, as well as the Bloodstock Research online date supplier. In the first quarter of 2010, the online operations accounted for $18 million in net revenue, about a quarter of the company's total. And, as a corporation, Churchill actually prefers to have bets placed through its online network rather than at the track, since the share of the takeout that goes to purses is much less for online bets than it is for on-track betting. Not a good thing for horsemen when your track operator doesn't have any incentive to charge online bet-takers the maximum it can get.

Even though Churchill is still a small player in the non-racing gambling business, with just 1,200 slots at Calder and 1,400 machines in Louisiana, that sector accounted for $26 million in net revenue in the most recent quarter, or more than one-third of the company's total. As, inevitably, Churchill adds more slot machines and other casino-style revenue sources,the gaming side of its revenue will continue to increase, at least vis-a-vis revenue from live racing.

While Churchill still has a comfortable balance sheet, with $17 million in cash and some $187 million in a credit line available as of the end of the first quarter of this year, it does face some hurdles down the road, with some $70 million in debt repayment due in 2013-14. By then, though, if things keep going as they are, Churchill will be even less of a horse racing company and more of an online wagering and slot-machine operator. They're doing what it takes to stay alive, but is it good for the racing game?

NYRA Rescue Passes State Senate

2010-05-24T20:45:00.002-04:00

I've been advised that the New York State Senate has approved the $25 million loan (not bailout) that will tide the New York Racing Association over until either NYC OTB starts paying what they owe or the state finally approves a slot machine operator for Aqueduct. The loan was tacked onto the weekly bill extending the state budget, since the legislature failed to meet the April 1 deadline for a new fiscal year budget. The measure now heads to the Assembly, where it should pass.

Whew.

There He Goes Again

2010-05-18T23:10:00.000-04:00

Frank Stronach just can't help himself. Fresh from his bankruptcy court success at the end of April reneging on his promise to sell the Maryland Jockey Club, he's now managed to throw the Santa Anita fall meet in doubt, to bring in a partner in Maryland that's not exactly known for its commitment to racing, and to have waved goodbye to yet another experienced industry executive passing through the Magna revolving door.

Beginning with the latest news, Santa Anita track president Ron Charles abruptly resigned, announcing his departure on Tuesday and clearing out his desk on Wednesday. As Brad Free pointed out in The Daily Racing Form, Charles is the sixth chief executive at Santa Anita in the 12 years that Stronach has owned the track. He was preceded through the revolving door by Bill Baker, Cliff Goodrich, Lonny Powell, Jack Liebau and Jim McAlpine.

After four years on the job, Charles had probably had more than enough of trying to deal with the Stronach ego, not to mention being tired of trying to figure out why none of the synthetic surfaces installed at the Arcadia track seemed to work. Still, the lack of continuity, a common feature at all Stronach tracks, is troubling.

Even more troubling is Stronach's decision to use the Magna bankruptcy as a pretext for voiding the contract between Santa Anita and the not-for-profit Oak Tree Racing Association. Oak Tree has run the fall meet at Santa Anita since 1969, and had a contract with Santa Anita that was supposed to run through 2016; any profits from the meet are poured back into the thoroughbred industry. But Stronach apparently thinks he has a better idea, although, typically, he hasn't yet told us what that idea might be. (Good coverage of the Oak Tree story here and here.) While Oak Tree is still saying that it hopes to negotiate a new deal with Stronach, Del Mar and Hollywood would both be delighted to play host to the fall meet.

Meanwhile, the cancellation of the Oak Tree agreement may have rudely awakened the Breeders Cup board from its wet dreams of a perpetual West Coast BC festival. Before the latest Stronach salvo, the BC Board was reportedly very close to deciding that, after this year's event at Churchill, the BC would return to Southern California for the next five years, coinciding with the final years of the Oak Tree lease. That would have peopled the big day(s) with B-list celebrities, many of whom, it turns out, are paid for out of BC promotional funds, but who, we're told, juice the event's TV ratings. Now that October racing in California may be happening somewhere other than Santa Anita, it'd be pretty hard for the Breeders Cup board to stick to that unpopular plan. In a way that's a shame; I was really looking forward to an anti-BC fall dirt-racing championship day at Belmont.

Earlier this month, Stronach announced a "partnership" with Penn National Gaming, Inc. to operate the Maryland tracks. Details of the partnership are as yet unknown, if they've even been agreed between the parties, but the deal suggests a shift of focus away from horse racing and toward greater emphasis on slot machines. Penn National does operate three thoroughbred tracks (Zia Park in New Mexico, Charles Town, and the company's eponymous track in Grantville, PA) as well as three harness tracks (in Bangor, ME, Freehold NJ, and Toledo, OH). But its principal business is running low-end casinos. In addition to the slots at four of its six tracks, the company also owns 14 stand-alone casinos, almost all of which are in the South and Midwest. I've been in one of the company's casinos, in Biloxi, MS, and even by the undemanding standards of that town, it is, to say the least, an inelegant operation. Hard to imagine that Penn National will do much to help improve the tone of Maryland racing. (For details of the company's operations, look here and here.)

The latest bit of bad news for Stronach is the lawsuit filed by some disgruntled shareholders in Magna Entertainment, who quite rightly believe that Stronach lied to the bankruptcy court in order to avoid having outsiders bid on the Maryland Jockey Club and other properties. As extensively outlined in The Paulick Report, Magna Entertainment shareholder Willam Bayne Jr. and his co-plaintiffs allege that Stronach deliberately ignored bids that would have provided more money for creditors, and maybe even some for the shareholders than did the inside-the-company bid from Stronach puppet MI Developments. It's tough to win that sort of challenge to a bankruptcy judge's decision, especially, as here, where the creditors announce themselves satisfied, but the depositions should be fun.

Broken contracts, broken promises, unsavory partners, a revolving door for executives. Funny, the new Magna sure looks a lot like the old one.

Honest Trainers Get Drug Positives, Too

2010-05-10T18:49:00.004-04:00

Horse racing is full of suspicion. “All trainers are drug-wielding cheats.” “All the races are fixed.” “The trainers and vets get away with murder.” And those are just the versions that are printable in a family blog.

Now, I’ve been around the race track for a while, and I know it’s true that some trainers are probably using illegal chemical help, though that’s far more difficult to do these days, with super-sensitive testing devices, than it was a decade or two ago. But this is a story about state racing officials more concerned with their public image than with fair dealing, and about an honest trainer, trying to play be the rules, who’s getting a very raw deal all because he did exactly what he was told by people who should know.

Like most racing jurisdictions, New York makes the trainer the insurer of a horse’s condition. Whether an illegal substance was given to a horse by a vet, a groom, or some guy in a trenchcoat who sneaks into the stall, it’s the trainer who’s held responsible when that horse tests positive for a drug. In the grand scheme of things, that’s probably a good idea, since it’s a lot easier to police a finite universe of trainers than it is to track down those errant vets, grooms and guys in trenchcoats. But every once in a while, the trainer suffers through no fault of his or her own.

Case in point: This past Monday, May 5^th, the New York State Racing and Wagering Board suspended trainer Bruce Brown for 30 days, and fined him $1,000, for two drug positives. [Disclosure: Bruce trains two horses for my Castle Village Farm partnership. I’ve watched him in his barn at Belmont, I’ve talked with him extensively, and each of the two horses he trains for me has won this year. Everything I’ve seen confirms to me that he plays by the rules.]

The drug in question was hydroxine, sometimes referred to as hydroxyzine. It’s an antihistamine that’s been around for more than 50 years, and is used to treat hives and other allergies in humans as well as horses. Here’s how and why Bruce used the drug:

Back in early March, two of his horses were suffering from hives. He attempted to deal with the problem by changing their stall bedding from straw to wood shavings, since the allergy (hives) was probably caused or aggravated by the straw. When NYRA refused to allow the use of wood shavings (something about a track-wide contract that requires straw, which is sold for use in the mushroom industry), Bruce went to Plan B, calling the vet. His vet prescribed the hydroxine, and told Bruce what the safe time would be to stop using the drug before each horse’s race. Bruce did stop the treatment as directed, and the horses, their allergic reactions under control, went on to finish first and second in their respective races. But apparently the vet’s instructions weren’t cautious enough. Post-race testing found traces of the drug in each horse’s system. Not enough to have any effect on their performance, but enough to cause a positive test.

Racing has an astonishingly long list of prohibited drugs. (Of course, two of the most egregious drugs, Lasix and, in Kentucky, Bute, aren’t on the list, but that’s another story.) You'd think the list would make a distinction between a major dose of the drugs and a small trace that can’t possibly have an impact on the results of a race. Some jurisdictions set threshold levels, below which a trainer isn’t penalized. Some don’t. But few listen to any kind of explanation from a trainer once traces of a drug have been found.

And when the regulatory agency has the attitude that all trainers cheat, as is the case in New York, the chances of getting a fair hearing are, to say the least, minimal.

So, Bruce Brown gets a 30-day suspension, two owners, through no fault of their own, have to repay purses that they thought they’d won, and the whole episode does nothing to clean up racing. It does, however, lend some urgency to the ongoing efforts to at least have uniform drug rules in all 37 states where there is horse racing. I don’t know if a uniform rule with a reasonable threshold level for hydroxine would have helped Bruce Brown in this case, but it couldn’t have hurt.

Some owners say they’ll drop a trainer the minute he or she has a drug violation, as Team Valor did with Ralph Nicks back in 2004. But it’s just not the right thing to do to a trainer who’s done well for you and who tried, to the best of his ability, to follow the rules. So, Castle Village Farm will be waiting for Bruce Brown to be back in the barn at Belmont on June 7^th. We’re looking forward to more drug-free wins this year.

Tax Code Favors the Wall Street Gamblers, Not the Race Track Kind

2010-04-29T11:33:00.004-04:00

With the Kentucky Derby coming up and with the overpaid and largely unrepentant thieves from Goldman Sachs in the Congressional hot seat, it seems an appropriate time to renew a question that I initially raised some 15 years ago, in an article in that well-known handicapping publication, The Tax Lawyer. Namely, why does the Internal Revenue Code treat the ordinary schlub’s horse racing and casino gambling winnings and losses so much less favorably than it does the much more dubious gains and losses that those Wall Street’s masters of the universe receive from trading in billion dollar derivative bets?

[For those who want to explore the legal arguments, the full text is at 49 Tax Lawyer 1 (1995), available on Lexis and Westlaw or in your favorite law library.]

That tax treatment is hugely different. Just for a start:

● Gambling losses cannot be deducted against any other income, only against gambling winnings. In contrast, net losses from Wall Street trading are deductible against the trader’s other income.

● Any excess gambling losses that are not deductible in one year cannot be carried forward to the next tax year, even to offset gambling winnings in that later year. Non-deductible derivatives trading losses in one year, in contrast, can be carried forward or backward and used to offset income in other years.

● Racing and poker tournament payoffs in excess of $5,000 are subject to withholding, at 28%, when the bet reflected odds of 300-1 or greater. And the Internal Revenue Service considers each combination a separate bet. So a Pick Six ticket that contains, say, 1,500 separate combinations and that returns $5,000 is treated as paying off at 2,500-1 (on a $2 bet), even though the bettor actually put up $3,000 and so got net odds of only 2-3. With 28% withholding, the bettor actually gets back only $3,600 for his $3,000. No such rules apply to bettors in that big casino on Wall Street.

● Even if they hold the contracts for only a day, Wall Street speculators are allowed to treat 60% of their gains from many kinds of derivative contracts as long term capital gains, which qualify for lower tax rates. Racing and casino winnings, in contrast, are all just ordinary income, taxable at higher marginal rates.

● There’s a 2% federal excise tax on gambling transactions, but none at all on financial market transactions. The mere mention of one – even a proposal for a tax as tiny as 0.1% or less -- causes the Wall Street propaganda machine to spew out dire predictions of the end of the world as we know it (not that that would necessarily be a bad thing).

“Gambling” and “wagering” are not defined, for income tax purposes, anywhere in the Internal Revenue Code or the Treasury Regulations. I guess it’s like Justice Stewart’s definition of pornography: we know it when we see it. Merriam-Webster, though, says that gambling is to stake something on a contingency or to bet on an uncertain outcome. Isn’t that just what the hedge funds guys and Wall Street traders were doing when they bought and sold credit default swaps and other opaque instruments of mass destruction?

To my surprise, there’s very little in the tax law literature or in the case law that addresses these definitional problems, except for a couple of recent articles arguing that bets on “prediction exchanges” (“I’ll give you 10-1 that Sarah Palin won’t be the next President of the US”) are more like tax-favored futures contracts than they are like sports bets (“I’ll give you 10-1 that Todd Pletcher’s Derby jinx continues”). A serious search of the law and literature (one has to do something when there are four dark days between Aqueduct and Belmont) shows not a single article or judicial decision in the past 15 years – since my piece way back in 1995 – arguing for better treatment for sports and casino bettors.

Perhaps we could get Mitch McConnell, in his role as the Senator from horse racing, to introduce a few amendments to the pending “financial reform” bill. Oh, I forgot, McConnell, majority leader of the party whose motto is “just say no,” is also the Senator from Wall Street. Guess that little conflict of interest isn’t going to get us very far.

But, seriously, wouldn’t it be some sort of victory for Main Street over Wall Street to amend the tax code so that bets placed on Wall Street get the same (unfavorable) tax treatment that I get for betting the Pick Four at Belmont? Who knows, if they had to think about the tax consequences of their misbegotten bets, perhaps those masters of the universe wouldn’t be risking quite so much of our money.

And on another topic: for the Triple Crown season, I’m also blogging on the New York Times site, The Rail. Here’s a link to my first piece, which was on Zayat Stables and Eskendereya.

Some Sensible Ideas for NYC OTB

2010-03-31T10:59:00.002-04:00

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

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

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

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

NYCOTB management is bloated, expending over $12 million per year in payroll. I recommend reducing the annual administrative payroll to $1,300,000, inclusive of fringe benefits, thus resulting in net savings of $8,300,000 in salaries and $1,700,000 in fringe benefits.
Since NYCOTB is no longer the property of New York City, it is my recommendation that the 2% surcharge which currently is paid to New York City be retained by the state. This change will generate an additional $10-$15 million in revenue.
The lease at 1501 Broadway currently serving as headquarters for New York City OTB must be abandoned, to result in a net savings of $2.5 million in rental payments. The Manhattan office currently houses the telephone operations, which should be moved to Aqueduct Racetrack along with the scaled-down management team.
NYCOTB should discontinue its television production to yield a net savings of $2 million. I've spoken with Capital OTB management and they are willing and capable of sending the signal they produce to the city to be shown on channel 71, at virtually no cost.
The city of New York has over 40,000 police officers who do a capable job of patrolling the entire city. I would urge that we eliminate the security forces employed by OTB, with the exception of those necessary for transferring of money. Allowing the city police to do their job would result in a net savings of $2 million.
NYCOTB currently operates 54 branches. It is my recommendation that the three branches on Staten Island be consolidated into one, which would result in the saving of over $1 million. I am also advocating the closure of at least five unprofitable OTB branch locations, including 991 2nd Avenue, which alone loses over $1 million per year and is attached to another OTB with a restaurant. These closings would generate an additional $5 million in savings.
Overtime at NYCOTB has run rampant. In an effort to save on overtime payments it is my recommendation is to work with the unions to achieve work rule changes. Currently individuals receive double time on Sundays if they work a Saturday. My recommendation is to eliminate Saturday-Sunday work assignments and reduce the number of part-timers. I would recommend that branch OTB clerks' work schedules consist of 3 successive 12 hour days, being Sunday- Monday-Tuesday or, Thursday-Friday-Saturday. Wednesday should be staffed by part-timers or per diem workers. The same should hold true for managers at the OTB parlors. This change would save $3 million in OTB clerk's payroll and $2 million for OTB management's payroll, for total saving of $5 million in overtime.
Also recommended is that the State Office of General Services examine all leases with the intention of renegotiation. If a landlord is uncooperative, NYS should consider closing that location. I estimate a savings of at least another $1 million from renegotiated leases.
NYCOTB currently operates a 50,000 square foot warehouse in Queens. Not seeing much need for this warehouse, my recommendation is to close the warehouse and retain five employees which should be assigned to the Aqueduct location. This would generate a $3 million savings.
NYCOTB currently employs approximately 15 individuals per branch, an extremely rich staffing pattern. With the work rule changes I am urging, the numbers can be limited to no more than nine OTB employees per location on average, in order to save several million dollars.
NYCOTB should reduce the usage of out-of-state tracks by at least 50% and show more in-state races. This will mitigate the eliminated payment for hold harmless and generate a net savings of $7 million. New York City OTB currently spends $37 million on simulcasting. Given its financial distress and continued impending closure, the contracts OTB has for receiving telecasts ought to be considered eligible to be renegotiated to generate a saving of approximately $3 million more.
NYCOTB currently has 80 vehicles. It is my recommendation that at least 60 of them be immediately sold at an average of $15,000 per vehicle. This and the annual cost of up keep savings of $6,700 would generate a $1 million cash infusion from the sale and a $400,000 annual savings on maintenance and insurance.
Payroll should be handled by the state comptroller's office or outsourced, creating additional savings of $1 million.
The common sense in these proposals is obvious. Even a fraction of them would be sufficient to allow NYC OTB to be profitable. Beyond that, Pretlow also suggests that there be a statewide tote company, collectively owned by the six OTBs, and that there be statewide TV coverage of racing, rather than a different show for each of the six OTBs. And, while he suggests that the amounts that OTB currently owes to NYRA and other tracks be repaid, he does suggest stretching out the repayment over, in NYRA's case, 10 years. I'd love to see that money (some $15 million for NYRA) in the purse account now, but 10 years is better than never.
Probably all far too sensible for Pretlow's ideas to be put into practice, but one can only hope.
Oh, and by the way, Albany, we're still waiting for those slots at Aqueduct, in case you've forgotten.

Betrayal in Maryland

2010-03-23T12:17:00.006-04:00

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

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

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

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

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

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

Rally to Save NY Racing Sunday March 21 at Belmont

2010-03-17T19:22:00.002-04:00

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

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

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

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

Come join us at Belmont on Sunday.

A Closer Look at the Calder Sale

2010-03-09T19:25:00.002-05:00

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

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

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

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

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

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

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

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

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

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

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

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

The Cost of Ownership in New York

2010-03-06T19:26:00.000-05:00

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

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

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

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

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

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

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

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

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

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

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

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

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

$12.50 for backstretch insurance;

$2.50 for the Jockey Club

1% of the purse for the backstretch pension fund;

2% of the purse for NYTHA, the horsemen's association (most of this goes to backstretch benevolence);

0.75% of the purse for the Jockey Injury Compensation Fund, which covers jockeys and exercise riders;

$20 for state-administered lasix;

$10 for the NY State Racing & Wagering Board

$23 for the pony to post

$5 to the Ferdinand Fund for thoroughbred retirement (this last is voluntary).

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

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

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

Tough game.

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

2010-03-04T13:14:00.003-05:00

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

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

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

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

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

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

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

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

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

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

New Jersey's Brave Initiative

2010-02-27T12:40:00.002-05:00

To those of us inured to the tortoise-like pace with which anything relating to racing moves through the New York state government, New Jersey may be a revelation. After less than two months in office, incoming NJ Governor Chris Christie has apparently pulled together a plan that radically reshapes racing in the Garden State and that might even work.

According to press reports, a seven-member commission appointed by Christie has a plan that will end thoroughbred racing at the Meadowlands, and refocus racing at Monmouth, with three-day racing weeks and hugely improved purses -- as much as $1 million a day, topping even stakes-heavy Saratoga's daily average of more than $700,000. The plan, which is reportedly ready to be introduced next week, already has the approval of the New Jersey Sports and Exposition Authority, the agency that runs the two tracks. There are conflicting reports as to whether the New Jersey horsemen agree. According to Dave Grening in the Daily Racing Form, they're considerably less than enthusiastic.

Under the plan, Monmouth would run a 50-day meet, spread out from May 22nd through Labor Day, with racing only on Friday, Saturday, Sunday and holiday Mondays. That would be a high-level meet with $1 million on the table in purses every day. Then there would be a second, regional-level meet, also at Monmouth, from late September until Thanksgiving, with racing only on Fridays and Saturdays (apparently it's too tough to compete with pro football on Sunday) and daily purses of $250,000-$300,000, or about what Aqueduct offers. The Meadowlands would continue to operate, but for harness racing only.

The plan is not a certainty to be implemented. The horsemen's agreement with the NJSEA calls for 141 racing days a year, and the Governor's plan would cut that in half. If the horsemen don't agree, they have the power to cut off Monmouth's simulcast signal, which would certainly doom the whole enterprise. And the plan appears to need approval from the New Jersey legislature as well. One can understand the opposition from horsemen, especially the men and women who have mostly claiming horses and who are just scraping by on the current schedule. Cutting the number of racing days in half -- even with a planned expansion of each of the remaining days to 12 races -- would reduce the total number of races by something like 40%. And the NJ-based trainers already have to move somewhere -- Aqueduct, Tampa, Gulfstream or Laurel -- for the winter, so the three-day racing week at Monmouth would complicate their lives even further. Ship to Philadelphia or New York on Wednesday and Thursday? Would a racing secretary who wanted full fields for the weekend even let them do that?

But New Jersey racing needs to do something. The NJSEA lost about $13 million last year, after taking into account some $9 million in simulcast profits, and the purse subsidy from the Atlantic City casinos expires soon. Without radical change, the bloodletting would just continue, and so the Governor's commission deserves a lot of credit for trying something different.

Will it work? Maybe. If horsemen cooperate and are willing either to stable at Monmouth and ship their lower-level horses out to other mid-Atlantic tracks or to stable elsewhere and ship in to Monmouth on the weekends. The track isn't that far from Fair Hill in Maryland and other off-track training facilities in the mid-Atlantic, so some trainers with good stock could well be lured to compete for the higher purses. Michael Matz, Graham Motion, Steve Klesaris, Mike Pino and Mike Trombetta, for example, all have training bases at Fair Hill, and all have horses that they routinely ship as far as New York in search of the right race.

Will a high purse structure lure some owners and trainers away from Saratoga? Perhaps, but it won't happen in a year. There's so much built into the Saratoga season -- summer houses, charity benefits, racing organization meetings, endless fund-raisers for Albany pols -- that it'll take more than a nice purse structure somewhere else to destroy the magic that's been created over the past century and a half. And I haven't seen the financial analysis backing up the New Jersey plan, so I'm not at all sure that the proposed $1 million daily purse structure is realistic. But, if Jersey could run 12 races a day with 12-horse fields, they'd attract a huge handle, and that might just work. Tough job for a racing secretary, though, trying to make sure that those big fields actually go to the gate.

Both NYRA's continuing expansion of the Saratoga meet -- it'll be nearly seven weeks this year -- and the New Jersey three-day weekend plan are attempts to deal with the fact that no one goes to race tracks during the week anymore. The boutique tracks -- Saratoga, Del Mar and Keeneland -- thrive, or at least survive, by offering a scarce product. Offer too much of that scarce product, as I fear NYRA is doing at Saratoga, and there's a good chance that its scarcity value will cease to have the same appeal. Repackage the product into a weekend getaway, as New Jersey seems to be proposing, takes a different approach. The Jersey Shore isn't a bad destination at all for long summer weekends, and it's a lot easier for people to say that they'll take a couple of holiday-weekend trips, and maybe even visit the race track, than it is to commit to a summer house for two or three months.

A third option, so far untried by any major track, is to scale back dramatically, so that each track has its own spot on the calendar. Shorten Saratoga back to four or five weeks in August (which would let the local kids get back in the homes their parents rented out before school starts in the fall). Run a month of six-day racing weeks at Monmouth in July instead of stretching the season out over the whole summer. Pack up and take the horses to the super turf racing at Colonial Downs for June. Fix up Pimlico enough so you could have a really great meet their for the month of May, not just for Preakness weekend.

You see the problem. To get from here to there requires collective action, or an order from an as-yet-nonexistent national authority. If just one track tries to scale back, the others are likely to move in and try to steal its racing days and its horsemen. Not to mention that there's definitely an advantage, both economic and psychological, in horsemen's being able to stay put at a single track for a significant period of time. All that loading up the stable and shipping to a new track every few weeks may have been fine for Bing Crosby movies, but it really is hard on trainers, their employees and families, and, probably, on the horses. (Though no one doubts that the best way to train is somewhere away from the race track, if only we could all afford it.)

But, as one of the most perspicacious blogs on racing notes, if we don't make drastic changes, there will be nothing left to change. My own feeling is that we need to downsize substantially -- fewer racing days, shorter meets, many fewer mares bred each year -- in order to have a viable industry that can support some people, rather than what we have now, a non-viable, too-big industry in which almost everyone, from the trainer with three horses at Suffolk Downs to Ahmed Zayat, is in trouble. New Jersey's plan may not work, or even get off the ground, but it's good to see some innovative thinking.

NYRA Salaries

2010-02-25T13:24:00.002-05:00

Congratulations to NYRA on, albeit reluctantly, releasing the salary data for its top executives. In an age when all sorts of information is available at the push of a computer key or click of a mouse -- it took me all of five minutes to find comparable salaries at Churchill, Magna and Penn National -- NYRA Chairman Steve Duncker's excuse that the salaries were kept secret "for competitive reasons" rings a little hollow. Nonetheless, it's good to see NYRA recognize that its status as a quasi-public entity demands a lot more transparency than is required even of a publicly listed for-profit corporation.

And, make no mistake, NYRA is, for all practical purposes, a public entity. It's franchise deal with the state, under which NYRA gave up its (contested) claim to own the land its race tracks are built on, made it clear that NYRA is the entity through which New York State chooses to operate its (the state's) tracks. All the rest is window-dressing. Not that handing track operation over to NYRA was necessarily a bad thing. Just think about where we'd be if all of racing, and not merely the Aqueduct slots deal, were being managed (sic) by Larry, Moe and Curly (oops, that should have been Paterson, Sampson and Silver).

But, if you're doing the public's work, you need to be open to public scrutiny. With the President of the United States earning $400,000, and most senior New York State officials well under $200,000, it's understandable that there would be some negative reaction to NYRA's salaries, even if they're not, as Duncker took pains to point out, anywhere in the league of salaries at Churchill Downs, Inc., Magna and Penn National.

Sure, execs at other companies in the busiiness make a lot more. At Churchill Downs Inc., CEO Bob Evans got $904,000 in cash, plus stock worth $2,078,000 and options valued at $1,154,000 in 2008, the latest year for which SEC reports have been filed. But Steve Sexton, the guy at Churchill who actually ran the race track, made "only" $423,000 in cash plus $44,000 in stock. Not all that different from what Charlie Hayward and Hal Handel earned at NYRA. At Penn National, where almost all the profit comes from slot machines, salaries and bonuses were obscene -- CEO Peter Carlino took home $1,560.000 in cash, $880,000 in stock, and options worth $4,525,000 -- but that's for running an integrated gambling business, not race tracks.

And, whatever the reason -- and the reason is mostly the dazzling incompetence of New York state government -- NYRA is losing money. In that situation, it's always sensible, if only for public relations purposes, to demonstrate a little belt-tightening. I don't know what Charlie's and Hal's mortgage payments are, but I bet they could have survived even after taking a symbolic 5% pay cut. Might have been a shrewd political move.

Maryland Bidders Respond to Blood-Horse Queries

2010-02-14T23:01:00.004-05:00

Three of the leading bidders for the Maryland Jockey Club's assets -- Jeff Seder of Blow Horn Equity LLC, David Cordish of the Cordish Companies, and Joe DeFrancis -- have each responded to questions posed by The Blood-Horse's Evan Hammonds. While the answers all contain a fair bit of puffery, the three interviews do show some fundamental differences in orientation. It probably won't matter a lot in the bankruptcy court. The court's job is to get the most money it can for Magna Entertainment's creditors, rather than worrying about the future of Maryland racing. But it's still instructive to analyze those differences, if only so we have some idea what to expect once we know who the winning bidder is.

[For those who want to read the full interviews, they can be found here (Seder), here (Cordish) and here (DeFrancis). For a quick way to decide who'd be best for Maryland racing, just look at the photos and see who you're most likely to trust.]

Disclosure: I've worked with and for Jeff Seder for a number of years and consider him a friend.

The three interviews aren't precisely comparable, since The Blood-Horse's Hammonds didn't ask each bidder the same five questions, but there are some areas in which we can compare the three.

First, qualifications. Cordish touts the 100-year history of his family real estate firm, which has more recently expanded into restaurant and entertainment ventures, including the Baltimore Live! complex on that city's inner harbor. No mention of any racing-related experience. DeFrancis, in contrast, has lots of experience. He notes that he and his sister Karen "have almost a half-century of experience in the business of managing racetracks." Into the ground. Seder hasn't (yet) run a racetrack, but he's spent a lifetime around thoroughbreds, developed a slew (sic) of scientific tools for evaluating their performance, and has hands-on experience in running medium-sized businesses, which is what the MJC is.

Second, how do they view the racing component of what they're bidding for? DeFrancis claims that "no other bidder will try harder or care more about making Maryland racing successful than we will." A nice sentiment, and it's true that his family has been involved with Maryland racing for years, but, unfortunately, as part of the problem, not the solution. Seder makes the point that, except for DeFrancis, the other bidders are real estate developers and casino operators, who would probably view racing as a necessary inconvenience. Cordish talks about promoting big weekends, like the Preakness and Maryland Million, but is a bit vague on the extent to which he'd want to keep anything like the current number of racing days.

Third, all three bidders see the need for major upgrading of the Laurel and Pimlico facilities. Cordish plans to build his major entertainment complex around the slots palace at his Arundel Mills Mall, rather than at Laurel, but says the requisite words about upgrading the track facilities. Seder would emphasize making the tracks themselves much more attractive places to be, whether or not they end up with slots on the premises. DeFrancis admits the need for upgrading, but gives it less emphasis than either of the other two bidders.

Fourth -- I finally found an aspect of the interviews that really separates the bidders -- their favorite Preakness moment (that's the one question that Hammonds asked all three). For Seder, it's a close-up view of Afleet Alex's remarkable recovery from a near-fall -- all about the athleticism and courage o thoroughbreds. For DeFrancis, it was the epic Easy Goer-Sunday Silence battle in 1989, another great racing moment. And for Cordish? "Partying in the infield." Maybe he was one of those guys that I used to see, when I was watching from the grandstand, peeing on the outside of the porta-potties because the lines were too long.

All in all, you can't tell a whole lot from the Larry King-like softballs that Hammonds pitched to the MJC bidders and those bidders' answers. But there's nothing in the interviews to change the basic conclusions: Cordish cares about real estate and entertainment development, preferably at his mall and not at the track. DeFrancis may legitimately care about Maryland racing, but he had his chance, and look where we are now. That leaves Jeff Seder, who knows a thing or two about racing and race horses, and who's made a success of several other businesses. Now all he needs is enough money to outbid the others.

Transparency at NYRA? Not yet, it seems.

2010-02-12T22:11:00.003-05:00

The fallout from the New York Racing Association's last public-relations blunder -- first resisting NY State Comptroller Tom DiNapoli's request for financial records, then under pressure, turning around and saying it would cooperate with DiNapoli's audit -- continues. Now state budget director Robert Megna, in his capacity as chair of the Oversight Board appointed to ride herd on NYRA when the latter's franchise was renewed back in 2008, wants to know how much NYRA CEO Charlie Hayward and his top assistants are being paid. And once again, NYRA seems to be stonewalling.

According to press reports, in 2006, when NYRA was required to disclose some of its finances as part of its bankruptcy proceeding, Hayward made $377,746, and, even more astonishingly, NYRA general counsel Pat Kehoe made $376,923. Since then, NYRA has replaced the almost certainly underpaid day-to-day operations manager Bill Nader -- who took the money and ran to Hong Kong -- with Hal Handel, who presumably is making something like the salary that Kehoe gets. Informed speculation says that Hayward, and perhaps Kehoe and Handel as well, are making more than $400,000 this year, as NYRA once again teeters on the edge o insolvency. (To be fair, that teetering is caused entirely by the so-called "government" in Albany that continues its farcical inability to get slot machines up and running at Aqueduct.)

NY budget director Megna, by the way, who has what must be one of the most impossible jobs in the state, public or private, earns $178,000 a year. That's a matter of public record.

Hayward told Megna at Wednesday's meeting of the Oversight Board that NYRA just needs a little time -- how much time was unspecified -- to put together a study that shows that Hayward & Co. are really underpaid, at least by the standards of the industry. One hardly knows where to start. So, you're underpaid. That comes with the territory when you're working for an organization that's supported by taxpayer dollars. Even Lloyd Blankfein of Goldman Sachs decided it would be wise to take a pay cut while his firm was subsisting on government handouts. And the new crop of General Motors execs had to genuflect to their majority shareholder, the US government, and settle for a lot less than their predecessors made back when the Chevy Bel-Air was the hottest thing on wheels.

And those execs at other tracks, if they are earning more than NYRA folks, just might have a reason for their swollen paychecks. Churchill Downs Inc., for example, actually seems able to make a profit, and hasn't taken any public money. I don't know what the paychecks look like at Frank Stronach's Magna tracks (though I suspect there's a whole lot of severance pay going round), but being part of leading Magna into bankruptcy probably isn't a good resume padder, so perhaps we should throw them out of the comparison altogether.

Sooner or later, just as with the financial documents that DiNapoli asked for, NYRA will have to do an about-face and comply with the state's request for the salary information. Delaying and coming up with dumb excuses just makes Hayward, who I know to be a solid manager who's a great improvement on prior NYRA chiefs, look bad.

C'mon Charlie, just do the right thing.

It's Not Just Racing That's Suffering

2010-01-20T21:27:00.002-05:00

Interesting figures from Poker News Daily on the decline in revenue for Atlantic City casinos in 2009. Overall casino "gross win" (what bettors pay, less what the casinos return to the bettors) was down 13.2% from 2008, coming in at $3.9 billion. The drop was spread pretty much equally between slot machines (down 13.1%) and table games (down 13.5%). The slots, by the way, account for roughly two-thirds of Atlantic City casino revenues.

The official explanation, from Casino Control Commission Chair Linda Kassekert, was pretty much what one would expect. Kassekert blamed the weak national economy, growing competition from casinos in neighboring states, and the partial ban on smoking in New Jersey casinos.As for the last of those, all I can say is that it's nice to be able to breathe in a poker room.

Compare to the Atlantic City figures, the recently released numbers for thoroughbred betting handle nationally and for the New York Racing Association (NYRA) don't look quite so bad. Nationally, total handle declined by 9.88% in 2009, as compared to the previous year, while in New York, NYRA's all-sources handle dropped by 10.24% That's not great news, but it somewhat belies the argument that racing is losing handle to other forms of gambling. That may have been the case in earlier years, as new casinos opened across the country and siphoned off players, but now that there are casinos everywhere (except, of course, at Aqueduct, where inept New York politicians continue to stall), it's interesting to see that the trend in casinos' revenues is no better than, and in 2009 at least, even worse than that of race track handle.

NYRA, which accounts for about 18% of total national handle, through its meets at Aqueduct, Belmont and Saratoga, saw betting decline from just under $2.5 billion on 249 racing days in 2008 to $2.2 billion on 250 racing days in 2009. Among the specifics cited by NYRA for the decline were the lack of a Triple Crown possibility for the Belmont Stakes (but all-sources handle on Belmont day was down only 10.2%, the same decline as for the year as a whole); bad weather on Travers Day, when handle declined by 18%; and the rainout of 144 scheduled turf races. As to the last of those reasons, I don't know what the average annual number of races taken off the turf might be, but 144 does seem high. And turf races tend to draw big fields, which always leads to better handle.

Industry wide handle was $12.3 billion last year, down from $13.7 billion in 2008. If we assume that the average takeout rate was 20% (close enough, and it makes the calculations easy), then the total amount flowing to tracks, horsemen, and, increasingly, OTB and ADW operators, was about $2.5 billion, or roughly what Atlantic City brings in just from its slot machines. Purses, interestingly, declined by only 5.6% nationally, though that decline is continuing into 2009, as track operators try to make up for the missing revenue.

I find the numbers to be good news in some ways. If racing's revenues are declining at the same rate, or less, than those of other forms of gambling, just think how much better we could be with some imaginative management, better marketing, and better pricing (takeout). A little imagination might go a long way.

A Wish List for Maryland Racing

2010-01-15T23:07:00.000-05:00

Now that Frank Stronach has made a deal with Magna Entertainment's unsecured creditors, it's almost possible to start dreaming of a post-Stronach world, apart from Gulfstream and Santa Anita. While the Magna bankruptcy settlement is not quite a done deal yet -- the minority shareholders in Frank's captive company, MI Developments, not to mention the bankruptcy judge in Delaware, may yet have something to say about it -- and while I wouldn't put it past Frank to come up with a last-minute bid of his own to hang onto Laurel and Pimlico, there is a dim flashlight beam barely visible at the end of a very long tunnel.

So, in the spirit of some other visionary bloggers, let's dream a little about what could be done if somebody who actually cares about racing (i.e., Jeff Seder's Blow Horn Equity) somehow manages to win the auction, set for January 21st, for the Maryland Jockey Club properties.

(As far as I can tell, from the very limited public information available, none of the other bids would place actual real live horse racing at the center of their enterprise, and most of them would involve converting as much as possible of the MJC into real estate developments, while possibly running the Preakness in some football stadium to satisfy the State of Maryland.)

Let's start with the racing schedule itself. Last year, Pimlico ran only 20 days, on a four-day-a-week schedule in April and May. That's not much use for a major capital facility, even one as rundown as Pimlico. Laurel, in contrast, runs a four-day racing week straight through from September until mid-April. That's worse than the six months straight at Aqueduct that New York horseplayers have learned to loathe. Even with the summer break, when the horses head to Colonial Downs and Delaware before the bullring meet at Timonium, that's too much racing for the state.

Racing needs to shrink. We need fewer horses, fewer tracks, and fewer races. And we need to make the races that we do put on attractive to fans and bettors (two groups that overlap, but are not identical). Here's a possibility: break up the calendar with a fall meet at Pimlico, like Churchill's star-studded fall meet, and the perhaps take a break altogether in December and January. Less live racing, but make sure there was a great, state-of-the-art simulcast facility at each track, so the die-hard bettors could keep coming all year.

Speaking of simulcast facilities, Maryland law would allow the MJC to open additional OTB outlets around the state, subject to local zoning and regulatory approval. Right now there are only three OTBs in the entire state. OTBs owned by the race track, and integrated into its tote system, are a proven success in other locales, so why not build on that in Maryland?

And keep the four-day racing week, but put in some lights and run those Thursday and Friday programs at night, with lots of music, bars, and things for people to do before, after and in between the races. In other words, make the tracks places that people actually want to go to. There are a lot of places around the world where racing has increased its fan base in the past couple of decades. Take a trip to Australia, Hong Kong and Japan and see what they're doing there. A lot of it might translate well into the US scene; the Aussies even speak a distant relative of English, and they've managed to attract a distinctly younger and more female crowd than one sees at any US track. They must be doing something right, and it's only a 12-hour plane ride, so go take a look.

Obviously, the physical plants at Pimlico, especially, and at Laurel need a lot of work. Priority number one is to make the front side attractive, so that people will be happy going there. But not far behind is putting some work into the backstretch. Make sure the barns don't leak, provide some decent housing and facilities for backstretch workers. Get together with local health care agencies to provide decent medical care for backstretch workers. Provide social services onsite and maybe even convince the University of Maryland-Baltimore law school to run a free legal clinic once a week. Work with the state and the city of Baltimore to get money into the neighborhood around Pimlico, and put as many neighborhood residents as possible to work at the track. Football and baseball stadiums get tons of public money, or at least public guarantees of their bond issues, so why shouldn't racing, which has a much much greater economic multiplier effect?

And once we get that improved physical plant, let's make sure it stays new and welcoming to customers. Have lots of customer-service reps who actually want to help; have supervisors checking up on what customers are saying (Doug Donn used to walk around Gulfstream with a clipboard, taking notes, something I haven't seen much of under Stronach's management) say thank you to customers when they leave; make the reserved-seat ticket operation fan-friendly and pro-active (I get calls all the time from theater groups, ballet companies and the symphony -- why not from the race track?). We're in a retail business. That means our success depends on attracting and keeping customers. Has anyone at a major race track thought of that recently?

Once we've got decent facilities, and are treating our customers well, how do we increase handle, capture enough of that handle to support the track and the horsemen, and pay back our investors? There are at least four factors in maximizing revenue from racing: field size, takeout, simulcast arrangements, and OTB/phone betting revenue. Let's look at each of them.

Lots of studies, including some excellent ones by Jeff Seder, show that field size is by far the most important factor affecting handle. A Grade 1 stakes (except for the Triple Crown) with a five-horse field will always pull in less money than a 12-horse mid-level claimer. So how do you get full fields? That's what a good racing secretary does; know your horses, work the horsemen, card races that typically fill. PJ Campo in New York has done a pretty good job in this regard, in a tough situation. He's introduced a lot of allowance/optional claiming races for the better horses, and a lot of conditioned claimers for the not-so-good. True, he often has 25 races on the list, including those in the condition book and a host of extras on the overnight, and it's hard for trainers to know if the race they're pointing at will actually go, but they are running more horses per race in New York now than they did a few years ago.

Another idea is to create additional big days for Maryland racing. Right now, there's Preakness weekend and, to a far lesser extent, the Maryland Million in the fall. What about theme days, of the kind that have worked well in Florida, where Calder's Summit of Speed and Stronach's(!) Sunshine Millions have done well. Why not get together with the other mid-Atlantic tracks and have a real mid-Atlantic championship series, with qualifying races at all tracks and the final championship day rotating among, say, Philadelphia, Monmouth, Delaware and the (new) Pimlico fall meet?

The Maryland tracks are in the middle of historic steeplechase country. Why don't we have more jump races at the tracks. They're great spectacle, even if you might not get quite as much betting handle, at least until the bettors get used to them.

In much of the world, it's common to have 14, 16 or even 20 horses per race, especially on the spacious turf courses that are common overseas. That makes for terrific per-race handle. At Laurel and Pimlico, it would probably take some major rebuilding of the track to accommodate bigger fields, but it's worth thinking about. There's room at Pimlico to extend a turf course into parking lots that are used once a year. Let's at least do a feasibility study.

What about takeout? The evidence is, to say the least, inconclusive. Laurel has experimented with a lower (14%) takeout on its Pick 4 bet, but no North American tracks have tried a serious experiment with the 10-12% takeout that horseplayers' groups recommend. Why not give it a fair shot? As HANA has often pointed out, lowering takeout keeps bettors in the game longer, makes them feel better, and even allows some good handicappers to make a little money. And if you do lower the takeout, promote it like crazy. Make sure everyone in the racing world knows that Laurel is the cheapest place to bet in all of North America.

One reason that tracks, and horsemen, have been hurt by simulcasting is that they've essentially been giving away the rights to their product -- the races -- for almost nothing. While simulcast fees have crept up a bit in the past few years, they're generally still far from the model espoused by horsemen's organizations, under which one-third of the takeout would go to the track sending the signal, one-third to that track's purse account, and one-third would be left for the simulcast outlet.

There's no quick and easy solution to the simulcast mess. And the increasing monopoly power of Churchill Downs Inc.'s TrackNet operation, especially if its merger with YouBet goes through (it's being opposed by a number of unhappy YouBet shareholders), the combined operation will sit like a colossus over US simulcasting operations, with Churchill on both sides of the negotiating table, as track owner and, more relevant for its bottom line, ADW bet-taker. The legal obstacles may be immense, but a more sensible solution would be to take the existing mid-Atlantic coalition, that negotiates with simulcast outlets, and turn it into an ADW operation of its own. Failing that, the post-bankruptcy MJC could form its own integrated betting operation, with the tracks, its wholly owned OTBs, and its own phone and internet betting operation, along the lines of, say, NYRA Rewards in New York.

An integrated betting operation would mean that the track, and the horsemen, would get the same cut from OTB, phone and internet betting in Maryland that they do from dollars actually wagered at the track. Not a panacea, but a start.

Any and all of these changes will be more likely if the new track management in Maryland acts like a good citizen and gets involved, not just with the stake-holders in the industry, but with the state, with Baltimore, with Anne Arundel County. Get out and be visible, go to the charity events, volunteer on some public task forces. I know that Jeff Seder plans to put together some visionary programs for the poor, mostly African-American area that surrounds Pimlico. That sort of community involvement should be, but probably isn't, a condition of taking over the MJC.

And don't forget to take care of the people who put on the show. Have someone in track management who's actually out there in the mornings, talking with trainers, finding out what's bothering them, and who sits down with the horsemen's and breeders' organizations regularly. Don't institute new rules without consulting the horsemen first -- NYRA's arrogance really shows itself on this issue -- even if you have to decide that maybe the new rule has to go ahead over their opposition. Negotiate a fair contract with the horsemen, one that provides lots of upside potential for everyone, and that encourages cooperation more than it threatens punishment.

And, in the wake of Stronach's "management" style, don't forget the basics of running the enterprise. Make sure people know what they're supposed to do, and see that they do it. Set measurable objectives, and keep track of whether they're met. There's been so much bad management in American racing that even just getting the basics right would be a huge improvement.

At least half of these ideas probably will turn out to be unworkable or unsuccessful. But racing has been mired in do-nothingism so long that the imprtant thing now is to try. Some of the ideas WILL work, and when they do, Maryland Racing will be a lot more fun, and maybe even profitable.

Good luck, Jeff.

Surprise: Good Guys Are Maryland Stalking Horse

2010-01-06T14:17:00.005-05:00

I've learned on good authority that Blow Horn Equity LLC has emerged as the "stalking horse" bidder for the Maryland Jockey Club properties (Laurel, Pimlico and the Bowie training center) that will be sold at auction in bankruptcy court on January 21st. Frankly, that's the best possible news for Maryland racing, though it may not be enough to overcome the obstacles to success that Maryland politicians, Frank Stronach and the De Francis family have created through their collective mismanagement.

A "stalking horse" bid in this sort of auction is one that the seller -- in the case Magna Entertainment -- is committed to accepting, unless someone else shows up with a better offer at the time of the auction. The fact that Magna has accepted the Blow Horn bid at least averts the threat that Stronach himself would cobble together a bid at the last minute to try to hold on to Laurel and Pimlico.

As I reported earlier, Blow Horn, headed by Jeff Seder of EQB, Inc., is the only one of six reported bidders for the MJC properties that is likely to have the welfare of the Maryland horse racing and breeding industries as its primary concern. The other bidders are either interested in slot machines, or in converting the tracks into real estate developments. It'd be nice to have folks running the tracks whose primary interest is in racing.

Of course, the ongoing saga of the Anne Arundel county slot machine license still hangs over the MJC deal. As of now, devloper David Cordish has the license, and has zoning approval from the county legislature to go ahead with a slots palace at his Arundel Mills mall, up the road from Laurel. As has been widely reported, there's a powerful petition drive underway to have that zoning approval revoked, and a movement as well to go back to the beginning in the licensing process, so the new owner of Laurel, whoever that turns out to be, could make the sensible bid, supported by a cash deposit, that Stronach refused to make when the license was first put up for bids.

David Cordish could still come up with a bid that offers more cash than the "stalking horse" offer, since he might calculate that the value of Laurel as real estate -- rather than a race track -- and the profits he could make from his slots license, if it's not revoked, are worth more than the value of a pure race track play. But the Blow Horn team has been doing its homework, and certainly is prepared to put more into Maryland racing than any of the other bidders. Let's hope they get the chance.

Pity the Poor Trainer

2010-01-03T22:21:00.003-05:00

The New York Racing Association (NYRA) cancelled racing today, because of very cold temperatures and high winds. No disagreement with that decision; I was at the barn area at Belmont this morning, and it was way too cold to be out in the open on a horse. Some trainers did send their horses to the training track, much to the discomfort of the exercise riders, but many chose just to jog them in the shedrow, away from the wind. Even that wasn't exactly a day at the beach.

But what's incomprehensible about the decision is that it was only announced after 7 am, AFTER trainers had to send their horses for the early scheduled races over from Belmont to Aqueduct in the NYRA van for the horses' mandatory six-hour stay in the detention barn. Every trainer who had horses in the first few races today therefore had to load those horses onto the van, send a groom with them, and then wait around until van, horse and groom returned, after the cancellation was made official.

For many trainers, this is a big deal. Since the detention barn system was instituted a couple of years ago, most trainers have begun charging their owners a fee, somewhere around $100, to cover the added cost of sending someone to be with the horse in the detention facility ("gulag") before the race. But when races end up being cancelled, it's pretty hard for the trainer to bill that "raceday fee" to an owner. The trainer ends up just paying for extra help, or for overtime to cover the work that the groom over at the detention barn can't do back at the trainer's shedrow.

There's no reason NYRA couldn't have announced today's cancellation before the first van left Belmont for Aqueduct, or even last night. It's not as if the weather forecast changed significantly between 5 am, when trainers started getting horses ready, and 7 am, when the decision was announced. Trainers and their workers get up early and are at the barn by 5:00 or 5:30 am; it's only simple courtesy and respect for the folks who put on the show for someone at NYRA to do the same.

Today's little fiasco merely highlights the difficulties that the detention barn system poses. It significantly increases costs for owners and trainers, and the mandatory six-hour stay in a strange barn often unnerves horses, resulting in uncharacteristically poor performance. And it's something that can't be worked on by schooling, the way a horse's behavior in the paddock, or at the starting gate, can be.

By now, it's probably impossible to undo the detention barn, even though other methods of preventing illegal drugging -- better testing, more security patrols, cameras in the trainers' own barns, just for example -- would probably be cheaper and less disruptive. NYRA has too much invested in the current system, both in money and in public relations. But if we're going to be stuck with the system, the least NYRA could do would be to help trainers avoid needless trips to the detention barn when there's not going to be any racing.

Angelos Joins Jeff Seder in Maryland Bid

2009-12-30T14:24:00.004-05:00

Blow Horn Equity LLC, headed by Jeff Seder, who founded and runs the bloodstock advisory firm EQB, Inc., has just announced that Baltimore Orioles owner Peter Angelos and family will be joining forces with Blow Horn Equity to bid for the Maryland Jockey Club properties now owned by Magna Entertainment. The auction is scheduled for January 8th in federal bankruptcy court.

According to a press release issued this afternoon, the joint Blow Horn Equity - Angelos family bid will go forward despite the ongoing uncertainty over whether the slot machine license earmarked for Anne Arundel County, where Laurel Park is located, will be awarded to developer David Cordish's Arundel Mills shopping center, just up the road from Laurel. The slots license had been intended for Laurel, but Magna generalissimo Frank Stronach decided he could ignore the rules and didn't pony up the required deposit with his application. As a result, the state had no choice but to accept the competing bid from Cordish, a decision that has now been confirmed by the Anne Arundel county government.

While the bidders would certainly like to have the slots decision overturned -- and Angelos is a prominent player in Maryland Democratic circles -- they say the bid is based on racing, not slot machines. Of course, the MJC properties -- Laurel, Pimlico and the Bowie training center -- are worth a lot less without the operator's share of the slots revenue.

Angelos is a Baltimore trial lawyer who got rich representing plaintiffs in major asbestos, tobacco and diet-pill cases. In 1993, he led the investor group that purchased the Baltimore Orioles, and in 1998 he bought the 237-acre Ross Valley Farm in Baltimore County for his thoroughbred breeding and racing operation.

With Angelos' financial muscle, plus the private equity funds pulled together by Jeff Seder in Blow Horn Equity, the group seems in position to make a credible bid at the bankruptcy auction.

Let's hope so; they're the only potential bidders I can see who actually know something about racing.

There They Go Again - NYRA Takes on NY State

2009-12-28T20:25:00.000-05:00

New York State Comptroller Tom DiNapoli, the state's chief fiscal officer, has subpoenaed the books and records of the New York Racing Association (NYRA), as first reported in the NY Daily News, and later in the Blood-Horse. Like many others, DiNapoli is presumably curious as to how NYRA spent the money that it received from the state as it came out of bankruptcy in 2008.

As NYRA points out in its press release, hurried onto its website late this afternoon, the Comptroller's apparent surprise that NYRA is now running out of money is a little disingenuous. The original bankruptcy rescue plan anticipated that slot machines -- approved by the NY Legislature back sometime in the Jurassic (well, actually, it was 2001) -- would be up and running at Aqueduct by April of 2009. As we all know, that hasn't happened, and the blame lies largely in Albany, where the hapless "leadership" of the State Senate, together with the incompetence of the Governor's office and the business-as-usual non-action by Assembly Speaker Shelley Silver has meant that we don't even have an operator named for the Aqueduct slots operation, much less shovels in the ground or slot machines actually operating.

So it's not surprising that money is tight at NYRA. Handle is down, as elsewhere in the country, and purses are being cut, beginning with the upcoming 2010 Aqueduct meet. NYRA CEO Charlie Hayward may well be correct when he says that NYRA will run out of money sometime this Spring; the Belmont spring meet always loses money, because of the expensive stakes schedule that makes the meet such an artistic success. Over the years, NYRA's big money-making meets have been Saratoga and, somewhat surprisingly, the Aqueduct winter meet, the latter probably because purses are low, and the meet has an excellent off-track following, at OTBs and across the country at other tracks and ADWs. So it's likely that NYRA will limp through the winter (I certainly hope so; my partnership has two nice NY-breds who'll be running at Aqueduct), and maybe even make a small profit. But, come April, with the Belmont opening in sight and no slots at Aqueduct, another transfusion of dollars seems inevitable.

But if that's so, then why can't Charlie Hayward and Steve Duncker (NYRA Chairman), just open up the books to the state comptroller and show the reality? The state has been a very good friend to NYRA, and it seems, to say the least, a bit ungrateful not to cooperate with a perfectly reasonable request to take a look at the books and see what happened to the state's money since NYRA emerged from bankruptcy.

In its press release -- obviously drafted by a lawyer, not anyone with the slightest political sense -- NYRA makes three points: (1) the money it received from the state through the bankruptcy process wasn't a "bailout," but was really payment for the land underneath the race tracks; (2) NYRA's already regulated by lots of different agencies, so there's no need for the Comptroller's office to poke around in the books, and besides, 11 of the 25 NYRA Trustees are, one way or another, appointed by the government; and (3) there's a NY constitutional prohibition on the Comptroller's auditing of not-for-profit corporations; that job falls to the state's attorney general (Andrew Cuomo) as part of his responsibility for supervising charities.

Let's take these one at a time. First, the land. In the bankruptcy proceedings, NYRA always claimed that it owned the land. The state, through its lawyers, originally took the position that, thanks to prior bailouts, NYRA was already, in effect, a state agency, so that the land already belonged to the state. That issue was never decided by any court. In the end, NYRA agreed to turn over the real estate deeds to the state, and the state agreed to pump lots of money into NYRA. That's all. How each side characterized the transaction doesn't mean that's the legal reality of it. At best, NYRA's claim here is unproven.

Next, what about the claim that NYRA is already regulated enough? The simple answer is, so what? In its press release, NYRA notes that it's subject to oversight and regulation by the NY State Department of Taxation and Finance, by the State Racing and Wagering Board, and by a mostly comatose organization called the State Franchise Oversight Board. You know what, I don't see any reference to, say, the Securities and Exchange Commission, the State Lottery Division, or a whole host of other possibly irritating state agencies. That's not to say that NYRA should be regulated by more entities, but, hey, you're in the gambling business; regulation comes with the territory. Presumably NYRA does have financial records, and presumably they show that it's been conducting its business in a reasonable fashion. If not, then the $125,000 a month that NYRA has reportedly been paying its "integrity monitors." the law firm of Getnick and Getnick, would represent a colossal waste of money. Saying no to the Comptroller just makes you look guilty; if NYRA has nothing to hide, why not just open the books?

Third, NYRA relies on a recent decision by the NY Court of Appeals, the state's highest court, that said the Comptroller did not have the authority to audit the operations of not-for-profit charter schools, even though those schools were receiving public money. That may well be correct, as a matter of law. As a matter of politics, it's among the stupidest positions NYRA has ever taken, perhaps rivaled only by the decision in the 1970s not to operate off-track betting. As every decent lawyer knows, just because you may be right on the law doesn't mean you should go to court. Sometimes the best policy is the one that improves your long-term position, not the one that vindicates every single legal "right" that you might claim.

Cooperating with the Comptroller will, if I'm right about NYRA's finances, show conclusively that NYRA does need more money -- a situation attributable entirely to the state's own delay in getting the slot machines started. I can't imagine why NYRA would not want to do that. Unless, of course, there's something to hide. And, if NYRA's right on its legal claim that the proper oversight authority is the Attorney General, not the Comptroller, will NYRA then comply with a subpoena from Andrew Cuomo for the same books and records that it says Tom DiNapoli can't have? Somehow I doubt it.

Charlie and Steve: you guys have got to stop listening to the lawyers. Just do the right thing.

A Bid That Could Save Maryland Racing

2009-12-18T23:58:00.001-05:00

Details have not yet been made public of the initial bids, submitted last week, for the assets of the Maryland Jockey Club -- Laurel, Pimlico and the Bowie training center. And the final auction -- assuming anything's ever final in the ongoing saga of the Magna Entertainment bankruptcy -- won't be held until January 8th. We know that bids are in from real estate developer Carl Verstandig, partnering with a California gaming company, from the Cordish Co., which operates the Arundel Mills mall near Laurel, and from the De Francis family, whose prior stint at the helm of the MJC was somewhat less than stellar. And we suspect that, one way or another, Farnk Stronach will try to hang onto the tracks, either using his personal money or, if he can get away with it, using funding from one of his tame subsidiary corporations, at the usual expense of minority shareholders.

For those of us who would like to see racing continue, and even thrive, in Maryland, none of these bids exactly makes the heart go pitty-pat. Stronach and Joe De Francis have already demonstrated their incompetence, and both Cordish and Verstandig are completely unknown quantities in racing; one always suspects that a developer buying a race track is a lot more interested in its real estate value than in the racing itself.

But there is one bid that might actually make a difference. Blow Horn Equity LLC, headed by Pennsylvania horseman Jeff Seder, announced today that it had submitted a fully funded bid for the MJC properties. It's one of the more exciting ideas that I've seen for actually reviving racing.

Jeff is the founder and CEO of EQB, Inc., a racing advisory service and bloodstock agent based in southeast Pennsylvania. EQB has pioneered the use of a number of scientific techniques for analyzing race horse prospects, including heart scans and, for the two-year-old sales, gait analysis using slow-motion video. Jeff and his colleague Patti Miller have advised most of the country's leading owners, and have selected for purchase many many Grade I and Breeders Cup winners. There's more on EQB, Jeff and Patti here.

[Disclosure: I'm a friend of Jeff's and Patti's and, for the past several years, have played a minor role in their selection of yearlings at the Keeneland September sale.]

he Blow Horn Equity proposal -- the company is named for the highly dangerous Blow Horn Corner near the EQB office -- is funded by private equity, and, like the De Francis proposal, is based on having slot machines (or, if you prefer, video lottery terminals) at Laurel Park. Both bidders assume that the award of a slots license to the nearby Arundel Mills mall can be derailed, either by having the county government refuse zoning permission or by the state's reopening the licensing process. The only reason the license wasn't awarded to Laurel in the first place is that Frank Stronach thought he was above the law and didn't bother to submit the required cash deposit with his bid. Even without specific knowledge of the bids for the MJC, there's substantial opposition to awarding the license to Arundel Mills, which already has a pretty high incidence of crime, not likely to be lessened by the presence of the slot machines.

Under the Blow Horn Equity proposal, a temporary slots facility, with 2,375 machines, could be up and running within six months' of the award of the license, and a full-scale casino would be ready within three years. Considering that New York has now been waiting more than eight years for slot machines at Aqueduct, that's not a bad timetable. Estimated revenue from the slots, to be shared between the state, purses and the breeding program, would be $350 million in the first two years and up to $500 million once the full-scale casino was operating. Even a modest portion of that for purses and for breeders would probably keep Maryland racing alive and healthy.

What makes the proposal exciting, though, is that Jeff is one of the few people in racing who's able to think outside the very small box of received ideas. He's had substantial business experience, as CEO of a textile company and of a Southern California department store chain, in each case engineering turnarounds that left floundering companies newly profitable. And he has a far better record as a money manager, for trusts and pension funds, than most of the folks on Wall Street. He's also a pretty smart guy, with a B.A., a law degree and an M.B.A., all from Harvard, and over 30 years of involvement in scientific analysis of race horse performance.

Jeff's also the founder of the Big Picture Alliance, a foundation that trained over a thousand inner-city Philadelphia teens in video and film techniques and produced over 250 films, not to mention the effect it had on keeping a good number of those kids in school and on the path to productive lives. One can guess that he'd have some useful ideas for involving the similar population in Baltimore that lives around Pimlico.

At this point, I haven't discussed with Jeff any specific ideas for upgrading the Maryland tracks, or for attracting new racing fans. I do know that, if any of the bidders for the MJC properties are able to come up with new ideas that will reinvigorate the spot, he's the one most likely to succeed. Let's hope the bankruptcy court comes to the same conclusion.

The Bids are in for Maryland Tracks

2009-12-12T20:50:00.002-05:00

Yesterday was the final date for interested parties to submit bids for the Maryland Jockey Club piece of Frank Stronach's bankrupt Magna Entertainment empire, comprising Pimlico and Laurel race tracks, the Bowie training center and an OTB. According to the Baltimore Post, one of the bidders is none other than the same DeFrancis family that owned the tracks prior to their sale to Stronach in 2002 and that, to be kind, is viewed with less than total love and affection by most in the Maryland racing community.

The names of all the bidders will be forwarded to Maryland state officials on Monday, but we already know that there's a competing bid from real estate developer Carl Verstandig, in partnership with an unnamed California gaming entity. Among other possible bidders are the family of Peter Angelos, the owner of the Baltimore Orioles, and a group headed by a well-known racing industry figure from Pennsylvania. And there's always the specter of Frank Stronach himself cobbling together some kind of bid, using either his own personal money -- which he may have more of now that General Motors has cancelled his deal to buy Opel -- or once again using his various controlled corporations to pony up the needed cash, at the expense of minority shareholders.

Other potential bidders have been mentioned from time to time, but as of now there's no definite information that any of them submitted bids by Friday's deadline. The actual bankruptcy court auction is scheduled for Friday, January 8th, which will give Maryland a bit of time to exercise its right to match the winning bid. Not that I could imagine any state government paying to buy racetracks in the current economic squeeze. But the state's primary concern is keeping the Preakness in Maryland, and that should be reasonably secure with any bidder -- except, of course, Stronach himself, who, to borrow a term from cycling, is "beyond category" when it comes to unpredictability.

I've raced horses at Laurel and Pimlico, and I've been to the Preakness a few times. For those who don't know the tracks, Laurel is a workmanlike, perfectly satisfactory second-tier race track on the Baltimore-Washington corridor, near enough people to make a go of it with fewer racing days, better promotion and, of course, a share in the slot-machine revenue that will start flowing relatively soon.

Of course, Stronach managed to screw up the slots deal too, by deciding that he didn't have to comply with the rules saying his slot application for Laurel should be accompanied by a check for the deposit. You know, like putting some money down when you buy a house or a car. Oops, sorry, I guess people don't do that much anymore, but you get the idea. As a result, the license for nearly 5,000 slot machines went instead to the Arundel Mills shopping center, just up the road from Laurel, although that deal is currently mired in zoning conflicts. Shopping center tycoon David Cordish, who heads the group that's tentatively been awarded the slots license, was also rumored to be among the potential bidders for the Maryland Jockey Club assets in the bankruptcy court auction.

But let's assume -- which I know may be unreasonable in Maryland politics -- that a deal can be worked out whereby some of the slots revenue goes to support Maryland racing, which is on life support and which might well die without some sort of cash infusion. Lots of Maryland horse farms have already been sold or converted to other crops, and stallions have been leaving the state for the greener pastures of Pennsylvania, and along with those farms and stallions go the jobs of the people who take care of the horses and the traditions of Maryland racing that go back at least to the 18th century. Shame on both Stronach and Joe DeFrancis for letting things reach this point.

Pimlico is, to put it kindly, a bigger challenge than Laurel. The track is located in an African-American neighborhood northwest of downtown Baltimore, and affluent white would-be racegoers use the location as an excuse not to go, just as whites in Miami stopped going to Hialeah once the neighborhood around that track became predominantly Hispanic. And the track itself needs a total makeover; the barns and backstretch are run down, and the grandstand makes Aqueduct look like a luxury resort.

But with a bit of vision, a little of the slots money, and a reduced racing calendar, Pimlico might well be brought back to something approaching its glory days. There's decent public transportation, a glorious history, and a neighborhood where jobs aren't all that easy to come by. A smart track operator would make Pimlico more a part of its community, engaging the people who liove near the track as both employees and racegoers, and making going to the races once again the thing to do for Baltimoreans. That probably means running only on Friday nights and weekends, but that's a whole lot better than closing the place down.

Presumably we'll see in the next few days what the various bidders are offering, and how the legal issues surrounding the slot-machine revenue will play out; DeFrancis managed to get Stronach to give him a share of future slots money, when Stronach bought the Maryland tracks in 2002. That deal, if it's not undone by the bankruptcy court, would severely hamper any new owner's attempts to rebuild racing in Maryland. Let's hope the court does the right thing and cancels the contract. If it does, then a new operator -- i.e., someone other than the discredited DeFrancis and Stronach -- might have a chance to make Maryland racing respectable again.

Why Does Anyone Bet on the Races?

2009-12-09T13:07:00.002-05:00

Interesting piece in the New York Times yesterday, about Jesus Leonardo, a 57-year-old New Yorker who makes $45,000-$50,000 a year as a professional "stooper," picking up discarded parimutuel tickets and cashing in the winners. Leonardo, who collects the tickets at various OTB parlors in the city, rather than the race track, appears to be doing far better than most bettors, or for that matter, than NYC OTB itself, which is the latest racing-related entity to fall on the mercy of the bankruptcy court.

That got me thinking about why any of us bet on the races at all. In my own case, I've noticed that I hardly bet these days, certainly a lot less than I did, say, 10-15 years ago, even though I'm still as much, or more, of a follower of racing.

It seems to me that there are two likely reasons, in my own case. These may be merely personal, but perhaps they shed some light on the death spiral that racing as a whole seems to be in.

First, I've become involved in owning horses -- in fact, in managing a partnership operation, Castle Village Farm, that makes it possible for lots of racetrackers and handicappers to become thoroughbred owners at a reasonable cost. The more I've become involved with the tremendous ups and downs of having our own race horses, the less the desire to bet on other peoples'. Of course, buying race horses might also be considered betting, and at a far larger scale than that of the average recreational handicapper, but if you go into the ownership game with your eyes wide open, knowing that you're not all that likely to make money, but that you'll get a lot of thrills along the way, the risk aspect seems to become less important.

Second, and perhaps most relevant for the general state of racing today, I've found that it's just too hard to beat the takeout. According to the Horseplayers' Association of North America (HANA) ratings, hardly any tracks take out less than 15% on win-place-show wagering or 19% on exactas and other multiples. Even if one is quicker and smarter than most of the other bettors, that's a huge hurdle. Now, if I bet a few million a year through a rebate shop, reducing my effective takeout to the single digits, it might be another story. But, alas, I don't have the kind of bankroll necessary for that, nor the patience for the mind-numbing computer-assisted search for miniscule overlays that's the heart of many big bettors' operations.

Fortunately for me, and for many others who might, in earlier times, have stayed with the race track because it was the only game in town, there are some much more attractive options for satisfying the gambling urge. For those who find all that handicapping too hard, and just want action, slot machines will do just fine, and they have a takeout that's usually below 10%. Of course, you don't have half an hour between plays at the slot machine, so the $20 that takes a whole afternoon to lose, in $2 bets, at the track can go in 15 minutes at the casino, even with the lower takeout. But millions of folks seem to find the mindlessness of the slots quite satisfying, and, if and when we ever get slots at Aqueduct, I'll be very happy to see some of their money make its way into the purse account.

But the real gambling rival to handicapping is poker. The game combines many of the same elements as trying to pick a winner at the track -- knowledge of the odds, good math skills, and an acceptance of fate -- you can make make a brilliant overlay bet in racing and see it ruined by a stupid jockey mistake, or you can make all the right bets in a hand of Texas Hold-Em and lose when some moron who shouldn't even have stayed in the hand gets the one card in the deck that could beat you on the river. So, in either case, you have to be satisfied with having made the right bet, even when you lose. Another similarity is that it takes stamina and determination to play the game well. Just as you have to put in the time handicapping to have even a shot at beating the races, so too do you have to put in the time at the poker table, whether real or virtual, to convert your advantage in skill into real money.

And, most important, poker has takeout rates that are far, far better than those in racing. The most you'll ever pay, in a low-stakes game at a casino, is about 10%, and the number is much less than that as the stakes rise, or in online poker, where the takeout ("rake") is generally only a couple of percent.

If we're looking for the racing fans of the future, I've seen them, and they're not coming to the races; they're at the poker tables. If racing could capture a tenth of the 20-somethings who are playing poker online or at casinos and card rooms these days, we wouldn't have to worry about declines in handle any more.

Those who argue against cutting takeout in racing say that most bettors don't even know what the takeout rates are; if they did, would anyone at all bet at NYC OTB, with its ludicrous 5% surcharge? But that argument is false even for racing; the big bettors go to the rebate shops, where they can get takeout reduced to a reasonable level. And all those young poker players are certainly conscious of the odds and the takeout rates. They're good at math, and they know what they're buying into, whether it's a lower rake, better "comps" from the casino, or a bigger jackpot (cf. Pick Six carryovers).

So, if we ever want to see those kids at the track, we have to give them a product they'll buy. And, given the competition from poker and, to a lesser extent, slots, that means reducing takeout to somewhere around 10%.

Now, the trick is to figure out how to run a race track and put enough in the purse account to keep the horsemen in the game, all the while relying on a 10% cut of the betting dollar.

Fear and Trembling in Lexington

2009-11-26T23:26:00.008-05:00

US financial markets were closed Thursday for Thanksgiving, and Middle Eastern markets were closed for Eid al-Adha. But in the rest of the known world, markets were plummeting on the news that Dubai and its major corporations, closely linked to Sheikh Mohammed, are unable to repay some $59 billion in debt that will be coming due in the near future. European banks, in particular, were thought to be exposed to high levels of risk , as many of them had borrowed dollars and then turned around and re-lent the money to fuel Dubai's crazed building boom.

As is often the case, the Paulick Report picked up on Dubai's troubles quickly, posting an online report from Bloomberg News. The debt default story is getting massive international coverage. See, for example, here, here, and here.)

In the grand scheme of things, the couple of hundred million a year that the Sheikh and his associates spend on thoroughbred bloodstock probably doesn't matter much, one way or the other, to Dubai's future. And, for the moment, the repo men haven't actually arrived in the Persian (oops, I guess that should be Arabian) Gulf sheikhdom to start seizing the household silver. But, after apparently having had to go hat in hand to his neighbor, the ruler of Abu Dhabi, for a quick fix of $5 or $10 billion, Sheikh Mohammed might well decide that either (a) he might need to spend a bit more time on the fundamentals of governing, or (b) putting more money into a frivolity like racing at a time of financial crisis might be just the least bit unseemly.

In either case, that could be very bad news indeed for the US thoroughbred breeding industry. As I pointed out after the Keeneland September yearling sale this year, Sheikh Mohammed and company accounted for a quarter of the horses sold in the high-end Book 1 of the sale, and for more than 30% of the gross proceeds for Book 1. Take that away, and the already shaky US breeding industry may truly be on life support. As for Fasig-Tipton, in the brief time since a company closely linked to the Sheikh bought a controlling interest, F-T has been doing lots of spending to become more competitive with Keeneland. And Sheikh Mohammed himself made a rare visit to the Saratoga sale this past summer. But Dubai's current troubles suggest that particular tap may be turned off any day now.

It's way too early to know what effect, if any, Dubai's financial problems will have on racing and breeding. As of late Thursday night, the Dubai World Cup website was still promising a gala opening for the Meydan track in January and the usual gala for the World Cup in March. And the Sheikh has never been as important a force in the spring two-year-old auctions as he is at the fall yearling sales. But one gets the feeling that there may be many more shoes still to drop, with none of them boding well for racing.

Reality Check for Keeneland

2009-11-23T21:03:00.002-05:00

Initial reaction to the results from Keeneland's November breeding stock sale seem to be determinedly positive. For example, Frank Mitchell's Bloodstock in the Bluegrass blog talks about how "the recession is over," and that there's "confidence in a down market." And Deirdre Biles' Hammer Time blog on the Blood-Horse web site concludes that there's "at least a glimmer of hope" in the market post-November.

I guess those views, reflecting the by-now-desperate hope of thoroughbred breeders, are based on the fact that the sale numbers this year declined less from 2008 than 2008 had, in turn, declined from 2007. Small consolation. The 2007-2008 decline was about 40% in average price and 45% in gross for the sale as a whole. In contrast, the decline from 2008 to this year was only 7% in the average price and 14% in the gross.

Here are the numbers for this month's sale: of 4702 horses cataloged, 2779 of them sold (59.1% of the catalog), for a total of $159,727,800, or an average of $57,477. Compare that with the 2007 results, before the financial markets crashed in 2008. In 2007, 3381 of the 5415 horses in the catalog (62.4%) sold, for a total of $340,877,200, or an average of $100,821 per head. So, comparing those peak results from two years ago with this year's numbers, we have an overall drop of 53.1% in the gross for the sale, and a drop of 53% in the average price. That's even worse than the decline in my IRA over the same period. So, if that sort of number signals the end of the downturn and provides hope for the future, we're certainly living in a world of very diminished expectations.

And those numbers from the just-concluded sale need to be adjusted for the very atypical profile of this year's catalog. When companies report their financial results, they typically exclude "extraordinary events," such as a one-time sale of assets. Similarly, the real state of this year's Keeneland sale should be looked at by excluding from the results the one-time Overbrook Farm dispersal. That dispersal sale, which is a once-in-a-generation event, involved 148 horses, which sold for $31,760,000, or an average of $214,595, obviously well above the results for the sale as a whole.

If we subtract the Overbrook horses from the sale, here's what we get for the "normal" part of the sale: 2631 of 4554 horses in the catalog (57.8%) sold, for a total of $127,967,800, or an average of $48,638.

Now let's compare that with the 2007 results. In just two years, the gross has declined by 62.5% and the average has dropped 52%. Sounds more like the housing market in Las Vegas than an industry on the brink of recovery.

I wish things were looking better for breeders; many of them are nice people, and many of them put a lot of work and love into raising horses. But the reality is that our industry is going to have to get a lot smaller. Race tracks are closing; Blue Ribbon Downs in Oklahoma is the latest. Purses are stagnant or declining, in the face of steadily rising costs. And there just isn't a market for an animal that is, as bloodstock agents like to say, "just a horse." True, stallion stud fees are coming down, but by nowhere near the 65% from their 2007 levels that they need to. There's lots more downsizing still to come.

Let's see. Breeders are losing money. Owners are losing money -- as we always have, but I suspect even more now. Racetracks are losing money on their live product, with a few shrewd ones (e.g., Churchill Downs Inc.) moving to becoming online betting impresarios, at the expense of their own horsemen. So who's making money in this environment? Oh, of course, bloodstock agents. How could I forget?

It ain't pretty out there.

Why Are We in This Business?

2009-09-21T16:15:00.002-04:00

As everyone in the racing business knows by now, prices for race horses have dropped precipitously over the past year. At the current Keeneland yearling sale, both the average and median prices are off between 30-35% as compared to last year. It's now possible -- as it has not been for the past few years, to obtain high-quality racing prospects at what seems, by historical standards, to be a fair price.

But, in fact, even if one buys at those fair prices, the game is still stacked against the owner who actually wants to make money by owning race horses. Despite the increasing saturation of race track-based slot machines, purses have stagnated and even declined, while the cost of doing business steadily increases.

Let's look at a couple of examples to see how succesful a horse has to be on the track for its owner to break even.

First, let's look at a typical high-end yearling purchase, say for $250,000. That's not the top of the market, but it's a lot more than I tend to carry around in my wallet for impulse purchases.

On top of the $250,000 puchase price, we need to add about 5% for a commission to the bloodstock agent; you wouldn't buy a horse at that level without expert advice. That's $12,500. Throw in another $7,500 for sale expenses, including vetting all the horses that you end up not buying. Then there's insurance, which you'd want on an expensive horse. Probably $45,000 to the end of its 4-year0old year, or about 6% of the insured value annually.

Then we send the horse to Florida for breaking and preliminary training, before sending him back north (let's say Saratoga) in the middle of his two-year-old year. That's another $20,000 for training and vet, plus about $4,000 for all the increasingly expensive van rides. So far, we're up to $339,000.

Now, let's add in training the horse at the track from August of its two-year-old year through the end of its four-year-old year. We'll hire a top-level trainer, at say $125 a day, and, even if we try to manage vet costs, they won't be less than $500 a month. So, training and vet costs to the end of the four-year-old season are another $125,000. All together, we've spent about $464,000 to get the horse that far.

So, how much does the horse need to earn on the track to break even? A lot more than $464,000. The trainer gets at least 10%, and, increasingly, more like 12% of earnings; the jockey gets on average another 7%, and, at least if you race in New York, another 3% or so goes for a variety of mandatory deductions. So we have to gross up the required earnings to get back to our net target of $464,000. In fact, we'd need to earn almost $600,000 in purses just to break even.

Sure, there's some possibility of residual stallion or broodmare value at this level, but in the current market, and discounting for the time value of whatever money might come in down the road, that isn't going to be much. If we're looking at making a profit on the race track, we need that $600,000. And how many horses earn that much?

Now let's take a more modest example. Say we buy a decent New York-bred yearling for $35,000. We won't bother with a bloodstock adviser, and we'll skip the insurance. And we'll probably be tougher on the vet expenses, and place the horse with a trainer whose day rate is more like $100 a day. Using those parameters, it'll cost us a total of $80,000, including the purchase price, to get our $35,000 yearling to the end of its two-year-old year, assuming we send it to the track in August, and another $88,000 for two years of training and vet bills. So, by the end of its four-year-old year, we've spent $168,000.

Applying the same formula to gross up the earnings for trainers' and jockeys' percentages, we'd need purse earnings of $215,000 to get even on our $35,000 yearling. I've had a few horses that did that well, but it's not an everyday occurrence. Look at the lifetime earnings for horses running in New York and you won't see that many above $200,000.

And all these projections don't include all the little extra costs that go with being an owner, from lunches for friends at the turf club to, one hopes, lots of win pictures, to stakes nominations, to donations to worthy race track charities.

So, why are we in this business? Because we love horses and have a terrific ability to see the future through the rosiest of rose-colored glasses. It's a great business to be in. Just don't expect to make money.

If Not For You

2009-09-16T12:34:00.002-04:00

If not for you,
Winter would have no spring,
Couldn't hear the robin sing,
I just wouldn't have a clue,
Anyway it wouldn't ring true,
If not for you.

I'm pretty sure the folks at Keeneland, shaken as they may be by the bottom falling out of the yearling market the past two days, nonetheless harbor thoughts similar to those of Bob Dylan about Dubai's Sheikh Mohammed bin Rashid Al Maktoum and his entourage. Of the 222 horses reported sold on the first two days of the annual Keeneland yearling sale, 50 of them were purchased by the Sheikh's bloodstock adviser, John Ferguson, or by entities associated with Dubai's royal family, including the Shadwell Estate Co., and Rabbah Bloodstock. That's an overwhelming 22.5% of the total number sold, and an even bigger percentage of the money paid over those two days. Gross receipts for the prestigious Book 1 horses sold at Keeneland this year were $58.8 million (a 48% drop from last year). And of that sharply reduced amount, the Dubai forces accounted for $18,305,000, or mre than 31% of the gross sales. If not for you, your Highness....

If we subtract the Dubai-associated purchases from the results, then here's what's left: 172 horses sold (of a total of 418 cataloged) for $40,451,000, an average of just over $235,000. Sure, we can assume that most of the horses purchased by the folks from Dubai would have sold even without their bids, but certainly at lower prices. In fact, it's not unreasonable to assume that the average for the sale would have been a lot closer to that $235,000 than to the actually reported average -- including Dubai -- of $265,000.

As compared to their equally visible activity at the boutique Fasig-Tipton Saratoga yearling sale last month, the Dubai forces at Keeneland put less emphasis on supporting their own sires -- Street Cry, Bernardini and Medaglia D'Oro, and more on acquiring superior racing and breeding prospects at what, for them, must have seemed like bargain prices. Only 16 of the 50 horses bought by Ferguson, Shadwell and Rabbah were sired by their own stallions, compared with more than half of their Saratoga purchases.

(Shadwell and Rabbah were still somewhat active early on Wednesday, buying three of the first 50 horses to go through the ring on the first day of Book 2 of the sale, though there was little prospect for any more million-dollar-plus purchases by any of the Dubai buyers.)

With this year's purchases, the Sheikh and his associates are aquiring a lot of stellar American bloodlines. They bought yearlings, for example, by A P Indy, Storm Cat, Distorted Humor, Tapit (a new sire whose yearlings look great and who, I think, will make a name for himself quickly), Dynaformer, Ghostzapper, Kingmambo, Elusive Quality, Forestry, Rahy and Unbridled's Song, in addition to those by their own sires. They've also taken advantage of the price collapse to buy into some of the premier American female familes. With another year or two of such purchases, the Sheikh may have all the bloodstock he needs to breed the very best race horses in the world. If and when that time comes, and he cuts back on the volume of his purchases, the yearling market will be in for an even more serious shock.

If not for you....

Looking for a Good Horse at Keeneland

2009-09-15T11:57:00.003-04:00

For the past several years, I've been part of a team that looks for horses at the Keeneland yearling sale, on behalf of cients with serious money and a serious desire to win graded-stakes races. Some "bloodstock agents" may claim to do it all themselves, and a lot of buyers just pick out a horse in the Keeneland walking ring minutes before its hip number is called for auction. But those of us --and there are many -- who are seriously trying to find the very best horses have no alternative but to put in a lot of hard work. For those who perhaps don't know the auction process, here's how it works.

Keeneland list some 5,000-plus yearlings for sale every September (though that number may, and should, shrink in response to the severe downturn in the thoroughbred market). The catalog is divided into "books," with each book containing horses that are, in general, a little worse than those in the earlier books, and a little better than those in the later books. The first two books, 1200 horses that are offered on the first four days of the sale, generally contain the horses with the fanciest pedigrees and the best appearance, as judged by the Keeneland staff. That's where the big money is, and where most of the million-dollar babies have been bought in the past.

Our group, and others like it, tries to look at every single horse in books 1 and 2, and as many as possible in Books 3 through 5, a part of the catalog that traitionally produces some of the best bargains in the sale and a good number of stakes winners. To do that, we need to work through the following steps:

First, someone looks at every horse and short-lists those that are worth a second look. Books 1 through 5 have a total of more than 3600 horses in them. That's a lot of looking, walking around Keeneland's 49 barns.

Second, the team leader looks at every horse in Book 1 and every horse that's been short-listed for Books 2 through 5. In addition, she checks with the consignors, just in case we've missed something.

Third, we do ultrasound heart scans on our short-short list, to measure the horses' cardiac function and eliminate those who dont have big enough or efficient enough hearts to sustain them at the very highest racing levels. The scans are analyzed against a database of thoroughbreds to see how they match up along the bell curve. All this can't be done while the horses are being shown to buyers, so, after an eight-hour day looking at yearlings, we start all over again at 4 pm, when showing winds down, and keep going until 10 pm or so doing the ultrasounds.

Fourth, we get a vet to review the records on those horses that have made in through the first three steps, checking the x-ray records on file in the Keeneland repository and, if necessary, scoping the horse to determine whether it's able to take in enough air to keep it running past sprint distances.

Finally, we have a very short list that we can take to the clients, the folks with money enough to buy the very best (well, the very best that Sheikh Mohammed and Coolmore aren't bidding on).

All this takes time, and that's where the problem is. With the exception of the Book 1 horses, most horses for sale are on the Keeneland grounds and available to be seen for only a day or two before they are sold. In that time frame, there often isn't the time to do all the steps described above. So some good horses fall by the wayside. If we can't have the time to do the scans and then to get the vet reports, then we can't recommend the horses to our clients, and potential bidders are lost.

Realistically, we can't wait until the morning that the horse goes on sale to ask the vet for a review; they have way too much to do. So, if we want to get the vet to look the day before, that means we have to do the cardio the night before that, i.e., two days before the horse sells. And to do that, the horse really should be on the grounds and available to be shown three days before the sale date. With 400 horses selling each day, and limited barn space, that simply isnt happening. And, because it's not, sales opportunities are being lost.

So, what could Keeneland do? (Or, what could the newly revived Fasig-Tipton do to challenge Keeneland?)

First, we need to have fewer horses per day. Maybe not the 200 per day that sell in Book 1, but perhaps 300 would be a happy medium. That would allow the next book's horses to move into the barns earlier and provide more time for buyers to see them.

Second, there needs to be more time for the vets to do their work. At present, Keeneland's repository opens at 8 am and closes when that day's sale is over. The vets are willing to work longer hours, so why not let them? Open up the repository at, say, 5 am, and keep it open as long as some workaholic vet needs it.

With all the money that Keeneland spends attracting foreign buyers to come to the sale, you'd think a little more to make the working conditions more conducive to selling wouldn't be such a stretch. It would surely help those of us who are trying to buy good horses, and isn't that what the sellers and auction houses want?

Inside the Inner Sanctum

2009-08-30T16:53:00.001-04:00

This past Sunday, I attended my first Jockey Club Round Table, the annual event hosted by the racing world's aristocracy in Saratoga. By now, most of those interested in racing will have seen the press reports on the Round Table (here, for example), all of which focused on the call by Louis Romanet of France for the US to join the rest of the so-called civilized world and ban Lasix, at least in the more important stakes races.

But the bulk of the Round Table actually concentrated on less contentious issues: the necessary changes that need to be made to ensure a level, drug-free (except, of course, for Lasix) playing field, safer race tracks, and the assurance of retirement homes for horses once their racing careers are done. All these initiatives are necessary, minimum requirements to restore a little bit of public confidence in racing, and it's a good thing that the Jockey Club can use the influence of the 100 grandees who are its members to pull together industry initiatives, about which more later. But all these efforts, however noble, won't be sufficient to save the industry, and it's unlikely that leadership on the tough questions of downsizing and coordination will come from a group that's done so well with the status quo. As I recall, the Second Estate (the nobility) didn't do so well in the Revolution.

Not that I'm looking a gift horse in the mouth, or at least not entirely. It was nice of the Jockey Club to invite someone (me) who's a fairly persistent critic of industry self-satisfaction, and I particularly appreciate that Jockey Club President Alan Marzelli made a point of coming over and welcoming that persistent critic.

Nonetheless, the Round Table is most definitely not an occasion for an open, back-and-forth discussion of racing issues. Unlike many public programs, there is no opportunity to ask questions of, or debate with, the speakers. The meeting is carefully scripted, with speakers kept to their time limits, and the audience just that, an audience, even if it did consist of most of the important names in the racing business.

Now, for the details: the Round Table session was roughly divided between reports on race track safety and thoroughbred retirement, on the one hand, and drug testing and enforcement on the other. (a full transcipt of the Round Table is available on the Jockey Club web site.) And there is indeed a lot of incremental progress being made in these areas. For example, the Jockey Club itself has set up a free service to help people who may have acquired a retired thoroughbred research the tattoo number and identify the horse. And, as Diana Pikulski of theThoroughbred Retirement Foundation reported, the various retirement programs are expanding as fast as they can obtain more funding. The Jockey Club, which registers all new thoroughbred foals, has instituted a checkoff option so that breeders can contribute to a retirement fund when they apply for their foal papers. (Some race tracks, including NYRA, have set up their own voluntary funds, financed by the tracks and the owners, to provide additional retirement money.) All good initiatives, though they won't provide homes for the 1.3 million thoroughbreds living in North America (roughly 15% of all American horses are thoroughbreds.) As a lawyer, I found myself wondering whether it wouldn't be possible to use the emerging legal device of a "pet trust" (think Leona Helmsley, who left most of her money to her dog) as a vehicle for funding thoroughbred retirement. Though it probably wouldn't be such a good idea to entrust the funds in such a trust to the same people who've presided over the Jockey Club's and the Breeders Cup's recent investment losses.

The discussion of race track safety came, unfortunately, just before the release of the recent report on fatalities on synthetic tracks in California, and before theArlington Park accident that threatens to leave young jockey Michael Straight paralyzed -- the second such calamitous accident on Arlington's synthetic surface this year. Those development confirm what a lot ofus already knew; synthetic tracks aren't a panacea. What keeps breakdowns to a minimum is a combination of good track superintendents who have the resources to keep their surfaces well-maintained, and trainers who won't send out horses that are only marginally fit. Both those factors depend more on the economics of racing than on scientific studies.

The second half of the Round Table program, focusing on drug issues, raised a number of interesting questions, with all the participants substantially agreeing on a range of issues, except for Lasix. The Jockey Club showed some courage in inviting people who take a tougher stand than do most trainers and state regulators: Joe Gorajec, chair of the Indiana Racing Commission, Steve Crist of the Racing Form, and, of course, Monsieur Romanet, scion of a leading French racing family and chair of the International Federation of Horseracing Authorities. But, while urging tougher drug rules, including meanigful suspensions for trainers, and perhaps owners as well, and the banning of such commonly used meds as "bleeder adjuncts" like Amacar or Kentucky Red; non-steroidal anti-inflammatories like Bute and topical corticosteroids, all of which should probably be banned because they're either harmful to the horse, or mask conditions that could lead to serious injury on the track, or both.

The big issue that continues to defy agreement is Lasix. The recent South African study makes the point, as US horsemen are delighted to tell you, that Lasix does indeed have a therapeutic effect; it substantially reduces the incidence of bleeding in the lungs of horses when they're racing; horses without Laix were found to be three to four times more likely to show any evidence of bleeding than those treated with Lasix, and seven to 11 times more likely to have severe bleeding. No question; it's a drug that works.

But Lasix also is a huge performance enhancer. It's easy to understand why. For a start, the horse treated with Lasix will lose 12-14 pounds of water; that's equivalent to going from a 126-pound weight to a bug boy carrying 112 pounds. Some trainers also believe that Lasix can effectively mask the use of other drugs that may be prohibited; I understand that the better testing labs can "see" the other drugs through the Lasix, but we don't know for sure. And trainers of horses coming over to the US from Europe certainly aren't shy about adding Lasix, with good reason. Raven's Pass and Henrythenavigator looked pretty good on first-time Lasix at last year's Breeders Cup Classic, and just yesterday, Salve Germania, an Irish invader with, to be charitable, a mediocre record in Europe, came over to Saratoga and, on first-time Lasix, won the Grade II Ballston Spa Handicap at odds of 24-1, beating such established US fillies and mares as Rutherienne and Cocoa Beach.

Just as trainers have adjusted to the new ban on anabolic steroids in the US, they could adjust to a ban on Lasix, or rather a reestablishment of the ban that existed, in New York anyway, until just 15 years ago. But we've been breeding horses for two decades now that are more and more susceptible to bleeding, so the adjustment period would be difficult. Don't hold your breath waiting for the US to rejoin the rest of the world.

From my own perspective, a very interesting aspect of the Round Table was the agreement of all the US speakers on the drug issue that racing should stick to the self-regulation model (you know, the one that's worked so well to prevent fraud in the securities markets) and not, heaven forbid, have uniform federal regulation. The vehicle of choice seemed to be "interstate compacts" that would allow the various state racing authorities to adopt uniform rules without having to go back to their legislatures every time they wanted to change the rules. Now, anything that keeps racing out of the hands of the comically inept New York State legislature is probably a plus, but I wonder why there's such an aversion to unified, federal standards. Are the rules of the Food and Drug Administration, the Securities and Exchange Commission, or the Occupational Safety and Health Administration really so terrible? (Ah, I forget, to the "just say no to health care" crowd in the Republican Party, any rules that interfere with the ability of the rich to do what they want are terrible.) Racing is certainly an industry that impacts interstate commerce; why shouldn't it be subject to federal oversight?

I appreciate the opportunity to take a look inside the tent, and one must give credit for those initiatives that are underway on safety, drug and retirement issues. But oh so much more needs to be done. Can we structure a racing industry that's viable over the long term? Can we make the game attractive to new fans, and keep those we have from spending themselves out of action? OK, these questions weren't on the agenda for the Round Table, but I do think I saw a couple of very large gorillas lurking in the shadows of that conference room last Sunday.

Gotcha

2009-08-18T20:09:00.002-04:00

Thanks to my friend Jeff Seder, of EQB, Inc., for bringing this to my attention:

The judge in the Magna Entertainment bankruptcy case has ruled that Magna Entertainment's creditors (which includes just about everybody in the racing industry) can pursue claims not only against Magna Entertainment itself, but also against its chairman, Frank Stronach, and against the Stronach-controlled company, MI Developments, that was the nominal parent of Magna Entertainment. The full story is here.

As readers of this blog already know, Magna Entertainment, which holds such major league racing properties as Santa Anita, Gulfstream, Laurel and Pimlico, filed for bankruptcy some months ago. For years, Magna Entertainment was propped up by a series of loans and equity ifusions from MI Developments (MID), often over the protests of minority shareholders in MID, who rightly accused Stronach of using that company to toss good money after bad to support Stronach's dreams of a thoroughbred racing empire.

Bankruptcy judge Mary Walrath, in Delaware, allowed the Magna Entertainment creditors committee to move forward with its effort to prove that some $125 million in MID injections into Magna Entertainment were, in the terms of the bankruptcy code, fraudulent transactions. Good news for the creditors, bad news for Frank and his compliant MID directors.

Much more is sure to emerge in the coming months.

Behind the Numbers at the Saratoga Sale

2009-08-16T22:53:00.000-04:00

As everyone knows by now, the recently completed Fasig-Tipton select yearling sale at Saratoga was a welcome change from the past year's pattern of steady declines at all thoroughbred sales. The Saratoga sale's gross proceeds were $52,549,500, for 160 horses reported as sold, compared with $41,082,000 for 142 sold last year. The average and median prices, as already reported, were also up substantially.

A closer look at the details of this year's Saratoga sale, though, casts some doubt on the upbeat message that Fasig-Tipton and industry insiders tried to carry away from the sale. The following are only a few of the factors that suggest the market for thoroughbreds has a long way to go before it reaches bottom.

1. The Influence of Sheikh Mohammed

The Fasig-Tipton auction house was recently purchased by Synergy Investments Ltd., a Dubai-based company about which it's almost impossible to discover anything (see my report earlier this year). One presumes that the purchaser is, at least, closely linked to Dubai's ruler, Sheikh Mohammed. In any event, money from Dubai was responsible for major investments at Fasig-Tipton's Saratoga sales grounds, with fancy new wrought-iron fencing, a new outdoor walking ring, and the most spectacular bathroom ever seen at a horse sale. The new F-T also made a major effort to bring in high-end foreign buyers, offering assistance with travel and the financing of purchases, as well as a round of parties to loosen up the purchasers' wallets.

But the biggest single influence at this year's sale was the presence, and the purchasing, of Sheikh Mohammed himself -- appearing on the grounds for the first time in over 20 years. The Sheikh, acting through his main man, John Ferguson, and together with closely linked buyers Shadwell and Rabbah, bought a total of 22 yearlings, for $14.5 million, an average of $660,000. That was more than double the Sheikh's typical buying at Saratoga; in 2008 he and related entities bought 10 for $4.4 million, and in 2007 they bought nine for $5.5 million. So virtually all the increase in the sale's gross can be attributed to one man.

In addition, the pattern of Sheikh Mohammed's buying this year was significantly different this year. At previous sales, he'd actively sought out new sire lines and new female families to expand his holdings. This year, in contrast, more than half the Sheikh's purchases -- 13 out of 22 yearlings -- were by his own sires, Bernardini, Street Cry, Medaglia D'Oro, Singspiel and Henny Hughes. By purchasing yearlings from his own stallions, Sheikh Mohammed was not only propping up the Fasig-Tipton sale; he was also propping up prices with an eye to encouraging breeders to keep sending their mares to those sires.

2. Demi, Where Are You?

In contrast to the ubiquity of the Sheikh, John Ferguson and the rest of the Dubai entourage, the other major international player at the top of the market -- Ireland's Coolmore -- was a barely detectable presence in Saratoga. I did see their chief bloodstock agent, Demi O'Byrne, looking at a number of horses, but they bought only one, a Giant's Causeway colt for $425,000. It's probably no coincidence that Giant's Causeway stands at Coolmore's Ashford Stud in Kentucky.

Coolmore traditionally doesn't buy a lot at Saratoga; in 2007, they bought three yearlings for $1.5 million, and last year they bought only one, but that one was a $2 million Storm Cat colt. But this year, their presence was especially elusive.

3. Creative Accounting

Another change this year is that Fasig-Tipton is reporting as "sold" those horses that did not meet their reserve price in the ring, but were later sold while still on the grounds, provided that the sale was processed through the auction company. It's fairly common for sellers to make a private deal after a horse fails to meet its reserve, and often, those sales will be processed through the auction company, especially if the seller doesn't know the buyer and wants to have some assurance that the buyer will pay up (virtually all sales at the major auctions are made on credit, with payment not due until 15 days after the end of the sale).

This year, four Saratoga yearlings were listed as "post-sales" but still included in the statistics for horses sold. If the sale was reported in a manner consistent with previous years, there would have been only 156 horses sold, rather than the 160 that Fasig-Tipton reported. In turn, that would have meant that 66.4% of the horses listed in the sale catalog were sold -- exactly the same percentage as in 2007, although still somewhat higher than 2008's 62.6% I prefer to use the percentage of the catalog that's sold as a better indicator than the traditional "percent not sold," which counts only those horses that actually pass through the sale ring. In a bad sale, many horses will be scratched before they ever reach the ring, and that reduces the "not sold" percentage. But the consignors of the scratched horses will still be taking them home unsold, just like the consignors of the horses that failed to meet their reserve.

4. Where Were the Pinhookers?

In prior years, pinhookers looking for precocious and promising horses were a significant factor in the Saratoga sales. This year, they were conspicuous by their absence. For example, in 2007, purchasers whom I could identify as pinhookers bought 17 yearlings for $4 million, an average of $235,000. And last year, pinhookers bought 20 yearlings for $3.1 million, an average of $153,500. This year, pinhookers apparently bought only eight yearlings for a total of $1.7 million, and even that total is suspect, as it includes two expensive purchases by Mike Ryan, who buys both for pinhooker Niall Brennan and for "end user" racing clients. Without Ryan's purchases, the pinhooking numbers for 2009 would be six yearlings for $850,000, the lowest total in many years.

5. Vanishing Legends

Last year, Kenticky insider Olin Gentry put together the Thoroughbred Legends Racing Stable, self-described on its own website as aiming to become the most successful thoroughbred stable in America. As reported in the financial press, the goal was to raise $75 million and purchase horses over three years, beginning in 2008. The horses were to be placed with Hall of Fame trainers D. Wayne Lukas, Bob Baffert and Nick Zito. So far, the first Legends crop isn't exactly beating a path to the Breeders Cup; in four starts at Saratoga, they've finished 4th, 7th, 8th and 10th, with average earnings per start of $1,047 (the meet's leader among partnership operations as of today, by the way, is West Point Thoroughbreds, with average earnings per start, due to their stakes horses, of $31,489).

At the 2008 Saratoga yearling sale, Thoroughbred Legends bought nine yearlings for $3.3 million, an average of just over $360,000. In addition, the Legends trainers individually bought another two for similar prices. Legends then made a major attack at the Keeneland September yearling sale, buying 29 horses for just over $12 million.

This year, Legends didn't purchase a single Saratoga yearling, not one. Lukas, Baffert and Zito did combine to buy three at Saratoga, presumably for their own current or prospective owners, but one wonders whether the grand plan has come apart, and whether perhaps only a small fraction of the $75 million target was actually raised.

6. Ahmed Where Art Thou?

Also absent from this year's Saratoga sale purchase list was leading thoroughbred owner Ahmed Zayat. In 2007, Zayat had bought five Saratoga yearlings for $1.5 million, and then went on to Keeneland, where he bought 39 more for $8.6 million. Last year, he skipped Saratoga, but continued as a major buyer at Keeneland, with 30 yearlings for $6.7 million.

This year again, Zayat skipped the Saratoga sale.We'll know in a few weeks whether his support at the top of the market will be showing up at Keeneland.

7. New York-Bred prices collapse

While the Saratoga Select sale on Monday and Tuesday produced excellent gross numbers, the New York-bred yealing sale that followed, on Saturday and Sunday, was a disaster for breeders. The gross plunged by 20% from the already weak level of 2008, and more than half the horses in the NY-bred catalog (128 of the 235 catalogued) failed to find a buyer. Without the presence of Sheikh Mohammed and his entourage, and with the numerous foreign buyers who came for the Select sale, there was simply not enough money and too many horses.

New York thoroughbred breeding has clearly expanded beyond any rational level, spurred by a generous state-bred incentive program that rewards breeders and stallion owners whenever their foals earn purse money. That fund, like pretty much everything else in the New York state budget, is now feeling pressure, and its owner-incentive awards, for running NY-bred horses in open-company races, have been substantially cut back. That means buyers of NY-breds have reduced expectations for their horses' earnings, and those lower expectations translate directly into lower bids at the auction, or, as in the case of many horses at the NY-bred sale, into no bids at all (those horses were reported, though, as RNAs with the minimum $5,000 bid, another bit of creative accounting).

From the breeders' point of view, the only bright spot at the NY-bred sales was the reappearance of the pinhookers, who had been notably absent at the select sale earlier. Leading pinhookers, including Jim Crupi, Nick DeMeric Becky Thomas and Robert Harris, all made NY-bred purchases. There are no a good many NY-breds sired by fashionable Kentucky stallions, some of which apparently make good pinhook prospects.

Still, a few pinhook purchases won't do much for the majority of New York breeders, whose mares just don't have the quality, nor the catalog page, to support a high auction price.

So What Does It All Mean?

Fasig-Tipton, under its new, Dubai-based leadership, made a huge effort for Saratoga: new facilities, a spectacular catalog, loaded with high-quality black type, active courting of foreign buyers, and a personal appearance by Sheikh Mohammed and his money. And, for one brief shining moment, it all seemed to be working. If you were a breeder with a good-looking yearling with a fine pedigree, F-T could find a buyer for you.

But, for the reasons described above, the Saratoga sale's success masks some serious problems, and does nothing to address the weakness in the thoroughbred industry. As I'm sure we'll see at Keeneland, where 25 times as many horses will be on offer as were available at Saratoga, The US recession and financial collapse means that there aren't enough buyers for the horses that are out there. Breeders have begun to realize that; the projected 2010 foal crop is down to levels last seen in the 1970s, before Coolmore and the folks from Dubai began dueling at Keeneland and sent the industry into its first speculative bubble in the 1980s. But the likely 15% cut in the foal crop won't be nearly enough. A major restructuring is heading this way, and it's going to put a lot of breeders out of business. In the long run, that's probably a good thing; we have too much racing and too many horses now. But along the way, a lot of people, especially the smaller breeders who are in it because they love horses as much as they like profits, are going to get hurt.