Sunday, June 29, 2008

How Canada Gets It Right

I'm just back from a week in Canada -- part checking up on the new two-year-old Brahms colt that we've sent up there for our Canadian partnership and part vacation. And I'm intrigued, though not particularly surprised, to find that our northern neighbors seem to know a whole lot more about how to run a race track than we do here in the US.

We visited both ends of the racing spectrum: Woodbine, with its $80,000 allowance purses and gorgeous 1 1/2-mile turf course, and little Fort Erie, opposite Buffalo, which has basically the same quality of racing as Finger Lakes, but provides an ever so much more enjoyable experience for the racing fan.

Let's start with Fort Erie. The racing, which runs from May through October, is typical of minor-league tracks. They do have a $500,000 race, the Prince of Wales Stakes for Canadian-bred three-year-olds at 1 3/16 miles (just like the Preakness) on July 13, and the $125,000 Rainbow Connection Stakes, a 5-furlong turf sprint for three year old fillies on August 17. But last Monday, when we visited, there were two $10,000 claiming races, two at $7,500, two at $5,000 and two at $4,000. Admission is free, so there are no attendance figures, but it looked like perhaps 1,200-1,500 people were at the races. The on-track handle was under $60,000, but the total, most of it from the local OTB network, which is owned by the track, was over $800,000. Finger Lakes, a hundred miles or so down the New York Thruway near Rochester, had a total handle of $1.35 million the same day, most of it through the six(!) different New York OTB corporations, but that's just about the only point on which Finger Lakes comes out ahead.

First of all, Fort Erie, in its 111th season -- opening day was June 16, 1897 -- still looks like it's a race track, even though, as at most other minor league tracks, it's the slot machines that bring in the real money. But the racing side of the facility is clean, inviting, with good sight lines for watching the racing and, a rarity at small tracks, a real turf course. Parking was easy, concessions were decently priced, and we had a picnic table on the apron down by the finish line, a perfect spot for watching the racing. To cap off the thoroughly enjoyable day, our trainer, Nick Gonzalez, won a race and, since the horse's true owners weren't there, Nick invited us into the winner's circle for the picture. Just a great day of racing.

Wednesday night, we had a party at Woodbine for our Canadian partners. A group of 30 people (partners, family members and friends) met in the Post Parade Room, one of half a dozen dining rooms at the track. Woodbine has a number of dining rooms, at varying levels of formaility, some of which (like the one we were in) set aside for groups, and judging by Wednesday's crowd, they keep them well filled. Prices were reasonable by race track standards, the buffet included prime rib, drinks service was good. Best of all, it was easy to watch the races, either from the dining room or right outside in the grandstand. All in all, a decidely fun experience. (Made even better of course, by hitting a few winning bets). And the Woodbine staff phoned the next day to make sure we'd all had a good time. When was the last time you had that happen at a US race track?

The physical plant at Woodbine, as those who traveled there for the 1996 Breeders Cup know, is stunning. The interior, which features wood paneling and marble, is well-lit, brightly painted. There are no dark corridors, no empty, rambling grandstand areas. And everywhere there are customer service folks, cheerful, helpful customer service folks, knowledgeable customer service folks. From the racing side, you'd never know that a slots facility takes up a good share of the building -- except, that is, when you think about where the money lavished on the infrastructure and the purses comes from. The outside walking ring is inviting, with grass and trees and flowers and picnic areas nearby, reminiscent of the old Gulfstream, before Frank Stronach tore that lovely plant down and substituted his cheap imitation of a Las Vegas racebook. The track itself, with the huge turf course circling the polytrack main track, and the harness track inside that, is just beautiful on a summer day. The only tracks I know that compare are the boutique meets at Saratoga and Keeneland.

So, why do the Canadian get it right, when so many US tracks seem to think that customer service is a dirty word?

Maybe, of course, Canadians are simply nicer than folks on the US side of the border. They probably are, but even that doesn't explain why the physical plants are so much more attractive and why the racing, at Woodbine at least, can offer the kinds of purses that actually let an owner or a trainer stay in business.

Both Ontario tracks have slots, and they use a good share of the slot machine profits to fund purses and to keep the race track in better than good shape. But lots of US tracks have slots as well, and not all of them offer anything like the race-going experience in Ontario. So that can't be the whole answer.

A huge organizational difference is that both Fort Erie and Woodbine own the OTB networks in their respective areas. (Woodbine also owns the nearby Mohawk harness track.) So the OTB and on-track operations are fully meshed, bettors can wager from either on- or off-track in the same account. Woodbine controls the Greenwood Teletheatre, on the site of the original Woodbine track, plus some 25 other OTB outlets in the greater Toronto area, a few of which make some serious money, especially from bettors playing the Hong Kong races late at night. Woodbine is also a major factor in the Horseplayer Interactive online/telephone betting system, which has taken the sensible step of rewarding big players (starting at $1,250 a week) with real rebates, rather that souvenirs and free food. The bigger the bettor, the more important price, i.e., rebates, becomes, and HPI recongnizes that.

Are there any lessons here for US track management? Almost certainly. First, the focus on the customer really matters. Making the place look nice matters, too. Woodbine has got it right, and the crowd -- larger, younger, more upscale and more female than at US tracks -- reflects that. It's nice that some tracks are hiring people to focus on customer service (NYRA's hiring of Gavin Landry is a recent example), but the attention to detail that Woodbine shows is way beyond what US tracks can manage. In particular, US operations need to get away from the unending, fawning attention to a few rich owners and board members, and devote all that time, money and energy instead to a focus on the average racing fan. That's where the future is. That's certainly where the money is.

And, second, tracks need more control over their own product. By owning the OTB networks, Woodbine and Fort Erie get the full takeout from whatever is bet at the OTBs, in sharp contrast to the situation in New York, where the tracks (and horsemen), get a good deal less than half the takeout on what's bet in the state's multiple OTB facilities. As a business model, the New York structure is just plain crazy, and the rich folks who were on the NYRA Board in the early 1970s, and who passed up the chance to take control of OTBs because "gentlemen aren't bookmakers," have a lot to answer for.

Are the Ontario tracks perfect? Of course not. But the experience of going there as a race fan is far superior to what it is at most US tracks. And, as an owner, I certainly can't complain about those allowance purses at Woodbine!

Monday, June 23, 2008

Time for The Feds to Step In?

Last Thursday, the House of Representatives Sub-Committee on Commerce, Trade and Consumer Protection held four hours of hearings on "Breeding, Drugs and Breakdowns: The State of Thoroughbred Horse Racing and the Welfare of the Thoroughbred." That hearing may well be the opening wedge in an effort to establish federal regulation of racing. And that may be the best thing that's happened to racing in decades.

(The transcripts of witnesses' opening statements at the hearing -- including no-show Dick Dutrow -- and podcasts of the actual hearing are available online.)

For years, racing has been run as a conglomeration of independent fiefdoms. Each of the 38 states that hosts racing has its own regulatory commission, with different licensing standards, different drug rules, and different standards for punishing violators. For example, you want to use Bute on race day? Go to Kentucky or California. You want to race where Bute isn't allowed on the day of the race? Then try any of the other 36.

Very few people in racing think there's anything odd or even unnecessary about this concatenation of contradictory regulations, because the racing business itself is equally fragmented. Horsemen -- owners and trainers -- have their own organizations in each state, or sometimes more than one in a single state, as in New York where one group represents horsemen at NYRA tracks and another group represents the horsemen at Finger Lakes. And then there's California, where owners and trainers each have a separate organization. There are a couple of supposedly national organizations, competing for membership and recognition, advancing some goals that are similiar, some that aren't. And then there are a dizzying multitude of special-purpose organizations, established to support track vets, or retired horses, or jockeys, or all of the above, or something else again.

Racetrack ownership is even more fragmented. The big three -- Churchill Downs, Inc., Magna Entertainment and NYRA, probably account for somewhere between half and two-thirds of total handle in the US, but there are hundreds more tracks out there, many of them practically mom and pop operations. The kinds of ownership vary, too. Churchill Downs and Magna are the most obvious examples of corporate ownership, intent on getting those race tracks to make a profit for the shareholders. NYRA is, ostensibly, a not-for-profit organization, as is Keeneland, though the latter certainly makes a lot of money from its sales operation, which then goes to fund high purses at its boutique race meets and to support a variety of equine charities.

Years ago, life was simpler. When thoroughbred racing, at least at major tracks, was done mostly by the truly wealthy, it was their organization, the Jockey Club, that ran things. If the aristocrats of the Jockey Club didn't like you, you'd be ruled off the track with no right of appeal. A number of American trainers and jockeys ended up in Europe, Russia and even farther afield because of a Jockey Club ban. But today, the Jockey Club, though still primarily controlled by the rich folks at the top of the racing pyramid, has much more limited functions. It maintains the stud book and registers thoroughbreds, and it has vestigial functions in New York, registering stable names and colors. And that's about all.

No single organization today has the power that the Jockey Club had a century ago. Instead, there are lots of other organizations in the picture, all doing pieces of what the Jockey Club once did. Or, in case of the National Thoroughbred Racing Association (NTRA) and its partner-affiliate Breeders Cup Ltd. -- trying to mount a national day (now, some would say unfortunately, a national two-day) of racing, something that the old Jockey Club never did. And then there are the ad hoc organizations that spring up in response to each crisis in the industry, dealing with such issues as auction-sale integrity, drug testing, or racehorse safety.

Fragmented as the racing industry is, the various parts of it can, every now and then, agree on a course of action and even act on it. Today is one of those moments when just about everyone in the racing business seems to agree that it is time to implement some reforms -- and even to agree on what those reforms need to be. The Racing Medication and Testing Consortium -- yet another ad hoc group -- has proposed a model rule that would restrict, though not completely eliminate, anabolic steroid use in horses in training, and most of the major racing states will have some variant of that rule in place by the end of the year. In addition, Big Brown's owners, IEAH, have unilaterally declared that all their horses will be running free of all medications except Lasix by October 1st, and IEAH has challenged other owners to do the same. It'll be interesting to see how many significant owners go along, not to mention the vets and the trainers.

In addition, the major auction sales companies are moving toward a steroid-free environment. That'll be good news for all those buyers who have bought a good-looking horse at the sales only to find that the horse falls apart as soon as you bring it home, losing weight and muscle tone as soon as its steroids injections are stopped.

All that is definitely progress, but can we really be trusted to police ourselves in all areas? Unlike other major sports, racing doesn't have a single commissioner's office or the equivalent. Because gambling is involved, we're subject to state regulation, unlike baseball, football and basketball, which, of course, no one ever bets on! The NTRA was originally intended, at least by some of its proponents, to be a sort of commissioner's office, with broad powers over a wide range of issues. But the NTRA never overcame the opposition of its own members to ceding any of their power. So we're left with an environment in which some issues can be addressed on a kind of consensus basis, like the pending steroid ban. But other issues, like a fair division of the takeout on simulcast bets among sending and receiving tracks, or a coherent stakes schedule that doesn't have tracks constantly competing with each other, or, perhaps most important, some restrictions on the breeding of ever-weaker race horses, aren't even addressed, let alone acted on.

It's not that the industry couldn't take steps on its own. Take breeding as an example. The Jockey Club could, if it were so minded, institute all manner of restrictions on breeding. It could limit stallion books to, say a mere 80 a year (40 used to be the norm, before the rise in the past 30 years of commercial breeding aimed at the yearling and two-year-old sales). It could decline to register foals whose sires were less than five years old at the time of breeding, thus helping to keep race horses on the track for another season or two. It could refuse to register foals sired by demonstrably unsound stallions. But don't hold your breath waiting for this to happen. Any of those restrictions would upset significant economic interests. Just think of Coolmore, the inventor of the 300-matings per year stallion. Or all those breeders of horses with three, four or five crosses of Raise a Native in the pedigree -- fast but oh so fragile.

So the Congressional hearing last week at least opens the door for a kind of regulation that almost no one in racing says they want, but that may be the last best hope of getting a coherent structure for our industry. Here's how it could work:

The Interstate Horse Racing Act of 1978 is what makes simulcasting possible. Without that specific federal authorization, betting across state lines on horse racing, would, like all other kinds of interstate betting, be illegal under the Federal Wire Act. The Interstate Horse Racing Act carved out an exception for horse racing. But what the feds give, they could take away. It would be easy to add a provision to the Act requiring US racing to have an empowered, centralized governing body as a condition of maintaining the simulcast exemption. It would even be possible to impose specific regulatory conditions like breeding restrictions, anti-drug rules, or retirement requirements. After all, the feds impose conditions on grants to state and local governments for housing and highways (remember the 55 mph speed limit?). So why not in racing?

Another precedent is the securities industry. In response to numerous scandals in that industry in the 1930s, the feds stepped in and did two things: first, the Securities and Exchange Commission, the Federal Reserve Board and other agencies set minimum standards of behavior for everyone involved in the stock market. And second, they empowered centralized governing bodies, like the National Association of Securities Dealers, to maintain and enforce standards across state lines. Anyone see he parallel with racing? Of course, in the laissez-faire-for-the-rich environment that has been the federal government under George II, there hasn't been all that much enforcement. But, at least the structure is in place, for when a more rational government comes into office.

We've pretty much proven that we can't really reform ourselves. Why not let the feds have a shot at it.

Sunday, June 22, 2008

A Sport -- and a Business

For the past few months, the New York Times let some of us in racing participate in their coverage of the Triple Crown, through their online blog, The Rail. The columns I posted there seemed to strike a chord with quite a few readers, judging from the number of comments that were posted. Now that the Times has closed down the blog until next year (though the archive remains available online), I'll be continuing to post my thoughts here.

Like my columns on the Times site, these will be about the business of racing. There's a paradox there, because most of us in racing, believe it or not, aren't in it for the money. There are lots of easier ways to make a living. We're in it because we love horses, and especially the fast, courageous competitive kind of horses that we call thoroughbreds. Still, we're all aware that racing is indeed a business. Or, rather, a bunch of overlapping, competing, mutually supportive businesses; there's the business of standing stallions at stud, and the very different business of breeding mares to those stallions; there's everything and everyone involved with buying and selling weanlings, yearlings and two-year-olds -- the pinhookers, the pedigree analysts, the bloodstock agents; and, oh by the way, there's also -- racing. And, even looking just at racing itself, there's a myriad of constituencies and business perspectives: there's the race track owners and managers, the trainers, the backstretch workers, the jockeys, the handicappers (especially the guys who live in Vegas, Atlantic City or the Cayman Islands and actually make do expect to make a living off the game), and, finally, the horse owners (themselves ranging all the way from multimillion dollar operations like Coolmore and fabulously wealthy individuals like the Sheiks of Dubai to the retirees who race a horse or two from their own backyard and the folks who put up a few hundred or a couple of thousand to join a partnership or syndicate)
. The only people for whom it isn't a business are the fans, the ones that everybody else is supposed to be doing all of this for. Sometimes, these different interests collide. Very occasionally, they work together. I'd venture to say that part of the reason racing is in the state it is today (which is to say: not good) has something to do with the inability of any one organization or perspective to get all these different interests working in tandem.

What I'll try to do on this site is to provide some insights into all of this, insights that the average racing fan, or even, dare I say so, the average horse owner, might not have. I've been lucky enough to find myself on the inside of the business, both as the manager of Castle Village Farm, a partnership group and, for the past six years, as a member of the Board of Directors of the New York Thoroughbred Horsemen's Association, the body that represents owners and trainers at NYRA tracks. This blog won't be about handicapping, at least, not often and not very much; it will be a view of the business (or should I say businesses) of racing from the inside, complete with some strongly held opinions.