Saturday, July 6, 2013

Backstretch Health Care & the Affordable Care Act

The recent federal government announcement that employer responsibility for providing health insurance to their employees under the Affordable Care Act (aka “Obamacare”) will be delayed for at least another year is not good news for backstretch workers.

In most of the US, grooms and hotwalkers – the lowest-paid workers on the racetrack – have no health care coverage at all. If they’re injured on the job, they get workers’ compensation payments – and may or may not have a job to come back to when they’ve recovered. And in some states, jockeys and exercise riders who are injured on the track are covered under separate workers comp. pools, like New York’s Jockey Injury Compensation Fund, paid for with a combination of trainer per-stall charges and a percentage of owners’ purse winnings.

But, apart from those job-related injuries, backstretch workers are pretty much on their own when it comes to health care. And, if they have spouses and children, their families are out in the cold as well. With weekly salaries of perhaps $300 to $500, hotwalkers and grooms can’t afford health insurance on their own, and they generally earn just too much to qualify for Medicaid. And few trainers provide health coverage for all their workers.

In at least two states, California and New York, there’s a comprehensive effort to provide at least the basics of a health care system for backstretch workers.

On the West Coast, the California Thoroughbred Horsemen’s Foundation (“CTHF”), founded by trainer Noble Threewitt, operates full-time clinics at Santa Anita and Golden Gate Fields, and also provides once-a week or thereabouts mobile clinics during race meetings at Del Mar, Hollywood, Pleasanton and San Luis Rey Downs. In addition, the CTHF provides assistance with referrals to specialists for injuries or illness that are beyond the scope of the clinics and pays some, though by no means all, of backstretch workers’ hospital costs.

The CTHF is funded by the proceeds of unclaimed pari-mutuel tickets (a declining funding source in the age of internet wagering), and by contributions from the tracks and from the Thoroughbred Owners of California. It recently received a $200,000 anonymous donation, brokered by trainer John Sadler.

Back on the East Coast, the Backstretch Employee Service Team (“BEST”) operates clinics at Belmont and, in-season, at Saratoga. Like CTHF, BEST has a plan for paying backstretch workers’ costs for specialist referrals, medical tests and, within limits, hospital visits. BEST is funded principally by contributions from the New York Racing Association (“NYRA”) and the New York Thoroughbred Horsemen’s Association (“NYTHA”), representing owners and trainers who race at NYRA tracks. BEST also receives significant support from a variety of government grants and from John Hendrickson and Marylou Whitney. You can read more about BEST here, here and here.

Both California and New York also offer at least some dental care to backstretch workers, in California directly through CTHF and at NYRA tracks through NYTHA and the donation-financed dental clinic at Saratoga.

[Disclosure: I’m a member of the Boards of Directors of both NYTHA and BEST and am involved in BEST’s efforts to adjust its programs to the requirements of the Affordable Care Act.]

Because so few racetracks around the country offer any access to health care for backstretch workers, and because working on the track is still something of a gypsy life, with trainers moving their horses from track to track and state to state, workers sometimes save up their medical needs until they’re somewhere that does offer treatment. So, when trainers ship in to Saratoga from, say, Kentucky, or when barns return to Belmont from a winter in Florida, it’s common to see workers lining up at the BEST clinic with a year’s, or a lifetime’s, worth of medical problems. There’s probably less of that in California, just because it’s farther from other major-league racing venues, but in New York it’s a big issue. And it's still unclear how Medicaid or insurance coverage under the Affordable Care Act will work for people who move from state to state.

Under the Affordable Care Act, employers with more than 50 full-time workers will eventually have to offer health insurance. That’s the requirement that was just postponed for a year. But, in any event, there aren’t all that many trainers in the US who have more than 50 employees. Most stables are a lot smaller than that, so their workers wouldn’t have the option of employer-provided health care anyway.

Apart from employer coverage, the Affordable Care Act makes a number of changes that are still scheduled to take effect January 1, 2014, and that will have a big impact on the backstretch.

First, at least in participating states, which include New York and California, there will be a significant expansion of Medicaid, so a number of backstretch workers who now make a little too much to qualify will become eligible for this state-run and federally funded program. Eligibility will now extend to workers making up to 133% of the federal poverty level of income. For 2013, those eligibility limits are $15,282 for a single individual and $31,322 for a family of four.

Second, for those who earn too much to be eligible for Medicaid, the “individual mandate” of the Affordable Care Act will apply, and those folks will be required to obtain health insurance coverage through the “exchanges” that are being set up in participating (read Democratic) states; workers in states where Republicans have blocked implementation of the law will be able to go on a national exchange to find coverage.

The cost of that coverage will be limited to somewhere around 3-4% of gross income for most backstretch workers, depending on their earnings, with tax-credit subsidies available to offset a portion of the premium costs. Even so, it’s safe to predict that many backstretch folks will decide that $60-80 a month (their premium cost after subsidies) is just one expense too many and will decide to forego signing up for coverage and instead take their chances with the imposition of penalties when or if they file their tax returns.

Third, the Affordable Care Act provides no coverage for undocumented non-US citizens or residents and in fact makes it illegal for them to obtain health coverage through the exchanges. That undocumented group makes up a significant share of the backstretch workforce, though no one knows exactly how big a share.

And finally, the Affordable Care Act requires that any health insurance plan, whether offered through the exchanges or by an employer, meet certain minimum standards, including the scope of its coverage and its dollar limits. Unless waivers are granted, that may mean that so-called “mini-med” plans like those now offered by fast-food and retail employers, with low dollar limits and many coverage restrictions, will not be permitted. But, in any event, a “mini-med” plan offered through the CTHF or BEST would not relieve individual backstretch workers of the obligation to sign up for their own health insurance through the exchanges.

So what does all this mean for backstretch workers, and for CTHF and BEST? For certain, the coming into force of the Affordable Care Act won’t eliminate the need for these workers to have some help in getting decent health care. Even for those who qualify for Medicaid or who decide to obtain insurance through the exchanges, there will be co-payments, deductibles and incidental costs that, on the typically low salaries paid at the track, they won’t be able to afford. And for those without a legal immigration status, there won’t be anything at all.

So, at a minimum, backstretch workers will still need access to on-track clinics like those operated by BEST and CTHF, and even, to the extent the clinic sponsors can afford it, to an expanded range of services, including more medical tests and more specialist services.

And backstretch workers will need education to help them take advantage of the expanded care available under the Affordable Care Act, to enroll in Medicaid, for those eligible, and to navigate the online insurance exchanges that are being set up.

Beyond that, there will be economic gaps that need filling in under the Affordable Care Act, to pay premiums, co-payments and deductibles and, especially, to find mechanisms to ensure that undocumented workers, who are ineligible for Medicaid and for exchange-provided insurance, have some kind of safety net that goes beyond showing up at the nearest hospital emergency room.

Because New York and California already have strong organizations -- BEST and CTHF -- providing backstretch health care, there's a good chance that these gaps will indeed be filled in a timely fashion. But things are less sanguine in those states without on-track health programs and where political leaders are actively opposing implementation of the Affordable Care Act. One can only hope that all the stakeholders in the industry will join together to take advantage of the opportunities offered by the Affordable Care Act and to continue to meet the needs of the largely invisible folks who work on the backstretch every day to keep the game going.

Friday, May 17, 2013

NYRA's Financials: Turning the Corner

The latest financial results for the New York Racing Association (NYRA) show that, after years of financial travail and uncertainty, the nation’s leading racing circuit has achieved some much-needed financial stability. While nothing in horse racing is certain, that’s very good news for New York horsemen and the thousands of people they employ, for race fans, for the thoroughbred industry as a whole and, not least, for the State of New York.

NYRA’s audited financial report for the year ended December 31, 2012 (full report available here and summarized in the Daily Racing Form here) is the first annual NYRA financial report that includes a full year of “video lottery terminal” (a.k.a. slot machine) revenue, and the first produced under the auspices of the “new NYRA” legislation passed at New York Governor’s Andrew Cuomo’s urging last fall. Under that legislation, NYRA has become, as the notes to the financial statement point out, “a governmental entity engaged only in business-type activities.” As a result, the financials look somewhat different from what one would see for a for-profit corporation like Churchill Downs Inc. (whose most recent annual report is here). Still, the basics are fairly easy to discern.

The big news in the financial report is that, for the first time in many years, NYRA showed a “profit.” In fact, a healthy profit of $25.6 million. In government-accounting-speak, the report describes that as a “change in net position,” but for all practical purposes, it’s a cash profit. Lots of qualifications to that number, discussed below, but still, it’s a huge, and positive, change from prior years.

Two major reasons for the turnaround: first, a full year of VLT revenues. NYRA gets 3% of the Aqueduct casino’s net revenue to use for operating expenses, plus another 4% that goes into a separate fund for capital expenditures and maintenance of its facilities. For 2012, the 3% operating income from VLTs was approximately $20.2 million, while the VLT contribution to capital expense was another $26.9 million. Without the contributions from the VLTs, NYRA would have recorded an overall operating loss of $20.5 million instead of the reported $25.6 million profit. Still, compared to other “racino” tracks, NYRA is significantly less dependent on slot-machine income than the norm.

Second, in contrast to the nationwide trend in betting on thoroughbred racing, which was flat or slightly negative in 2012, NYRA’s handle increased significantly in 2012. All-sources handle on NYRA races was $2.2 billion, up from $1.96 billion in 2011. In addition, bettors at NYRA tracks and on its NYRA Rewards betting network wagered $294 million on races from other tracks, up 7% over the previous year. Overall, total handle reported by NYRA was $2.5 billion, up 12% from the previous year. Some of the increase is undoubtedly due to NYRA’s getting in five extra racing days in 2012, thanks to good weather, but that accounts for only a small part of the increase. Evidently NYRA’s racing product is still attractive to the bettors.

NYRA has also made some progress in increasing the amount of each dollar bet that it keeps for operating purposes and for funding purses. When simulcasting was introduced a couple of decades ago, tracks basically gave away the simulcast signal, often getting back as little as 3% of the amount bet at off-track locations., even though takeout was a total of 20%. For 2012, NYRA reports that it retained an average of 9.86% of total handle. To do that, considering that over 80% of the handle is generated from simulcast sources, shows that NYRA has been appropriately aggressive in dealing with simulcast operators.

Wagering on all US thoroughbred racing was essentially flat in 2012 as compared to 2011, increasing just 1%. In fact, without NYRA, total national handle would have declined. Of the $10.9 billion bet nationally, NYRA, with just 4.6% of the country’s race days, accounted for 20.1% of all betting. Despite the continuing decrease in the US foal crop, now down by nearly a third since its peak in the early years of this decade, there are still too many race days at too many tracks nationwide. The total number of US race days actually increased by 16, to 5,315, in 2012 as compared to the previous year. NYRA may be doing well with its racing product, but many smaller tracks cannot maintain their existing programs. Something has to give, though it may not be NYRA, where field size actually increased slightly in 2012, averaging just over eight horses per race.

The long-delayed advent of VLTs at Aqueduct, coupled with the increased handle, has been a boon for horsemen. Total purses at NYRA in 2012, with a full year of the VLT supplement, were $147.7 million, up 44% over 2011, which had included a couple of months of partial VLT operation. Those numbers make it almost worthwhile for an owner to run in New York. The old rule of thumb had been that the average horse earned about 50% of what it cost to keep the horse in training; with the new VLT-enhanced purses, it’s likely that the average horse can now earn somewhere around 80% of its training cost. That means a lot more horses can break even or turn a profit, and the losses from the rest won’t be as big as they used to be. A huge collective sigh of relief from horse owners.

Returning to the NYRA financials, while NYRA’s operating expenses increased by 18.4%, to $339.2 million, most of that increase reflects the VLT-enhanced increase in purses, which was offset dollar for dollar by VLT revenues. NYRA appeared to do fairly well at controlling its actual non-purse operating expense, holding employee compensation, benefits and retiree expenses essentially flat. The only major expense increase was in “facility operating costs,” which included nearly $3 million in legal costs related to the infamous Pick Six takeout scandal, $1.1 million to the state for incorrect sales tax payments on program sales, and $1.2 million for badly needed new marketing initiatives.

On the capital-expense side, NYRA spent $1.8 million toward a master development plan for Saratoga (a process that’s still ongoing), $734,000 for “patron area improvements” at Aqueduct and another $428,000 for similar front-side work at Belmont, plus $1 million to install wi-fi networks at all three tracks. There was significant spending on the Belmont backstretch, including $1.3 million to install concrete wash pads at the barns, as required by environmental laws, and another $1.2 million for fixing and upgrading the Belmont barns. Still lots more to do, including new dorms for backstretch workers at both Belmont and Saratoga, but it’s a start.

In the wake of its emergence from bankruptcy in 2009, NYRA had borrowed $25 million from casino operator Genting, to help pay operating costs until the VLTs began generating revenue. With a full year of VLT operation in 2012, NYRA was able to pay back $7.9 million of that loan, with the balance expected to be paid in full by mid-2014.

A danger signal in the financial report concerns the state of NYRA’s labor relations. Half of NYRA’s employees are covered by 25 different union collective bargaining agreements, of which 10 had expired as of the end of 2012 and more are expiring in 2013. A strike by, say, the 16 active members of the assistant starters’ union could quickly cripple operations. NYRA has set aside funds for retroactive wage and benefit increases that might need to be paid retroactively under new contracts, but uncertainty still remains.

Similarly, the precarious financial position of various OTB operations in New York State raises concerns. Suffolk OTB owed NYRA some $3 million when the OTB filed its most recent bankruptcy petition, money that NYRA is unlikely ever to see. The sensible solution to New York’s OTB wars would be to bring all the remaining OTB operations under NYRA, but, given the patronage and political forces behind the various regional OTBs, that’s likely to occur around the same time that we have flying-pig races at Belmont.

Still, despite the uncertainties, the 2012 financial report offers a glance at what could be a relatively serene future at NYRA, or at least a future in which the financial building blocks are in place, and the soon-to-come new management may be able to move away from crisis-reaction mode, the general state of things over the past decade, and focus on improving the racing experience for fans and horsemen alike.

Thursday, April 18, 2013

Any Meaning in the Two-Year-Old sales?

Now that the boutique sales of two-year-olds in training are over, and the middle-market and lower-end sales are about to get underway, perhaps it’s time to take a look at the sales numbers and see if all the optimistic statements about market recovery have any more validity than, say, European politicians’ repeated insistence that just a little more austerity will bring the confidence fairy right back. It’s the business of those politicians to keep telling voters that recovery is just around the corner, and it’s the business of the executives at Fasig-Tipton, Keeneland and Ocala Breeders’ Sales Co. to assure their constituency – thoroughbred breeders and consignors – to hang in there for just one more round of (literally) betting the farm.

But, as in the case of economic recovery in general, after a reasonable number of years, it makes sense to look at what’s actually happened since the worldwide economic crash in 2008. What strategies have worked, what haven’t, and what’s the outlook for the future.

To get to some of the answers, I looked at the results from the three high-level sales of two-year-olds in training: the Fasig-Tipton Florida (formerly Calder) Sale, the OBS March (formerly February) sale, and the Keeneland April sale. I left out the Barrett’s sale in Southern California because, frankly, I don’t know very much about that market and besides, it’s a long way away.

For those who want to check the figures or do their own analyses, you can find Fasig-Tipton’s auction results here, Keeneland’s here, and OBS Sales’ here

Fasig-Tipton has for many years been the pre-eminent two-year-old sale. That’s where Demi O’Byrne of Coolmore and John Ferguson for Sheikh Mohammed battled in 2006 to a $16 million hammer price for the spectacularly unsuccessful The Green Monkey. The Green Monkey, for those who might have forgotten, ran an eighth of a mile at the sale's under-tack show in the then-astounding time of 9 4/5ths seconds, never won a race and retired ignominiously to stud in Florida, where he’s standing for the princely sum of $5,000 and is so little thought of that he doesn’t even have a page in the Blood-Horse Stallion Directory.

In any event, Fasig-Tipton Florida has been where the big spenders in the game go to find stakes horses. In 2008, before economic ruin was apparent, the Calder sale catalogued 270 horses, of which 102 (37.8%) were sold, at an average price of $344,000 and a median of $230,000. A year later, in 2009, that catalogue was roughly the same size, 272 horses, and 111 sold (40.8%), but the average and median plunged sharply, to $236,000 and $150,000 respectively. At that point, Fasig-Tipton took a first small step toward downsizing, cutting the size of its catalogue to around 240 in 2010 and 2011, as well as moving the sale from its traditional location at Calder to the Palm Meadows training center in Palm Beach County in 2011. Those moves stabilized median and average prices, but by 2011 the number of horses sold had declined to 87, a mere 36% of those listed in the catalogue. The rest were either scratched from the sale or failed to meet their reserves.

Fasig-Tipton made even more aggressive downsizing moves in 2012 and 2013, cutting the catalogue to 167 horses last year and just 136 this year – exactly half of what it had been back in 2008-09. And the number of horses sold declined in tandem, to only 46 this year, or 33.8% of those catalogued. The result was a strong recovery in the median and average prices, which reached $320,000 and $385,000, respectively, at last month’s sale. But when only 46 horses sell, it’s hard to see the sale as any sort of an indicator for the industry as a whole.

Keeneland’s April sale of two-year-olds in training, held just last week, tells a slightly different story. Back in 2008-09, Keeneland April was a true boutique, listing barely 100 horses for sale each year. When, in 2009, fewer than 30% of the catalogue actually sold, Keeneland’s response was the opposite of Fasig-Tipton’s. Keeneland expanded the catalogue in 2010, nearly doubling its size to 181 horses. Predictably, median and average suffered with the expansion, but Keeneland has managed to double the number of horses sold each year from the nadir of 2009. In this year’s catalogue of 137 horses, 59, or 43.1%, actually sold last week. That’s a higher percentage sold than the Fasig-Tipton Florida sale has achieved in any of the past six years. And median and average prices at Keeneland this year were $$150,000 and $197,000, respectively. Not up to the hedge-fund level at the Florida sale, but close to where Keeneland’s two-year-old sale was back in 2008, before the economic crisis.

For those of us who made it through Economics 101, Keeneland’s approach looks paradoxical. When demand shrinks, as it certainly did after 2008, the natural response is to reduce supply. But Keeneland has maintained a small but reliable sale by increasing supply (though cutting back some in this year’s catalog). Perhaps the 50% cutback at the Fasig-Tipton Florida sale created an opening for quality horses that Keeneland was only too happy to fill.

Interpreting the OBS Sales Co. data is trickier. Through 2010, OBS ran the first two-year-old sale of the season, a high-end one-day event in Ocala that preceded the marquee Fasig-Tipton event. Beginning in 2011, though, OBS Sales dropped the February sale and used its two-day March sale, which followed Fasig-Tipton, as its premier event. So the number of horses offered for sale can’t be compared across the two time periods. From 2008-10, OBS’s one-day February catalogue listed between 160 and 200 horses; from 2011-13, the two-day March catalogue dropped from 490 in 2011 to 345 this year, mirroring the decline in Fasig-Tipton’s numbers.And, as at Fasig-Tipton, the reduction in catalogue size had the (presumably) intended effect of stabilizing the average sale price, which was $157,000 this year, almost matching the 2008 level for the February sale, and substantially exceeding the average for any of the intervening years.

Additionally, more of the horses in the catalogue actually sell at OBS than at either Fasig-Tipton or Keeneland; since OBS dropped the February sale in 2011, between 48% and 54% of each year’s March catalogue has actually sold, compared to numbers around 40% for Keeneland and in the mid-30% range for Fasig-Tipton.

What to make of all this? While there will probably never be another bout of collective insanity like the one that resulted in Demi O’Byrne’s $16 million bid for The Green Monkey back in 2006, there still is a strong market for a few hundred horses that well-heeled buyers pick up at the two-year-old sales as a shortcut to the Kentucky Derby and graded stakes in general. But those few hundred horses are only a percent or two of the 22,500 foals now being born each year, a number that is itself a drop of about one-third from the foal crops of the early and mid-2000s. The top of the two-year-old market is very rarified air indeed. While the sales companies have figured out strategies that saved them from ruin in the wake of the 2008 financial crisis – and they deserve a lot of credit for doing that – these boutique sales  tell us almost nothing about the overall state of the thoroughbred marketplace.

Tuesday, April 2, 2013

How to Make Trainer Suspensions Matter

One of the most consistent complaints regarding enforcement of racing’s drug rules is that a suspended trainer can hand off his or her horses to an assistant or relative and sit out the suspension while the horses remain in the barn and while their training routine continues uninterrupted.

A current case in point is New York-based trainer Rudy Rodriguez, suspended for 20 days last month for two instances where his horses tested positive for Banamine, a non-steroidal anti-inflammatory drug (think Advil for equines) that can be used in training, but not on race day.

Since starting his training career in 2010, Rodriguez has won 350 races, ranking among the top NY trainers at virtually every meet. In 2012, he ranked 15th nationally in number of races won and 19th in earnings. This year, as of the start of his suspension, he was ranked 6th nationally in earnings. He’s also been the subject of the usual backstretch rumors that follow every trainer whose win percentage is far above average. Until the recent suspension, those rumors had little or no support.

But on March 13th, the New York State Gaming Commission, successor to the old Racing and Wagering Board, suspended Rodriguez for 20 days and fined him $7,500 for two instances of illegal use of the drug flunixin (commonly sold as Banamine). (The text of the Commission ruling is here.) The suspension was originally set at 40 days, but shortened to 20, and conveniently scheduled for March 16th through April 4th, allowing Rodriguez to return to the track in time to saddle his Gotham winner and Kentucky Derby hopeful Vyjack in this coming Saturday’s Wood Memorial at Aqueduct. The shorter time was conditioned on Rodriguez’s not having another positive within a year, a condition that may already have been violated.

(Disclosure: one of Rodriguez’s horses that tested positive for flunixin was Alston Gunter, who finished 3rd in the 1st race at Aqueduct on November 21, 2012. My stable, Castle Village Farm, claimed Alston Gunter from Rodriguez on February 22nd, before the positive test was announced. The horse is a tough, professional six-year-old gelding, who probably appreciates a little pain relief from time to time, as we all do, but who can run very well indeed without drugs. In fact, if all goes well, we’ll be racing MD-bred Alston Gunter in a state-bred stakes race at Pimlico at about the same time that Rudy Rodriguez is saddling Vyjack in the Wood at Aqueduct.)

In Rudy’s absence, the routine in his stable goes on exactly as before. The horses are running in the name of his brother, Gustavo. While the win percentage has declined a bit in Rudy’s absence, the stable is still hitting the winners circle at an above-average rate.

Under the terms of the Gaming Commission’s ruling, Rodriguez is not to “directly or indirectly participate in New York State … horse racing” while suspended, and is not permitted to keep at the track any horse that is owned or trained by Rodriguez or his agents or employees. So somehow Gustavo Rodriguez, who functions as Rudy’s assistant and exercise rider when Rudy is on the scene, magically becomes not an agent or employee when Rudy is on suspension.

Even if Rudy is not checking in on a “burner” cell phone – and I have no reason to believe that he is – the situation creates the appearance of impropriety. This business-as-usual response to suspensions is a perennial source of complaints from racing fans and bettors and plays into the perception that racing is a drug-ridden mugs’ game.

Racing has made remarkable progress in the past few years in cracking down on illegal drugs. Steroids have been banished, Lasix administration is being handled by state vets, so there’s no chicanery when a vet goes into the stall to give the pre-race injection, and, at least in the northeast and mid-Atlantic, uniform drug rules are leveling the playing field. But as long as it appears that suspended trainers can just carry on with the usual routine, even if it’s in the hands of the trainer’s brother, girlfriend or assistant, there’s still the odor of corruption.

Fortunately, there’s a solution, one that’s already been implemented in Indiana. The Indiana Administrative Code provides that “the horse(s) of a trainer suspended for more than fifteen (15) days in Indiana shall not be transferred to a spouse, member of the immediate family, assistant, employee, or household member of the trainer.” In other words, if you get a serious suspension, either no horse in the barn races during the suspension period or, if they do, they have to move to some other trainer’s barn. And if that happens, who knows whether the suspended trainer will get the horse back?

The Indiana rule imposes a real penalty on a trainer who draws a suspension, because it interrupts the trainer’s relationship with his or her owners in a way that the same-barn transfer to a relative or assistant does not. At the same time, it doesn’t unduly burden a trainer who has a single positive test for an overage of a permitted drug; such suspensions usually draw a seven- or 10-day suspension, and so the rule would not apply. But if a trainer has repeated positives, the suspension period generally increases, and so a second or third positive would mean that some horses are going to leave the barn.

Some of my trainer friends would probably disagree with this approach, and it certainly does not represent the view of the New York Thoroughbred Horsemen’s Association, of whose Board of Directors I’ve been a member for over a decade. The trainers point out that positive tests for overages of therapeutic drugs don’t really have an impact on a horse’s performance, and that tough “sentencing” rules unfairly penalize trainers who try to play by the rules but whose employees, perhaps, just get a little sloppy. All that’s true, but few would deny that we in racing have an image problem. Perhaps, for trainers, as the 19th-century abolitionistWendell Phillips said, eternal vigilance is the price of liberty, or at least the price of staying in business.

It would be interesting to see the response if a racing commission in a major jurisdiction like New York implemented to no-assistants and relatives rule. Seems to me that it might be a sensible approach.

Wednesday, March 13, 2013

It's Not All About the Lasix. Really.

Bill Oppenheim’s much-talked-about column in today’s Thoroughbred Daily News puts most of the blame for racing’s perceived ills on the fact that horsemen’s groups around the country have the right to bargain collectively with the racetracks where those horsemen compete. For a variety of reasons, that’s nonsense. Let’s look at Oppenheim’s arguments in the light of the limited rights that horsemen do have, and how they’ve used those rights.

Oppenheim finds the root of all evil in Section 3004 of Title 15 of the United States Code – the section of the Interstate Horse Racing Act of 1978 (IHA) that gives local horsemen’s group a veto power over simulcast signals to and from their tracks.  In Oppenheim’s view, the aristocrats of the racing world, embodied in the Jockey Club, the Breeders Cup Board and the TOBA Graded Stakes Committee, were all set to save US racing by eliminating the use of Lasix, when those pesky horsemen discovered that the IHA gave them veto power.

Never mind that many horsemen’s groups have been in the lead seeking uniform medication rules and consistent penalty provisions to get the cheaters out of the game. Never mind that the New York Thoroughbred Horsemen’s Association (NYTHA) in particular took the lead last year in promoting a set of drug rules that are now emerging as the standard in the Mid-Atlantic and Northeast. (Disclosure, I’ve been a member of the Board of Directors of NYTHA for the past 10 years). Never mind that the grandees who sought to impose their view on the commoners falsely equated “drugs” with Lasix. All would be well, Oppenheim opines, if only that pesky veto provision were deleted from the federal law.

As even Oppenheim recognizes, that ain’t gonna happen. Opening up the Interstate Horse Racing Act would set in train a flurry of lobbying by casino interests, sports-betting companies, foreign online poker platforms and a host of others who’d want to take advantage of the legal safe harbor that the IHA now provides for racing simulcast betting. Much as Congress members might enjoy the extra campaign contributions that such a flurry would generate, they probably have more pressing business.

So how is it, exactly, that the horsemen’s veto power works?

Under Section 3004 of the IHA, the recognized horsemen’s group (defined as the group that represents a majority of the owners and trainers racing at the track) must grant consent before the track can accept off-track bets. In practice, that means that track management must negotiate a comprehensive contract, covering such things as the amount of overnight purses, the split between overnight and stakes purses, the division of simulcast revenue, etc. In the absence of the right to bargain these issues, increasingly centralized track operators (Churchill Downs, Inc and the Stronach Group, in particular) would simply impose their “my way or the highway” positions on the horsemen. And, as we all know, those track operators don’t necessarily have the welfare of racing as a whole as their highest priority. Churchill, as a publicly traded company, cares about what its bottom line looks like. That’s not necessarily, especially as Churchill becomes more a “gaming” company than a track operator, the same thing as what its racing product looks like. And who knows what Frank Stronach cares about?

In New York, by the way, horsemen at the NYRA tracks do not have the right to bargain. That’s because then-NYRA and Jockey Club Grand Pooh-Bah Ogden Phipps (father of Dinny) successfully lobbied back in 1978 for language that excluded from the horsemen's-consent requirement “a not-for-profit racing association in a state where the distribution of off-track betting revenues in the state is set forth by law.” That’s a very cleverly designed exception that applies to exactly one racetrack operator, NYRA, but it's an exception that may not survive NYRA’s impending transformation, at the end of the current three-year state regency, into a private entity. In New York, instead of sitting down at the negotiating table, horsemen and NYRA management both head up to Albany and lobby for their positions. Good for campaign-contribution-seeking politicians, hugely wasteful for NYRA and the horsemen.

While it’s possible that horsemen at Churchill Downs, if that turned out to be the venue for the 2014 Breeders Cup, would use their IHA veto power to make sure that Lasix use was permitted, their real concern is the increasing imperiousness of Churchill Downs, Inc. Just as labor unions are a (diminishing) safeguard against oppression and over-reaching by employers, so horsemen’s groups are a safeguard against over-reaching by the corporate interests that control most race tracks. Churchill horsemen are a lot more concerned about how racing is run day to day and what the purse structure and division of year-round simulcast revenue are than about the two days of the Breeders Cup. Really, it’s not all about the Lasix.

And if, mirabile dictu, the 2014 Breeders Cup were to land at Belmont, New York horsemen would have no bargaining power at all to block the simulcast signal, because of the IHA exception. In other words, Oppenheim has erected a straw man and then cleverly knocked it right over.

Oppenheim also opines that the rest of the world is deserting North American breeders because of Lasix. While it’s true that some long-term European buyers have cut back on US purchases, having spent the past 30 years building up their breeding stock with descendants of Northern Dancer and Raise a Native, it’s equally true that other buyers, particularly from Asia, have picked up the slack. Overall, foreign purchases at Keeneland’s and Fasig-Tipton's yearling and breeding-stock sales continue at a very high level.

Oppenheim makes some interesting points about track surfaces and safety as well, and the relationship between track surfaces and fatalities is getting renewed attention in the light of the Jockey Club’s recently released fatality data. But the Breeders Cup Board never suggested having their races only at synthetic tracks. The big noise was about Lasix. And on that front, the aristocrats gave it their best shot, and they lost. Time to move on and stop seeking out scapegoats.

Tuesday, March 5, 2013

NYRA's 2013 Budget

The New York Racing Association, after years of losing money in the pre-slot machine era, is now projecting a second year in a row of significant net income. Moreover, now that NYRA is to all intents and purposes an agency of the State of New York, its finances are out in public. You can see all the budget details here.

Budget projections revealed at the NYRA Board meeting last week predict gross revenue of $368 million for 2013, of which $93 million is from the slot machines (a.k.a. "video lottery terminals") at the Aqueduct casino. That compares to a projected $361 million for 2012, of which $90 million was casino revenue.

After “statutory expenses” (i.e., the State of New York’s take), net revenue is projected at $198 million, operating income at $46 million, and net income, the corporate bottom line, at $15 million. All these figures are projected to be up  a percent or two from 2012.

Despite smaller field size, caused by a horse shortage at Belmont and Aqueduct and the deterrent to out-of-state trainers’ shipping in because of New York’s tough Clenbuterol rule, NYRA projects a small increase in total handle for the year. Smaller field size at Aqueduct and the cutback in the number of racing days may, however, have already wiped that increase out. Positive factors for handle include the planned launching of the Longshots simulcast center at Aqueduct in mid-year and aggressive efforts to expand betting through the NYRA Rewards system, which returns more money to NYRA than when bettors place wagers through TVG or other off-track wagering platforms. Offsetting those expected gains in handle are decreases attributable to the drug rules’ effect on shippers and the sensible decision not to budget for a Triple Crown day at Belmont. If one horse does win the Kentucky Derby and the Preakness, that alone would boost NYRA’s annual handle by a percent or two. 

NYRA projects its operating expenses as being flat, at the 2012 rate of $153 million, despite a general 3% pay increase and the expected hiring of a new CEO and some other high-level staff. Some savings are expected by hiring an additional lawyer and bringing legal work in-house, as many corporations are doing these days. NYRA also projects a decrease in the state-mandated costs of its outside "integrity counsel."

NYRA is projecting almost $21 million in capital expenditure for this year, including completion of new dorms for backstretch workers at Belmont and the installation (finally!) of high-definition flat-screen television equipment, with TRAKUS software, at all three NYRA tracks.

One unhappy aspect of the budget, at least from horse owners’ point of view, is that less than all the money earmarked by law for purses will be paid out to owners. NYRA projects purse-designated income of $152.1 million for the year, but expects to pay out only $147.9 million. The $4-million-plus difference will go into the “purse cushion,” money that is earmarked for purses eventually but retained by NYRA to cope with seasonal fluctuations. That will more than double the size of the cushion, which was less than $4 million at the end of 2012. While that’s still better than the situation during the NYRA bankruptcy some years back, when the cushion was more than $20 million, it’s more than NYRA really needs to keep on hand for a rainy day. 

Is NYRA the profit-machine that, say, Churchill Downs, Inc. is? Well. no. But it's nice to see that New York racing has some measure of financial stability. That's certainly a different situation than the chaos of the last decade and more.

Can NYRA be self-sustaining in the long run? We know that, eventually, the State will want more of the slot-machine revenues. It would be good if NYRA's new CEO and his (I don't expect it to be a her) team can come up with a credible strategy that preserves the cachet of quality racing at Belmont and Aqueduct, bring in enough new revenue to keep the lights on and give horse owners a fighting chance to break even, and makes the slot machines a smaller piece of a bigger long-term pie. We shall see.

Sunday, January 20, 2013

Time to Think Big in New York

By some measures, New York racing is enjoying great success. According to a press release this week from the New York Racing Association, betting handle in 2012 increased significantly, far outpacing the nationwide trend. In fact, but for the increase in betting at NYRA, nationwide handle would have declined in 2012 compared to the previous year. When NYRA's double digit increases were added in, nationwide handle actually rose 1%.

According to NYRA, all-sources handle, including simulcasting and export handle, was up 11.8 percent to $2.5 billion in 2012 compared to $2.2 billion in 2011. Total handle on NYRA races alone climbed 12.4 percent to $2.2 billion last year over $2.0 billion in 2011.

According to Equibase, handle on all races in the United States rose 1 percent to $10.9 billion in 2012 from $10.8 billion in 2011. 
That means NYRA's racing product accounted for more than 20% of all betting in the country, by far the largest share of any racing operator, and up from 18.5% the previous year.

The $232 million handle increase on NYRA’s races was more than double the $103 million industry-wide handle increase reported by Equibase. In other words, without NYRA's increase, total US handle would have declined by more than $100 million.

At the same time, the usual complaints about winter racing have resurfaced, as they do every January. Five fatal breakdowns on the Aqueduct inner track (through January 19th) are again raising the hackles of animal-rights crusaders, though the breakdown rate this year is well below last winter's alarming 4.2 deaths per 1,000 starts. But any breakdown immediately brings out the possibility of over-reaction. According to someone who should know, NYRA interim chief Ellen McClain told racing officials that, if there were one more fatality, she'd shut down racing. And the sudden burst of breakdowns last week is undoubtedly a reason that the January 25 meeting of the new, state-controlled NYRA Board will be talking about the possibility of installing a synthetic surface at Aqueduct in place of the inner dirt track that has been used for winter racing for many years. While a study of the synthetic option was recommended by last year's Task Force report on Aqueduct fatalities, that same report found no evidence that the inner track's dirt surface had in fact contributed to the rash of breakdowns. One thing is certain, though, installation of a synthetic surface would decrease betting handle on Aqueduct races; many bettors, unable to predict results on plastic/rubber race tracks, simply move their action elsewhere.

The other perennial winter complaint is short fields and bad horses. While, according to NYRA Racing Secretary P. J. Campo, there are some 1,700 horses in residence at Aqueduct and Belmont, hardly any horses are shipping in from elsewhere since New York adopted the toughest drug rules in the country, especially a two-week ban on use of the bronchial dilator Clenbuterol prior to a race. Those tough new drug rules are a good thing, but they'll hurt field size in New York until other states adopt the same rules.

Perhaps in response to the field-size issue, the upcoming NYRA Board meeting will also feature a discussion of reducing the number of race days and the number of races per day. Last year, NYRA ran a total of 245 racing days, and the year before that, 240. State law mandates certain minimums, including 36 days at Saratoga and 95 days during the winter Aqueduct season, so the NYRA Board alone can't make big changes on its own. But raising the issue is a good first step.

But perhaps, instead of applying a (synthetic) band-aid here, and a quick field-size fix (say, going to eight races a day) there, the new Board, charged with converting NYRA into an entity that';s prepared to move forward into at least the 21st century, should take a step back and think big. If the Board were to develop a 10-year plan for New York racing, what would it look like?

I was once involved in the drafting of a five-year plan, back when such things were popular in developing countries, and I once had a horse finish 2nd in something called the Big Dream Stakes at Atlantic City, so, based on those extensive qualifications, and the freedom to dream, here goes:

Where and When to Race? NYRA operates two of the best race tracks in the country, Saratoga and Belmont. It also operates one of the least fan-friendly and most depressing plants, Aqueduct. From the leaks in the press box to the foul smells in the bathrooms, Aqueduct  repels rather than attracts racing fans. Why not abandon Aqueduct to the slot-machine crowd, who don't cross over and bet on the races anyway, and focus on the two places where racing is fun?

Here's a hypothetical schedule, to be phased in over the 10-year period: 

March and November-December  on the Belmont training track, a one-mile oval that could easily manage 10-horse fields. Build a small grandstand where the clockers' stand now sits by the training track, to accommodate the predictably small live crowds in the colder months. Alternatively, winterize a portion of the existing Belmont plant (which has no central heating) and leave the training track as is.

April-June and mid-September through October on the existing Belmont dirt and turf courses. You could even run turf races in November and March on the existing turf courses, with fans in the training-track facility watching on big screens.

July 4th through Labor Day at Saratoga, with solid week or 10-day breaks between both ends of the Saratoga schedule and the adjacent Belmont meets.

Take a two-month break between New Year's day and the re-opening of Belmont in March. 

All that would probably require a reduction in the number of annual racing days, to somewhere around 200, so the New York State Legislature would have to come on board, but it's doable. And, while the elimination of winter racing would be a real hardship to those of us (myself included) who have predominantly claiming horses and who make a significant share of our annual purse money on the Aqueduct inner track, the goal of improving the quality of New York racing requires shared sacrifice. One way to spread the pain, and ease the burden on the non-marquee trainers, would be to impose some limits so that a few trainers couldn't have 100-plus horses each at NYRA facilities while less visible horsemen are just barely eking out a living. But, just as the reduction in foal crops sent some breeders out of the business, the necessary reduction in racing days and the number of races will put some owners and trainers out of business. That's called, I guess, capitalism.

What to do about the horse shortage? According to the Jockey Club, the production of thoroughbred foals in the US has dropped to levels not seen since at least the 1970s. Compared to foal crops of 40,000 in 1990, and 35,000 as recently as 2005 and 2006, the breeding industry has already gone through a massive correction, with foal production dropping to 23,500 in 2011. That's a one-third decline in just a five-year period, a remarkable example of market-driven reality. Recent stabilization of prices at the auction sales suggests that this is the new normal.

At the same time, according to the Jockey Club, the number of US racing days has also declined, but by a far smaller percentage, a drop of 20% from 2006 to 2011. That inevitably means more races chasing fewer horses. Either field size will decline, or the number of races will drop, to match the drop in the foal crop. It may take a while for the numbers to work their way through the system, but something has to give.

So if NYRA can get out ahead of the curve, reducing its number of racing days and perhaps limiting the number of races (say, eight in the colder months, nine at Belmont and, please, no more than 10 at Saratoga), then it can position itself to continue to offer the best racing in the country, and to maintain its position as the supplier of the most desirable simulcast signal.

The Quality of Racing: As always, the January and February condition books at Aqueduct represent the nadir of racing quality in the NYRA calendar. Lots of bottom-level claimers and maiden claimers, few allowances (and most of those require an optional claiming condition in order to fill), Few stakes races (though the four-stakes Saturday on February 2nd, featuring the graded Withers and Toboggan, is an exception), short fields, especially after the now-normal five vet scratches per day, and few new faces among the entrants. While some yearn for the good old days when, supposedly, there were nothing but allowances filled with horses owned by the aristocracy, the reality is that most horses, even in New York, belong in claiming races. But the overall perception of racing quality would certainly improve with the elimination of the worst months and the reduction in the number of races. Even if the same number of races were carded, the percentage of maiden special and allowance heats would rise, and that's a good thing. And it would be nice to see a return to the days when $25,000 was the bottom claiming level at Saratoga.

The quality of the physical plant: Aqueduct is beyond redemption. Despite the so-far-unfulfilled promises of casino operator Genting to refurbish the racing side, this winter is worse than ever. The white tablecloths at the Equestris restaurant are a nice touch, for the few hundred folks who eat there, but not everyone wants a $30 lunch while they make their $2 bets. (Of course, the $8 hot dogs at the snack bar are no bargain either.) It's simply not worth the money it would take to restore the place to even a semblance of a fan-friendly venue. Better to face up to the reality and start drawing up moving plans.

Instead, take the money that would have been thrown into Aqueduct and use it at Belmont, in creating a winter venue at the training track, improving simulcast facilities, sprucing up the family-friendly garden area, etc.

Racing after dark: And what about night racing? Yes, state law now says that thoroughbreds can't run once the trotters start their evening programs, but state law, as we've seen, can be changed. Every other sport basically restricts daytime events to weekends and holidays and runs the rest of the time at night. That's when the fan base is available, especially the younger demographic that race-track executives say they want to attract, but that few have been successful in actually attracting. How about rush-hour trains from Penn Station to Belmont for evening racing on weekdays, with quick shuttles back to Jamaica so folks could get home easily? Take some of that money that could have been thrown away and put it into lights at Belmont. Might do a lot more to attract new fans than, say, pony rides for the kids.

What next? Equally important, who would implement the plan? NYRA really, really needs to fill out its executive suite, installing a new CEO and getting a couple of people at senior management levels who know something about racing. Whatever criticisms one might have had about departed NYRA CEO Charlie Hayward, and there was plenty to criticize, Charlie was a race track guy and knew and loved the game. NYRA sorely needs a few of those folks, instead of, or at least in addition to, the bean counters that it's advertising for.

So, in the unlikely event that the NYRA Board takes my advice, here's what you should do: (1) hire some folks who know a bit about racing and who aren't afraid to think big; (2) let those folks develop a plan to improve the quality of NYRA's racing and facilities; and (3) give them the support and freedom they need to make the plan a reality.