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.