Wednesday, August 6, 2014

NYRA's 2nd Quarter: All You Need Is a Triple Crown on the Line

Some interesting news out of the brief and Chairmanless NYRA Board meeting in Saratoga this morning. The fun started when reporter Jim Odato of the Albany Times-Union was prevented from entering because he'd allegedly failed to RSVP to the meeting notice. I didn't know NYRA had suddenly become so conscious of protocol and etiquette. Eventually, cooler heads prevailed, recognized that this was supposed to be an open meeting, and let in any reporters who wanted to attend, RSVP or not. But it was an interesting reoccurrence of NYRA's traditional arrogance, which seems to manifest itself no matter who's occupying the executive suite.

With real estate mogul Marc Holliday (pictured at right) joining the NYRA Board as a Cuomo appointee, replacing Jane Rosenthal, the Board is now entirely white and male. C'mon guys, even otherwise odious Fortune 500 companies can do better than that on diversity.

Two items of note out of the substance of the meeting. First, NYRA CEO Chris Kay got his $250,000 bonus (on top of a $300,000 base salary). After much resistance, NYRA had finally coughed up the information that the bonus criteria included (1) restoring NYRA to profitability, (2) enhancing the customer (oops, "guest") experience, and (3) assembling a strong management team. Pretty amazing that the Board could conclude already that those objectives had been met. The "return to profitability" is discussed at some length below, but here a a couple of thoughts on the other issues: First, how can the Board conclude that there's a strong management team when the new Chief Experience Officer and the even newer General Counsel have been on the job only a few months. True, the hiring of Martin Panza to run the Racing Department appears to be a huge improvement over the departed P J Campo's regime, but one would think that a bit more time might be required to evaluate the rest of the new management.

Second, while there have been some real improvements -- new TVs and tables at Saratoga, the at-long-last completion of the Longshots simulcast facility at Aqueduct, the food trucks at Belmont on July 5th, etc. -- I'm not sure everyone would agree that the customer experience is markedly improved. Especially the folks stuck in the parking lots or waiting for the LIRR to take them home on Belmont Stakes day. I would have given the jury a little more time to deliberate on that one as well.

But, so be it. We all knew that Kay's salary was really $550,000. All the NYRA Board did today was confirm that. And by comparison to the multi-millions that Churchill Downs Inc. pays its top executives, the NYRA number looks like a bargain.

On to the financials. The headline is that there was net income from racing operations -- not counting money from the Aqueduct slot machines -- in the second quarter, in fact, some $5 million of it, compared to a loss of $1.7 million in the same quarter last year. Thus, technically, NYRA has been restored to profitability, a key component of the task that the State has set for the current Board and CEO. But, as we'll see, that profitability depended on one fact -- the possibility of a Triple Crown being won in the Belmont Stakes. It's great that NYRA has in fact improved its financial performance, but it's still a long way from predictable profitability year in and year out.

True, this year's Belmont Stakes Day featured an enhanced card, including the Met Mile, that would probably have increased handle over last year even in the absence of a Triple Crown bid, but probably not enough to make NYRA profitable for the quarter. Here are the numbers:

Total handle for the quarter, both on- and off-track, was $699 million, of which $154 million was wagered on the Belmont Stakes Day card. Last year, without a Triple Crown bid, total handle for the quarter was $677 million, of which $91 million was bet on Belmont Stakes Day. Taking into account the different takeout rates and different splits between NYRA and the various outlets that take bets on its simulcast signal, NYRA earns roughly 9.7% of the total amount bet, of which roughly half goes to purses and breeder awards and the rest stays with NYRA, for operating funds and capital expenditures. So, applying those percentages to the gross handle numbers, handle on the Belmont Stakes card was up $63 million this year, compared to last year, which translates to about a $4.4 million increase to NYRA's bottom line. Handle for the rest of the second quarter, subtracting Belmont Stakes Day, actually declined from $586 million last year to $545 million this year. So, yes, NYRA showed a profit from racing operations this year, but that profit was more the result of California Chrome's Triple Crown bid than of the changes that the new NYRA management team has made. Outlook for the future, IMHO, precarious.

The (unaudited) financials distributed for today's NYRA Board meeting do contain some bright spots.  NYRA largely held the line on labor costs, with a $648,000 savings on permanent payroll, compared to last year, being offset by a $674,000 increase in the budget for temporary help on Belmont Stakes Day. Legal fees paid to outside firms, long a NYRA boondoggle, declined by over 50%, to $392,000. And consulting expenses declined by 20%, to $549,000. Marketing expenses also dropped in half, from $1.6 million last year to $800,000 this year, as NYRA let California Chrome's news coverage do a lot of the marketing work. Again, without a Triple Crown on the line, this might not be a recurring savings. Repairs and maintenance, on the other hand, increased from $1.7 million in the second quarter last year to $2.5 million this year; that's probably a good thing, as there's still a maintenance backlog at all three NYRA tracks.

As for the slot machines, they just keep clicking along, with the average daily profit per machine at the Resorts World casino at Aqueduct now at $450, by far the highest in the US. That translated into another $14.3 million for NYRA in the quarter, as well as a similar amount for the purse account. The result, a nice cushion, pushing overall operating income for the quarter to $19.4 million, compared to $12.4 million for the same quarter last year.

NYRA really is doing quite good job financially, especially when compared to the rest of the U.S. racing industry. For example, while NYRA ran only 4% of total U.S. race days in the second quarter, it generated 21% of total U.S. betting handle. Good work so far by the Racing Office, aided, of course, by the slots-sweetened purses, in putting together steadily more attractive racing programs. But perhaps its too early to conclude that the battle for profitability has been won. Let's see what happens in a year when we don't have a Smarty Jones, Big Brown or California Chrome.

Wednesday, May 28, 2014

NYRA's first quarter financials: a dream deferred?

Yesterday, less than 24 hours before its Board meeting, NYRA released its financial results for the first quarter of 2014. All the details can be found here, along with with such much-needed information as the names of the 40(!) NYRA security personnel licensed to carry guns on the race track. (But, sign of progress, eight of those 40 are women.)

Despite the expected sugar-coating, blaming some of the financial under-performance on what was, in fact, a brutally cold and snowy winter, the financials don't offer much reason to be optimistic about NYRA CEO Chris Kay's stated goal of bringing the racing association into profitability without depending on income from the Aqueduct slot-machine palace. In fact, even with the slots revenue included, NYRA recorded a $1.2 million loss for this year's first quarter, as compared to a $595,000 profit for the same period last year, and a budgeted profit of $343,000 for this year. Without the casino revenue, which actually exceeded the budget expectations, the loss would have been a staggering $14.8 million.

Although there were seven race-day cancellations because of the bitter weather this year, the actual number of racing days in January-March 2014 was 54, an increase from the 51 that were run in the first quarter of 2013, when six days were cancelled for "horse health and safety initiatives." And, despite the sense that there were nothing but five-horse fields for most of the Aqueduct winter meet, actual field size was 7.2, a gain from the 7.1 in the same period last year.

So, with those gains, why did NYRA record a loss rather than the expected small profit? Total handle, including both on- and off-track, actually increased slightly compared to 2013, from $407 million to $412 million. But, taking the extra race days into account, average daily handle actually declined from $8.0 million to $7.6 million, And "estimated" daily attendance at the track (not clear how NYRA did these estimates, since there's no charge for admission at Aqueduct) dropped by 11%, from 3,700 to 3,290. But the Aqueduct signal remained a strong performer in the winter market, as it has traditionally been. Historically, the Aqueduct meet has been a profit center for NYRA, because of the strength of off-track betting coupled with the low purse level, compared to Belmont and Saratoga.

NYRA's total revenue from racing, net of payments to the purse account, taxes and other statutory payments, was just about flat, at $22.5 million, a decline of barely $200,000 from the 2013 total. In today's generally gloomy racing climate, that's practically a victory. And casino revenue for racing, net of required payments into the purse account, actually increased by $500,000 from the same period last year. So where did the bottom-line loss come from?

Well, to start with, salaries and fringe benefits increased by $1.7 million, despite the sense around NYRA that there's a lot of belt-tightening going on. Benefits and payroll taxes were a quite generous 39.5% of salaries and wages. That's a pretty high benefit level for a corporate employer that's not a Wall Street bank or a hedge fund. The financial report doesn't detail where the salary increases are, so we don't know whether the extra costs are in security, maintenance, "guest services," or the executive suite.

Other big increases in the expense category were an additional $300,000 for maintenance, an additional $200,000 for utilities (blame the tough winter!), and more than $600,000 additional for retiree benefits and pensions.On the plus side, NYRA cut its phone bill by almost $175,000 compared to last year and spent $200,000 less than last year on marketing. Guess they planned on California Chrome's doing the marketing for them. Bottom line: total expenses increased from $35.2 million in the first quarter of 2013 to $37.3 million this year. That's nearly a 6% jump. Hard to move forward with stagnant or declining handle when expenses are rising faster than the rate of inflation.

Without slot-machine revenue, NYRA would have had a loss of $14.8 million for the quarter. With the average win per machine in the Resorts World casino at Aqueduct rising well above $400 per day, the highest in the country, the casino contributed $$13.6 million to NYRA's bottom line, lowering the quarterly loss to $1.2 million.

Both NYRA Chairman David Skorton and CEO Chris Kay have said they'd like to make NYRA self-sufficient, without depending on the casino revenues. Hardly any race track in North America does that, and there's no reason to expect the situation to change anytime soon. If NYRA is to be privatized, as intended when the state took control in 2012, it's hard to imagine there will be any bidders who don't insist on a guarantee of the continued flow of casino revenue to support racing operations. And even with that revenue, this year's first-quarter results create, as track announcer Tom Durkin said in another context, cause for concern.

Wednesday, March 5, 2014

NYRA's 2013 Financials: A Glass Half Empty?

A year ago, I thought that NYRA's 2012 financials, reflecting the first full year of slot-machine revenue, signaled at least the possibility of better days to come. Last night, ahead of today's regular quarterly Board of Directors meeting, NYRA released its unaudited financials for 2013. While the 2013 figures show the largest profit in many years, there's much in the data to elicit, as Tom Durkin memorably said in the stretch run of the 1994 Breeders Cup Classic, cause for concern.

First, the big picture. NYRA's gross revenue for 2013 was $377 million, up almost 4% from 2012, and net income, after all expenses, was $42.8 million, compared to $25.6 million back in 2012. That's an increase in profits of almost 68%, apparently not bad for a company that's in what's supposed to be a declining industry. And, for the first time in living memory, NYRA has a positive figure on its balance sheet for shareholers' equity. In other words, its assets finally exceed its liabilities.

But a little closer look at the figures tells a more complicated story. The increase in gross revenue was due entirely to bigger payments from the Resorts World Casino slot machines; all other sources of income for NYRA declined from 2012 to 2013. NYRA's operating loss (i.e., before counting the slots revenue) actually increased from $5.6 million in 2012 to $12.3 million in 2013. Those figures suggest that NYRA Board Chair David Skorton and new CEO Chris Kay may be shouting into the wind when they talk about turning NYRA around so that it earns a profit without relying on its statutorily-mandated share of casino revenues. That $42.8 million profit, which included the NYRA share of the casino income, would have been a $12.3 million loss without it. That's a lot of money to make up from increased admission charges and more food sales at the track, especially in the face of the long-term national trend of declining attendance. I'm not saying it can't be done, but to expect that much of a turnaround in the next 12 months, which is all the time NYRA has before it's supposed to present its privatization plan to the Governor, requires a set of extremely rose-colored glasses.

Like many, I'm not sure why Skorton and Kay continue to press for a break-even operation without any reliance on the slot machines. Back during NYRA's bankruptcy litigation in the last decade, NYRA and the state struck a deal under which NYRA gave up its claims to the land the race tracks stand on, in return for a share of the casino money. That deal was embodied in state legislation, so it's not as if the state is "giving" NYRA something. The two sides made the kind of deal that's made all the time in litigation, with the state agreeing to the casino payments in return for NYRA's giving up its  legal claim. That was a bargained-for exchange, not a subsidy. True, Governor Cuomo, who has yet to set foot in a NYRA track, appears to dislike racing so much that he might want to renege on the deal and grab the slots money to help balance his  budget (instead, say, of getting the same amount of revenue through an almost unnoticeable tax on the state's all-too-numerous billionaires). But one would have thought that those charged with directing the racing industry would have the interests of their stakeholders -- the bettors, horsemen, backstretch workers and breeders, who pay for and put on the show -- in the forefront of their thoughts.

To the best of my knowledge, no race track makes money without some sort of income stream from other types of gambling. Certainly not Churchill Downs, Inc., which these days is more a casino and online betting platform than a racing entity. There's the new reality, and it's a delusion to think otherwise.

Overall, NYRA took in some $110 million from its share of casino revenue. Half of that went to fund purses for horsemen, and the other half to NYRA, divided between operating and capital accounts. Much of the proposed capital expenditure, discussed below, will be funded by those dollars. Foregoing them means that we will be hearing more and more comments like those at today's NYRA Board meeting from Gotham winner Samraat's owner Len Riggio, who said Aqueduct's state of disrepair was so bad that he didn't really enjoy being there. If you don't enjoy being at the track when you win a major Kentcky Derby prep, then something's wrong with the track.

Now for the details:

NYRA ran six fewer days of racing in 2013 compared to the previous year, a combined effect of going to a four-day week for part of the winter and of additional weather-related cancellations. That's a 2.4% decrease in race days, although there was a smaller decrease in total races, only 1.4%, due to the proliferation of 10- and 11-race cards at Saratoga. Live attendance at the track -- a focus of CEO Kay's "enhancing the guest experience" policy -- declined even more in percentage terms, from 1,784,000 to 1,658,000. Probably about half that decline resulted from the lack of a Triple Crown on the line for Belmont States day in June, but the other half is a real loss in attendance -- an average of 250 missing bodies at each operating track, every racing day of the year. That's not a good sign for a NYRA management focused on making the race track an attractive destination. It's particularly troubling that attendance at Saratoga continued to decline, as it has for the past decade, despite the best weather of any Saratoga meet recently.

Average field size at NYRA tracks declined from 8.1 horses per race in 2012 to 7.8 in 2013, largely as a result of out-of-state horsemen staying away when NYRA and New York State introduced new medication rules at the start of the year. Now that the other mid-Atlantic states have joined new York in adopting uniform drug rules, that factor should disappear, but there's an increasing threat to field size nationally, resulting from the sharply lower foal crops of the past few years. As these horses reach racing age, competition among tracks will intensify, to nobody's benefit. The sensible economic solution would be for some of the minor-league tracks to drastically cut back their racing days, but, with no centralized authority in racing, that's not going to happen.

Despite the reductions in race days and in field size, on-track handle at NYRA's three tracks (which includes bets made on the NYRA Rewards platform) decreased by only 1.6%, to $664.2 million. When the reduction in race days is taken into account, average daily handle actually increased by 0.9%. In easier-to-comprehend figures, the average NYRA patron pushed $201 through the windows each day in 2013, a modest rise from $198 in 2012.

Including simulcasting and off-track betting, total NYRA handle in 2013 was $2.5 billion, less than $1 million below the 2012 total. In addition to the aggregate drop in on-track handle, there were also declines in revenue from the remaining OTB operations in New York State and in simulcast revenues from other in-state locations (mostly harness tracks). These were more than offset, though, by significant jumps in out-of-state betting and international wagering, which rose more than 75%. If new NYRA Racing Director Martin Panza is successful in his goal of attracting more foreign horses to Belmont and Saratoga, the international betting market could be a bright spot for NYRA in the future.

In all, three-quarters of NYRA's handle comes from off-track. NYRA's simulcast signal is by far the most popular in the country. NYRA had 5% of all US race days last year, but accounted for 20% of total US thoroughbred handle. (and 14% of purse money). It's not impossible that Chris Kay's efforts to promote on-track attendance will bear fruit, but the numbers suggest that there could be equal, or even greater, gains from emphasizing the televised product. NYRA's current efforts to renegotiate simulcast contracts to secure a larger percentage of the takeout are a good first step in that direction.

One mystery in the financials is what happened to the $12 million tax liability that was discussed at the last regular NYRA Board meeting back in December. The year-end NYRA financials note that the final tax liability for 2013 has not yet been determined (remember, these are unaudited financials), but the balance sheet has no item for potential tax liabilities; rather, there is a credit of $17.4 million in the non-operating expense  Nothing in the footnotes that really explains the shift, but every little bit helps.

The new management team at NYRA has made some significant savings. Payments to outside lawyers and consultants declined sharply in 2013, and pension payments also declined, in part because of a shift to a new way of calculating NYRA's future liabilities. That may or may not hold up in the future, but for now it's a plus. NYRA also seems to have tightened up on fringe benefits, since its salary expense went up by 5.9% while its benefits costs dropped by 1.4%. With all its union contracts expired and in need of renegotiation, it may be tough to replicate that divergence in the coming years.

From the horsemen's point of view, things are looking up. Purse money for the year was $159.1 million, of which $55.2 million, or more than one-third, came from the slot machines.That's an average purse of well over $65,000 per race. At those prices, the old rule of thumb that horse owners earn only about half as much in purses as it costs to keep their horses in training is no longer valid. Now we earn three-quarters of what it costs. Guess we should be thankful for small favors.

The capital projects carried out in 2013 and planned for 2014, largely funded by casino revenue, have already been well documented. At Saratoga, there will be 750 new high-definition TV monitors, and 125 new picnic tables in the backyard; perhaps that will abate some of the death-defying 7 am race for tables when the gates open.At Belmont, work is supposed to finish on new dorms for backstretch workers, about a century overdue, and at Aqueduct the mythical Longshots bar and TV lounge, on the site of the long-shuttered Man O' War Room, is rumored to be opening any day now (well, perhaps any month). Still, despite the delays, it's good to see things actually being done. Barn roof repair has been ongoing, the Environmental Protection Agency has been satisfied with concrete wash pads and a manure facility that dominates the training track infield, and Saratoga continues to be, along with Keeneland, one of the best places in the country to go to the races. Let's hope NYRA can keep those capital projects moving.

Overall, then, NYRA's financials look healthier than they have been in a long time. But the source of that good health is, entirely, the addition of the tracks' share of the Aqueduct casino's slot-machine take. If that goes away, so does the financial health of the entire NYRA enterprise, Would more fans at the track and a better "guest experience" help? Sure. But it won't solve the financial problem. All of us -- fans, bettors, horsemen, those who work for NYRA and on the backstretch, upstate breeders -- we all need the state to keep its word and continue to follow the law that allocates a (small) portion of casino revenue to the racing industry.

Tuesday, January 21, 2014

Looking for a Partnership?

Lots of action on the racing partnership front, at least in New York. Lots of recent Facebook controversy about the ubiquitous Drawing Away Stables, and whether its partnership model contributes to the likelihood that its horses might be over-raced and under-retired. And a couple of interesting new partnership initiatives, from trainers Gary Contessa and Abigail Adsit, the latter a former Linda Rice assistant who's recently gone out on her own. And my own Castle Village Farm is looking to put together new claiming and two-year-old partnerships in the new year. At the same time, the failure of the well-known Karakorum Racing Stable, which once occupied Drawing Away's place as the New York partnership with the most starters, and which took with it a good deal of partners' and employees' money, reminds us that there are indeed risks in joining a thoroughbred partnership. (For a sanitized version of that story, see here.)

Overall, the rule of thumb for many years has been that purse earnings amount to about 50% of the cost of keeping all those race horses in training. With the advent of higher purses in New York, and relative stagnation in trainers' day rates (except perhaps at the stratospheric level of Todd Pletcher et al.), one can guess that a thoroughbred owner in New York might now lose only 25-30% of the cost of keeping an average horse in training. Still, that's a loss, and it doesn't count the cost of acquiring the horse in the first place, whether it's a $12,500 claimer or a $500,000 yearling purchase at Keeneland. Sometimes, your horse gets claimed for more than you paid for it, or you can sell it as a broodmare or stallion prospect. Far more often, you sell your horse for only a fraction of its purchase price or give it away (to, I hope, a good retirement home).

So don't go into a racing partnership expecting to make money. If you do, great. But more likely, you won.t. And if you don't, you'll still have the thrills that go with thoroughbred ownership -- watching your horse develop, hanging out at the barn, getting your picture taken in the winners circle. For most partners, a good result is having a good time while not losing too much money and not feeling that you're being taken advantage of.

So what should you look for in a partnership business plan or contract -- whether you're in one now and thinking about changing or whether you're thinking about getting involved for the first time?

Let's deal with the non-monetary issues first.

At the top of the list is what kind of involvement does the partnership provide? The high-end partnerships -- Centennial, Dogwood, Team Valor and West Point, for example --  have superb customer service, with staffers providing tours of the barns and meeting partners in the paddock. Of course, one pays for that kind of service (see below). At the other end of the scale, some partnerships bar partners from the training track and barn area, at least during training hours, and provide minimal information and partner support.

Questions to ask: Can I go to the barn and the training track to see my horse? Will the partnership help me with licensing? Does the partnership let me know what's going on, with phone or email notification of workouts, plans for races, entries, results and more? How can I be in touch with my fellow partners; is there an email list for the partnership? Will my opinion be listened to? Who makes decisions about which races to enter?

One goes, or should go, into a racing partnership knowing that the primary purpose is not to make money. Because that's true, the intangibles become all that much more important.

Next, What does your partnership do to make sure that its horses have a safe and secure retirement when their racing careers are over? Does the partnership have a clear retirement plan, and the financing to carry it out? Does the partnership contact successor owners of its horses, making it clear that the partnership is there to help if retirement becomes necessary? You'll feel better about your involvement if you know that the horses that give you so much pleasure are being taken care of.

Okay, now let's talk about the money. Basically, partnerships come in two flavors: those where the partners pay the ongoing training costs and those with a single up-front charge and no additional fees. The former is the more common and, in my opinion, makes more sense, for reasons that will become apparent.

So let's look at that model. The first question to ask is: how does the partnership manager or promoter -- who may be the trainer as well -- make money? There are really only three ways:

1. By marking up the cost of the horse. For example, West Point may buy a horse for $100,000 at the yearling sale, then syndicate it for $25,000 for a 10% share, effectively marking up the horse by 150%. Nice work if you can get it, and that markup does pay for a lot of customer service and advertising. Toward the other end, my own partnership, Castle Village Farm, charges a 15% markup on the initial capital in each partnership, whether that capital is then used to claim horses or to buy babies.

How do you know what the markup is? Easy. If a horse is purchased at public auction, that information is available on the website of the auction house, Fasig-Tipton, Keeneland or Ocala Breeders Sales Co. If the horse is claimed, you know what the claim price is. If it's a private purchase, the patrnership manager should be willing to tell you what the cost was. If not, that's a warning sign.

There's some justification for larger markups if the partnership manager personally bears the early risk. After all, if West Point buys a horse at auction and that horse breaks a leg before ever getting into training, it's likely that West Point will have to bear at least some of the initial cost. On the other hand, how much is too much? There's no one-size-fits-all answer, but a prospective partner should know what the numbers are.

2. By taking a piece of the purse. Often, partnership managers retain a 5% or 10% interest in the horse's earnings, without being liable for an equivalent share of the cost of keeping the horse in training. That's probably fairest to the partners, since an unsuccessful horse at least doesn't generate added charges.

3. By charging an ongoing management fee (or, as in the case of the late, unlamented Karakorum), a monthly training fee that far exceeded the actual training cost). That fee can be zero, it can be actual cost (of maintaining and office, tending to partners' needs, etc.), or it can be much more. The partnership agreement should spell out how much, if anything, the monthly or quarterly fee is.

Most partnerships charge a combination of these three items. I ca't say what's the ideal mix. Sometimes you get what you pay for, in service and support; sometimes you get more than you pay for; often you get a lot less. In all cases, though, if the partnership won't tell you up front what the costs are, including all forms of management compensation, beware!

Next,  how does your partnership share and distribute financial information? Are there monthly or quarterly reports to partners that spell out purse earnings and costs, breaking out training fees, vet bills, van bills, etc.? Does the partnership respond to your questions about the bills? And, a related point, does the partnership provide you with K-1s (the income tax form for your partnership share) in a timely fashion, so you can file your taxes on time? The less financial information you're getting, the more likely it is that the partnership manager is a gonif.

What about those one-time-only partnerships, where you put up some money at the start and then "never, ever" pay any more bills? Could be a good idea; there's not much that's more depressing than paying bills month after month for a horse that never makes it to the race track or that never earns enough to cover its training bills. But there are lots of pitfalls with this kind of arrangement. If you don't pay the bills, who does? Generally, it's the trainer, and that can lead to a variety of undesirable results. First, the most common version of the one-time-fee partnership is where the trainer gets to keep a majority or more of the purse, instead of the trainer's customary 10% That's the deal that Drawing Away Stables has with trainer David Jacobson, and it sets up some unfortunate conflicts of interest. From the trainer's point of view, it's better, in this sort of arrangement, to run a horse often and cheap, where the trainer has the best chance of picking up a purse. But that can often mean running the horse for a claiming price below its original cost. If the horse wins and gets claimed, the trainer keeps most of the purse, while the partners bear the capital loss on the claim price.

Alternatively, in the one-time-fee partnerships, the trainer or partnership manager could keep all the purse money until the horse has paid for all its training costs. For roughly 90% of horses, that means never, so the partners never see a return on their investment.

In either case, if you're tempted by the thought of never having to pay training bills, be careful. Make sure you understand the entire financial structure before you get involved.

And above all, look for transparency. Make sure you understand the deal, and that the partnership gives you all the information that you need. There are many that will; you don't have to go with the ones that won't.

Wednesday, January 15, 2014

Jockeys and Health Insurance

Recently, the Jockeys Guild has been making a strong push for someone, anyone really, other than the jockeys, to provide health insurance for riders and their families. In New York, the Governor's Office has convened a Task Force on Jockey Health and Safety to consider that issue, among others. The Task Force is chaired by NYRA Director and thoroughbred owner Anthony Bonomo and includes jockey John Velasquez, retired rider Ramon Dominguez, Jockey Club staff member Nancy Kelly and attorney Alan Foreman, who represents a variety of horsemen's groups, including the New York Thoroughbred Horsemen's Association ("NYTA").

Disclosure: I've been a member of the NYTHA Board of Directors since 2002. I also have some knowledge of health care issues at the track, through my involvement as a Director since 2009 of the BEST Backstretch health care program, which provides basic health care and substance-abuse services for backstretch workers at NYRA Tracks.

I've been told that a major item of discussion at the Task Force meetings has been: who should pay for health insurance for jockeys and their families? As I understand the Jockeys Guild position, it's that either the race tracks or the owners and trainers should bear this cost, and not the jockeys themselves, except perhaps to the extent of a very limited contribution.

Seems reasonable, right? After all, owners, trainers and track executives aren't the ones taking the risk of riding a 1,200-pound animal at 40 miles an hour in close company and under sometimes less than perfect conditions. Jockeys literally put their lives on the line every time they ride, so shouldn't they get our help?

But a closer look at the situation, at least in New York, raises some questions. Is financing health insurance for jockeys and their families really the best use of money from tracks' budgets, when many needed repairs are still waiting on limited budget funds? Is taking yet another slice off the top of owners' purses to pay for that insurance wise at a time when, despite slots-enhanced purses, most race horse owners still lose money? Why provide health insurance for jockeys when trainers, many of whom earn less than jockeys, have no insurance plan from the track and have to buy their own personal or family coverage?

In some racing jurisdictions, where purses are low, jockeys don't have coverage for on-the-job injuries, and jockey income flirts with the poverty line, perhaps there's an argument to be made for assisting jocks with health insurance premiums. But in New York at least, that argument doesn't apply. Here's why:

First, jockeys in New York already have two forms of insurance coverage for work-related injuries. The Jockey Injury Compensation Fund provides workers compensation coverage, including ongoing medical care, for on-the-job injuries to jockeys and exercise riders. The Fund is financed by owners, through a deduction from purses, and by trainers, through a per-stall fee that is probably usually passed along to owners as part of the trainer's day rate. In addition, NYRA pays for an accidental death and injury policy that pays those jockeys who sign a waiver (agreeing not to sue NYRA) 10 times their annual earnings, up to a maximum of $1.3 million, if the jockey is paralyzed and up to $956,000 if the jockey is permanently impaired. Those payments are on top of the workers compensation payments through the Jockey Injury Compensation Fund.

Second, jockeys in New York make a pretty good living. Using statistics available from Equibase, it's possible to calculate the gross earnings of most regular New York riders. In New York, jockeys generally get 9.17% of a win purse, 5% of second-place money, and 7.5% of third-place money. Because win purses are the major element in any jockey's income, this works out to a blended rate of about 8% of total purse money won.

Using those parameters, and using the Equibase data for 2012, the first full year of slots-enhanced purses in New York, one can calculate that 22 jockeys made over $100,000, just from their rides in New York, not counting anything they earned out of state. For example, the now-retired Ramon Dominguez had purse earnings of over $19 million in New York, of which his share was in excess of $1.5 million. Other jockeys who earned over $400,000 just in New York include Cornelio Velasquez, Junior Alvarado, Javier Castellano, Irad Ortiz Jr., Jose Lezcano, David Cohen, Eddie Castro, Alan Garcia, John Velazquez, Rajiv Maragh, Joel Rosario, and Rosie Napravnik. Using the same methodology, we can conclude that the following riders made between $100,000 and $400,000 just in New York in 2012: Jose Ortiz, Wilmer Garcia, Mike Luzzi, Samuel Camacho Jr., Edgar Prado, C C Lopez, Jose Espinoza and Corey Nakatani. Adding in jockeys who earned less than $100,000 in New York but who had earnings elsewhere that would lift them above the $100,000 threshold would add the following to the list: Jose Rodriguez, Kent Desormeaux, Dennis Carr, Joe Bravo, Shaun Bridgmohan, Pablo Morales, Luis Perez, Jose Valdivia Jr., Chris DeCarlo, Pablo Fragoso, Alex Solis, Jaime Rodriguez, Mike Smith and Kevin Navarro.

Update (1/16/2014): I just ran the 2013 numbers, using the same methodology. They show that 24 riders likely earned over $100,000 just in New Yoerk. In order: (a) over $400,000 -- Javier Castellano, Irad Ortiz Jr., Junior Alvarado, Jose Ortiz, John Velazquez, Cornelio Velasquez, Joel Rosario, Jose Lezcano, Luis Saez, Rajiv Maragh; (b) $100,000-$400,000 -- David Cohen, Edgar Prado, Alex Solis, Mike Smith, Manuel Franco, Eddie Castro, Rosie Napravnik, Mike Luzzi, Joe Rocco Jr., Guillermo Rodriguez, Keiber Coa, Abel Lezcano and Angel Arroyo.

That's a lot of riders with incomes that many racegoers wouldn't mind having. True, jocks generally pay their agents 15-25% of their earnings, and their valets get 5-10%, but still, these are solid, middle-class incomes, and well above the national average.

Moreover, jockeys in New York have received a substantial pay raise as a result of the increase in purses since 2011 fueled by slot-machimne revenue. Still using our 8% methodology, we can calculate that aggregate jockey earnings at NYRA tracks increased by some 40% from 2011 to 2012, right in line with the increase in purses in that period.

In the past, jockeys had a strong argument for having the tracks and/or owners supply health insurance, because most riders would have "pre-existing conditions" that insurance companies would cite in order to deny coverage. But, under the Affordable Care Act ("Obamacare"), insurance companies can no longer use that excuse; they must make standard policies available, regardless of pre-existing conditions.

Jockeys are independent contractors. With rare exceptions, they are not employees of a particular trainer or owner (for a taste of the bad old days, when they were, listen to Slaid Cleaves' song "Quick as Dreams," about Jockeys Guild founder Tommy Luther.) Like solo practice lawyers, free-lance writers or, for that matter, horse trainers, they're responsible for themselves. Unlike those other categories, though, at least jockeys have pretty good insurance coverage for work-related injuries.

Given that on-the-job coverage, given that insurance companies can no longer deny them and their families routine health insurance, and given their level of income, at least in New York, it's hard to make a case that jockeys should be treated differently from other independent contractors and sole proprietors. Those that have high incomes -- and I was surprised by how many there were in that category in New York -- can buy comprehensive health insurance for themselves and their families in the market. Those with lower incomes can use the Affordable Care Act's insurance exchanges to obtain very acceptable policies and, if their incomes are low enough, can get tax credits and subsidies to cover part of the premium cost.

The New York Task Force on Jockey Health and Safety can do a lot of good things. Improving vests, helmets and other protective equipment would help. So would stiffer standards for licensing riders, to make sure they're up to the level of competition in New York, and ongoing continuing education programs. So would providing nutrition advice so riders can keep their weight down without destroying their bodies. So would tougher penalties for dangerous riding. Health insurance for jocks and their families? Not at the top of the list.

If you feel the same way, you might want to let Anthony Bonomo, chair of the Jockey Safety and Health Task Force, know. You can reach hiom at

Tuesday, January 14, 2014

Taking Care of Our Horses: Make the Pledge

Thanks for all the comments on my recent post about saving thoroughbreds from the kill auctions. It's clear that there's a huge community of horse owners and racing fans who believe, as I do, that we have an obligation to take care of the horses that give us so many thrills on the track.

Much of the discussion in the past few days, here and on Facebook, has been directed in particular at public racing partnerships -- groups that own horses and that seek funds and partners from the public at large. These partnerships differ from those like Sackatoga Stable, the owner of NY-bred Kentucky Derby winner Funny Cide, that are formed by a group of friends and that don't solicit widely for new members.

Since Dogwood's Cot Campbell invented the public partnership concept way back in 1969, partnerships have become an important force in the industry. From the high-end groups like Dogwood, Team Valor, Centennial or West Point, where the minimum partnership share is $25,000, $50,000 or more, down to the blue-collar groups that focus primarily on claiming horses, like Drawing Away Stable and my own Castle Village Farm, where a minimum share may be $1,000 or less, these partnerships have filled a gap caused by the falling-away of other, more traditional forms of individual and family ownership.

To give some sense of the importance of these partnerships, here are the partnership groups that have run at least two horses in New York since the start of the Aqueduct fall meet at the beginning of November, 2013:

In a class by itself, with 119 starts: Drawing Away Stables.

10-19 starts: West Point, Epona and Final Furlong (often as co-owners), Nassau CC, Parting Glass and Funky Munky Stables.

2-9 starts: Castle Village Farm, Hibiscus, Magdalena, Little Red Rooster, Winter Park, Starlight, Eclipse, Dogwood and Team Valor.

Many of these groups, especially the more expensive ones, are active all over the US and internationally, and so their New York starts are only a small piece of the picture. And many other groups are active in other regions. So the New York statistics are only a part of the whole, but they're the part I know and feel able to comment on.

Individual horse owners often commit to take care of their retired horses or find them safe retirement homes. Because racing partnerships are so visible, it would be an important advance if all partnerships would commit to a code of conduct with respect to their horses. Here are the elements of a code that, based on my experience, I believe to be affordable and fair, both to partners and to or horses:

FIRST, set aside a portion of the partnership's funds for equine retirement. (At Castle Village Farm, we set aside 3% of each partnership's initial capital and 1% of purse money.)

SECOND, if a horse owned by the partnership needs to be retired, commit to finding that horse a safe, secure placement -- don't just "give it away to a friend."

THIRD, if a horse is claimed away from the partnership, let the new owner know that you're always available to take the horse back if it needs to be retired.

FOURTH, follow your former horses' careers and, if they look like they're in trouble, take the initiative and go rescue them.

It can be done; I've gone to Finger Lakes with $4,000 in cash to get a horse away from the track before he broke down, and both Castle Village Farm and the horse's breeder, Meg Carrothers, followed our old warrior No Bad Habits as he reached the lower claiming levels, with Meg eventually claiming him for $4,000 at River Downs. And here he is just last week, enjoying retirement in Florida at age 20:

Most partnership web sites don't talk much about thoroughbred retirement. That doesn't necessarily mean that they don't have a policy, but it's discouraging that the issue isn't mentioned. 

So, if you're a partner in any of these public racing partnerships, or if you know someone who is, let's step up the pressure and get all those partnerships to commit to decent retirement policies. If other partnerships will join us in to the four points listed above, I'd be delighted to do whatever I can to make their good works known.

Thursday, January 9, 2014

Some Thoughts on the End of the Road

Hmmm, it's been a long time between blog posts. Guess that's what an overdose of Twitter can do to you. New Year's resolution for 2014: don't try to do in 140 characters what takes 800 or more words to get right.

Hence, this piece on how to prevent the thoroughbreds we love and who run their hearts out for us from ending up dead on the race track or in the "kill pen" at auctions for horses bound for the slaughterhouse. Thanks to the efforts of a dedicated band of volunteers, many thoroughbreds have been rescued from the auction pens at New Holland, PA,  and throughout the country. The horses that aren't rescued, though, go through some pretty hellish ordeals. A good description of the process is available from the Humane Society of the US, an organization that I disagree with on many issues, but am in total agreement on this one.

On the way to slaughter

For those of us in the thoroughbred racing world, perhaps the most abhorrent aspect of horse slaughter is the way that so many hard-working, previously successful race horses eventually make their way down the racing ladder, in some cases from Grade 1 stakes to $4,000 claiming races. These horses have more than earned the right to a second career, or just to a comfortable retirement. Whether we pay $5,000 or $5 million for them initially, we all have an obligation to see that they are decently cared for.

Horse slaughter for older horses that can no longer pay their way on the race track is only part of the problem. When horses die on the track, or are vanned off and put down out of public sight, that also reflects on all of us in the business. Sometimes, the death of a horse on the track is just an accident, but sometimes, it's the result of pushing a horse too hard, trying to get just one more race out of him.

So, how to get a handle on dealing with these two separate but related issues? Let me start by telling a story.

Last August, my little partnership, Castle Village Farm, claimed a five-year-old chestnut NY-bred gelding, East of Danzig, at Saratoga. We took him for $20,000 out of a turf race for horses that, among other conditions, hadn't won on the turf in the past six months. East of Danzig still had his NY-bred N2X allowance condition available, but hadn't run quite fast enough to be competitive at that level, which is why he was in for a claiming tag. We, like all owners eternally optimistic, were hoping we could get that allowance win. But in fact, East of Danzig was exactly what he looked like on paper -- a solid, hard-trying horse that ran ultra-consistent speed figures and tried every time, but that was just a step too slow to move up. So we entered him back at the same $20,000 level three times, earning a third, a second and, on October 13th at Belmont, a win. But in that October 13 race, he was claimed by trainer David Jacobson, who in the past few years has come to dominate the New York claiming scene. Seemed to me to be a not-so-smart claim, since East of Danzig is a pure turf horse and the turf season was winding down, and since his speed figures clearly showed that it was unlikely he'd get faster at age 6 and get that NY-bred allowance win. But Jacobson has made what seemed to be pretty silly claims from us before, taking Castle Village Farm's stakes winner Introspect for $50,000 (we later retrieved him and raised $10,000 so we could retire him) and taking our stakes-placed sprinter Southern Missile for an absurd $75,000, both in 2008.

In any event, after Jacobson claimed him, East of Danzig disappeared from the workout tab for over a month, only to appear in the entries at Laurel in a $5,000 claiming race on the dirt on December 11th. Our partners were ready to claim him back out of that race and either rest him over the winter for the 2014 turf season or, if necessary, retire him. As it turned out, he was claimed by Maryland-based trainer Mary Eppler, who appears to understand that for $5,000 she got a pretty good and always hard-trying grass horse. I expect to see East of Danzig in the entries, on turf, this coming spring, at a level that more accurately reflects his value.

East of Danzig at Belmont

So what's the point of that story?

First, it illustrates a well-documented pattern in which Jacobson and other claiming trainers ship horses out of New York to lesser tracks, where it's harder for the horses' former owners to keep track of, and, if needed, rescue them. For Jacobson, these dumping grounds are Laurel and Suffolk. For other trainers, they may be PARX, near Philadelphia, Finger Lakes in upstate New York, or Charles Town and Mountaineer in West Virginia. Once, we even found one of our former horses running for $2,500 at a place called Mount Pleasant Meadows in Michigan (fortunately, a rescue was arranged there as well). Many of the horror stories of stakes-quality horses falling from grace and ending up breaking down on the track come from these lesser ovals, where perhaps veterinary supervision is less stringent than, say, at NYRA, or where purses are so small that trainers feel compelled to run their horses every 10 or 14 days, even if the horse in't sound enough to stand that workload.

Second, it illustrates a pattern of perverse incentives that can reward a trainer for dropping horses in class, even as the drop penalizes the owner. To my knowledge, Jacobson's arrangement with his principal owner, Drawing Away Stable, has these perverse incentives. Here's how I'm told it works: Drawing Away partners provide the funds to claim horses, but pay no ongoing training bills. In return for taking care of the horse, Jacobson gets something like 65% of the purse (I'm not sure of the exact percentage; Drawing Away partners should feel free to correct me with accurate figures.) In contrast, the more normal arrangement, at least on major-league racing circuits like New York, is for the owner to pay the training bills (in New York, $90-125 per day, plus at least several hundred dollars per month in vet bills), and for the trainer to get 10% of the purse. Thus, because Jacobson, and those like him who make similar deals with their owners, bear the cost of feeding and caring for the horse, but bear none of the capital loss if the horse is claimed away for less that its purchase price, and because Jacobson and similar trainers keep a large percentage of the purse, there's every incentive to drop a horse to a level where it's (relatively) sure to get a big chunk of the purse. And there's an incentive, again based on the cost of caring for the horse vis-a-vis the purse, to run a horse as often as possible. So, most of the time, that's how Jacobson and similar trainers play the game, often to the detriment of the horses in their care.

I'm not trying to limit this problem to Jacobson; other trainers have similar deals and therefore face similar perverse incentives. But Jacobson has the most horses, and the most reported problems, so he is the face of the issue. Two of his horses, in particular, have produced a firestorm of comment, some rational, some not, on Facebook and Twitter in the past few days.

First, well-know horse owner and lawyer Maggi Moss raised questions about Toque, a horse claimed by Jacobson last March for $25,000, then raced at Monmouth for $5,000 in May and Suffolk for $4,000 in June and then vanished from sight. Ms. Moss's tenacity uncovered the fact that Toque then appeared at the New Holland kill auction in September, only to be "bailed out" by the rescue broker AC4H, but subsequently died.

Second, the 7-year-old gelding Uncle Smokey, a horse with a history of unsoundness,  broke down and was euthanized on the track at Aqueduct on January 2, after making his third start in 15 days and sixth in 61 days.According to some who were at the track that day, Uncle Smokey was definitely sending signals that he didn't want to race.

Most trainers don't race horses that often, but the drop in claiming price and/or a series of races in rapid succession is a familiar pattern for Jacobson. Just looking at the Aqueduct cards for today and tomorrow, he entered three that fit the pattern: (1) Rift, entered in today's 7th race for $12,500, but scratched by the NYRA vet, was dropped from the $25,000 that Jacobson paid for him last month; (2) El Oh El, entered in Friday's 3rd race for $20,000, was claimed by Jacobson for $35,000 at Saratoga, has raced as low as $12,500, and will be making his 8th start in 12 weks; and (3) Force Multiplier, in the same $20,000 race, was claimed for $25,000 at Saratoga, eventually dropped to $12,500, where he won, and now has to run at the higher $20,000 N3L condition.

Other trainers send out horses that probably shouldn't be racing, and other trainers have had horses die on the race track. But when a trainer who has just set a new record for wins at NYRA in a calendar year, and whose horse fill more spots in NYRA starting gates than any other starts seeing horses die or end up at the killers, it's appropriate that the spotlight shines in his direction. The same thing happened to Bob Baffert when his barn experienced a spate of cardiac arrest deaths. Leading trainers are big boys; they should be able to bear public scrutiny.

Jacobson, like virtually all other trainers, has lost horses to accidents that probably couldn't have been avoided. The stakes winner and crowd favorite Saginaw took a bad step at Saratoga and was euthanized after breaking down on the track on August 20th last year. There's no hint that he was over-raced, or that Jacobson gave this high-performing horse anything but the best of care. Similarly, the lightly raced 4-year-old colt Coronate threw his rider at Aqueduct on December 26th and fatally injured himself trying to jump a fence. Bad things happen in racing. Not all of them are a trainer's fault. 

For those of us who love horses, it's beyond upsetting when a race horse dies on the track, or when a thoroughbred that has given years of effort to its owners ends up in the kill pen at New Holland. So what can we, as owners and fans, do to mitigate the problem?

First, we can all support the burgeoning efforts within the industry to provide second careers or dignified retirement for horses that are no longer on the track. The Thoroughbred Aftercare Alliance is an industry-wide group, whose Board includes important owners, breeders and trainers, devoted to funding thoroughbred retirement and ensuring that retirement facilities meet basic standards. Numerous groups already exist to provide retirement options, including CANTER, New Vocations and New York's own TAKE2 program (disclosure: I'm a member of the Board of Directors of the New York Thoroughbred Horsemen's Association (NYTHA), which sponsors the TAKE2 program, and NYTHA President Rick Violette is on the Board of the Thoroughbred Aftercare Alliance.)

Second, if one owns horses, even as a partner in a large group, it's important to do whatever one can to protect their welfare. Don't let them slip out of sight.

Third, put pressure on race tracks and regulators to enforce existing rules. NYRA and other tracks have rules that bar trainers who let their horses go to the slaughter auctions. But those rules seem rarely to be enforced. Writing to track executives and state regulators urging quicker, more consistent enforcement of the rules will certainly help move the issues up on those folks' agendas.

My apologies for the length of this, and for the unusually personal tone, but the spate of bad news about horses over the past few weeks just struck a nerve.