Tuesday, May 30, 2017

Barr-Tonko ver. 2.0: Better, But Is It Good Enough?

Last week, Congress members Andy Barr of Kentucky and Paul Tonko of New York introduced a considerably revised version of their "Horse Racing Integrity Act." (You can read the full text of the new bill here. It has been referred to the House Energy & Commerce Committee for hearings) The first version of the bill had been introduced back in 2015, with the support of racing's aristocracy, like The Jockey Club, had aroused heated opposition from most horsemen's organizations, and had then languished in the bowels of a do-nothing Congress. I commented on some of the serious problems with that earlier bill here and here.

Since 2015, a few things have changed. First, Republicans now control both houses of Congress and the White House, and Congressman Barr is a former intern for Mitch McConnell, now the Senate majority leader. That can't help but improve the new bill's chances for passage. Second, the states are still a ways from enacting uniform rules that apply to all racing, everywhere; the supposedly ongoing movement toward uniformity was one of the strong arguments last time around for holding off on federal legislation. Third, there has been no end to publicly visible doping disasters. For example, the recent fiasco in Florida, resulting in the tossing out of more than 100 drug positives (including four for uber-trainer Todd Pletcher) suggested that at least some states can't be trusted to police doping on their own. While some of the arguments for federal regulation remain specious -- foreign buyers are still showing up in big numbers to buy US bloodstock, despite dire warnings to the contrary from US racing's grandees, for example -- there is a serious case to be made that US racing needs uniform regulation and that the states can't be trusted to get the job done.

The new version of Barr-Tonko is a considerable improvement over its predecessor. It responds to some, though not all, of the complaints addressed to the 2015 version, and it allows, although does not require, that the contentious issue of race-day Lasix be put aside, at least initially. The question for those of us in the industry is whether the changes make the bill good enough to support, or at least to live with. Industry opposition to federal legislation will just make it look like all of us want to keep on drugging our poor horses. That public perception may not be racing's most serious problem; I would argue that outrageously high takeout is much more responsible for our slow but sure decline. But it couldn't hurt if the public believed that doping was under control. So let's see if Barr-Tonko ver. 2.0 is good enough.

The new bill cures one major defect in the original by including standardbreds and quarter horses, as well as thoroughbreds. Under the old version, state racing commissions would still have been responsible for non-thoroughbred doping control, leading to different standards and duplication of effort. This is a major improvement.

Second, the new bill explicitly preserves, in its current form, the Interstate Horseracing Act of 1978, which regulates simulcasting and gives horsemen's organizations (except at NYRA tracks in New York) a veto power over signal distribution, forcing the tracks to negotiate with their horsemen. Most industry participants (except, naturally, for the corporate suits in charge of many tracks) think that the 1978 Act's system works reasonably well.

Third, the new bill adds people with actual industry experience to the Board of the new "Horseracing Anti-Doping and Medication Control Authority" that it sets up to be the federal enforcement agency. The earlier version's conflict-of-interest rules had virtually ruled out anyone who knew anything about racing. Under the new bill, the Authority would be run, and its rules approved, by a Board of 13, including the CEO of the U.S. Anti-Doping Agency (USADA), Travis Tygart, plus 6 people from the current USADA Board and six more from horse racing, including a regulator, a former racetrack executive, an owner or breeder, a trainer, a jockey and an equine vet. The Authority would still dominated by USADA folks with no particular knowledge of horses, but its management structure would be better than before.

Fourth, the new Authority would be situated within the ambit of the Federal Trade Commission, and sanctions imposed by the Authority could be appealed to an administrative law judge appointed by the FTC and ultimately to the full commission. That certainly provides a lot of due process for those accused of doping, but it might well result in a process that is no faster than the existing situation, where a trainer who lawyers up can often postpone sanctions for four years or more while appealing an already-slow racing commission determination. I would have liked to see a much quicker timetable built into the legislation.

Fifth, the new bill keeps alive the possibility of reverting to state regulation, but only if there is an interstate compact among states accounting for 90% of all starts in the US and adopting uniform rules. That's a nice feature, directly challenging the horsemen's argument that everyone should just wait while we pursue the ever-elusive uniformity. The bill also allows the Authority to delegate its enforcement functions to state regulatory agencies, if it finds them capable.

Sixth, the new bill, while still applying to all participants in the industry (except breeders and consignors -- see below), allows the proposed Authority to continue the policy of trainer responsibility for medication violations. It was unclear in the earlier version whether there would be any kind of absolute responsibility on anyone's part for a drug violation.

Finally, the new bill allows the Authority to hold off on banning race-day Lasix, at least for a while, by incorporating the existing uniform rules promulgated by the Association of Racing Commissioners (the North American regulatory group), which permits Lasix use. Still, by referring repeatedly to "international standards," the bill's bias toward outlawing race-day Lasix has not gone away. But at least that becomes a fight for another day.

So what's still wrong with the new bill? A lot less than previously.

First, the bill still does not cover breeders and sales consignors. Those of us who remember the days of the incredible shrinking two-year-old, when a horse bulked up on steroids would come home from the sale and promptly lose 100 pounds or more, might want a bit more protection against whatever it is that unsavory consignors will think of next.

Second, the bill still puts all the cost of federal regulation on horse owners, through a per-start fee. In fact, it explicitly forbids funding through a takeout increase. From the bettor's point of view, that's a good thing, but from a horse owner's, it's just one more cost in what's already a money-losing enterprise (See my analysis of the costs of thoroughbred ownership here). It's true that in many states owners already pay some or all of the cost of state regulation and drug testing, but the bill is likely to increase the total cost burden on owners nationwide.

That's it. Apart from the fear that what the legislation is really about is banning Lasix, this is a pretty good bill. For those of us in a state like New York, where corruption rules in the state capitol and getting anything done requires massive lobbying (aka contributing to politicians' campaign funds), federal regulation, even in an era of Trumpian kleptocracy, might not be any more burdensome.

Congratulations to Congressmen Barr and Tonko for listening to those of us who criticized the earlier bill and for incorporating many -- though not all -- of our suggestions. Also, they, or their drafters, have made the new version a lot clearer and easier to understand. As a former legislative drafter myself, I appreciate that effort.

Finally, some totally unsolicited and probably unwelcome advice to Eric Hamelback of the national HBPA and Rick Violette of the Thoroughbred Horsemen's Association: don't fight this one. The bill is good enough to live with, and opposing it will just reinforce the public view that we're all incorrigible drug pushers. 

Wednesday, May 24, 2017

Timonium Two-Year-Old Sale Review

Lots of news, here, here and here, celebrating the just-concluded Fasig-Tipton sale of two-year-olds in training, held at the Timonium, Maryland, fairgrounds.And by many standards it was indeed a successful sale. Of the 575 horses in the catalogue, 330 of them were sold, or 57% of the catalogue. These days, a total clearance rate of anything over 50% isn't bad. Of those not sold, the majority, 163, were scratched, and 82 went through the auction ring but failed to make their reserver price.

The average price for those sold was $76,476, compared to an average of $68,654 a year ago, an 11% increase. And the median price, perhaps a better gauge of the overall market, rose from $32,000 in 2016 to $35,000 this year. Moreover, this year's sale saw a flurry of buying at the high end, including the most expensive horse ever sold at this sale, a Curlin colt that John Oxley, the owner of 2016's juvenile champion Classic Empire, paid $1.5 million for.

A bunch of other high-priced horses also sold, helping to boost the sale average. A Distorted Humor colt went for $850,000, a Ghostzapper colt for $800,000. and an Orb colt for $710,000. The highest price filly was by Smart Strike, selling for $525,000, and two Into Mischief fillies sold for $425,000 each.

So, as in the case of last month's big Ocala Breeders Sales Co. auction, the two-year-old market, a decade past the financial crash of 2008, seems top have stabilized. Breeders have cut back sharply, reducing the foal crop by nearly half, and so the market is not quite as flooded with badly bred, cheap horses as it once was. And there are still enough rich folks willing to buy at the top of the market to make a few lucky (or smart) pinhookers very happy indeed.

But still, all is not perfect. There is still those 47% of the Timonium catalogue that didn't sell. Who is going to race those horses, and where? And when one breaks down the Timonium sale into categories, the numbers don't look quite as good.

Let's look at the New York-bred market in particular. Timonium May has long been a prime destination for New York owners and trainers, and this year, some 123 NY-breds were in the catalogue, representing over 21% of all horses listed for the sale. Of those, 71, or 58% sold, 30 were scratched and 22 were RNAs. The average price fort all NY-breds sold at Timonium was $49,626, and the median price was $25,000.Highest price was the $375,000 that agent Mike Ryan paid for an Into Mischief filly.

But those average and median figures hide a lot of complexity. I went to the sale, hoping to see some NY-breds that looked like they could win on the NYRA circuit and that might be in the $25,000 range. And there weren't many of them. The horses high on my shortlist -- even the ones without fancy pedigrees -- generally sold for $40,000 and up, in some cases way up. The ones that didn't look much like runners or that had some fairly serious vet issues were the ones that sold for under the $25,000 median.

So, to sum up, if you were looking for a horse to race, and didn't want to spend more than the horse was likely to earn in its racing career, Timonium was a tough sale. If you were a big spender, you could get a very nice horse, although most of those million-dollar and high six-figure purchases never do pay back their purchase price. And if you were a pinhooker, enough money was rolling in so you could head back to the yearling sales this summer and fall and keep the wheel turning round one more time.

Monday, May 1, 2017

OBS April Sale -- A Bit More Depth

After the high-end two-year-olds-in-training sales at Gulfstream and Ocala Breeders Sales Co., both in March, come the mass-market events. The first of thoee was held last week by OBS in Ocala, with more than 1,200 horses in the catalog for a sale stretching over four days of breeze show and another four days of horses going through the auction ring. Still to come are the Fasig-Tipton Midlantic sale at Maryland's Timonium Fairgrounds this month and then the last-chance June OBS sale.

OBS April had a few blockbusters at the top of the market, notably Coolmore's purchase of a Tiznow colt, who breezed a furlong in a ridiculous 9 and three-fifths seconds, for $2.45 million. That's the highest price in the history of the OBS April sale, topping a Tapit filly who went for $1.9 million back in 2015. Not the highest price ever for a two-year-old, though. Coolmore, you may recall, paid $16 million at the Fasig-Tipton Florida sale back in 2006 -- after a pissing, err, bidding contest between Coolmore's Demi O'Byrne and Godolphin's John Ferguson -- for the then-fastest horse in the breeze show (albeit with a rotary gallop) ultimately named The Green Monkey. The horse never finished better than third in an actual race and, when last seen, was standing for the princely stud fee of $5,000 in Florida.

So how was the sale, aside from Coolmore's once again proving that they have more than enough money to feed every hungry child in Dublin? Basically, the message was business as usual, aside from a few more high-ticket horses than we usually see. Here are the basic numbers:

Six hundred eighty-one of the 1,208 horses in the catalog were actually sold. That's about 56%, compared to 54% last year and 56% the year before. Some 388 horses were scratched before entering the auction ring, and another 139 failed to meet their reserve price. All just about in line with past years.

The average price rose from $78,923 last year to $89,913 this year, largely on the strength of Coolmore's big buy and a couple of other million-dollar babies. But the median increased only from $47,000 to $48,000; it had been $45,000 in 2014 and 2015. As any statistician knows, the median is a more meaningful number, since the average can be affected in any year by the presence or absence of just a few high-end purchases.

Korean buyers, who entered the market only a decade or so ago and who for some years set absolute limits of $20,000 and then $30,000 on what they would pay, were very active, buying 15 horses at OBS April for an average price of better than $82,000. And New York trainer Linda Rice emerged as a force in the market, buying six horses for various ownership groups for an aggregate price that was almost equal to what Coolmore paid for their one stallion prospect.

So, no collapse in the market. There was steady buying not just at the high end, as had been the case in the earlier sales this year, but also at much lower prices, where buyers actually have some slim hope of recouping their investment through racing earnings. For the time being, breeders and pinhookers -- at least those who survived the past decade and are still in the business -- can take a deep breath and continue on.

But remember, this is thoroughbred racing, and there are always storm clouds on the horizon: betting handle is flat or declining; the number of races still needs to shrink; prospects for federal drug regulation are looking stronger, and Donald Trump's laughably titled "tax plan" would apparently eliminate the income tax deduction for losing bets (up to the amount of winnings). If that last proposal ever passed, every moderate or large bettor would be out of the game in a heartbeat, and there would be no more racing.

Enjoy it while you can, folks.