Non-Profit Stables

After my own experiences in racing partnerships and after hearing and reading comments about other racing operations I haven't been a part of, it seems that the main goal of a racing partnership is to make money for itself. Getting new owners into the game or giving others an enjoyable experience is second thought, if any. Actions speak louder than words and when you see stables unloading injured runners on unsuspecting partners, excessive mark-ups or management fees, or outright fraudulent horse ponzi schemes, the intentions of these stables becomes evident. In trying to make significant money for their selves stables create a use and discard mentality towards their partners that turns people away from the sport, people that will likely never come back.

No one really knows how much these stables are making in a sport where 90% of owners and at least 80% of handicappers lose. One stable for example takes 10% of all purse money plus $400 a month per horse as its management fees. Using the numbers from its website this translates into $25,000 from purses and likely $48,000 from some ten horses managed for the last twelve months. Other than the website itself, since all costs are being paid by the partners (training, trainer/jockey purse cuts, vet bills, taxes, filings, win photos, etc.) the manager will take in about $70,000 this year for their services, which can't be more than a few hours each week driving out to the races or sending the occasional misspelled update. All said, Equibase's Virtual Stable provides more information that the part time manager with his full time salary. Meanwhile how did the partners fair? Well as one of those partners, I lost everything. Supposedly our money went missing and the manager cannot afford to pay what partners should have due to them after several horses were claimed away to the tune of $80,000. Last e-mail I received stated partners were to receive $.50 on the dollar owed. I have yet to see even that.

Yes this stable is still in operation and by all appearances is doing quite well, buying yearlings at Keeneland and claiming at the $40,000 level out here in Southern California. From what I hear from others, stables like this are the rule, not the exception. I've been wiped out three times in a row now by public partnerships, the last a horse ponzi scheme that would give Bernie Madoff reason to smile (see above picture). Anyone who asks me about owning a horse in public partnership gets my opinion of, "put your money in the bank and when I find something that works I'll let you know." As it stands now you get more enjoyment out of setting your money on fire than what these operations provide.

When I read in December on Handride's blog, "Adena Racing Sucks", that was the last straw. If even the best racing operations in the sport are doing this to their partners, where is our industry headed? Why is no one doing anything to fix this? In my attempts to find someone who is willing to listen, I ended up starting a conversation with David Switzer of the KTA-KTOB. According to him in the last 30 years, about half a dozen times have they considered providing some sort of regulation to cut down on what he calls, "bad actors." In those 30 years, no actable solution could be found.

Here's an idea, how about starting a not-for-profit stable whose main goal is to create and mentor new owners for the game, not to make money for its manager. How about paying a manager a set hourly rate that is covered by the $400 a month fee and divided by all horses currently in the stable? If the stable is successful and wins $10,000 that month, of which the manager receives their 10% ($1,000) then the $400 month fee is waved. Seriously how much should a manager get paid for a part time job that many would find to be quite enjoyable? Managers who operate a stable are paid not by their own hand but by the hands of their partners. Why not put the partners first? Are managers really worth $70,000+ a year in comparison to what they are producing? If I could get paid $70,000 a year for a 10 hour a week play job... SIGN ME UP!

The SEC cracks down on bad corporations. The NTRA/KTA-KTOB cannot with bad stables. It has no legal authority to. But does that mean its hands are tied? No. It’s a free market. Provide a better product and people will follow, causing the money well on the "bad actors" to go dry. One thing the NTRA/KTA-KTOB could do is provide a means for non-profit stables to set themselves up by assisting with the complex administrative process of getting a stable started. In return these stables sign a contractual agreement that limits their "executive compensation". Knowing that these stables are established to have the partner’s enjoyment and success most in mind, the industry could promote these stables, thereby drawing new and old owners to the sport. Consequently more horses get sold, more horses end up in the gate, bettors have more options and so handle goes up, and whoa the sport is thriving again.

It’s a simple idea really; do right to others and your business will thrive. Warren Buffet, the investment guru, is known for his exceptional treatment of investors. Consequently his personal wealth is beyond imagining. Bernie Madoff took his investors for a ride. Consequently he might end up in jail... one of these days.

Perseverance!

Crossroads

I have a feeling that 2009 will be a very important year for horse racing; important to the point that it could determine the future of our sport. There are several issues at play which are currently hurtling out of control and unless they are addressed they could very well prove to bring our sport to a crashing halt.

First off is the economy. By all estimates 2009 will be a difficult year for everyone. Horse racing and the stock market move in lock step. Already we are seeing the effects brought to the auction market by one of the worst investment years in history. It’s pretty easy to guess what direction those auction prices will continue to move. All indications are for the market to continue sideways for the next 6 to 12 months.

But it’s more than just the economy my friends. Something few have failed to take notice of is the loss of confidence that is ravaging our sport. As mentioned in an earlier post, one survey found that 25% of core fans in the months of July and August feel that the sport has gotten worse. This loss of confidence translates into less money wagered as the game's integrity is brought into question. Even if the economy improves unless confidence does as well then we're guaranteed a dismal future. How can we improve confidence? The easiest way would be to crack down on drugs and increase penalties for medication violations. What handicapper wouldn't love a level playing field?

This loss of confidence is also spreading into the owner pool. Owners are leaving the game and are not coming back because the level of owner abuse currently going on. I know after my own experiences in public partnerships you have to be a little crazy to join such poorly run or outright fraudulent operations. When your ROI is -100% three times in a row due to inability to collect monies due, your enthusiasm for the sport rapidly diminishes. The horses aren't failing us folks, the people are. Someone needs to make these stables accountable otherwise we will continue to lose our newest members.

2008 also heralded the conflicts that will continue to boil into 2009. In California the ADW fiasco that hammered Hollywood Park was only solved by a one year stay. Yes, come September next year this will be revisited all over again. In Ohio 160 days were ripped from the racing calendar only to be added back several weeks later. Nothing has been solved in either case; merely the problem has only been pushed back. Eventually these issues will come to a head as they seek permanency and the final decision on both will be critical for our sport.

2009 will also be an important year for Magna Entertainment. The racing giant is hovering near bankruptcy. Recently on local television Golden Gate Fields was featured. The track superintendent spoke about how the track is at risk of being sold. Unless the purchaser is interested in racing, GGF could close indefinitely. Loss of GGF would end Northern California racing. Should MEC go into chapter 7, there's a good chance that many of its properties will be salvaged for commercial and residential real estate development.

2009 marks attempts as well to try to improve the sport. The NTRA has put together its Safety & Integrity Alliance. There are a lot of high hopes for this program and 2009 will test whether or not it will fulfill those expectations. 2009 will also test the NTRA at large as it attempts to push itself further into a position of leadership in a sport with already too many chiefs. I for one hope it succeeds. Creating some sort of unified organization similar to the NFL, MLB, or NBA is what horse racing needs if it’s to return to anything of its former glories.

So here's to 2009. Let it be known as the Year of the Thoroughbred!

Perseverance!

The BC Reality

In catching up with the past week off for the holidays, I came across an interview ran by the Bloodhorse.com where Greg Avioli discusses the Breeder's Cup and the future of its Stakes program for 2009. The heart of the interview is how the added purse program may very likely not continue in 2010 with the current state of the economy. Supposedly the Breeder's Cup is struggling. Is it really?

Mr. Avioli discusses some financials. Approximately $31.5 million was paid out by the Breeder's Cup this year. $25.5 million was on the two day championships and another $6 million in its added stakes program. It brought in about $20 million from stallion fees and foal nomination fees. So your first thought is, whoa, the Breeder's Cup is losing $11.5 million a year. Not quite. Consider how much tickets were priced at this year. For those who wanted premium seating they had to come up with $1,000 a piece. Figuring that 10% of the tickets sold were premium, approximately $5 million was generated from Saturday’s 51,331 on track attendance. Also we need to figure in that the other seats ranged from $600 to $200 in the grand stand and then $125 to $50 tickets for the infield. I'd guess at least another $4.5 million was generated if we made the average ticket at $100 a seat. So in all about $9.5 million was raised in attendance revenues.

So subtracting attendance now the Breeder's Cup is out only $2 million. Don’t forget there are the nomination fees for the race which run at a combined 3% of the total purse for the cost of pre-entry and to start. Considering that most races had 10 entries and up, around 30 percent or $7.5 million was recovered by the Breeder’s Cup. So now the Breeder's Cup is $5.5 million in the green. Also, from what Churchill has said in the past, the Breeder's Cup assumes most of the handle income. The total handle for the two day event was just over $155 million. California holds approximately 5 cents for the track and 5 cents for purses in straight WPS wagers. In the case of exotics these fees go up but for simplicity let’s just assume all handle were straight wagers. If the Breeder's Cup took just the 5% purse handle holdings they'd come up with another $7.75 million. Likely the other $7.75 million held for “the track” probably went to running the day’s events (made less expensive by a horde of over 300 volunteers). Concessions and parking are also unknowns.

So by my very rough (and likely lowball) estimates the Breeder's Cup took in a $13.25 million excess this year before expenses of marketing, salaries, security, etc. Seriously, before we start talking about cutting $6 million in purses let's actually present the entire financial picture to the public. The BC reality is the program is doing very well. If not, someone please correct me.

Perseverance!