Archives for January 2010

UP CLOSE AND PERSONAL WITH RAY PAULICK

Ray Paulick had an esteemed career in print journalism before launching the Paulick Report, the well-known website that compiles and disseminates news and opinion about horse racing from around the world. Since its inception in mid 2008, the Paulick Report has become a must-read for racing insiders and many fans.

Mr. Paulick recently answered questions for Horse Racing Business about himself, racing history, and current issues in the sport/business of racing.

HRB: Where were you born and raised and where did you go to college?

RP: I was born in Rockford, Illinois, and raised on a small farm near the Illinois-Wisconsin border. I went to college in Florida—first at Miami-Dade Junior College and then to the University of Florida. It is one of my great regrets that I didn’t finish school.

HRB: How did you become involved with Thoroughbred racehorses? Are you from a family with a background in the business?

RP: My involvement in racing, other than watching the Kentucky Derby as a kid, didn’t begin until the mid-1970s when I was working at the Field Newspaper Syndicate, based at the Chicago Sun-Times and now-defunct Daily News. I worked with a number of syndicated columnists. One of them was Jimmy “The Greek” Snyder, who had a three-times-a-week column covering a variety of sports, including horse racing. I had to substitute occasionally as the Greek’s ghostwriter (the roster of ghostwriters included Hank Goldberg, David Israel and Frank Ross, among others), but knew nothing about racing, so I started buying the Daily Racing Form, read some handicapping books (and, of course, Chicago legend Dave Feldman in the Sun-Times), and started going to the track and bookie joints disguised at the time as “messenger services” near the Sun-Times building.

HRB: Are your wife and children racing fans?

RP: I met my wife when we both worked in the Los Angeles office of the Daily Racing Form in the early 1980s. One of our first dates was to see John Henry in the Oak Tree Invitational. Our 21-year-old son loves racing, though our 17-year-old daughter is more into the social aspects of going to the track.

HRB: What is it about Thoroughbred horse racing that has attracted you to it?

RP: In the beginning it was the challenge of handicapping a field of horses. I was entranced by what was in the Daily Racing Form past performances, and also by the edge you could get by watching the races carefully and making notes about ‘next time’ horses. My interest evolved to a fascination for the entire industry—it’s a community unto itself with so many interlocking pieces.

HRB: If you had not followed the career path that you did, what would you be doing today in the way of gainful employment?

RP: At the newspaper syndicate, I worked with a number of really good political columnists like Joseph Kraft, Roland Evans and Robert Novak, and Charles Bartlett. I’ve always been a political animal, so it would have been natural to pursue something combining journalism and politics.

HRB: What is your favorite sport besides horse racing? Which teams do you follow?

RP: I’m an all-Chicago guy: Cubs, Bears, Bulls, Blackhawks, even the White Sox. Living in Lexington you can’t help but follow University of Kentucky sports. As far as participation goes, I’m working at keeping my golf handicap in the single digits.

HRB: Did you ever play on a high school or college team in any sport?

RP: I was the 13th man on our basketball team. I held a clipboard more than the ball. Tried wrestling one year and played golf in the spring.

HRB: What publications have you worked for?

RP: The Field Newspaper Syndicate was a great opportunity to work with some good editors and outstanding writers. I moved with the company from Chicago to Southern California after the great blizzard of 1979, and thought I’d died and gone to heaven, especially after my first visit to Santa Anita. I got a job at the Daily Racing Form in Los Angeles in 1980, spent eight years there, then moved to Kentucky, working as managing editor of Thoroughbred Times from 1988-91, spent a year as Midwest editor of the short-lived Racing Times, then 15 years with the Blood-Horse from 1992-2007. I write a weekly column for a Japanese racing magazine and have contributed to numerous other publications.

HRB: You spent your career working for other people and organizations and now have become an entrepreneur by launching the Paulick Report. What surprised you most, if anything, by the roller-coaster life that goes with being a self-employed person?

RP: The late William T. Young of Overbrook Farm was something of a mentor to me. We didn’t get together that often, but when we did he’d always chide me to start my own business or try and buy the Blood-Horse, something that obviously wasn’t going to happen, given its industry ownership. ‘It’s no fun working for somebody else,’ he’d always say, and he was right. I wish I’d known him when I was a younger man. He said everyone under 30 should try to start their own business, and even if it fails they’ve got plenty of time to go to work for someone else. I can’t say there’s been that many surprises since the Paulick Report launched in June 2008, but it has been a lot of fun.

HRB: Who are the two or three best racehorses that you have seen in your lifetime, either on television or in person?

RP: Secretariat and Ruffian were two horses I only vaguely remember, so I’m not going to count them, even though my respect for Secretariat grew as I became a racing fan and industry participant following his retirement. The best horse I ever saw was Spectacular Bid. I saw every one of his California races and still have this image of the incredible acceleration he showed going seven furlongs in the Malibu Stakes at Santa Anita. It was amazing. He should have won the Triple Crown but got a horrible ride in the Belmont. Affirmed was so tough and stayed on the top of his game for three great seasons. He’s probably my all-time favorite. For what he did over such a long time, I’ve got to throw John Henry into the trifecta.

HRB: Who are the best jockeys and the best trainers that you have covered as a journalist?

RP: Jockeys…it’s hard to compare one generation against another. Bill Shoemaker had the greatest hands I’ve ever seen and was able to communicate with horses in ways others never could. Laffit Pincay was the strongest, Angel Cordero the most competitive, and Gary Stevens and Jerry Bailey in their prime always seemed to have horses in the right place. I don’t think anyone will ever surpass Charlie Whittingham and Woody Stephens in my book as the greatest trainers during my years in racing.

HRB: If you purchased a high-priced yearling, who would you want to train it and ride it from the currently active trainers and jockeys?

RP: I wouldn’t purchase one high-priced yearling. I’d spread the money around and get some numbers, because that’s what it takes. These guys who come in and buy one or two really expensive yearlings, then fail and get out of the business, ought to have their heads examined. You need numbers. I would go with a trainer who has a small barn—fewer than 32 horses–and puts his or her hands on each one of them every day. As far as jockeys go, there are so many good ones. I think you have to try and match a horse’s running style with the strengths of a particular rider.

HRB: What are your three or four favorite racetracks anywhere in the world?

RP: Happy Valley in downtown Hong Kong is spectacular for night racing, Longchamp is magnificent on Arc day, Randwick has a great atmosphere, and Tokyo racecourse is mind boggling in its size and efficiency. In the United States, my favorite is Santa Anita, though I’ve had the good fortune to vacation at Del Mar for many years and it’s where I go each summer to recharge my batteries. The racing there isn’t what it used to be, but it’s a fun atmosphere and very relaxing.

HRB: Do you have a particularly humorous or ironic anecdote you can share about something you have encountered in your career covering racing?

RP: One of my favorite people in racing is Bill Nack, who spent years as the turf writer for Sports Illustrated and now works for ESPN. There’s been no better writer covering the sport over the last 30 years. Bill always had a way of getting in the picture, of being in the right place at the right time to get the best quotes, the best stories. At the 1989 Breeders’ Cup at Gulfstream Park, the rubber-match between Sunday Silence and Easy Goer, I wondered which camp Bill would follow during the race. When NBC did a split screen showing the Phippses with Easy Goer and the Hancock/Whittingham team with Sunday Silence, Nack somehow cloned himself and wound up in both pictures.

HRB: Do you believe that the “ultimate insurer” rule, wherein a trainer is held accountable for everything concerning his or her horses, is correct and equitable or does it need to be modified?

RP: Penalties for violations have become a joke for the most part, and there has to be more accountability. I think regulators need to come down harder on the veterinarians involved in medication violations, as well as the owners.

HRB: From what you have seen so far, will American racetracks continue to install synthetic surfaces? Also, do you think that Europeans will participate in the Breeders’ Cup in larger numbers whenever the event is held on a synthetic surface?

RP: Synthetic tracks are an international surface, so, yes, we’ll see more European horses if the Breeders’ Cup is run on synthetics. But having said that, I think the writing is on the wall. The opponents of synthetic tracks are louder and more strident than the supporters, and I think we’ll see some of the synthetic tracks removed and replaced with conventional dirt in the next couple years. I believe in science and statistics, so I’d like to see what they have to say.

HRB: What is your view of the use of race day medications in general and in graded stakes races in particular?

RP: The United States needs to get in line with the rest of the world on medication.

HRB: Prior to running in the Kentucky Derby, Citation had 16 starts, Secretariat had 12, and Affirmed had 13. All were trained by Hall of Fame conditioners. By contrast, Smarty Jones came into the Kentucky Derby off four starts, Barbaro had five, and Big Brown had three. This is the typical finding when comparing horses of yesteryear with contemporary racehorses. How do you explain such a dramatic change over time?

RP: Different training methods. Trainers no longer use races to get a horse in condition, perhaps out of fear of losing and the reaction losing brings from impatient owners. I also think the breed is weaker today as a result of breeding for the sales ring rather than the racetrack over the last 25 years and because too many horses born with conformation faults are producing foals.

HRB: Would artificial insemination, shipment of frozen semen, and embryo transplants be advantageous, not matter, or be detrimental to the Thoroughbred bloodstock business?

RP: I think AI and embryo transplants are good science but bad economics.

HRB: You have lived in the Blue Grass region around Lexington, Kentucky for years and have observed the challenges of having the farms coexist with the subdivisions and commercial properties. If we were able to revisit 50 years from now, will the horse farms have been largely replaced by development?

RP: I fear Kentucky will be to Thoroughbreds what Detroit now is to automobiles—a shell of its former self.

HRB: If you were able to wave a magic wand and institute no more than three beneficial changes in the racing and bloodstock enterprises, what would you choose?

RP: Federal legislation creating structure and empowering a ‘league office’ for racing that would have authority in licensing, regulations, scheduling, division of revenue, takeout and all aspects of wagering.

HRB: Thank you.

RP: Bill, you’ve brought a very interesting perspective to horse racing over the years with your thought-provoking articles in Thoroughbred Times, Blood-Horse and now at Horse Racing Business. I hope you’ll continue providing your analysis of our game for years to come.

Copyright © 2010 Horse Racing Business

SOUNDER RACEHORSES VIA GENOMICS?

An article in the January 18, 2010 issue of Forbes caught my attention and got me thinking about its implications for racehorses.

The article, titled “Holy Cow,” explains how genomics has “revolutionized dairy farming.” Curtis Van Tassell grew up on a dairy farm and later became a geneticist with the United States Department of Agriculture. Through his research, he “is responsible for the biggest change in the past century in how dairy cows are bred and evaluated.”

Until now, it cost a farmer $50,000 to have a bull’s pedigree officially evaluated to determine whether the bull had genes that would lead to good milk production in his female offspring. This was done by a breeding company that looked at milk production and other traits of the bull’s female relatives. Van Tassell developed a substitute genetic test that costs only $250.

Forbes quotes Thomas Lawlor, who is director of research at the Holstein Association, about Van Tassell’s discovery: “Farmers are really excited. It allows them to test animals and get a read on their genetics earlier in life. You can look at a baby calf and know as much about him or her as you would a six- or seven-year-old cow.”

I found the following statement to be most intriguing: “Once the offspring of bulls and cows selected by the new genetic test are old enough to produce milk, the Holstein Association and other trade groups predict, the annual increase in milk production will double to 5%, while at the same time the cows’ longevity, hardiness, and fertility will improve.” In other words, an increase in performance and strength of the breed.

It would be a monumental step forward if research funded by racing industry organizations were to yield a genetic test for racehorses that enabled one to predict performance capabilities of offspring and, importantly, durability.

The Thoroughbred breeding and racing industry is commendably searching for ways to make the sport safer for horses and jockeys by focusing on such variables as track surfaces, medication practices, and shoeing. Even so, the giant step forward may come from genetic testing. A discovery could mitigate the harmful and heartbreaking breakdown problem in racing and its attendant public-relations negatives for the sport. Curtis Van Tassell’s work shows that this may be within the realm of genomics.

The Human Genome Project of the 1990s and early years of the 21st century opened the door to possibilities that were once in the realm of science fiction.

Please Click here to read the full Forbes article.

Copyright © 2010 Horse Racing Business

OUTLOOK FOR 2010

This article is divided into three parts—(1) a factual description of the U. S. economy at present; (2) an analysis of the economy in 2010 and thereafter; and (3) the most likely outlook for the U. S. racing industry in the year ahead.

The U. S. economic situation as of January 1, 2010: The U. S. budget deficit for 2009 alone is larger than the Gross Domestic Product (GDP) of all nations of the world except for six and the U. S. is indebted to China alone for over $1 trillion. As of January of 2009, the U. S. debt was $10.6 trillion dollars and now it is $12.1 trillion, for an increase of $1.5 trillion or 14.2%. The U. S. Office of Management and Budget estimates that the national debt will increase to $17.5 trillion by 2019 and rise from 55.7% of GDP in 2009 to 76.5% in 2019. Currently, the U. S. has about $1.6 trillion of debt coming due, which is roughly double individual income tax revenues. (To compound the precarious global economic situation, China’s phenomenal growth is being funded with huge debt, leading Forbes magazine to refer to “Ponzi in Peking.”)

The Obama Administration and Congress are initiating even more costly social programs that will likely exacerbate the national debt more than is shown in the already startling and troubling estimates.

The unemployment rate is approximately 10%, the highest level in over a quarter century, and the unemployment rate plus the underemployment rate is much higher. In order to be classified as being unemployed, a person must reply yes to three questions:  “Are you without work? Are you available for work? Have you actively looked for work?” A part-time job would disqualify an individual from being categorized as unemployed, even though he/she may not have had a full-time job for years.

Bank lending to small business has decreased in the last four quarters.

According to research and analysis by Moody’s Economy.com, the residential real estate market is likely to see prices fall further in 2010–by 5% to 10% in most places and as much as 33% in Miami. About 23 percent of homeowners are “under water,” meaning that they owe more on their houses than the homes are worth. The commercial real estate market may be the next shoe to fall.

The U. S. government has taken an unprecedented financial interest in private companies and banks and interfered with privately negotiated agreements.

The tax cuts of 2001 are set to expire at the end of 2010. If these are not extended or made permanent, the tax increase will constitute the largest in history and be a huge drag on economic activity.

On the monetary front, the Federal Reserve is about out of bullets and the dollar is being devalued.

Analysis and Evaluation

The forgoing scenario is obviously grim and, if left unchanged, does not bode well for the U. S. economy in the decade beginning with 2010. However, the American economy is extremely resilient and usually bounces back nicely after a periodic recession that rids the economy of excesses, such as in the tech bubble of 2000 and the housing bubble that followed. This time the recovery may be slower because the problems in the financial system were so deep. Moreover, the economic medicine coming out of Washington is, on balance, doing more harm than good…especially for three-to-five years out. In spite of, or perhaps because of, a massive spending stimulus, the unemployment rate is stubbornly elevated.

As the experience of Japan in the 1990s demonstrates, massive government spending and near zero percent interest rates do not translate into a strong economy. What gets stimulated are pork projects and, in addition, when the stimulus money is no longer forthcoming, the jobs derived from such disappear. Mohamed El-Erian is the former head of the Harvard University endowment and is now the chief executive officer of PIMCO, which has over $1 trillion under management. He says the American economy is “on a sugar high. It feels good for a while but is unsustainable.”

All of this in combination is a recipe for a hard row to hoe in the longer term. In 2010, however, the recovery may be better than the economic facts indicate, simply because of the amount of money that the Federal Reserve has put into the system and because the economy is coming off such a low.

The powers that be in Washington would have been wiser to take measures with more immediate effect and to institute incentives to encourage entrepreneurial activity. For example, a temporary cut in the payroll tax would have shown up in workers’ paychecks immediately and would have avoided the inefficiency and delay of central planners in Washington doling out the largess. The U. S. corporate tax rate is one of the highest and needs to be cut. Capital gains taxes need to be kept low and the 2001 tax cuts need to be retained. Raising taxes could very well throw the economy back into recession. Finally, federal spending has to be curtailed in a major way.

One of the problems that the Obama administration and the majority party in Congress face is that their rhetoric contradicts what should be done. They have continually complained of “tax cuts for the wealthy” in a class warfare against investors and entrepreneurs. Factually, the most recent IRS data on who pays how much in federal income taxes is for 2007:

  • The top 1% of taxpayer returns had at least $410,096 in adjusted gross income and paid 40.42% of federal personal income taxes.
  • The top 5% had at least $160,041 in AGI and paid 60.63% of federal personal income taxes.
  • The top 10% had at least $113,018 in AGI and paid 71.22% of federal personal income taxes.
  • The top 25% had at least $66,532 in AGI and paid 86.59% of federal personal income taxes.
  • The top 50% had at least $32,879 in AGI and paid 97.11% of federal personal income taxes.
  • The bottom 50% had less than$32,879 in AGI and paid 2.89% of federal personal income taxes.

A large portion of the higher income tax categories is accounted for by small businesspeople, who tend to operate as S-Corps or LLC’s. Unlike C-Corps, the income earned in the business is treated as personal income to the small business owner and taxed at the relevant personal rate rather than at a corporate rate, as with a C-Corp. Tax incentives and disincentives for these people have an enormous effect on whether they will expand the scope of their operations and hire employees. With so much uncertainty and so many anti-business messages coming out of Washington, it is little wonder that small businesses have been battening down the hatches.

The best estimate here is that the U. S. economy will slowly recover in 2010. Here’s why I say slowly: The consumer, whose spending accounts for about 70% of GDP, is still generally scared for his/her job or is out of work. The individual’s house may be under water in that the mortgage exceeds the dwelling’s worth in the marketplace. This negative wealth effect provides neither the capability nor the inclination to spend. These factors, coupled with misguided government policies of out-of-control spending, almost assuredly higher tax rates to pay for it, and an increasing reliance on China to buy U. S. debt, portends trouble four or five years out. Even if there is a fast recovery in GDP and employment, it may be short-lived once the Congress and the Federal Reserve take away the punch bowl of colossal spending and easy money.

General Electric is a bellwether for the economy because of its diversification. Jeffrey Imelt, its chairman and CEO, predicted on December 15, 2009 that GE will have “flat” revenue and profits for 2010.

A bright spot for short-term recovery in 2010 is that Americans are paying down their debt. The Wall Street Journal reported on December 22, 2009, that “Household payments on mortgages and other debt, automobile leases, rent, homeowners’ insurance, and property taxes as a percentage of after-tax income fell to 17.8% in the third quarter. That is the lowest level since 2001. This should help households fix financial damage from the recession, but with net worth 19% below its peak, it will take time.”

2010 in the Racing Industry: A Forecast

The racing industry in the United States needs to be evaluated in two time frames in order to consider what 2010 is likely to bring—the first half of 2010 and the second half of 2010.

The initial five or six months of 2010 is likely to see the economy gradually recover but with unemployment remaining high compared to historical standards. This will affect the breeding industry and early-in-the-year auctions.

Mare owners will be cautious in deciding whether to book mares until economic conditions become clearer, even though drastically reduced stud fees will help temper the perceived risk. The fact that the breeding season in the Northern Hemisphere lasts from approximately mid-February through mid-June, weighs against a robust recovery. Because of the amount of fiscal and monetary stimulus in the American economy,  growth is likely to be  faster in the second half of 2010 than in the first half, or after the breeding season is over. By contrast, the other component of the racing industry, pari-mutuel handle, can turn upward in a hurry once economic conditions improve, particularly a drop in unemployment. Also look for the late summer auctions to show better results.

The economy is not likely to come roaring back, but it is beginning to recover. A promising if modest sign is that retail sales, excluding automobiles and gasoline, from November 1 through Christmas Eve 2009 showed a 3.6% increase over the same period a year earlier. (After adjusting for an extra shopping day in the 2009 period, the retail sales increase was approximately 1%.)

Anyone running an equine-related company can look to the future with hope, but hope is not a strategy. Incorporate into your plans a lukewarm-growth scenario (perhaps 2.5%- 3% GDP for 2010 and a year-end unemployment rate of 8%) with a high probability of occurrence. Anything better will be a pleasant surprise, and you will still be in business.

Copyright © 2010 Horse Racing Business