Archives for August 2010

Reproduced by permission from the Blood-Horse.

The August 2010 Fasig-Tipton Saratoga Selected Sales had the lowest average purchase price since the 2002 edition.  However, in view of the macroeconomic environment in the United States and Europe, that result is not as negative as it appears to be at first glance.  The sale was held in a time of waning GDP in the U. S. (3.7% in the first quarter of 2010 versus a just-revised downward 1.6% in the second quarter), stubbornly high joblessness, record federal and state deficits, a languid housing market, and extraordinarily high uncertainty among investors about future fiscal and monetary policy.

Consider the 2010 sale in comparison to the previous nine sales—but do so within the context of the state of the overall economy in each of these years, as measured by U. S. Real Gross Domestic Product (inflation-adjusted and seasonally-adjusted), and also benchmarked against the annual percentage return for the S & P 500.

Year        Average      % Change   Median     % Change   Real GDP            S&P 500
                                                                                                                                         % Gain/Loss

     2010       $275,551       -16.1   $240,000      -4.0               2.65%*               0 .00**
2009        328,434          11.1       250,000       9.9                -2.6                      23.45
2008         295,738          2.2       227,500       0.0                 0.0                    -38.49
2007         289,310      -10.6       227,500     -7.1                   1.9                        3.53
2006         323,731          0.0        245,000      8.8                  2.7                      13.62
2005         324,417          6.5        225,000       5.9                  3.1                        3.00
2004         304,700       -2.8        212,500    -11.5                  3.6                        8.99
2003         313,357        24.5       240,000    33.3                  2.5                     26.38
2002         251,729      -34.7       180,000   -23.4                  1.8                    -23.37
2001         385,259        26.0       235,000     24.0                  1.1                   -13.04

*Average of the first two quarters of 2010
**Through August 3, 2010

 The 2001 sale had the highest average sales price in the past decade and was held two months prior to the terrorist attacks on the World Trade Center that wounded Americans’ collective psyche and put the economy into a tailspin.  Consequently, the 2002 sales prices were abnormally low, as reflected in the 24.5% rebound in the average purchase price in 2003. 

The 2009 sale was also atypical.  An associate of Sheik Mohammed of Dubai had recently acquired Fasig-Tipton and the Sheik was an active buyer at the high end.   Five yearlings sold for a million dollars or more (and three others received bids over $1 million but did not sell).  Four of these five were purchased by John Ferguson on behalf of Sheik Mohammed, including the sale topper at $2.8 million.  By contrast, in 2010, only one yearling sold for more than $1 million.

Sales metrics for the years 2002 and 2009 are clearly outliers.  When the 2010 results are compared to the other seven years in the past decade, the average and median figures from 2010 are not surprising, given that the U. S. economy began to falter in 2005, turned down in 2006 and 2007, and then tumbled badly in 2008 and 2009. 

For this decade, the Fasig-Tipton returns are consistent with the volatility shown in the performance of the S & P 500.  Further, the S & P 500 index stands today at a lower price than it did at the turn of the 21^st century.

Fasig-Tipton 2010 in Saratoga can be described as having a Goldilocks outcome, not too hot and not too cold.  In this global economy, that equates to high marks for management.

Copyright © 2010 Horse Racing Business

Like all racing fans, I would have enjoyed seeing Rachel Alexandra meet Zenyatta last year, particularly in the Breeders’ Cup Classic, and have the same feeling this year. However, if I were the owner of one of them I might take a different view. My goal would be to maximize the value of my filly or mare.

Following is my mostly unemotional, analytical assessment of how I would privately see things if I were Jess Jackson and owned Rachel Alexandra or, alternatively, were Jerome Moss and owned Zenyatta. What I say publicly might well contain some spin on what I really think deep down.

The Behind-the-Scenes Jess Jackson Perspective

I count my blessings that Rachel was voted Horse of the Year in 2009, given that Zenyatta was the first mare to win the Breeders’Cup Classic. I did not take Rachel to Santa Anita because of the synthetic surface, and especially I did not want her to compete against Zenyatta at 1 1-4 miles, and have to ship across country to an unfamiliar environment with a three-hour time differential that could have really thrown her off schedule. Curlin’s defeat the previous year at Santa Anita in the Breeders’ Cup Classic weighed heavily on my decision.

I knew that I would be accused of ducking Jerry’s mare, but that is criticism I was willing to take, particularly since Rachel’s undefeated performance in 2009 was so outstanding that I realized she could probably win in the voting for Horse of the Year without going to California. Wins in the Preakness and Woodward evidently persuaded enough Eclipse voters, especially because, candidly, many of them tend to have a bias for East-Coast runners.

I waited until 2010 to go to the Breeders’ Cup with Rachel, when Zenyatta would either be retired or a year older and hopefully have diminished skills. In 2009, taking on a 5-year-old with my 3-year-old was conceding too much maturity, and, remember, the 5-year-old was a phenom on her home turf.

My present concern, in late August 2010, is that, while Rachel is regaining some of her last year’s form–she won her two previous starts after finishing second twice–she does not quite seem to be her old self. I can’t say for sure, but I have a gnawing feeling, call it intuition, that Rachel is not at her best and may never be as strong as she was in 2009.

I definitely do not want to hook Zenyatta and colts like Blame and Quality Road at Churchill Downs in the Breeders’ Cup Classic at a mile and a quarter, even if it is on the dirt. That might be an eighth of a mile too far against formidable competition. I know Rachel won the Kentucky Oaks at Churchill Downs by a country mile in 2009, but that was against 3-year-old fillies. I can imagine Rachel and Zenyatta both getting beat in the Breeders’ Cup Classic against the colts, and then what have we accomplished? What would we gain if Rachel, say, comes in third and Zenyatta fourth? Nothing.

My most likely course of action for Rachel will be to give her an additional start–after the Personal Ensign–prior to the Breeders’ Cup and then opt for the Ladies’ Classic. This race puts her on dirt at 1 1/8 miles against fillies and mares. There is a lot to be said for the old racetrack adage to keep yourself in the best of company and your horses in the worst of company.

If the Zenyatta connections decide to put their girl in the Ladies’ Classic in order to provoke a showdown, I am not altogether confident that Rachel can beat her–nothing is certain in horse racing–but I feel pretty good about our chances; Zenyatta likely cannot get up to win at that distance, unless there is a blistering pace. In addition, my best guess is that, while Zenyatta’s connections will cross enter her in the Ladies’ Classic and the Breeders’ Cup Classic, they will in the end elect to put her in the Breeders’ Cup Classic. How do you bypass the biggest race on the card after winning it last year? You don’t, as I see it.

My strategy won’t get Rachel Horse of the Year for 2010, but we won it last year and I’ll still be able to claim, and rightly so, that she belongs in any conversation about the top fillies and mares of all time. Rachel could use a Breeders’ Cup win on her resume, as more icing on the cake, and the Ladies’ Classic is the best way to get it before she goes off for a date with a fast and handsome stallion early next year. The $1.2 million winner’s share of the purse would add nicely to her lifetime earnings. The only downside is if she were to get embarrassed in the Ladies’ Classic.

The racing press and the fans will howl when I announce that Rachel will not be taking on Zenyatta in the Breeders’ Cup Classic, but so be it…I am doing what I know is best for my filly.

I’ll consult Steve (Asmussen), of course, as we go along about what he thinks. He knows Rachel better than anyone and, if he gives the green light for the Breeders’ Cup Classic, believes we have a great chance to win, I might change my mind. Let’s see how dominant she is in the Personal Ensign a week from now. She’s got to win that race convincingly.

The Behind-the-Scenes Jerome Moss Perspective

After Zenyatta won the Breeders’ Cup Classic in 2009, I was pretty burned up that she was denied Horse of the Year, but, of course, I did not show that publicly. In my view, Jess Jackson was scared to confront our mare, which is why he did not bring her to Santa Anita. But I confess that I might have done the same thing if I were in his shoes.

The Breeders’ Cup bills its year-end race extravaganza as the “World Championships.” If that is so, why wasn’t the Classic winner also Horse of the Year in her own country? To digress slightly, where does this leave Sea the Stars in the pecking order? This “World Championships”  label is mostly hyperbole, I’d say. Hong Kong also claims to have the “World Turf Championships.” Let’s not turn racing into the WWE or boxing.

The powers that be need to install a point system for Horse of the Year so that owners know where they stand and what they have to do to increase their chances.

Out West here, we think that there is a condescending attitude in the Eastern Thoroughbred establishment that if you don’t win at Belmont and Saratoga, you are not fully legitimate. I am told that when Swaps beat Nashua in the Kentucky Derby way back in 1955, the Eastern press wrote it off as a fluke. When Nashua smoked a hurting Swaps in the winner-take-all match race in the late summer of 1955, the New York sports writers acted as though the planets were back in proper alignment. Sunday Silence got a better reception coming off the Left Coast in 1989, mainly because he was partly owned by Arthur Hancock, but even there Easy Goer was looked upon by the Eastern establishment as the Nashua of his day. They never really accepted that Sunday Silence was better, even though he was three for four against Easy Goer.

Your horses’ credentials are suspect if he or she is a West-of-the-Rockies runner. I chose not to fall for the bait to bring Zenyatta to Saratoga for the Personal Ensign on August 29. There was no need to do so–if we can win the Breeders’ Cup Classic at Churchill Downs, all will be forgotten and our mare will be voted Horse of the Year.

I can run Zenyatta in the Ladies’ Classic or the Breeders’ Cup Classic. There is absolutely nothing to be gained from the former and, in fact, there is much to lose. If we beat Rachel Alexandra, that will not ensure that my mare will be Horse of the Year. Yet if Jess’ filly beats us, she will be declared to be the better racehorse—and “they” will say she was all along.

The Breeders’ Cup Ladies’ Classic is a trap race for us, everything to lose and not much to gain. Moreover, between you and me, I harbor doubts that Zenyatta can beat Rachel–or even a couple of the other fillies and mares–at 1 1/8 miles on the dirt. My mare needs that extra furlong.

If Zenyatta is to get beat, let it be by males on the dirt at 1 ¼ miles. We can always live with the fact that she shipped across country, took on males on dirt at a classic distance, maybe on a cold and bitter day to boot, and lost her only race ever. And there is a good chance that she can close to beat Blame, Quality Road, and the others, and join Tiznow as the only two-time winner of the Classic.

John (Shirreffs) has done a masterful job of keeping my mare on top of her game for several years. If he says she is fit and ready, we will take on anybody’s horse at any venue…as long as it is at least at a mile and a quarter.

Will It Be Logic or Emotion?

You might argue with my thinking, and please have at it. However, if my business-oriented logic prevails, look for Zenyatta in the Breeders’ Cup Classic and Rachel Alexandra in the Breeders’ Cup Ladies’ Classic. On the other hand, if the sportsman side of Jess Jackson prevails over the business side and he decides to throw caution to the wind and go for it all–increasing the risk that Rachel Alexandra will not ever have a Breeders’ Cup win to her credit–Rachel Alexandra and Zenyatta will take on their male counterparts in the Breeders’ Cup finale. Barring injury or illness, both of these great gals should be in Louisville.

(Thanks to Messrs. Jackson and Moss for leaving these exciting racehorses in training. You both have the best interest of racing at heart.)

Copyright ©2010 Horse Racing Business

Several weeks ago, I spoke at the National Horsemen’s Benevolent and Protective Association summer conference in Minneapolis that was held in conjunction with the Claiming Crown at Canterbury Park. The panel I was on was titled “The Future of Racing.” The other participants in this session were: Robert Reeves, Executive vice president of the Ohio HBPA, who chaired the session; Randy Sampson, president of Canterbury Park; Joe Santanna, president and chairman of the board of the National HBPA; and Greg Nichols, the Managing Director of Sporting Affairs for Betfair.

Following is a summary of my presentation, with a few additional points.

A Warren Buffett quote describes how he searches for companies to invest in: “In business, I look for economic castles protected by unbreachable moats.” He is referring, of course, to entry barriers. Not many companies in this day and age have a reliable moat, as today’s winner can rapidly be displaced, especially technologically. The current Fortune magazine (August 16, 2010) has a cover story that asks: “Is Google Over?”

For years, racing’s moat around its economic castle was its favored status as a government-protected quasi-monopoly. Racing’s moat was breached, for sundry reasons. Six of the most important ones are:

• Failure to embrace TV in its early years.
• Traditionally poor racetrack marketing.
• Proliferation of alternative forms of gaming and entertainment.
• Inordinately high takeout on North American wagers compared to competitive products and what is offered offshore.
• Availability of illegal gaming via the Internet.
• Chronic unemployment among adult men, racing’s core market for pari-mutuel handle.

Racetrack management’s answer has been diversification into alternative gaming and other types of entertainment. Churchill Downs, for example, has extended its product line into alternative gaming and has opened a new entertainment division that stages concerts (the most recent concert lost $5 million).

The bloodstock side of the racing industry should not proceed on the assumption that the interests of racetracks are aligned with racehorse owners and breeders. Racetracks’ overriding objective is shareholder wealth maximization, which may relegate racing to a second-class status or even lead to its elimination. Penn National, to illustrate, began as a racing organization but has transitioned into a casino company.

Alternative gaming at racetracks is a necessary but temporary answer to racing’s problems. Racing’s reliance on alternative gaming to subsidize purses will be unsustainable because racino owners and state governments will eventually curtail or eliminate the largesse.

When slots are introduced at racetracks, research shows that racing handle typically declines by 20% to 40%. If racinos were later to quit subsidizing purses, the dangers to pari-mutuel handle are evident.

There is no panacea for revitalizing betting on horse racing. Multiple steps are needed to attract new players and fans. People who are self-professed fans of racing are a very small percentage of the U. S. population, perhaps one percent. This is not a strong showing but, on the positive side, there is plenty of room to gain market share.

Here are some very abbreviated suggestions on how to expand the sport and handle.

1. Sell racing as a gambling product, especially online, because this drives handle and purses. Las Vegas tried the family-oriented approach, but later retreated to the suggestive theme “What happens in Vegas stays in Vegas.” Harrah’s became a rousing success under former Harvard Business School marketing professor Gary Loveman by implementing sophisticated data mining to target customers, carefully tailoring appropriate value propositions. Woodbine has recently demonstrated the effectiveness of selling the gambling aspects of horse racing.

2. Position racing on television as a sport, where, unlike at the racetracks, women and children comprise a significant audience.

3. Go hard after the right target markets. For instance, aficionados of fantasy sports are a fertile demographic for racing. The profile of a fantasy sports enthusiast is a 37-year-old male with an annual household income of $94,000. The data-intensive nature of fantasy sports is right in line with the massive handicapping data available in horse racing. Fantasy sports are exempt from the Unlawful Internet Gambling Act of 2006.

4. Craft pari-mutuel products for people who know little or nothing about racing. Instant racing, for instance, appeals to people who like electronic games of chance and the Swedish experience with its weekly V-75 bet in attracting lottery players to betting on racing is proven. A V-75 type wager (a pick-7 with at least 12 entries in each race) with races for first-time starters and cheap claimers has so many permutations and is so hard to handicap that professionals do not have that much of an advantage over amateurs. This means that a Steve Crist (of the Daily Racing Form) won’t win every week.

5. Experiment with drastically reduced takeout and embrace betting exchanges. Churchill Downs or Penn National could experiment with a single-digit takeout at one of its racetracks for perhaps a year to determine how handle would respond. The fact that New Jersey is pursuing the legalization of a betting exchange for its citizens demonstrates that betting exchanges may not be confined to Europe. While betting exchanges will undoubtedly cannibalize pari-mutuel betting on win and place bets, it will create new players, who will wager on pari-mutuel exotic bets (betting exchanges only accept win and place bets).

6. Hold racing cards more at night. I wrote an article for The Blood-Horse in 1993 titled “Nighttime is the Right Time” in which I advocated more night racing. The recent experience of Churchill Downs has shown that big crowds are possible on Friday and Saturday nights. Look for a prime time Kentucky Derby and/or Breeders’ Cup in the not too distant future. The Breeders’ Cup should definitely go that route on Friday night, rather than hopelessly try to compete with college football on television on Saturday afternoon or night.

7. One issue that I did not talk about at the HBPA meeting  is medication. Until American racing uniformly adopts the much more stringent rules of Europe, it will be difficult to counter the often-conveyed impression that racing in the USA depends on crippled and drugged horses that are ultimately sold off to slaughterhouses. Horses breaking down is no way to cultivate fans. The drugs and thugs need to be run out of racing, even if it means that some racetracks that depend on bottom-level horse talent cannot survive. A smaller and cleaner industry is preferable to what we have now.

8. Hire the most capable person feasible to fill the role of chief racetrack marketing executive, which is often not the case. It is a critical position, the most important in fact in attracting patrons. Make sure the person is highly analytical, skilled in using market research,  data-driven, and knowledgeable in information and communications technologies and customer service.

The future of racing in the United States cannot be generalized about. By that I mean racing will not have the same fate everywhere. Some venues will do well and others will falter because individual states have different policies and attitudes toward the sport/business and some racetracks are much better than others at marketing the sporting/gaming proposition.

A final thought: My impression is that the National HBPA and its state affiliates are organizations with dedicated officers and staff who are truly working for the benefit and welfare of their members.

Copyright ©2010 Horse Racing Business