TRIPLE CROWN REVIEW FROM A BUSINESS PERSPECTIVE

June 13, 2009 by

1. Television Ratings and Program Content

Two days prior to the Kentucky Derby, CNBC’s Melissa Francis anchored a one-hour primetime television program titled “Run for the Roses:  The Kentucky Derby and the Business of Horse Racing.”    The show was supplemented with four online vignettes hosted by Francis called, respectively, “The $4 Billion Industry,” “Online Betting,” “Big Hats and Strong Drink,” and “Jockey School.”

In addition, NBC and its cable channels promoted the Kentucky Derby and the Preakness on regular programming.   Jockey Calvin Borel, for instance, appeared on the Jay Leno Show.  ABC carried the Belmont telecast.

All of this favorable on-air exposure, especially by NBC, coupled with the attraction of Rachel Alexandra in the Preakness, had a desirable effect.   The race portion of the Kentucky Derby (6:09 PM – 6:57 PM) drew the largest audience since 1989 with 16.3 million viewers.   The national rating was 9.8 and the share was 23.    Each rating point equates to 1.145 million households and the share metric means that the Kentucky Derby attracted 23% of all the televisions in use during the telecast.   The audience is larger, of course, than the number of households as multiple people may be watching from each household.

Network television has, over the years, lost a huge portion of its audience to cable channels and the Internet.  The Triple Crown telecasts have followed the same precipitous declines.   Following are audience and ratings data for select years, as measured by Neilsen, for the Kentucky Derby.   The Kentucky Derby began a steep audience/ratings decline after 1975 and then the audience/ratings numbers began to rise after 2001.

Year        Viewers                             Household Rating                        Share of Audience

1975       26.74 million                               18.9                                                  54

1985        12.06 million                               10.9                                                 32

1995         8.13 million                                    6.0                                                 17

2000        7.93 million                                   5.8                                                  17

2005       13.58 million                                   9.0                                                 22

2009       16.30 million                                   9.8                                                 23         

The 2009 telecast of the Preakness had a rating for the race segment of the program of 6.8 and a share of 16, or 10.9 million viewers, up some 3 million viewers from 2008.   This was the best showing for the Preakness since 2004.   In 2009, the Belmont Stakes had no chance for a Triple Crown winner, unlike 2008, and the race segment of the telecast had a rating of 5.0.   This was a significant decrease from 2008, when Big Brown’s attempt to complete the Triple Crown registered a race-segment rating of 9.5.   However, compared to 2007, the last year with no Triple Crown sweep on the line, this was a respectable rating.   In 2007, the race segment had a rating of 3.1.

The reviews for the quality of the telecasts were overwhelmingly positive.   The program content was upbeat and interesting.    The colorful cowboys from New Mexico that brought longshot Mine That Bird, the likeable and emotional jockey Calvin Borel, and the filly Rachel Alexandra, all made for good television.  The only negative publicity surfaced when a couple of owners were revealed to be conspiring to keep the filly Rachel Alexandra out of the Preakness.

2. Wagering

Most racetrack experts expected the down economy to take a heavy toll on handle.   On the contrary, handle held up surprisingly well.   Betting handle was down just 0.1% for the Kentucky Derby, as compared to 2008, and off 4.1% for the entire race card.   For the Preakness, handle rose by 30% on the race and 18% on the 13-race card.    Betting handle for the Belmont was down from 2008, by about 10.2% from all sources.   Keep in mind, however, that 2008 had the second highest Belmont handle ever, both on-track and off-track.  Compared to 2007, the 2009 Belmont handle was up by 2%.

3. On-Track Attendance

Churchill Downs had its lowest Derby-day attendance since 2004, but still attracted a paid audience of 153,563 people.  On the other hand, the Preakness took a big hit.   The reported crowd of 77,850, 30.6% fewer attendees than in 2008, was the smallest number since 1983 and the first crowd under 100,000 since 1996.   As a result, in-state wagering on the Preakness declined by 15.1%, and this was attributable to a 30.6% drop in the on-track crowd.  The Belmont Stakes drew 52,861, which is much less than the 94,476 fans who paid to see Big Brown’s Triple Crown try in 2008.   A sharp drop-off was to be expected given that Mine That Bird had lost the Preakness and therefore could not be a Triple Crown champion.

The Maryland Jockey Club was accused of greed by a few sports writers for not allowing infield fans to bring in their own alcoholic beverages for the Preakness at Pimlico, and this policy no doubt kept away fans by the thousands.   Presumably, The Maryland Jockey Club rendered the policy in order to line its own pockets with the sale of beer, liquor, and wine.  No evidence was offered for this simplistic claim.

In reality, the alcohol issue is not a cut-and-dried decision.   On the one hand, Pimlico’s management wants to see a full infield, especially for the benefit of TV images.   On the other hand, management has a responsibility to provide a safe environment for attendees.   Pimlico could suffer considerably, from a monetary standpoint, should someone get badly injured in the infield while management stood by and let things get out of control.  Joe DeFrancis, a former owner of Pimlico, told the Washington Post:  “The fundamental problem is the full (beer) cans being used as missiles.”    Critics on the outside most likely do not know what Pimlico management was told by its attorneys and insurance companies about  infield-crowd liability or what they concluded on their own.   From a revenue viewpoint, the no-alcohol rule may be a loser, but a necessity unless some compromise can be found.

4. Conclusion

In the aftermath of the demise of Eight Belles in the 2008 Kentucky Derby, horse racing was roundly criticized from inside and outside the enterprise.   The public-relations fallout was considerable.   Then, the severe worldwide economic downturn took its toll on business per se and leisure activities like pari-mutuel wagering were affected greatly.   This combination of negative publicity and economic turmoil is a recipe for disaster.   Still, by any objective measure, whether it is TV ratings, betting handle, or on-track attendance, the 2009 Triple Crown race portfolio, on balance, performed way beyond what would be expected given the circumstances.

In my view, much of the credit goes to NBC, which did a superb job of promoting the Kentucky Derby through the CNBC one-hour special, in its Internet podcasts, with mentions on network and cable news programs, and via advertising.   This drove up ratings for the Kentucky Derby.  Underdog Mine That Bird’s improbable win, Calvin Borel’s appearance with Jay Leno, and the addition of the filly Rachel Alexandra in the Preakness fueled more interest.   Although there was no chance for a Triple Crown winner after the Preakness, ABC’s telecast of the Belmont had some draw because Calvin Borel had the opportunity to be the first jockey to win all three Triple Crown races on two different mounts.

With a mediocre economy and no Triple Crown to gin up an extraordinary climate of excitement, the business results from the three races were satisfactory, to say the least.

Copyright © 2009 Horse Racing Business

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MR. STRONACH STRIKES ANEW

May 30, 2009 by

Frank Stronach’s persistence in the face of adversity exemplifies what separates the most successful entrepreneurs from the pack.   In the wake of the bankruptcy of Magna Entertainment Corporation–when the assets have not yet been disposed of–Mr. Stronach is again playing a high-stakes game.   As chairman of Magna International, the Canadian automobile parts manufacturer that he started in a garage, he is poised to buy Opel from General Motors.   The Wall Street Journal (“Magna May Snag Opel”) of May 30-31, 2009, says:   “Grabbing Opel would give Mr. Stronach a victory to offset a recent defeat.   In March, Magna Entertainment filed for bankruptcy protection and now is trying to sell many of its tracks.”  

In Magna International’s first attempt to acquire an automobile company, it was the losing bidder to Cereberus Capital Management for Chrysler.   That turned out to be a case of being grateful that you did not get what you wished for.  Whew!

The tentative agreement would give Magna a 20 percent position in Opel.  Sherbank, the largest Russian state-controlled bank, would have 35 percent.   General Motors would retain 35 percent and Opel employees would get 10 percent.   The German government would provide (ostensibly) short-term financing of the euro equivalent of over $2 billion.

If Magna were to get Opel, the future would be fraught with risk.   Anytime a company engages in vertical integration it increases its vulnerabilities.   A good example, among many, is when PepsiCo got into the restaurant business by purchasing Taco Bell, Kentucky Fried Chicken, and Pizza Hut.   The theory behind the acquisitions was that the thousands of franchisees and company-owned outlets would be locked into using Pepsi soft drinks.   Trouble was, the deal put Pepsi in competition with its own customers, such as Wendy’s.   The late Dave Thomas, Wendy’s founder, was irate and kicked Pepsi out of his restaurants and replaced them with Coke.   Eventually, Pepsi divested itself of the restaurants, which are known today as Yum Brands, the world’s largest restaurant company and, coincidentally, sponsor of the Kentucky Derby.

Magna would be following the same treacherous path because its Opel brand would be competing with car companies that buy parts from Magna International.   Some of them may  be offended and/or  may not want to share plans for future car models with a parts manufacturer that happens to own Opel.

The Wall Street Journal opines that Magna faces the challenge of having the “marketing savvy” to compete in the retail automobile market.   Does this sound familiar?   The same concern was there when Mr. Stronach got into the retail horse-racing business.

Mr. Stronach could rest on his reputation and wealth from a long and distinguished business career.   But like most other high-rolling entrepreneurs, he won’t, or can’t.   Think about the audacity of the Opel venture.   A Toronto business tycoon in his seventies is the chairman of an auto parts manufacturer that is reeling from the depression in the North American car business.   He recently was forced to take another business, Magna Entertainment, into bankruptcy.   Now, instead of waiting out the storm, he is partnering with a Russian bank, far from Toronto geographically and culturally, to buy an automobile brand from a company, General Motors, that is on the verge of collapse and is a ward of the U. S. taxpayer.

I have spent my adult life around entrepreneurs who take the risks that keep the economy going and provide jobs for everyone else.   Mr. Stronach is as bold of an entrepreneur as they come and I admire him for it.

Although I have doubts about some aspects of the strategy behind his Opel venture, he has a reasonable shot of succeeding.   His background in automobile parts manufacturing provides him with far more expertise in running a retail business pertaining to horsepower of the mechanical genre than it did a retail business centered on equine horsepower.

Copyright © 2009 Horse Racing Business

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BOOK REVIEW OF “KEENELAND’S TED BASSETT”

May 30, 2009 by

Keeneland’s Ted Bassett – My Life
by James E. “Ted” Bassett and Bill Mooney
The University Press of Kentucky 2009, 406 pages

Even though Ted Bassett’s father worked for the famous Greentree Farm and Stud, owned by a branch of the Whitney family, and was a vice president and director of the Keeneland Association in its early years, Ted himself did not grow up in the horse-racing business, as he was away from his Bluegrass home for much of his youth.   Mr. Bassett was sent to boarding school in Connecticut at age 12 and then went to college at Yale.   After graduation, he served as a combat officer in the U. S. Marines during World War II.   Immediately following the war, he worked for the Great Northern Paper Company in Maine and New York City.   When Mr. Bassett and his wife, Lucy, finally decided to relocate to their native Kentucky, he did not become employed in the racing industry right away, albeit his wife’s family owned and raised Thoroughbreds in Woodford County.   Mr. Bassett became a racing executive when he was in his mid-forties, and his exemplary career lasted about four decades.

Prior to his going to Keeneland as an assistant to the president, Mr. Bassett served as Director of the Kentucky State Police.   In 1967, he commanded the force when they were called upon, in conjunction with the Kentucky Army National Guard, to make sure that the Kentucky Derby was not disrupted by civil rights protestors.

For people interested in the intricacies and challenges of the business side of horse racing, this book is full of examples and observations having to do with a variety of important racing enterprises.   Mr. Bassett was not an entrepreneur, but rather, was an implementor of ideas.  For instance, he played a key role in bringing the late John Gaines’ Breeders’ Cup concept to fruition.   Mr. Bassett was a leader and an executive par excellence with the Keeneland Association, the Breeders’ Cup, the Thoroughbred Racing Associations, Equibase, and the World Series Racing Championship.   This vantage point allows him to provide an insider’s views of his dealings with people ranging from royalty, sheikhs, and the director of the FBI, to blue-collar folks who worked at Keeneland.

However, this book is not a dry treatise on administering a racetrack, a sales company, and other racing-related ventures.   Mr. Bassett and Mr. Mooney inform the reader about Mr. Bassett’s years in boarding school, in college, during World War II, and so on through his life, with appealing and often self-effacing anecdotes.   For example, Mr. Bassett amusingly tells of the time that he reported his car as stolen, only to find out that it was not.   Shortly thereafter, he was stopped in his car by a Kentucky State Police officer because he forgot to rescind his earlier report.  This was an embarrassment, to say the least, for the former commander of the state police.   In another incident in England, Mr. Bassett dropped a trophy on his toe that he was presenting to a winning owner.   Adding to his chagrin, Queen Elizabeth II was looking on.   This faux pas turned out to be a blessing in disguise as it may have saved Mr. Bassett’s life.   The vignette recounts the fortuitous ending.

How Mr. Bassett and others raised the money to prevent the Calumet Farm trophies from being auctioned off in a bankruptcy proceeding is edifying.   Some of Mr. Bassett’s other fund-raising endeavors focus on non-racing institutions in central Kentucky and therefore may not be of interest to people outside that region.

Mr. Bassett candidly assesses the economics of horse racing today in the era of simulcasting, off-track wagering, slot machines, and intense competition for the entertainment and gaming dollar.   He discusses how his thinking has evolved on the issue of slot machines at racetracks.

Ted Bassett typifies what Tom Brokaw called “The Greatest Generation,” Americans whose attitudes and approaches to living were shaped as children and young adults in the crucible of the Great Depression and World War II.   While Mr. Bassett was from a family of some means, he nonetheless readily volunteered when his country needed him in war and did not spend those years in a cushy non-combat assignment.   Members of his generation, to which the rest of us owe so much for their sacrifices and service, are rapidly passing from life’s stage and it is fortunate that written remembrances like this one leave a record for posterity.

This book is very well written by Mr. Mooney in an easily readable and chatty format.   The text is replete with names of people, horses, and places, yet I only saw two misspellings of people’s names and one typo in the entire manuscript.

One of the book’s redeeming qualities is that a section called Chapter Notes provides sources used to ensure accuracy.   Like all memoirs, time can interfere with accurate recollections and Mr. Bassett and Mr. Mooney have been careful to check their facts.   For instance, they used photographs to see who was in the five-person bidding party on a high-priced yearling that was sold at Keeneland.

Mr. Bassett applied the principles and lessons that he learned as a young man to his career in racing, as well as to helping worthy non-profit organizations like the YMCA and hospitals.   He discusses his life philosophies and experiences without coming across as preachy or self-absorbed and he is forthcoming about shortcomings like his temper.

For those attracted to the business side of horse racing, Mr. Bassett provides a valuable historic record of a man with unique insights.   He was integrally involved  in some of the important racing decisions and organizations of the past four decades.  While younger people were not around during many of the events and times referred to the in the book, they still can learn from the candor of a man with a world of experiences to offer. 

Copyright © 2009 Horse Racing Business

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