Wednesday, 30 December 2009

Angelos Joins Jeff Seder in Maryland Bid

Blow Horn Equity LLC, headed by Jeff Seder, who founded and runs the bloodstock advisory firm EQB, Inc., has just announced that Baltimore Orioles owner Peter Angelos and family will be joining forces with Blow Horn Equity to bid for the Maryland Jockey Club properties now owned by Magna Entertainment. The auction is scheduled for January 8th in federal bankruptcy court.

According to a press release issued this afternoon, the joint Blow Horn Equity - Angelos family bid will go forward despite the ongoing uncertainty over whether the slot machine license earmarked for Anne Arundel County, where Laurel Park is located, will be awarded to developer David Cordish's Arundel Mills shopping center, just up the road from Laurel. The slots license had been intended for Laurel, but Magna generalissimo Frank Stronach decided he could ignore the rules and didn't pony up the required deposit with his application. As a result, the state had no choice but to accept the competing bid from Cordish, a decision that has now been confirmed by the Anne Arundel county government.

While the bidders would certainly like to have the slots decision overturned -- and Angelos is a prominent player in Maryland Democratic circles -- they say the bid is based on racing, not slot machines. Of course, the MJC properties -- Laurel, Pimlico and the Bowie training center -- are worth a lot less without the operator's share of the slots revenue.

Angelos is a Baltimore trial lawyer who got rich representing plaintiffs in major asbestos, tobacco and diet-pill cases. In 1993, he led the investor group that purchased the Baltimore Orioles, and in 1998 he bought the 237-acre Ross Valley Farm in Baltimore County for his thoroughbred breeding and racing operation.

With Angelos' financial muscle, plus the private equity funds pulled together by Jeff Seder in Blow Horn Equity, the group seems in position to make a credible bid at the bankruptcy auction.

Let's hope so; they're the only potential bidders I can see who actually know something about racing.

Monday, 28 December 2009

There They Go Again - NYRA Takes on NY State

New York State Comptroller Tom DiNapoli, the state's chief fiscal officer, has subpoenaed the books and records of the New York Racing Association (NYRA), as first reported in the NY Daily News, and later in the Blood-Horse. Like many others, DiNapoli is presumably curious as to how NYRA spent the money that it received from the state as it came out of bankruptcy in 2008.

As NYRA points out in its press release, hurried onto its website late this afternoon, the Comptroller's apparent surprise that NYRA is now running out of money is a little disingenuous. The original bankruptcy rescue plan anticipated that slot machines -- approved by the NY Legislature back sometime in the Jurassic (well, actually, it was 2001) -- would be up and running at Aqueduct by April of 2009. As we all know, that hasn't happened, and the blame lies largely in Albany, where the hapless "leadership" of the State Senate, together with the incompetence of the Governor's office and the business-as-usual non-action by Assembly Speaker Shelley Silver has meant that we don't even have an operator named for the Aqueduct slots operation, much less shovels in the ground or slot machines actually operating.

So it's not surprising that money is tight at NYRA. Handle is down, as elsewhere in the country, and purses are being cut, beginning with the upcoming 2010 Aqueduct meet. NYRA CEO Charlie Hayward may well be correct when he says that NYRA will run out of money sometime this Spring; the Belmont spring meet always loses money, because of the expensive stakes schedule that makes the meet such an artistic success. Over the years, NYRA's big money-making meets have been Saratoga and, somewhat surprisingly, the Aqueduct winter meet, the latter probably because purses are low, and the meet has an excellent off-track following, at OTBs and across the country at other tracks and ADWs. So it's likely that NYRA will limp through the winter (I certainly hope so; my partnership has two nice NY-breds who'll be running at Aqueduct), and maybe even make a small profit. But, come April, with the Belmont opening in sight and no slots at Aqueduct, another transfusion of dollars seems inevitable.

But if that's so, then why can't Charlie Hayward and Steve Duncker (NYRA Chairman), just open up the books to the state comptroller and show the reality? The state has been a very good friend to NYRA, and it seems, to say the least, a bit ungrateful not to cooperate with a perfectly reasonable request to take a look at the books and see what happened to the state's money since NYRA emerged from bankruptcy.

In its press release -- obviously drafted by a lawyer, not anyone with the slightest political sense -- NYRA makes three points: (1) the money it received from the state through the bankruptcy process wasn't a "bailout," but was really payment for the land underneath the race tracks; (2) NYRA's already regulated by lots of different agencies, so there's no need for the Comptroller's office to poke around in the books, and besides, 11 of the 25 NYRA Trustees are, one way or another, appointed by the government; and (3) there's a NY constitutional prohibition on the Comptroller's auditing of not-for-profit corporations; that job falls to the state's attorney general (Andrew Cuomo) as part of his responsibility for supervising charities.

Let's take these one at a time. First, the land. In the bankruptcy proceedings, NYRA always claimed that it owned the land. The state, through its lawyers, originally took the position that, thanks to prior bailouts, NYRA was already, in effect, a state agency, so that the land already belonged to the state. That issue was never decided by any court. In the end, NYRA agreed to turn over the real estate deeds to the state, and the state agreed to pump lots of money into NYRA. That's all. How each side characterized the transaction doesn't mean that's the legal reality of it. At best, NYRA's claim here is unproven.

Next, what about the claim that NYRA is already regulated enough? The simple answer is, so what? In its press release, NYRA notes that it's subject to oversight and regulation by the NY State Department of Taxation and Finance, by the State Racing and Wagering Board, and by a mostly comatose organization called the State Franchise Oversight Board. You know what, I don't see any reference to, say, the Securities and Exchange Commission, the State Lottery Division, or a whole host of other possibly irritating state agencies. That's not to say that NYRA should be regulated by more entities, but, hey, you're in the gambling business; regulation comes with the territory. Presumably NYRA does have financial records, and presumably they show that it's been conducting its business in a reasonable fashion. If not, then the $125,000 a month that NYRA has reportedly been paying its "integrity monitors." the law firm of Getnick and Getnick, would represent a colossal waste of money. Saying no to the Comptroller just makes you look guilty; if NYRA has nothing to hide, why not just open the books?

Third, NYRA relies on a recent decision by the NY Court of Appeals, the state's highest court, that said the Comptroller did not have the authority to audit the operations of not-for-profit charter schools, even though those schools were receiving public money. That may well be correct, as a matter of law. As a matter of politics, it's among the stupidest positions NYRA has ever taken, perhaps rivaled only by the decision in the 1970s not to operate off-track betting. As every decent lawyer knows, just because you may be right on the law doesn't mean you should go to court. Sometimes the best policy is the one that improves your long-term position, not the one that vindicates every single legal "right" that you might claim.

Cooperating with the Comptroller will, if I'm right about NYRA's finances, show conclusively that NYRA does need more money -- a situation attributable entirely to the state's own delay in getting the slot machines started. I can't imagine why NYRA would not want to do that. Unless, of course, there's something to hide. And, if NYRA's right on its legal claim that the proper oversight authority is the Attorney General, not the Comptroller, will NYRA then comply with a subpoena from Andrew Cuomo for the same books and records that it says Tom DiNapoli can't have? Somehow I doubt it.

Charlie and Steve: you guys have got to stop listening to the lawyers. Just do the right thing.

Saturday, 26 December 2009


It is obvious that both the offline and online news providers are in the midst of substantial transformation and that the traditional means of funding operations are no longer as viable as in the past. This is disturbing to the industry because it has enjoyed several decades of unusual financially wealth and few in the organizations know how to find and generate new sources of revenue.

The financial uncertainty facing the industry is not unusual, however. We tend to forget that news has historically been unable to pay for itself and was subsidized by other activities. In the past newspapers and other news organizations engaged in a far larger range of commercial activities than then they do today and publishers had to be highly entrepreneurial and seek income from a wide variety of sources in order to survive.

The initial gathering and distribution of news was paid for by emperors, monarchs, and other rulers who needed information for state purposes. Later, wealthy international merchants hired correspondents to gather and relay news that might affect their businesses. When news became a commercial product, newspaper publishers subsidized the operations with profits from printing books, magazines, pamphlets, and advertising sheets, income for editors from shipping and postal employment, profits from operating book shops and travel agencies, and subsidies from communities and political and social organizations.

Today, however, news organizations are struggling to maintain themselves and develop digital operations by primarily focusing on the two revenue streams they have known in recent decades: subscriptions and advertising. Many people are being disappointed because those are failing to provide sufficient financial resources to sustain their operations.

The need to seek income from multiple sources is clear, but runs somewhat counter to the values of twentieth-century professional journalism, which denigrates commercial activity and thus engenders organizational resistance to new business initiatives. Continuing staff reductions and other budgetary cutbacks are eroding some internal opposition, but are rightfully leading to questions about how far one goes down the commercial road before news gives up its independence.

In both the online and offline news worlds, a wide variety of revenue generating activities are appearing—some based on traditional subscriber/single copy sales and advertising sales—but many others moving into new areas of monetization.

Many news organizations are increasing the range of advertising services provided to sell and create ads for their own media products, but also to provide clients services that can be used in competing products as well. New types of advertising offerings are being created to link across platforms, sponsorships of online and mobile news headlines are developing, video advertising is being offered online, and special “deals of the day” advertising spots are being offered.

Some organizations are increasing their product lines producing paid premium products and niche content for professional groups and persons with special interests; some are providing business service listings for a fee; others are creating a variety of non-news products; still others are operating additional business units creating paid events, running caf├ęs, book and magazine shops, and providing training and education activities.

Sales of other products and services are being increasingly embraced through e-commerce (linking published reviews films, performances, and recordings to sites where customers can buy tickets, DVDs, CDs, etc.), creating and selling lists and databases of local businesses and consumers, producing special reports and books, selling photographs and photography services, and even selling items such as computers and appliances.

A growing number of news organizations are seekings subsidies though reader memberships and donations and grants from community and national foundations.

These are healthy developments because they increase the opportunities to create revenue that can fund news activities. Obviously, the abilities and willingness of different news enterprises to engage in the range activities vary widely, but the fact that they are appearing show that news organizations are beginning to adjust to the new environment and becoming more entrepreneurial than they have been for many decades.

What is needed now is not knee-jerk opposition to these efforts from news personnel, but thoughtful development of realistic principles and processes to minimize any negative effects of these new initiatives on news content so that trust and credibility are not diminished.

Monday, 21 December 2009


An important contemporary development is the shift of media market definitions from traditional platform-based definitions to functional definitions. This is occurring because media product platform definitions are losing their specificity and uniqueness due to digitalization and cross-platform distribution developments.

Newspapers are becoming news providers, delivering news and information via print, online, mobile, and other platforms; broadcasters are moving off the radio spectrum, exploiting not only other streaming and video-on-demand opportunities, but also text-based communication on web and mobile platforms.

Although functional definitions clarify what companies actually do, they obscure wide differences in audiences, business relations, and revenue sources on the different platforms and give some the mistaken impression that a functionally defined operation can be successful operating the same way across the different platform environments. The functional definition is also confusing some policy makers and regulators concerned with effects of cross-media activity, consolidation, and concentration who do not carefully sort out the different elements of product and geographic market definitions among the platforms.

From the business standpoint, the fundamental problem of the functional definitions is that it leads many content providers to believe they can simply repurpose existing content across platforms. They are happy to do so because the marginal cost is near zero, but they ignore the facts that it also commoditizes the content, that the content losses uniqueness, and that similar presentation may not be appropriate on other platforms. Consequently, the repurposed content can produce only a small marginal increase in revenue.

To ultimately be successful in functional markets, companies need to offer a good deal of new content and launch new products on the new platforms rather than merely reusing what is already there in the traditional ways. Leading cable channels, for example, early in their development relied on motion pictures and syndicated programs previously shown on network television, but soon realized that they needed original programming to attract better audiences and gain additional revenue. Financial newspapers have begun to get it right on the Internet, offering more content and tools than in their print editions and establishing specialized niche products for different types of industry and business readers.

We are all watching to see who among general content providers manages to get their functional approach to markets right using the Internet, Mobile, e-Readers, and other platforms.


There is a growing chorus for governments to help established media transform themselves in the digital age. From the U.S. to the Netherlands, from the U.K. to France, governments are being asked to help both print and broadcast media innovate their products and services to help make them sustainable.

State support for innovation is not a new concept. Support of cooperate research initiatives involving the state, higher education institutions, and industries has been part of national science and industrial policies for many decades. There has been significant state support for innovation of agriculture/food products, electronics, advanced military equipment, information technology, and biomedical technology and products.

State support tends to work best in developing new technologies and industries and tends to focus support on advanced basic scholarly research through science and research funding organizations, creation and support for research parks and industrial development zones for applied research, and incentives and subsidies for commercial research and development.

Many governments also support efforts to transform established industries. These are typically designed to promote productivity and competitiveness as a means of preserving employment and the tax base. In the past there has been some support for technology transfer from electronics and information technology to existing industries and for retraining, facilities reconstruction, and entering new markets.

Trying to apply those kinds of research and transformation policies in media is challenging, however, because much of media activities tend to be non-industrial and are dependent on relatively rigid organizational structures and processes that are difficult to change. These factors are complicated by the facts that media engage in negligible research and development activities, have limited experience with product change and new product development, and tend to have limited links to higher education institutions.

It is clear that a growing number of managers in media industries understand the need for innovation because of the declining sustainability of current operations and because Internet, mobile, e-reader, and on-demand technologies are providing new opportunities. The real innovation challenges in established media, however, are not perceiving the need for change or being able to get needed technology, but organizational structures, processes, culture, and ways of thinking that limit willingness and ability to innovate. This is compounded because many managers are confused by the opportunities and don’t know what to do or how pursue innovation.

Today, the innovation challenge facing media—especially newspapers--is not mere modernization, but fundamentally reestablishing their media functions and forms. What is needed is a complete rethinking of what content is offered, where, when and how it is provided, what new products and services should be provided and what existing ones dropped, how content will differ and be superior to that of other providers, how to establish new and better relationships with consumers, how the activities are organized and what processes will be employed, what relationships need to be established with partners and intermediaries, and ultimately how the activities are funded.

The state’s ability to influence media innovation of this type is highly constrained. Governments worldwide have proven themselves ineffectual in running business enterprises and they have limited abilities to affect organizational structures, processes, culture, and thinking in existing firms. What governments can do, however, is to fund research that identifies threats, opportunities and best practices, provide education and training to promote innovation and help implement change, offer incentives or subsidies to cover transformation costs and support new initiatives, and help coordinate activities across industries.

These kinds of support will be helpful, but they will not be a panacea because the greatest impetus for and implementation of change and innovation must come from within companies. The support will only be helpful if companies are actually willing to innovate and change to support that innovation. The extent they are willing to do so remains to be seen.

Saturday, 19 December 2009

No Christmas Business, But...

Hello Show Attenders,

Following a spectacular Holiday Spectacular show with THREE guests (Louis Katz, Amy Dresner and Chris Thayer), The Business will be dark for the Christmas holiday week. However, we will be back for a big New Years Eve Eve show on Wed Dec 30th 2009. No secrets revealed yet, but plans are in the works for some knockout guests.

...and as Jan crests on the horizon, The Business is proud to ba a part of SF Sketchfest 2010 on both Thur Jan 21st and Friday Jan 22nd. Still at the Dark Room, but joined by new guests and other great sketch groups. Check for more details. These will be the only Business shows until February, so come by and get your Biz Fix.


The Businessmen

Friday, 18 December 2009

A Bid That Could Save Maryland Racing

Details have not yet been made public of the initial bids, submitted last week, for the assets of the Maryland Jockey Club -- Laurel, Pimlico and the Bowie training center. And the final auction -- assuming anything's ever final in the ongoing saga of the Magna Entertainment bankruptcy -- won't be held until January 8th. We know that bids are in from real estate developer Carl Verstandig, partnering with a California gaming company, from the Cordish Co., which operates the Arundel Mills mall near Laurel, and from the De Francis family, whose prior stint at the helm of the MJC was somewhat less than stellar. And we suspect that, one way or another, Farnk Stronach will try to hang onto the tracks, either using his personal money or, if he can get away with it, using funding from one of his tame subsidiary corporations, at the usual expense of minority shareholders.

For those of us who would like to see racing continue, and even thrive, in Maryland, none of these bids exactly makes the heart go pitty-pat. Stronach and Joe De Francis have already demonstrated their incompetence, and both Cordish and Verstandig are completely unknown quantities in racing; one always suspects that a developer buying a race track is a lot more interested in its real estate value than in the racing itself.

But there is one bid that might actually make a difference. Blow Horn Equity LLC, headed by Pennsylvania horseman Jeff Seder, announced today that it had submitted a fully funded bid for the MJC properties. It's one of the more exciting ideas that I've seen for actually reviving racing.

Jeff is the founder and CEO of EQB, Inc., a racing advisory service and bloodstock agent based in southeast Pennsylvania. EQB has pioneered the use of a number of scientific techniques for analyzing race horse prospects, including heart scans and, for the two-year-old sales, gait analysis using slow-motion video. Jeff and his colleague Patti Miller have advised most of the country's leading owners, and have selected for purchase many many Grade I and Breeders Cup winners. There's more on EQB, Jeff and Patti here.

[Disclosure: I'm a friend of Jeff's and Patti's and, for the past several years, have played a minor role in their selection of yearlings at the Keeneland September sale.]

he Blow Horn Equity proposal -- the company is named for the highly dangerous Blow Horn Corner near the EQB office -- is funded by private equity, and, like the De Francis proposal, is based on having slot machines (or, if you prefer, video lottery terminals) at Laurel Park. Both bidders assume that the award of a slots license to the nearby Arundel Mills mall can be derailed, either by having the county government refuse zoning permission or by the state's reopening the licensing process. The only reason the license wasn't awarded to Laurel in the first place is that Frank Stronach thought he was above the law and didn't bother to submit the required cash deposit with his bid. Even without specific knowledge of the bids for the MJC, there's substantial opposition to awarding the license to Arundel Mills, which already has a pretty high incidence of crime, not likely to be lessened by the presence of the slot machines.

Under the Blow Horn Equity proposal, a temporary slots facility, with 2,375 machines, could be up and running within six months' of the award of the license, and a full-scale casino would be ready within three years. Considering that New York has now been waiting more than eight years for slot machines at Aqueduct, that's not a bad timetable. Estimated revenue from the slots, to be shared between the state, purses and the breeding program, would be $350 million in the first two years and up to $500 million once the full-scale casino was operating. Even a modest portion of that for purses and for breeders would probably keep Maryland racing alive and healthy.

What makes the proposal exciting, though, is that Jeff is one of the few people in racing who's able to think outside the very small box of received ideas. He's had substantial business experience, as CEO of a textile company and of a Southern California department store chain, in each case engineering turnarounds that left floundering companies newly profitable. And he has a far better record as a money manager, for trusts and pension funds, than most of the folks on Wall Street. He's also a pretty smart guy, with a B.A., a law degree and an M.B.A., all from Harvard, and over 30 years of involvement in scientific analysis of race horse performance.

Jeff's also the founder of the Big Picture Alliance, a foundation that trained over a thousand inner-city Philadelphia teens in video and film techniques and produced over 250 films, not to mention the effect it had on keeping a good number of those kids in school and on the path to productive lives. One can guess that he'd have some useful ideas for involving the similar population in Baltimore that lives around Pimlico.

At this point, I haven't discussed with Jeff any specific ideas for upgrading the Maryland tracks, or for attracting new racing fans. I do know that, if any of the bidders for the MJC properties are able to come up with new ideas that will reinvigorate the spot, he's the one most likely to succeed. Let's hope the bankruptcy court comes to the same conclusion.

Saturday, 12 December 2009

The Bids are in for Maryland Tracks

Yesterday was the final date for interested parties to submit bids for the Maryland Jockey Club piece of Frank Stronach's bankrupt Magna Entertainment empire, comprising Pimlico and Laurel race tracks, the Bowie training center and an OTB. According to the Baltimore Post, one of the bidders is none other than the same DeFrancis family that owned the tracks prior to their sale to Stronach in 2002 and that, to be kind, is viewed with less than total love and affection by most in the Maryland racing community.

The names of all the bidders will be forwarded to Maryland state officials on Monday, but we already know that there's a competing bid from real estate developer Carl Verstandig, in partnership with an unnamed California gaming entity. Among other possible bidders are the family of Peter Angelos, the owner of the Baltimore Orioles, and a group headed by a well-known racing industry figure from Pennsylvania. And there's always the specter of Frank Stronach himself cobbling together some kind of bid, using either his own personal money -- which he may have more of now that General Motors has cancelled his deal to buy Opel -- or once again using his various controlled corporations to pony up the needed cash, at the expense of minority shareholders.

Other potential bidders have been mentioned from time to time, but as of now there's no definite information that any of them submitted bids by Friday's deadline. The actual bankruptcy court auction is scheduled for Friday, January 8th, which will give Maryland a bit of time to exercise its right to match the winning bid. Not that I could imagine any state government paying to buy racetracks in the current economic squeeze. But the state's primary concern is keeping the Preakness in Maryland, and that should be reasonably secure with any bidder -- except, of course, Stronach himself, who, to borrow a term from cycling, is "beyond category" when it comes to unpredictability.

I've raced horses at Laurel and Pimlico, and I've been to the Preakness a few times. For those who don't know the tracks, Laurel is a workmanlike, perfectly satisfactory second-tier race track on the Baltimore-Washington corridor, near enough people to make a go of it with fewer racing days, better promotion and, of course, a share in the slot-machine revenue that will start flowing relatively soon.

Of course, Stronach managed to screw up the slots deal too, by deciding that he didn't have to comply with the rules saying his slot application for Laurel should be accompanied by a check for the deposit. You know, like putting some money down when you buy a house or a car. Oops, sorry, I guess people don't do that much anymore, but you get the idea. As a result, the license for nearly 5,000 slot machines went instead to the Arundel Mills shopping center, just up the road from Laurel, although that deal is currently mired in zoning conflicts. Shopping center tycoon David Cordish, who heads the group that's tentatively been awarded the slots license, was also rumored to be among the potential bidders for the Maryland Jockey Club assets in the bankruptcy court auction.

But let's assume -- which I know may be unreasonable in Maryland politics -- that a deal can be worked out whereby some of the slots revenue goes to support Maryland racing, which is on life support and which might well die without some sort of cash infusion. Lots of Maryland horse farms have already been sold or converted to other crops, and stallions have been leaving the state for the greener pastures of Pennsylvania, and along with those farms and stallions go the jobs of the people who take care of the horses and the traditions of Maryland racing that go back at least to the 18th century. Shame on both Stronach and Joe DeFrancis for letting things reach this point.

Pimlico is, to put it kindly, a bigger challenge than Laurel. The track is located in an African-American neighborhood northwest of downtown Baltimore, and affluent white would-be racegoers use the location as an excuse not to go, just as whites in Miami stopped going to Hialeah once the neighborhood around that track became predominantly Hispanic. And the track itself needs a total makeover; the barns and backstretch are run down, and the grandstand makes Aqueduct look like a luxury resort.

But with a bit of vision, a little of the slots money, and a reduced racing calendar, Pimlico might well be brought back to something approaching its glory days. There's decent public transportation, a glorious history, and a neighborhood where jobs aren't all that easy to come by. A smart track operator would make Pimlico more a part of its community, engaging the people who liove near the track as both employees and racegoers, and making going to the races once again the thing to do for Baltimoreans. That probably means running only on Friday nights and weekends, but that's a whole lot better than closing the place down.

Presumably we'll see in the next few days what the various bidders are offering, and how the legal issues surrounding the slot-machine revenue will play out; DeFrancis managed to get Stronach to give him a share of future slots money, when Stronach bought the Maryland tracks in 2002. That deal, if it's not undone by the bankruptcy court, would severely hamper any new owner's attempts to rebuild racing in Maryland. Let's hope the court does the right thing and cancels the contract. If it does, then a new operator -- i.e., someone other than the discredited DeFrancis and Stronach -- might have a chance to make Maryland racing respectable again.

Wednesday, 9 December 2009

Why Does Anyone Bet on the Races?

Interesting piece in the New York Times yesterday, about Jesus Leonardo, a 57-year-old New Yorker who makes $45,000-$50,000 a year as a professional "stooper," picking up discarded parimutuel tickets and cashing in the winners. Leonardo, who collects the tickets at various OTB parlors in the city, rather than the race track, appears to be doing far better than most bettors, or for that matter, than NYC OTB itself, which is the latest racing-related entity to fall on the mercy of the bankruptcy court.

That got me thinking about why any of us bet on the races at all. In my own case, I've noticed that I hardly bet these days, certainly a lot less than I did, say, 10-15 years ago, even though I'm still as much, or more, of a follower of racing.

It seems to me that there are two likely reasons, in my own case. These may be merely personal, but perhaps they shed some light on the death spiral that racing as a whole seems to be in.

First, I've become involved in owning horses -- in fact, in managing a partnership operation, Castle Village Farm, that makes it possible for lots of racetrackers and handicappers to become thoroughbred owners at a reasonable cost. The more I've become involved with the tremendous ups and downs of having our own race horses, the less the desire to bet on other peoples'. Of course, buying race horses might also be considered betting, and at a far larger scale than that of the average recreational handicapper, but if you go into the ownership game with your eyes wide open, knowing that you're not all that likely to make money, but that you'll get a lot of thrills along the way, the risk aspect seems to become less important.

Second, and perhaps most relevant for the general state of racing today, I've found that it's just too hard to beat the takeout. According to the Horseplayers' Association of North America (HANA) ratings, hardly any tracks take out less than 15% on win-place-show wagering or 19% on exactas and other multiples. Even if one is quicker and smarter than most of the other bettors, that's a huge hurdle. Now, if I bet a few million a year through a rebate shop, reducing my effective takeout to the single digits, it might be another story. But, alas, I don't have the kind of bankroll necessary for that, nor the patience for the mind-numbing computer-assisted search for miniscule overlays that's the heart of many big bettors' operations.

Fortunately for me, and for many others who might, in earlier times, have stayed with the race track because it was the only game in town, there are some much more attractive options for satisfying the gambling urge. For those who find all that handicapping too hard, and just want action, slot machines will do just fine, and they have a takeout that's usually below 10%. Of course, you don't have half an hour between plays at the slot machine, so the $20 that takes a whole afternoon to lose, in $2 bets, at the track can go in 15 minutes at the casino, even with the lower takeout. But millions of folks seem to find the mindlessness of the slots quite satisfying, and, if and when we ever get slots at Aqueduct, I'll be very happy to see some of their money make its way into the purse account.

But the real gambling rival to handicapping is poker. The game combines many of the same elements as trying to pick a winner at the track -- knowledge of the odds, good math skills, and an acceptance of fate -- you can make make a brilliant overlay bet in racing and see it ruined by a stupid jockey mistake, or you can make all the right bets in a hand of Texas Hold-Em and lose when some moron who shouldn't even have stayed in the hand gets the one card in the deck that could beat you on the river. So, in either case, you have to be satisfied with having made the right bet, even when you lose. Another similarity is that it takes stamina and determination to play the game well. Just as you have to put in the time handicapping to have even a shot at beating the races, so too do you have to put in the time at the poker table, whether real or virtual, to convert your advantage in skill into real money.

And, most important, poker has takeout rates that are far, far better than those in racing. The most you'll ever pay, in a low-stakes game at a casino, is about 10%, and the number is much less than that as the stakes rise, or in online poker, where the takeout ("rake") is generally only a couple of percent.

If we're looking for the racing fans of the future, I've seen them, and they're not coming to the races; they're at the poker tables. If racing could capture a tenth of the 20-somethings who are playing poker online or at casinos and card rooms these days, we wouldn't have to worry about declines in handle any more.

Those who argue against cutting takeout in racing say that most bettors don't even know what the takeout rates are; if they did, would anyone at all bet at NYC OTB, with its ludicrous 5% surcharge? But that argument is false even for racing; the big bettors go to the rebate shops, where they can get takeout reduced to a reasonable level. And all those young poker players are certainly conscious of the odds and the takeout rates. They're good at math, and they know what they're buying into, whether it's a lower rake, better "comps" from the casino, or a bigger jackpot (cf. Pick Six carryovers).

So, if we ever want to see those kids at the track, we have to give them a product they'll buy. And, given the competition from poker and, to a lesser extent, slots, that means reducing takeout to somewhere around 10%.

Now, the trick is to figure out how to run a race track and put enough in the purse account to keep the horsemen in the game, all the while relying on a 10% cut of the betting dollar.

Thursday, 26 November 2009

Fear and Trembling in Lexington

US financial markets were closed Thursday for Thanksgiving, and Middle Eastern markets were closed for Eid al-Adha. But in the rest of the known world, markets were plummeting on the news that Dubai and its major corporations, closely linked to Sheikh Mohammed, are unable to repay some $59 billion in debt that will be coming due in the near future. European banks, in particular, were thought to be exposed to high levels of risk , as many of them had borrowed dollars and then turned around and re-lent the money to fuel Dubai's crazed building boom.

As is often the case, the Paulick Report picked up on Dubai's troubles quickly, posting an online report from Bloomberg News. The debt default story is getting massive international coverage. See, for example, here, here, and here.)

In the grand scheme of things, the couple of hundred million a year that the Sheikh and his associates spend on thoroughbred bloodstock probably doesn't matter much, one way or the other, to Dubai's future. And, for the moment, the repo men haven't actually arrived in the Persian (oops, I guess that should be Arabian) Gulf sheikhdom to start seizing the household silver. But, after apparently having had to go hat in hand to his neighbor, the ruler of Abu Dhabi, for a quick fix of $5 or $10 billion, Sheikh Mohammed might well decide that either (a) he might need to spend a bit more time on the fundamentals of governing, or (b) putting more money into a frivolity like racing at a time of financial crisis might be just the least bit unseemly.

In either case, that could be very bad news indeed for the US thoroughbred breeding industry. As I pointed out after the Keeneland September yearling sale this year, Sheikh Mohammed and company accounted for a quarter of the horses sold in the high-end Book 1 of the sale, and for more than 30% of the gross proceeds for Book 1. Take that away, and the already shaky US breeding industry may truly be on life support. As for Fasig-Tipton, in the brief time since a company closely linked to the Sheikh bought a controlling interest, F-T has been doing lots of spending to become more competitive with Keeneland. And Sheikh Mohammed himself made a rare visit to the Saratoga sale this past summer. But Dubai's current troubles suggest that particular tap may be turned off any day now.

It's way too early to know what effect, if any, Dubai's financial problems will have on racing and breeding. As of late Thursday night, the Dubai World Cup website was still promising a gala opening for the Meydan track in January and the usual gala for the World Cup in March. And the Sheikh has never been as important a force in the spring two-year-old auctions as he is at the fall yearling sales. But one gets the feeling that there may be many more shoes still to drop, with none of them boding well for racing.

Monday, 23 November 2009

Reality Check for Keeneland

Initial reaction to the results from Keeneland's November breeding stock sale seem to be determinedly positive. For example, Frank Mitchell's Bloodstock in the Bluegrass blog talks about how "the recession is over," and that there's "confidence in a down market." And Deirdre Biles' Hammer Time blog on the Blood-Horse web site concludes that there's "at least a glimmer of hope" in the market post-November.

I guess those views, reflecting the by-now-desperate hope of thoroughbred breeders, are based on the fact that the sale numbers this year declined less from 2008 than 2008 had, in turn, declined from 2007. Small consolation. The 2007-2008 decline was about 40% in average price and 45% in gross for the sale as a whole. In contrast, the decline from 2008 to this year was only 7% in the average price and 14% in the gross.

Here are the numbers for this month's sale: of 4702 horses cataloged, 2779 of them sold (59.1% of the catalog), for a total of $159,727,800, or an average of $57,477. Compare that with the 2007 results, before the financial markets crashed in 2008. In 2007, 3381 of the 5415 horses in the catalog (62.4%) sold, for a total of $340,877,200, or an average of $100,821 per head. So, comparing those peak results from two years ago with this year's numbers, we have an overall drop of 53.1% in the gross for the sale, and a drop of 53% in the average price. That's even worse than the decline in my IRA over the same period. So, if that sort of number signals the end of the downturn and provides hope for the future, we're certainly living in a world of very diminished expectations.

And those numbers from the just-concluded sale need to be adjusted for the very atypical profile of this year's catalog. When companies report their financial results, they typically exclude "extraordinary events," such as a one-time sale of assets. Similarly, the real state of this year's Keeneland sale should be looked at by excluding from the results the one-time Overbrook Farm dispersal. That dispersal sale, which is a once-in-a-generation event, involved 148 horses, which sold for $31,760,000, or an average of $214,595, obviously well above the results for the sale as a whole.

If we subtract the Overbrook horses from the sale, here's what we get for the "normal" part of the sale: 2631 of 4554 horses in the catalog (57.8%) sold, for a total of $127,967,800, or an average of $48,638.

Now let's compare that with the 2007 results. In just two years, the gross has declined by 62.5% and the average has dropped 52%. Sounds more like the housing market in Las Vegas than an industry on the brink of recovery.

I wish things were looking better for breeders; many of them are nice people, and many of them put a lot of work and love into raising horses. But the reality is that our industry is going to have to get a lot smaller. Race tracks are closing; Blue Ribbon Downs in Oklahoma is the latest. Purses are stagnant or declining, in the face of steadily rising costs. And there just isn't a market for an animal that is, as bloodstock agents like to say, "just a horse." True, stallion stud fees are coming down, but by nowhere near the 65% from their 2007 levels that they need to. There's lots more downsizing still to come.

Let's see. Breeders are losing money. Owners are losing money -- as we always have, but I suspect even more now. Racetracks are losing money on their live product, with a few shrewd ones (e.g., Churchill Downs Inc.) moving to becoming online betting impresarios, at the expense of their own horsemen. So who's making money in this environment? Oh, of course, bloodstock agents. How could I forget?

It ain't pretty out there.

Friday, 6 November 2009


Rapidly evolving technologies and market adjustments have thrust media into states of nearly perpetual alteration that require agile and swift responses to gain benefits and defend the firm from outside forces.

Managers who have been used to stable environments and well conceived plans are often reticent to move to seize opportunities with quick and decisive action based on incomplete information and knowledge. The turbulent contemporary environment, however, require leaders to rapidly evaluate the potential of new communication opportunities and to take risks in a highly uncertain setting.

This is disturbing to managers who are used to employing well developed and elegant strategies that require significant investment and commitment. Declining to test opportunities until a clear roadmap is produced, however, takes away flexibility and the ability to rapidly change with contemporary developments.

While preserving the core activities of media businesses, managers need to simultaneously look for emerging opportunities that can be pursued, communities that can been served, and experiences that can be delivered. It is important to get in quick and inexpensively, to build on small successes, and to abandon initiatives if success proves elusive.

It is better to fail often, fail early, and fail cheap than to avoid risky moves, lose potentially rewarding opportunities, and forgo learning from innovative initiatives.

In the current tumultuous environment, failure has become a form of research and development. Try things; drop those that don't take you somewhere interesting; document what you learn from each unsuccessful initiative; move on to something new. What you learn from unsuccessful efforts is usually more important that what you from success.

The only real failure in the rapidly changing world of media is doing nothing and hoping things will get better on their own,

Sunday, 25 October 2009


Many journalists pursuing new online initiatives are learning that good intentions are not enough for providing news.

The latest group to do so is former Rocky Mountain News reporters who started this past summer using a membership payment and advertising model. The effort collapsed Oct. 4 with them telling readers, “We put everything into producing content and supporting our independent partners, but we can no longer afford to produce enough content to justify the membership.”

There problem is hardly unique. The conundrum facing many journalists is whether to pursue the noble work of journalism as unpaid charitable work or to become engaged as journalistic entrepreneurs with a serious attitude toward its business issues—something many despised in their former employers.

If journalists want pay for their work, if they want to provide for their families, and if they want to pay mortgages, they need to spend more time figuring out how to provide value that will extract payments from readers and advertisers. To do that they have to construct organizational structures and activities that support the journalism; they will have to ensure that startups have sufficient capital; and they will have to engage staffs in marketing and advertising activities, not merely news provision.

One of the most difficult issue for these new journalism providers—as well as existing print and broadcast providers—is that journalists tend to overestimate the value of news for the public. What the public actually wants is less, not more, news.

It is not that the public doesn’t want to be informed, however. It is just that journalists spend so much time, space, and effort conveying commodity news that provides little new and helpful information for readers and cannot generate sufficient financial support. By commodity news I mean the simplistic who, what, and where stories about what happened yesterday. Those kinds of stories are readily available from many sources and provides readers little for which they will pay.

Instead, in a world of ubiquitous commodity journalism, successful journalists need to be spending time exploring the how and why of events and issues and helping readers understand and cope with what is expected next. Effective journalism in the new environment needs to focus more on today and tomorrow than on yesterday.

Success in the contemporary journalism environment it is not merely about providing news, but about providing helpful and advisory news explanation based on solid values and identity to which readers can relate. It must be part of entrepreneurial journalism or new ventures will fail.

To get there, however, journalists starting up new enterprises will need to develop resources and entrepreneurial motivation to sustain their efforts more than a few months. Most new commercial and noncommercial enterprises require 18 to 36 months of operation before they develop a loyal audience and achieve a stable financial situation. Unless journalists are willing to work for free during that time, they will have to raise capital to survive; and if they want their new organizations to thrive and develop they will have to provide a different kind of news than most are used to creating. It will need to be unique and better than what is already available.

Saturday, 24 October 2009


As publishers move more and more content to the Internet, mobile services, and e-readers, these digital activities change the structures and processes of underlying business operations. Many publishers, however, pay insufficient attention to the implications of these changes and thus miss out on many benefits possible with digital operations.

This occurs because publishers become focused on issues of content delivery and uncritically accept the fundamental elements of the processes involving platforms and intermediaries. In order to gain the fullest future benefits from the digital environment, however, publishers needs to strategically consider and direct activities involving the users, advertisers, prices, and purposes of their new platforms.

In creating business arrangements with platform and service providers and intermediaries, 4 fundamental strategic principles should guide your actions:

1. Control your customer lists. The most important thing you do as a publisher is to create relationships with and experiences for your customers. It is crucial to ensure that your content distribution and retail systems do not separate you from those who read, view, or listen to your content. If you do not operate your distribution or pay systems, or don’t have strong influence over their operations, this important part of the customer experience falls outside your control and— worse—you never establish direct relationships with customers that allow you to get to know them better, to create stronger bonds, to use them to improve your products, or to up-sell services. If you must use intermediaries, ensure that you have full access and rights to use e-mail, mobile, and other addresses for all your content customers and that you have some influence over the look, feel, and content of the contacts that your service providers have with your customers.

2. Control advertising in your digital space. Users see advertising placed on your website, your mobile messages, and your e-reader content as part of your product and it affects the experience you deliver to them. It is not enough to control the size and placement of ads; you also need to control the dynamic functionality, types, and content of ads. The experience your product delivers is of little interest to outside providers of digitally delivered advertising, but it must be to you. You should control your own advertising inventory and maintain approval rights and—as with audiences—you should have the ability to make direct contact with advertising customers so you can add value by working with them to achieve greater effectiveness and provide better benefits across your content platforms.

3. Control your own pricing. Do not put yourself in the position of merely accepting the ad suppliers’ price and payment for advertising appearing in your digital product. The digital space and audience contact that you provide is the product and service being purchased and some contact is more valuable than others. Know how your value compares to that of competitors and set your prices according. Don’t be a price taker, be a price maker. Digital advertising will not grow to become an important part of your business if you let the most important decision of the revenue model reside in someone who does not care about your business.

4. Drive customers to platforms most beneficial to you. Digital media give you the opportunities to serve customers where and when they want to be served, but you need to use those opportunities to drive them to your financially most important product. Internet sites, e-readers, mobile applications, and social media are highly useful for contact and interaction, but not yet very effective for revenue generation. The best effects typically result from increasing use of your offline product or driving traffic to your most finally effective digital location. Make sure that all the distribution platforms you use are configured for easy movement to other digital platforms that benefit you most, even if they don’t directly benefit your service provider.

Digital publishing can only become successful if you get the business fundamentals correct by controlling the most important commercial aspects of the operation. The value configuration created by customer interfaces and partner networks must be arranged to work in your favor and strategic thinking needs to guide how you organize and direct those activities.

Tuesday, 20 October 2009

Oct 14th Re-Cap

It was a veritable barn-burner of a show on October 14th at The Business! That is not to be confused with a barn-raiser, which connotes a successfully comedy show in the Amish community. Instead of churning butter, the audience churned with laughter. Instead of scorning technology, we used microphones to provide amplified sound. And instead of a bunch of guys with beards standing around and talking, our show had performances from Alex Koll and guest star Kyle Kinnane.

Sean Keane began the show discussing his childhood speech impediment, his illustrious career as a teenage musical theater performer, obscene phone calls, writing fake letters to the newspaper, and finally, how his dad started kissing him hello and goodbye at age 51. Truly a moving and unsettling set. Alex Koll followed, delivering a preview of his hosting gig the next night at the SF Weekly Music Awards. ("7:30 - Arrive. 8:05 - Introduce yourself. 'Hello. How's it going?'") He also explained the similarities between Charles Manson's parole board testimony and the menu at a really good Chinese restaurant. Chris Garcia followed with an extended impression of a ex-Live 105 employee turned alcoholic vagrant. Though thrown off by audience member W. Kamau Bell's repeated suggestion of "Fishbone" as a 90's alternative act, Garcia-as-hobo delighted the crowd.

Before the show, audience members were asked to fill out index cards listing something they were afraid of. The night's next performer, Bucky Sinister, opened his set by reading the cards and riffing off of each of the frightening topics. Perfect for October and the impending Halloween season! Bucky also explained to the crowd why it might be useful to have a tattoo, of your own hand, on your chest, flipping the bird. (Because when the cops arrest you, and your hands are cuffed behind your back, you can still flip them off.)

Guest performer Kyle Kinnane was delayed by an overturned Safeway truck on the Bay Bridge, but his set didn't suffer in the least. He did express dismay that the horrible traffic snarl was caused by something so uncool as spilled produce. We also learned some entertaining and, again, somewhat disturbing information, about what it is like to use a bar bathroom in a really bad part of Chicago.

Finally, headliner Hari Kondabolu continued the night's informal theme of hilariously unsettling personal confessions and finished with Kondabolu Klassics about Vitamin Water and gentrification.. It was perhaps the greatest show The Business has had, in terms of quality, variety, audience, and, of course, penis references.

Tuesday, 13 October 2009


This is not trick question and it is being increasingly asked as public broadcasters grow larger, offer multiple channels, move into cross-media operations, and increasingly commercialize their operations.

The Federal Communications Commission will have to consider that question shortly when it considers the effort of WGBH Education Foundation—operator of WGBH-TV, the highly successful Boston-based public service broadcaster—to purchase the commercial radio station WCRB-FM.

WGBH is the top ranked member of the Public Broadcasting Service in the New England and produces about one third of PBS’ programming. It operates a second Boston television station, WGBX-TV, and WGBY in Springfield, Massachusetts. In addition it operates FM radio stations WGBH (Boston), WCAI (Woods Hole), WZAI (Brewster), and WNAN (Nantucket) and is a member of National Public Radio and Public Radio International. It operates two commercial subsidiaries involved in music rights and motion picture production.

This month it announced it was planning to purchase WCRB-FM, a classical music station that serves the Boston area. The purchase would allow it to alter its WGBH-FM format to compete more directly with WBUR-FM, the leading public radio station in Boston that is operated by Boston University.

WGBH Educational Foundation is an enterprise with $580 million in assets and revenues of $280 million annually. It has more than 600 employees who are paid more than $50,000 annually and has 5 paid more than $225,000. Its president and CEO is paid about $340,000 and 2 vice presidents about $250,000 annually. This is not a small, poor charitable enterprise.

Were WGBH a commercial broadcaster, those who hate big media would be howling in protest, arguing that it puts far too much control of the airwave in the hands of one organization and that the concentration will create market power that harms competition. But they are strangely silent.

However, in deciding whether to permit the purchase, the FCC will have to consider whether the expansion of the public broadcaster harms competitors and plurality and diversity.

Similar questions are being asked elsewhere as well. Across the pond, the British Broadcasting Corp. has recently been the target of a good deal of criticism because of its increasingly commercialized operations and because its expansion of public service operations in TV, Radio, and Internet at the local, national, and international level are seen as affecting commercial firms and competition.

The BBC is one of the largest broadcasting companies in the world, operating on revenues of £4.7 billon ($7.4 billion) and it has assets of £1.5 billion ($2.4 billion).

Many commercial broadcasters and publishers in the U.K. have criticized the growth of the BBC operations and the debate became especially heated recently when James Murdoch, the News Corp. head in Europe and Asia, made a public speech charging the BBC was engaging in a “land grab” and that its ambitions were “chilling.”

“The expansion of state-sponsored journalism is a threat to the plurality and independence of news provision, which are so important for our democracy," Murdoch told the Edinburgh International Television Festival. Whether you agree with him or not, you have to give him credit for co-opting the language of critics of big commercial media.

News Corp. and the other commercial firms competing with the BBC obviously have self interests at heart, and some commercial firms have certainly behaved in ways that harmed public interests in the past, but their arguments should not be casually dismissed.

If competition among commercial firms, between commercial and non-commercial firms, and among non-commercial firms is good for pluralism and diversity, cannot concentration and reductions in sources of news and entertainment due to acts of large not-for-profit firms also harm competition, pluralism and diversity?

Monday, 12 October 2009

Hari's Back...

Wed October 14th marks the return of our most frequent guest, Hari Kondabolu! Officially known as the "Fifth Businessman", Hari never fails to deliver the word-goods on the stage-place. Get your tickets here:

Saturday, 26 September 2009


The push for government support for newspaper continues and this week publishers and their supporters—including the Newspaper Association of America—went before the House Joint Economic Committee detailing how the current economic climate has harmed their finances and arguing for preferential changes to tax and pension laws. They asked to be allowed to extend application of the net operating loss provisions from 2 years to 5 years and for changes in laws to allow them to underfund pension funds for a greater period of time. Both would improve their operating performance and balance sheets.

This is a case of the newspaper industry seeking long-term business benefits to solve a short-term crisis caused by poor management decisions and the recession. The leading newspaper firms and their representatives are making concerted efforts to dupe legislators and the public into believing their troubles are part of the general trends in the industry, rather than the result of management decisions and the financial crisis that is diminishing. If the provisions are passed, the public treasury will be diminished for years to come and risks for employee pensions will be increased.

Newspaper executives and other witnesses were sympathetically treated at the hearing this week, but it is unclear whether they will be able to achieve the policies they advocated.

Another proposal that the commercial firms are uninterested in themselves, but expressed sympathy for, would broadening laws regarding charities to include not-for-profit newspapers. Their support was astute because the House Joint Economic Committee’s chair, Rep. Carolyn Maloney (D-NY), has introduced her own bill (H.R. 3602) to allow newspapers to become tax exempt under section 501(C)(3) of the tax code. Her bill somewhat mirror Senate bill 673 by Sen. Benjamin Cardin, D-Md., that was discussed earlier in this blog (Analysis of the Newspaper Revitalization Act, There are some differences in Maloney’s bill that need to be highlighted.

Under Section (b) of H.R. 3602, companies would qualify for tax exempt status through a 3-part test.

First, companies would have to be “publishing on a regular basis a newspaper of general circulation” to qualify. This provision stipulates no periodicity so it does not limit qualification to dailies, which are experiencing the greatest economic and financial difficulties. This language provides the exemption only to established papers and would thus exclude startups until after they were regularly publishing, requiring startups to initially obtain financing through other than tax-deductible donations.

The language in this first test requires that publications be “a newspaper of general circulation” and this will lead to questions whether it applies to newspapers focused on specific audiences in a community—such as African Americans or senior citizens—or papers providing more focused content—such as news and information for a specific neighborhood or devoted solely to politics or crime. This ambiguity could be used by IRS examiners against some papers and could be used by some publishers to take advantage of a policy not intended for them.

The second provision requires that qualifying papers publish “local, national or international stories of interest to the general public and the distribution of such newspaper is necessary or valuable in achieving an educational purpose.” The provision regarding type of coverage is better than the Senate bill because it does not require publication of all 3 types of news—something not done in many local papers.

The third provision requires that content preparation “follows methods generally accepted as educational in character.” This provision is exceedingly vague and its application is unclear because it does not deal with the content of the paper, but with the preparation of the paper. How “the preparation of the material” follows accepted educational methods would seem to require that the papers be part of an educational activity, such as being linked to training in schools or universities. This would highly limit the applicability of the bill to existing newspaper operations.

Like the Senate bill, Section (c) permits papers to carry advertising “to the extent that such newspaper does not exceed the space allotted to fulfilling the educational purposes of such qualified newspaper corporation.” This would require papers to publish no more than an equal amount of editorial and advertising content. This is lower than the limit of postal service limit (75%) and would force most existing papers to drop about 1/3 of their existing advertising or incur damaging costs by printing more news pages than they do now. This would cripple the finances of any daily paper.

Finally, Section (d) of the legislation permits qualified companies to accept tax deductable charitable donations to support their operations.

This bill, like its Senate predecessor, is likely to have limited affects on the newspaper industry because it will not interest newspaper owners because most of their papers are producing profits and it will preclude their abilities to benefit from greater profits when the advertising recovery occurs.

There is a place for not-for-profit media and journalism, but H.R. 3602 S. 673 will not do much to improve coverage or the overall condition newspaper industry. It is likely to continue to gain support from the commercial newspaper industry, however, because it can be used to provide cover for government policies that they really want.

Monday, 21 September 2009

Why Are We in This Business?

As everyone in the racing business knows by now, prices for race horses have dropped precipitously over the past year. At the current Keeneland yearling sale, both the average and median prices are off between 30-35% as compared to last year. It's now possible -- as it has not been for the past few years, to obtain high-quality racing prospects at what seems, by historical standards, to be a fair price.

But, in fact, even if one buys at those fair prices, the game is still stacked against the owner who actually wants to make money by owning race horses. Despite the increasing saturation of race track-based slot machines, purses have stagnated and even declined, while the cost of doing business steadily increases.

Let's look at a couple of examples to see how succesful a horse has to be on the track for its owner to break even.

First, let's look at a typical high-end yearling purchase, say for $250,000. That's not the top of the market, but it's a lot more than I tend to carry around in my wallet for impulse purchases.

On top of the $250,000 puchase price, we need to add about 5% for a commission to the bloodstock agent; you wouldn't buy a horse at that level without expert advice. That's $12,500. Throw in another $7,500 for sale expenses, including vetting all the horses that you end up not buying. Then there's insurance, which you'd want on an expensive horse. Probably $45,000 to the end of its 4-year0old year, or about 6% of the insured value annually.

Then we send the horse to Florida for breaking and preliminary training, before sending him back north (let's say Saratoga) in the middle of his two-year-old year. That's another $20,000 for training and vet, plus about $4,000 for all the increasingly expensive van rides. So far, we're up to $339,000.

Now, let's add in training the horse at the track from August of its two-year-old year through the end of its four-year-old year. We'll hire a top-level trainer, at say $125 a day, and, even if we try to manage vet costs, they won't be less than $500 a month. So, training and vet costs to the end of the four-year-old season are another $125,000. All together, we've spent about $464,000 to get the horse that far.

So, how much does the horse need to earn on the track to break even? A lot more than $464,000. The trainer gets at least 10%, and, increasingly, more like 12% of earnings; the jockey gets on average another 7%, and, at least if you race in New York, another 3% or so goes for a variety of mandatory deductions. So we have to gross up the required earnings to get back to our net target of $464,000. In fact, we'd need to earn almost $600,000 in purses just to break even.

Sure, there's some possibility of residual stallion or broodmare value at this level, but in the current market, and discounting for the time value of whatever money might come in down the road, that isn't going to be much. If we're looking at making a profit on the race track, we need that $600,000. And how many horses earn that much?

Now let's take a more modest example. Say we buy a decent New York-bred yearling for $35,000. We won't bother with a bloodstock adviser, and we'll skip the insurance. And we'll probably be tougher on the vet expenses, and place the horse with a trainer whose day rate is more like $100 a day. Using those parameters, it'll cost us a total of $80,000, including the purchase price, to get our $35,000 yearling to the end of its two-year-old year, assuming we send it to the track in August, and another $88,000 for two years of training and vet bills. So, by the end of its four-year-old year, we've spent $168,000.

Applying the same formula to gross up the earnings for trainers' and jockeys' percentages, we'd need purse earnings of $215,000 to get even on our $35,000 yearling. I've had a few horses that did that well, but it's not an everyday occurrence. Look at the lifetime earnings for horses running in New York and you won't see that many above $200,000.

And all these projections don't include all the little extra costs that go with being an owner, from lunches for friends at the turf club to, one hopes, lots of win pictures, to stakes nominations, to donations to worthy race track charities.

So, why are we in this business? Because we love horses and have a terrific ability to see the future through the rosiest of rose-colored glasses. It's a great business to be in. Just don't expect to make money.

Wednesday, 16 September 2009

If Not For You

If not for you,
Winter would have no spring,
Couldn't hear the robin sing,
I just wouldn't have a clue,
Anyway it wouldn't ring true,
If not for you.

Bob Dylan, ©1970 Big Sky Music

I'm pretty sure the folks at Keeneland, shaken as they may be by the bottom falling out of the yearling market the past two days, nonetheless harbor thoughts similar to those of Bob Dylan about Dubai's Sheikh Mohammed bin Rashid Al Maktoum and his entourage. Of the 222 horses reported sold on the first two days of the annual Keeneland yearling sale, 50 of them were purchased by the Sheikh's bloodstock adviser, John Ferguson, or by entities associated with Dubai's royal family, including the Shadwell Estate Co., and Rabbah Bloodstock. That's an overwhelming 22.5% of the total number sold, and an even bigger percentage of the money paid over those two days. Gross receipts for the prestigious Book 1 horses sold at Keeneland this year were $58.8 million (a 48% drop from last year). And of that sharply reduced amount, the Dubai forces accounted for $18,305,000, or mre than 31% of the gross sales. If not for you, your Highness....

If we subtract the Dubai-associated purchases from the results, then here's what's left: 172 horses sold (of a total of 418 cataloged) for $40,451,000, an average of just over $235,000. Sure, we can assume that most of the horses purchased by the folks from Dubai would have sold even without their bids, but certainly at lower prices. In fact, it's not unreasonable to assume that the average for the sale would have been a lot closer to that $235,000 than to the actually reported average -- including Dubai -- of $265,000.

As compared to their equally visible activity at the boutique Fasig-Tipton Saratoga yearling sale last month, the Dubai forces at Keeneland put less emphasis on supporting their own sires -- Street Cry, Bernardini and Medaglia D'Oro, and more on acquiring superior racing and breeding prospects at what, for them, must have seemed like bargain prices. Only 16 of the 50 horses bought by Ferguson, Shadwell and Rabbah were sired by their own stallions, compared with more than half of their Saratoga purchases.

(Shadwell and Rabbah were still somewhat active early on Wednesday, buying three of the first 50 horses to go through the ring on the first day of Book 2 of the sale, though there was little prospect for any more million-dollar-plus purchases by any of the Dubai buyers.)

With this year's purchases, the Sheikh and his associates are aquiring a lot of stellar American bloodlines. They bought yearlings, for example, by A P Indy, Storm Cat, Distorted Humor, Tapit (a new sire whose yearlings look great and who, I think, will make a name for himself quickly), Dynaformer, Ghostzapper, Kingmambo, Elusive Quality, Forestry, Rahy and Unbridled's Song, in addition to those by their own sires. They've also taken advantage of the price collapse to buy into some of the premier American female familes. With another year or two of such purchases, the Sheikh may have all the bloodstock he needs to breed the very best race horses in the world. If and when that time comes, and he cuts back on the volume of his purchases, the yearling market will be in for an even more serious shock.

If not for you....

Tuesday, 15 September 2009

Looking for a Good Horse at Keeneland

For the past several years, I've been part of a team that looks for horses at the Keeneland yearling sale, on behalf of cients with serious money and a serious desire to win graded-stakes races. Some "bloodstock agents" may claim to do it all themselves, and a lot of buyers just pick out a horse in the Keeneland walking ring minutes before its hip number is called for auction. But those of us --and there are many -- who are seriously trying to find the very best horses have no alternative but to put in a lot of hard work. For those who perhaps don't know the auction process, here's how it works.

Keeneland list some 5,000-plus yearlings for sale every September (though that number may, and should, shrink in response to the severe downturn in the thoroughbred market). The catalog is divided into "books," with each book containing horses that are, in general, a little worse than those in the earlier books, and a little better than those in the later books. The first two books, 1200 horses that are offered on the first four days of the sale, generally contain the horses with the fanciest pedigrees and the best appearance, as judged by the Keeneland staff. That's where the big money is, and where most of the million-dollar babies have been bought in the past.

Our group, and others like it, tries to look at every single horse in books 1 and 2, and as many as possible in Books 3 through 5, a part of the catalog that traitionally produces some of the best bargains in the sale and a good number of stakes winners. To do that, we need to work through the following steps:

First, someone looks at every horse and short-lists those that are worth a second look. Books 1 through 5 have a total of more than 3600 horses in them. That's a lot of looking, walking around Keeneland's 49 barns.

Second, the team leader looks at every horse in Book 1 and every horse that's been short-listed for Books 2 through 5. In addition, she checks with the consignors, just in case we've missed something.

Third, we do ultrasound heart scans on our short-short list, to measure the horses' cardiac function and eliminate those who dont have big enough or efficient enough hearts to sustain them at the very highest racing levels. The scans are analyzed against a database of thoroughbreds to see how they match up along the bell curve. All this can't be done while the horses are being shown to buyers, so, after an eight-hour day looking at yearlings, we start all over again at 4 pm, when showing winds down, and keep going until 10 pm or so doing the ultrasounds.

Fourth, we get a vet to review the records on those horses that have made in through the first three steps, checking the x-ray records on file in the Keeneland repository and, if necessary, scoping the horse to determine whether it's able to take in enough air to keep it running past sprint distances.

Finally, we have a very short list that we can take to the clients, the folks with money enough to buy the very best (well, the very best that Sheikh Mohammed and Coolmore aren't bidding on).

All this takes time, and that's where the problem is. With the exception of the Book 1 horses, most horses for sale are on the Keeneland grounds and available to be seen for only a day or two before they are sold. In that time frame, there often isn't the time to do all the steps described above. So some good horses fall by the wayside. If we can't have the time to do the scans and then to get the vet reports, then we can't recommend the horses to our clients, and potential bidders are lost.

Realistically, we can't wait until the morning that the horse goes on sale to ask the vet for a review; they have way too much to do. So, if we want to get the vet to look the day before, that means we have to do the cardio the night before that, i.e., two days before the horse sells. And to do that, the horse really should be on the grounds and available to be shown three days before the sale date. With 400 horses selling each day, and limited barn space, that simply isnt happening. And, because it's not, sales opportunities are being lost.

So, what could Keeneland do? (Or, what could the newly revived Fasig-Tipton do to challenge Keeneland?)

First, we need to have fewer horses per day. Maybe not the 200 per day that sell in Book 1, but perhaps 300 would be a happy medium. That would allow the next book's horses to move into the barns earlier and provide more time for buyers to see them.

Second, there needs to be more time for the vets to do their work. At present, Keeneland's repository opens at 8 am and closes when that day's sale is over. The vets are willing to work longer hours, so why not let them? Open up the repository at, say, 5 am, and keep it open as long as some workaholic vet needs it.

With all the money that Keeneland spends attracting foreign buyers to come to the sale, you'd think a little more to make the working conditions more conducive to selling wouldn't be such a stretch. It would surely help those of us who are trying to buy good horses, and isn't that what the sellers and auction houses want?

Wednesday, 2 September 2009


Fundamental market changes are pushing radio stations towards an uncertain future and managers and owners need to begin developing strategic responses to developments in their industry.

The challenges are being caused by declining demand for radio offerings due to lifestyle changes, the wide availability of substitutable audio platforms, and the primary content currently being offered. Audience behavior toward radio is changing and many U.S. stations now only make money for 4 to 6 hours each day. Overall, audiences are spending less time with radio and exhibiting less station loyalty than they did in the past, and young audiences are particularly difficult to attract and serve.

A major impetus of change is that audiences for music worldwide are progressively replacing radio listening with personalized playlists they have created on their computers, MP3 players, and mobile phones and by CDs on which they burned those favorites. They select music that suits their individual tastes and many have wider repositories of music in their own libraries than are offered on broadcaster playlists. Satellite and Internet radio are compounding the problem by offering hundreds of choices of highly focused music formats. These developments are increasingly making radio a less relevant platform for music entertainment delivery than it has been.

Concurrently, a wide variety of non-music programming is being offered by Satellite and Internet stations and audiences are increasingly using these services, as well as downloading podcasts on a variety of topics of individual interest from both broadcast and non-radio sources.

These problems are compounded in the U.S. because the rise of radio groups after deregulation in the mid 1990s led to national radio programmers making selections, reducing the range of genres of music and other content on radio stations. Overall, programming has become less local and less relevant as content decisions have been made elsewhere.

Advertisers sense the problem with audiences and the share of advertising expenditures going to radio is declining. Worldwide radio advertising expenditures are about 7 percent of total expenditures, down from a height of 9 percent in 1999. In the U.S. they peaked in 2002 at nearly 13 percent and are now down to about 10 percent. This downward trend is seen among most of the traditional leaders in radio advertising expenditures –Mexico, Japan, France, UK, Spain—and only in rapidly developing countries such as Brazil and China is the share spent on radio on a clear upward trajectory.

Another indicator of the problem is seen in the considerable weakening of sales prices for radio stations in recent years.

Radio station owners and managers need to start spending a good deal of time thinking about what is happening to their industry and how they will need to change their place in the media use mix. They need to seriously consider what business they are in and what unique value they produce so they can reposition their functions for audiences and advertisers.

The structure and offerings of the radio industry have been adjusted several times during its 9-decade history, but the last time the industry needed to recreate itself so dramatically occurred with the arrival of television. The arrival of television resulted in radio shifting from a general entertainment and information medium to a music entertainment platform in many nations. In the U.S., broadcasters on A.M. radio later shifted toward a talk and sports platform after F.M. developed and music migrated to that spectrum, creating new opportunities on both bands.

Repositioning radio again will not be a simple task, but it is one the industry needs to begin undertaking now. If radio managers do not start thinking ahead about the negative trends appearing in their industry, they will soon experience the alarm and fear that is pervasive in the newspaper industry. It is better for companies and industries to act before crises develop fully because they can respond to and help direct the course of change rather than merely experience its negative effects. Whether decisive action will emerge in the radio industry before we reach that point remains to be seen.