News Feature: Frying Plan - By Tom LaMarra

(Originally published in the September 11, 2010 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)  

The message from Dennis Robinson at the Aug. 22 Jockey Club Round Table rang true for some and painfully hollow for others. The New Jersey Sports and Exposition Authority president, in outlining how this year’s less-is-more experiment at Monmouth Park came about, cited compromise and shared risk on the part of various stakeholders.

“Without trust and credibility, you cannot make significant change,” Robinson said.

Granted, New Jersey horse racing had its back against the wall and little choice but to embrace something radical. The Monmouth experiment got noticed in a big way—it has been called a template for others to follow—and whether it is a financial success or a bust won’t be known unless the NJSEA provides a full, honest accounting of its mathematics.

Thoroughbred racing as a whole has had its back against the wall for many more years, during which time the math has grown increasingly fuzzy. But calls for major change and transparency have gone unheeded for the most part, primarily because of unwillingness to follow through.

About two months before the Round Table, a major initiative designed to bring stakeholders together to generate perhaps hundreds of millions of dollars in revenue for the Thoroughbred industry abruptly hit a wall. Some who were involved in the project for about a year said the plan derailed and crashed because of refusal by some to relinquish control; others said it had become too complicated and used unreliable financial estimates.

The proposal, developed by owner-breeder Satish Sanan, focuses on the pari-mutuel revenue model. It may be ambitious, but the pieces surprisingly were falling into place this past winter. Industry-owned advance deposit wagering and tote systems were central to the plan—and were available at a discount, according to those involved in the project.

The objectives are a new structure for racing and revenue for purses, national marketing, a televised racing series, and integrity-related programs.

“We pushed for transformational change for our industry,” said Sanan, who was asked by Tom Ludt, head of the Thoroughbred Owners and Breeders Association Thoroughbred Action Committee, to spearhead the initiative in 2009. “The plan was too critical, too vital, and too strategic for the industry (to die).

“We’re not short on great ideas, but our industry leadership—and how it manages things—has a way of suffocating those ideas.”

Some say the comprehensive action plan was killed, while others believe it was only stalled. Parts of it, such as the televised racing series, are still in the works, but the key component—an industry-owned end-to-end wagering platform and bet-processing system—can’t get off the ground.

“TOBA brought together a group of like-minded organizations in the hope of creating significant economic benefits for the industry,” TOBA president Dan Metzger said. “We were encouraged by our early discussions and believed, as we still do, that the ideas have merit and need to be implemented for the benefit of the entire sport.

“We are continuing certain parts of our initiative with the racetracks and The Jockey Club, and are hopeful that it will result in a positive development for Thoroughbred racing and breeding.”

There are overriding business factors that stymied the plan. The proposed ADW platform would generate revenue that would be shared by industry members via formula, so there likely would be a transparency that doesn’t currently exist in an ADW system horsemen contend is a black hole for revenue.

There also are numerous competing interests that have much to lose through compromise, and industry decision-makers with multiple positions on various boards with conflicting agendas.

Early consensus

The first meeting of the committee generated enough interest to attract up to 20 people in July 2009 in Saratoga Springs, N.Y. Sanan said “everything was thrown on the wall” in an attempt to identify two or three critical elements.

A September meeting followed with “seven or eight presentations,” he said, including his own, which had four major points: an operating structure all parties could agree upon; acknowledging that the “flawed revenue model” is the core issue; addressing integrity-related issues and funding them without need for federal intervention; and generating “more than enough money” to fund an innovative marketing plan that would serve as an umbrella for various local and regional initiatives.

“All my presentation was about was uniting the industry and allowing (stakeholders) to co-exist,” said Sanan, whose proposal was selected. “The industry as a whole must benefit from it.”

Less than two months later another meeting was held the week of the Breeders’ Cup World Championships in California for a more formal presentation. Sanan said by November the group had contacted racetrack officials including Bob Evans, president and chief executive officer of Churchill Downs Inc.; Bob Elliston, president of Turfway Park and chairman of the National Thoroughbred Racing Association; Craig Fravel, vice president of the Del Mar Thoroughbred Club; New York Racing Association president and CEO Charles Hayward; Keeneland president and CEO Nick Nicholson; and David Willmott, chairman of the board of Woodbine Entertainment Group.

“We wanted to make sure owners, racetrack operators, and industry organizations were all like-minded—that they loved racing and wanted to fix the revenue model,” Sanan said. “Without exception, everybody said this is a great idea.”

Not unexpectedly, CDI, which via and controls the largest share of ADW handle and revenue in the country, bowed out after the Breeders’ Cup meeting citing anti-trust concerns, though CDI has no interest in creating a competitor. Several of the other racetrack operators have small ADW systems but because of non-profit status have an interest in creating an industry-owned account wagering system to return more revenue to purses, which are declining.

The meetings continued through the winter with most parties still on board. The group held a four-day retreat in March 2010 described as productive, but in the meantime, some of the tracks were meeting privately. Sanan said it began to fall apart when, during the next meeting, some racetrack representatives, including those from Del Mar, Keeneland, and NYRA, told horse owners the tracks didn’t want an ADW partnership.

“We said repeatedly if some segment of the industry wanted to have an ADW (system) and get a license, we would have no problem giving them our product, but we didn’t want to invest with them,” NYRA chief operating officer Hal Handel said. “We were buying into the plan, but then it became too complicated and too cumbersome. We did, however, tell them we’d be happy to sell our signals to them.”

Handel said many of the tracks agreed they didn’t want to own an ADW system while partnering with “another group with rights of consent.” Track officials also argued that owners and breeders already are compensated through statutory purse requirements.

Infrastructure offered

Sanan, at the time, continued to push the plan and by late spring had met with MI Developments chairman Frank Stronach, a major owner-breeder and racetrack operator. Sanan said Stronach, whose company owns the ADW system and the AmTote bet-processing system, was willing to play.

Sanan said he offered to fly several participants, mainly officials from NYRA and The Jockey Club, to Ontario, Canada, to meet with Stronach, but they declined. Sanan met with Stronach and reported on the meeting in a letter.

The letter said Stronach agreed to sell and AmTote at a discount from fair market valuation; retain minority control of about 20%; accept a note rather than cash from NYRA, given its current financial position; and reserve the right to approve senior management of the operation but allow consortium members to have veto power. In addition, Sanan would consider running the company for $1 until someone else was hired.

The proposal was rejected. Individuals privately said the financial details were too fuzzy, Sanan failed to deliver exactly what was agreed upon, and that there was an unwillingness to do business with Stronach given his company’s volatility in the racing industry.

Sanan, on the other hand, said he succeeded in finding common ground, but apparently it wasn’t enough. With the exception of horse owners, there is no commitment to move forward on the overall plan.

“Individuals representing The Jockey Club and its affiliated companies have participated in discussions with a variety of industry stakeholders over the past several years regarding efforts to improve the industry’s tote and wagering platforms,” said Jockey Club president and chief operating officer Jim Gagliano. “Earlier this year we were invited to participate in an initiative to address these issues, and others, by the TOBA Thoroughbred Action Committee. We have been actively involved in those efforts, and we continue to participate in ongoing discussions.

“As we have done from the outset, we continue to offer our human and technological resources to move this initiative forward.”

The Jockey Club is particularly interested in an industry tote platform—the concept was floated by the organization and NTRA about 10 years ago—and promoting racing through television.

Issues never die

Sanan used a story from his childhood to portray the circumstances he claims caused problems for the action plan and other industry proposals that have come and gone.

While a child in India, Sanan and his friends would often play marbles, but to avoid bullies they would venture away to find a patch of dirt where they wouldn’t be bothered. They’d make the holes and plan to play.

“But if we didn’t allow the bullies to play, they’d find our spot about 20 minutes beforehand and piss in the holes,” Sanan said. “To some degree, that’s the kind of crap that goes on in this business.”

Ludt of TOBA  said the plan’s failure—for now, at least—is more a case of “pushing too hard, too fast” and having too many parties involved early in the process, something Sanan had wanted to prevent but was talked into by others. Ludt acknowledged fundamental differences, coupled with economic considerations on the part of consortium members, led to a “slow pace” that frustrated him and others.

“I don’t think it is dead,” Ludt said. “I think it can happen, but we first have to align ourselves with a core group and perfect a plan.”

Sanan, who has stepped down from his leadership role with the action plan, said it still holds promise—if the industry commits to major change.

“The politics, personal agendas, and the control mean more for many of these organizations and individuals than the overall good and welfare of this industry,” Sanan said in his resignation letter. “The same leadership has driven many bright minds and enthusiastic individuals away in the past.

“This negative spirit is woven in the fabric of these organizations and is the fundamental reason for the state this industry is in today. Until we are collectively able to make some fundamental changes to these organizations, this industry will continue in the death spiral it has been in for some time even though some individual organizations with savvy management and strategy might continue to succeed.”

Synopsis of Sanan’s Plan

Structure: Create a company with racetracks and other members that would generate revenue for functions related to marketing, technology, wagering, and product improvement.

Solution: Create an industry consortium of like-minded industry organizations that would retain autonomy but work in unison; develop an industry-owned end-to-end integrated, interactive wagering network technology platform; create a weekly televised racing series utilizing graded stakes; form an industry-wide strategic marketing plan to complement local and regional efforts.

Funding: Establish three levels of annual dues-payers; generate revenue from restructuring of the racing product and operation of an advance deposit wagering system and platform that could accommodate new wagers and interactive games; raise “seed capital” that would be refunded with interest after seven years.

Revenue distribution: Based on annual revenue of $200 million to $250 million a year, 70%, or $140 million to $175 million, would be split equally between racetracks and purses; 20%, or $40 million to $50 million, would be used for the wagering platform, marketing, integrity, equine health and welfare, and facility improvements; and 10% ($20 million to $25 million) would be earmarked for ontrack cash-back programs (effectively a reduction in pari-mutuel takeout) to drive ontrack attendance and wagering.

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