Building Blocks - by Dan Liebman

Blood-Horse Staff — Tue, 10 Mar 2009 13:05:00 GMT

It was a casual introduction, nearly 25 years ago now, at the Fasig-Tipton Kentucky November breeding stock sale. Remember his name, the man said, because you are going to hear a lot from him. We’ve all heard that before; only this time it was true—we have heard a lot from Frank Stronach in the ensuing years.

Some people, such as Stronach, are builders. He built Magna International into a leading global supplier of auto parts. Then, in the mid-1980s, fueled by a passion for the horse and the sport of horse racing, he began building a breeding and racing operation that became Adena Springs and Stronach Stables. The past five years in a row, Adena Springs has been named the Eclipse Award-winning breeder. Stronach has picked up four statues earned as leading owner as well.

With so much success breeding and racing horses, only a builder such as Stronach could sell the land upon which his Thoroughbreds were foaled and raised in Kentucky (he also owns farms in Canada and Florida) and construct a new farm from the ground up. But he did just that, selling one farm near Versailles and building a new Adena Springs near Paris.

Stronach had dreams of more than just breeding and racing horses. He envisioned turning racetracks into entertainment centers, where customers would not only wager on the races, but also see a movie, shop at a mall, and eat a nice meal. So he began buying racetracks.

In less than a year, starting in December 1998, Stronach-controlled Magna Entertainment Corp. (MEC) bought five tracks, including Santa Anita Park and Gulfstream Park, for more than $330 million. He was not just buying racetracks but the valuable real estate upon which they sit.

Other tracks would be purchased in the ensuing years, as would a tote company and the land upon which was built the Palm Meadows training facility in Florida.

But something else was being built along the way—a huge pile of debt. That debt led MEC to what seemed inevitable for many months: a bankruptcy filing. On March 5, MEC filed for Chapter 11 protection, the day a huge note was coming due. Losses have totaled roughly $300 million over the past three years.

The largest secured creditor of MEC is MI Developments (MID), the real estate subsidiary of Magna International that has loans to MEC totaling $372 million. MID, controlled by Stronach, will continue to loan funds to MEC to continue operations and will also purchase Gulfstream, Lone Star Park, and Golden Gate.

Other tracks, such as Santa Anita, Laurel and Pimilco, Remington Park, and Thistledown, will continue to operate as debts are paid and assets are sold. Each of those tracks may be sold.

MEC’s problems are exacerbated by numerous factors, among them the global economic crisis. Hard hit is the automobile industry, which has dramatically affected Magna International. The company reported fourth-quarter losses of $148 million.

This is not a good time to be selling a racetrack, or most other properties for that matter. Real estate values are considerably lower than when MEC purchased, within a few months of each other in 2002, a majority interest in the Maryland Jockey Club tracks of Pimlico and Laurel for $117.5 million and Lone Star Park for $100 million.

It is doubtful any track purchased by MEC can be sold for a price close to what the company originally purchased it for, because in addition to depressed real estate prices, wagering continues to decline nationally, falling 6.76% in January and February after dropping 20.3% in December.

Shareholders of MID are obviously not pleased with losses associated with helping finance the dreams and passions of company founder Frank Stronach. But dreams and passions are important, and we cannot fault Stronach for his strong belief and faith in our industry.

Cup Cuts - by Dan Liebman

Blood-Horse Staff — Tue, 16 Dec 2008 14:24:00 GMT

The first Breeders’ Cup was held at Hollywood Park Nov. 10, 1984. But in January of that year, long before the first event day, nominators began receiving checks from another of the fledgling organization’s programs, the $10-million Premium Awards.

Calder Race Course was the first track to run a stakes enriched with supplemental monies from the Breeders’ Cup, with 428 stakes at 85 racing associations in North America designated to receive funds to boost their stakes programs.

An examination of the percentage of non-restrictive stakes at each track determined the allocations, with Breeders’ Cup and track officials then determining which races would have their purses increased. Nominated horses would run for the entire purse; non-nominated horses only for the money from the racing association.

In addition, foal and stallion nominators would receive awards, a way to earn back a portion of the dollars breeders pay to fund the Breeders’ Cup.

Over the ensuing decades, the Premium Awards program has been worth a varying number of dollars, enriched different numbers of stakes, and was even sponsored for several years by Budweiser. Now, it has been discontinued.

In a memo to racing officials Dec. 11, Breeders’ Cup senior vice president Pam Blatz-Murff cited “anticipated losses in nominations revenue and the worldwide economic downturn” as causing a decrease in Breeders’ Cup revenue in 2009 of more than $10 million. The stakes program was cut, as was, the memo said, “more than $5 million in television and marketing spending.”

With premium stakes allocations now withdrawn, racing offices, Blatz-Murff said, should “rewrite your condition and stakes books to reflect this change.”

What a week for racetracks. In addition to the Breeders’ Cup bombshell, Santa Anita announced a 10% across-the-board purse cut and Calder was forced to eliminate three grade III $100,000 stakes races. This all comes on the heels of November’s significant drop in handle.

When the Breeders’ Cup began in 1984, its championship event day consisted of seven races with purses totaling $10 million. In 1999, the Filly & Mare Turf (gr. IT) was added, and the purses rose to $13 million. In 2007, flush with money from rising stud fees and profitable investment accounts, Breeders’ Cup expanded, adding three races and changing the event to stretch over two days. This year, the program expanded to 14 races featuring purses worth $25.5 million.

Now, with the stock market in turmoil and stud fees falling, Breeders’ Cup officials were forced to make some hard decisions. But it is difficult to know the full financial picture, because though funded for 25 years by breeders, the Breeders’ Cup does not issue an annual report to the industry.

Unfortunately, in deciding where to cut costs, the Breeders’ Cup has opted to cut a program that stretches across North America and rewards more nominators and horsemen in favor of two days of racing and a total of 14 races.

The Breeders’ Cup is one of the few ideas in racing that has actually endured, but it has not caught on with general sports fans. Few know it by name and the television ratings have never taken off. The Classic (gr. I) will never replace the Kentucky Derby (gr. I) as the race non-racing fans can identify with.

On the other hand, the stakes program was a way to enhance stakes at large and small tracks alike. Whether the race was increased from $20,000 to $25,000 or from $200,000 to $300,000, it was a chance for eligible horses to earn more and for owners, breeders, jockeys, and trainers to be rewarded for supporting the program.

Racing secretaries and stakes coordinators are understandably disappointed by the decision. Many breeders will be, as well. Tough times lie ahead for breeders. Now they have fewer chances to recoup some of their nomination money.

Scaling the event back to one day to save the Premium Awards would have helped more horsemen.

What's Going On Here : santa anita

Building Blocks - by Dan Liebman

Cup Cuts - by Dan Liebman