PERSPECTIVES ON THE JOCKEY CLUB INVESTMENT IN BLOOD-HORSE PUBLICATIONS

The Jockey Club and the Thoroughbred Owners and Breeders Association (TOBA) announced last week that the former had acquired a 51% stake in Blood-Horse Publications, the centerpiece of which is the weekly Blood-Horse magazine.  James Gagliano, president and chief operating officer of the Jockey Club, explained why the acquisition was made:

“The Jockey Club stewards believe that a publication with the history, influence, and brand recognition of Blood-Horse is a considerable asset for the Thoroughbred breeding and racing industry, and there are certain synergies that can make it an even stronger publication as the result of this transaction.”

I look at the Jockey Club purchase of Blood-Horse Publications from my own experiences as a business-school professor, a businessperson, and a marketing consultant.  In my view, the deal is unquestionably in the best interests of both the Jockey Club and Blood-Horse Publications, for the following reasons.

First, the Jockey Club has a deep and proven reservoir of business expertise in the executives who are responsible for day-to-day operations.  These individuals are not known to micromanage the various Jockey Club subsidiaries, but are there to provide oversight, guidance, and resources, as well as to facilitate the cooperation among the subsidiaries that promote efficiencies and synergies.

Second, the Jockey Club membership ranks are filled with people who are demonstrably committed to the advancement of horse racing, but who come from very diverse backgrounds.  While some individuals have been eminently successful in businesses that have nothing to do with horse breeding and racing, other members have earned their livelihood within the horse racing and breeding enterprise.  Such vast knowledge, divergent capabilities, and single-minded devotion to the furtherance of horse racing are unique among industry groups.  As a result, Blood-Horse Publications is in the hands of highly competent people who want it to succeed for the good of horse racing.

Third, in acquiring the majority interest in Blood-Horse Publications, the Jockey Club has purchased a venerable asset whose magazines have strong brand equity and a history of having editors and writers who produce award-winning articles.

Fourth, the Blood-Horse magazine has a critical mass of (paying) subscribers who, on average, are very affluent.  This fact appeals to some kinds of advertisers more than actual circulation figures.  Thus the magazine’s upscale audience can potentially be used to attract advertisers that one might not ordinarily associate with horse racing.  The Blood-Horse’s digital edition and its recently launched Spanish-language version position it to accommodate changing reader preferences and to reach an increasingly important demographic cohort, respectively.

Lastly, Blood-Horse Publications is now backed by a financially stronger organization than TOBA.

Though the Jockey Club and its members are sometimes criticized as being elitist or wanting to run racing for their own benefit, the facts tell a different story.  An objective and dispassionate examination of the record shows that the Jockey Club has spent large sums of money to strengthen the American horse racing franchise.  For example, the Jockey Club wholly or jointly owns and operates eight entities (nine with Blood-Horse Publications) vital to horse racing, convenes an annual roundtable covering contemporary topics, and showcases horse racing on television.  On at least two occasions, it has commissioned in-depth studies by McKinsey & Company, the premier management consulting firm in the world.

The preeminent non-racetrack organization in American horse racing has acquired the majority interest in the equivalent of the Dow-Jones Company of its industry.  With creativity and innovation, the entire horse breeding and racing industry will be better off from the combination.

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(Disclosure:  I occasionally write for the Blood-Horse as a sideline but I am not an employee of Blood-Horse Publications nor have I ever been.)

Copyright © 2015 Horse Racing Business

COURAGEOUS ATHLETES CALLED JOCKEYS

I marveled at pictures in January 2015 of rock climbers Tommy Caldwell and Kevin Jorgeson ascending the 3,000-foot wall in Yosemite National Park named El Capitan.  Similarly, Nik Wallenda’s high-wire walk in October 2014 between Chicago skyscrapers was a captivating feat of daredevil.

What makes automobile race drivers tick has always intrigued me.  The starts of the Indianapolis 500 and the Daytona 500 are especially dangerous and the possibility of accidents and fatalities are ever-present in car racing.

College and professional football players risk long-term damage and in particular irreversible injury to the brain.  A recent study at Harvard found that the average life expectancy for a former National Football League player is 55 to 60 years old.  Professional boxers are in the same category, with blows to the brain taking their toll, causing early death and/or dementia.   I don’t know for sure whether Muhammad Ali’s Parkinson-like symptoms are a result of cumulative blows to the head over a long career in the ring, but it certainly has to be the leading suspect.

Jockeys who ride racehorses are not daredevils like the rock climbers or Nik Wallenda.  Nor do they incur repeated trauma to the head like football players or boxers.  Yet jockeys ply their hazardous trade on almost a daily basis with serious injury or worse a bad step by a horse away.

The motivation to be a jockey is partly monetary, for the best of them are high earners, but money does not come close to explaining why some people turn to riding horses for a living.  In fact, the vast majority of jockeys never make it into the top echelon of race riding and labor for relatively small pay at secondary racetracks.

If you have ever ridden horses for show or pleasure, you can probably envision what it would be like to pilot a Thoroughbred racehorse in the Kentucky Derby, with 19 other jockeys trying to get position and racing room.  Winter racing is even more hazardous because of weather-related track conditions.  Many equestrians have seen for themselves what it is like to ride a horse with metal shoes on a treacherous surface.

Jockeys don’t draw nearly the same amount of attention as rock climbers or high-wire walkers.  Yet these diminutive athletes are arguably more in peril because of the number of races they ride, day after day and year after year.

The courage it takes to ride in races is considerable.  Given a choice, I’d rather take my chances as an NFL player than run the risks of becoming a paraplegic or quadriplegic in a horse-racing accident.   Or pay the ultimate price.  While jockeys have to be small in physical stature, they also have to be skilled and tough as nails.

I would like to see more innovation, experimentation, and regulation in horse racing pertaining to the safety of jockeys.  This could include, for example, improved equipment, better track surfaces, and aggressive vetting and exclusion of horses that should not be running.

Trainers and track vets have a solemn ethical responsibility to make sure that the horses they ask jockeys to ride in races are sound.  Racetrack executives have the same moral obligation to ensure the safest track surfaces possible, including cancelling races when conditions warrant.  When in doubt, err on the side of caution.

Copyright © 2015 Horse Racing Business

INVESTING IN CONTROVERSIAL INDUSTRIES LIKE GAMING

Investors who want to put money into “pure play” publicly traded horse racetracks can no longer do so because there is not one such corporation left.  Companies with their roots in horse racing like Churchill Downs (CHDN), Penn National Gaming (PENN), and Canterbury Park Holding Company (CPHC) have all expanded into gaming.  While most of these firms have performed well for investors, some individuals and mutual funds or ETFs won’t buy their stock because the bulk of their revenues comes from gambling.

The Wall Street Journal (February 14/15, 2015) reported on a mutual fund that recently changed its name from VICE to Barrier Fund (VICEX) to avoid some of the negative connotation that goes with the main industries it invests in:  alcohol beverages, defense/aerospace, gaming, and tobacco.  (The Barrier Fund tries to invest at least 80% of its assets in these four industries.)  The mutual fund’s name is meant to convey that the four industries have significant barriers to entry and thus are moat-like.

Over the past 10 years, the Barrier fund had an average annual return of 8.3% compared to the S & P 500’s average of 7.9%.   By contrast, the Vanguard FTSE Social Index Fund (VFTSX) returned 7.2%.  The Vanguard Index tracks “a benchmark of large- and mid-capitalization stocks that have been screened for certain social, human rights, and environmental criteria.”

The major holdings of the Barrier Fund include several prominent gaming companies, such as Wynn Resorts, MGM Resorts International, Las Vegas Sands, and Galaxy Entertainment Group in Hong Kong.

While alcohol beverages, defense/aerospace, gaming, and tobacco are not recession proof industries (there is no such industry), they are recession resistant.  The only down year for the Barrier Fund in the last 10 years was in 2008, one of Wall Street’s worst years ever, when the Fund lost 41.57%.

The returns produced by gambling-related companies, including those owning horse racetracks, are generally impressive.  Whether such investments belong in one’s portfolio is, of course, a matter of individual choice.  What is a “controversial” line of commerce is in the eye of the beholder.

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Interestingly, because a person owns, trains, or rides racehorses does not mean, ipso facto, that he or she is in favor of gambling.  For instance, in the 1950s and 1960s, non-betting Mormons Rex Ellsworth (owner) and Mesh Tenny (trainer) had a powerful stable that included the great Swaps.  Other examples:  While there is betting on the Dubai World Cup, none is permitted at the Meydan Racecourse where the event takes place.  Well-known retired jockey Pat Day turned Christian evangelist may bet, but it is doubtful.

Copyright © 2015 Horse Racing Business

(Note:  Horse Racing Business is not recommending an investment in the Barrier Fund or a gaming stock, as each person needs to do his or her own due diligence and weigh the fees and risks of a particular stock, ETF, or mutual fund.  In addition, past performance may not be a good indicator of future performance.)