STEVE JOBS AND THOROUGHBRED RACING BY FRED A. POPE

The breeding side of our industry is in trouble only because the racing side is failing.

Racing is failing because off-track bet takers are ripping off racing content. Tracks and purses used to split 18%-20% of every dollar wagered on their races. Today they are getting less than 5%.

I know of no track that makes a profit on its own races.

Can the problem be fixed? Sure. Businesses re-invent themselves when they get in trouble. None better than Apple, which was failing until Steve Jobs returned. Today it is the most valuable company in the world.

The biography, Steve Jobs, tells how music execs went to him for advice. Napster was ripping off their music and sales were falling fast. Jobs figured out what they needed, a secure, central platform to sell their music. He called it iTunes.

The music execs knew music, but not changing technology. They thought they were in the record/cd business, because that was how they were making money at the time. Jobs changed their focus to music content.

The music execs would not do for their industry what Jobs did for them. They were competitors who didn’t know they needed a central solution. When they reluctantly agreed to iTunes, Napster disappeared.

Here’s the lesson. With iTunes handling digital sales, the focus of each music company shifted to producing and marketing music content. Now they make more profit than ever before.

The music case study applies. Racing needs the same solution as iTunes, a secure, central platform to sell racing content direct to customers and eliminate the Napster-like bet takers ripping off the sport.

Once our tracks are no longer in the off-track, bet-taking business, they will focus on packaging and marketing their own races for profit. That changes the future for tracks, the sport and finally, the breeding industry.

National wagering has fallen to about $10 billion, which should still yield over $2 billion to be split between tracks and purses. That’s enough to make this industry whole again, but the revenue isn’t coming through.

When technology allowed off-track wagering, racing chose a bad model for reasons that no longer apply. For example, when Keeneland sends its races to New Jersey bet takers, only 20% of the revenue comes back to Keeneland, while 80% stays with the bet takers in NJ.

But unlike the music companies, the track owners are not victims. They created this insane business model that is killing the whole industry. The tragedy is they will not fix it without outside intervention. That’s because some of them own Napster-like subsidiaries and those with casinos no longer need racing.

Every time racing has been threatened, powerful men and women have used their influence in Congress to protect the sport and agricultural jobs at risk.

That’s what needs to happen now. A central wagering platform will equally protect and serve customers, tracks and racehorse owners.

The vehicle for a secure, wagering platform is within the federal law that permits interstate wagering. A national wagering “trust” can be established by tapping the cash flow in wagering. No federal funds are needed. The new trust can partner with the likes of Google, or maybe Apple, to make it simple for customers.

With a central wagering platform, tracks will profit from their own races for the first time in thirty years. They will have a virtual on-track model with 18-20% of every dollar wagered. That’s enough. Their incentive to package and present races that customers desire increases by 38 states and perhaps worldwide distribution.

Congress wants to help this sport with tracks and breeding farms in most states. When they look across the table at resolute owners and breeders trying to save a sport and way of life, will they also see other people in opposition? Who will appear to say they should be allowed to continue ripping off the sport? Nobody.

Racehorse owners and breeders fund more than a hundred thousand jobs and there are very few track owners to object. A central wagering platform is a politically sound strategy.

If Congress brings in track owners, they only need to ask one question: “If a central wagering platform will give you every dollar of revenue from wagers on your races, tell us why you would not want that platform?”

What odds would you have given that Steve Jobs would take one-third of the music company’s sales, cut them off from contact with their customers and herd those cats to iTunes?

One person can make a difference. Powerful ideas do change the world.

Steve Jobs didn’t save the music industry for the music execs. He loved music and to assure a sound future for the talent who wrote and performed the music, he created iTunes. Economic satisfaction was a bonus.

Some wealthy breeders have donated millions of dollars to influence Congress on political philosophy, but not one dollar has ever been donated to incubate creative ideas for the sport. Breeders need to understand their future is the re-birth of racing.

If there is ever a good time for the silent partners in racing content to be ready to fight, this is it, because without racehorse owners taking a stand, with strong support from influential breeders, the racing side will not change and will soon fail as a national sport.

Timing is everything. iTunes would not have happened without the problem of Napster. And, the technology for a central platform like iTunes, or one for wagering, was not available years ago.

To re-invent a proud sport and industry, we need to follow the words of the late Steve Jobs — “think different.”

Racing content will have enormous value when the talent in the sport moves to protect it, not when those who take bets on it are in control. A central wagering platform gives the sport a new future. As Jobs would end… “Isn’t that cool?”

Fred Pope is president of Pope Advertising, Lexington, which specializes in the Thoroughbred industry.

Copyright © Fred A. Pope 2012. Used with permission.

RINOS ON THE LOOSE IN THE KENTUCKY SENATE

RINO = Republican in Name Only.
_____________

The Kentucky state Senate has rejected a proposed constitutional amendment to legalize casino gambling, and thereby has dealt another blow to the Commonwealth’s most recognizable industry, Thoroughbred breeding and racing. Countless jobs of hard-working Kentuckians will no doubt be lost as a result and education and social services will be deprived of badly needed tax revenues.

Kentucky.com reported: “The Senate debated the issue for more than two hours, with several senators, including Alice Forgy Kerr, R-Lexington, Ray Jones, D-Pikeville, and Julie Denton, R-Louisville, making impassioned personal pleas against the legislation, which they said would hurt Kentucky families.”

The ipso facto selectively anti-enterprise senators who voted no chose to substitute their personal judgment for the preferences of the overwhelming majority of Kentucky voters. Scientifically-conducted public-opinion polls revealed that 80% of Kentucky voters wanted the opportunity to vote on the issue in a referendum.

These legislators were, in effect, saying “We know what is best for you” to the four-fifths of Kentuckians who said they wanted to cast a ballot and decide for themselves. This “nanny-state” philosophy flies in the face of the fundamental tenets of the Republican Party (whose members control the Senate in Kentucky).

The website for the Republican Party of Kentucky (http://rpk.org/) posts the 2008 National Republican Platform as its guiding document for principles and values. This platform was written under the supervision of Kentuckian Robert M. “Mike” Duncan, who was then-chairman of the Republican National Committee.

Consider a sampling of the strong and unequivocal free-enterprise, limited government, and power-resides-with-the people language in the 2008 Platform:

“Economic freedom expands the prosperity pie; government can only divide it up. That is why Republicans advocate lower taxes, reasonable regulation, and smaller, smarter government. That agenda translates to more opportunity for more people.”

“America’s free economy has given our country the world’s highest standard of living and allows us to share our prosperity with the rest of humanity …It creates opportunity, rewards self-reliance and hard work, and unleashes productive energies that other societies can only imagine.”

“Republican ideals are those that unify our country: …Distrust of government’s interference in people’s lives (emphasis added).”

These declarations–and many others in the platform–manifestly don’t leave room for an outcome in which slightly over 20 senators kill a bill in order to deprive millions of Kentuckians from having their say in a plebiscite…or to protect them from the consequences of their decisions. The declarations also don’t sanction elected Republicans to intentionally wound a legal industry, much less one like horse racing and breeding that provides sustenance for thousands of Kentuckians, contributes plenty to tax coffers, and is a source of pride, a signature industry.

Kentucky state senators may call themselves Republicans, but their actions are far afield from the time-honored Republican economic principle of consumer sovereignty and the maxims of such Republican exemplars as Lincoln, Eisenhower, and Reagan. Moreover, Mitch McConnell–U. S. Senator from Kentucky and the Republican Minority Leader–is one of horse racing and breeding’s strongest proponents in Washington.

Nominal Republican state senators who vote nay so that their constituents are precluded from deciding what is in their own best interests are masquerading as Republicans.

Copyright © 2012 Horse Racing Business

Postscript:  I cannot find another instance of where so many elected state officials have been openly hostile to the well-being of the state’s flagship industry. Further, I cannot find another case in which two senators (one from Lexington the other from Louisville) led the opposition to an industry that is so prominent in their home towns.

INTERVIEW WITH DREAM TEAM RACING

Today’s Horse Racing Business presents an inside look at the racehorse partnership known as Dream Team Racing (click here for the DTR website). Dream Team Racing received a great deal of publicity in 2011 when the stable’s Mucho Macho Man (owned with Reeves Thoroughbred Racing) competed in all of the Triple Crown races and finished third in the Kentucky Derby. The colt’s trainer, Kathy Ritvo, had literally received a new lease on life in 2008 when she underwent a heart transplant (click here for a USA Today article on Ms. Ritvo).

Following are performance metrics for DTR entries over the past three years:

2011 47 starts–15% wins and 53% in the money (7 wins, 8 places, and 10 shows)
2010 55 starts–15% wins and 53% in the money (8 wins, 13 places, and 8 shows)
2009 37 starts–14% wins and 51% in the money (5 wins, 9 places, and 5 shows)

HRB When was Dream Team Racing founded?

DTR Dream Team Racing Stable was founded about six years ago with the first horses going to the track five years ago.

HRB Who are the executives operating the partnership?

DTR Dr. James Culver (President) manages the stable’s operations, horse purchases and farm/track/trainer relations & Kostas Hatzikoutelis (Vice President) oversees client relationships and sales & marketing efforts.

HRB What is their occupational experience outside racing?

DTR Dr. Culver has been a successful real estate manager and IS software developer. Mr. Hatzikoutelis has been involved in the wireless/telecommunications industry for more than 20 years.

HRB How did they become involved with racing partnerships?

DTR Both have been investing in syndication partnerships for over ten years and have been involved in owning more than 100 thoroughbreds.

HRB Where do you acquire most of the horses you offer to potential partners?

DTR Dream Team Racing conducts a lot of research at most major yearling and two-year-old sales (the latter being the least preferred way). A big part of the stable’s success rests in the many relationships we have at the farm level. There are many eyes and feet on the ground identifying potential opportunities, so it is not uncommon for us to purchase horses privately. We tend to have a ratio of purchasing one out of every 90 to 100 prospects we evaluate.

HRB What is the price range you typically buy in?

DTR We have identified that the best opportunity for success (in terms of providing the best possible owner’s experience and potential for return on the investment) for our partners is from $50K to $85K at initial offering.

HRB Do you mark up the purchases and, if so, usually by what percentage?

DTR There is no fixed mark-up amount. Since we purchase less than ten new opportunities each year, we are able to directly manage the costs and are very proud to offer a minimal mark up. The mark up generally ranges from $10K to $20K based on the anticipated budgeting demands of each purchase.

HRB Is each horse purchased a separate partnership, or do you ever package several horses into a single partnership, or do some of each?

DTR We have considered bundling horses together but with the varied needs of our investing partners, we offer each horse individually and provide our partners the option to select what suits them best.

HRB What is the smallest financial percentage that one can purchase to become a partner? And what is your philosophy for offering partnership interests in this increment?

DTR We offer ownership shares as low as 1% (one share out of a potential 100) for each horse. Our philosophy is simple; “…make horse ownership as affordable as possible; the sport, not just Dream Team Racing Stable, needs more new owners to come in and those that are in ownership currently, to stay in the game.”

HRB How much financial interest does Dream Team Racing typically retain in each horse?

DTR It varies from horse to horse but in our current string, Dream Team owns an average range of 30% to 50% of each horse and this is what we prefer since part of our value is in having “skin in the game.”

HRB Are all of your purchases either yearlings or 2-year-olds?

DTR Yes

HRB Any prospects coming up to their first race soon?

DTR Yes, there are several to look for including a young three year old in Dale Romans’ barn named Saint Of Saints. Witch Way North is a lightly raced filly that is training in south Florida for a Gulfstream Park debut on the turf. Also, the yearlings all appear very precocious and we expect them to start running this summer as two year olds.

HRB Does Dream Team Racing act as the general partner and the investors as limited partners?

DTR Yes, correct

HRB Who are your trainers?

DTR We feel fortunate to have some of the best horse people in the industry tending to our horses; they include, Bill Mott, Dale Romans, Kathy Ritvo, Bill White, Josh Signs, Pat Quick and we also have excellent conditioners at the farms in developing the young prospects prior to reaching the track in J. D. and Carole Rio at the Nelson Jones Training Center in Florida and Frank Smith at the Elloree Training Center in South Carolina.

HRB How do you decide which trainers receive what horses?

DTR As the horse gets closer to racing, we identify which trainer would be the best fit for each individual taking into consideration the circuit the horse will run on, the ability level of the horse, and of course where the horse would have its opportunity to reach the highest possible potential for our partners.

HRB What are the main racetracks at which you race?

DTR Dream Team is primarily an East Coast operation and we use the Kentucky (Churchill, Keeneland, Turfway), Florida (Gulfstream Park, Calder), New York (Belmont, Aqueduct, Saratoga) circuits but have had horses run in Louisiana (Fair Grounds) & West Virginia (Mountaineer and Charles Town) and Finger Lakes in New York.

HRB How did you acquire Mucho Macho Man?

DTR We acquired MMM through his breeder and early conditioner, the Rios in Ocala. This was the stable’s largest individual initial purchase for our partners and it has proven to be a great acquisition. We were very high on this promising young colt and we took the risk based on his natural athleticism and his good mind. We syndicated him off a value of $80,000.

HRB What are the plans for him in 2012, after his big win in the recent Florida Sunshine Million Classic Stakes?

DTR Kathy Ritvo has done a great job with the big boy (Mucho Macho Man) and she will provide some recommendations soon on where we go next. The important thing is that he is doing great and came out of the Classic in fantastic shape. We expect to make a decision on his next spot during the week of February 20.

HRB What is your favorite memory from the 2011 Triple Crown races? And what are your recollections from the walkover from the barn area to the paddock for the Kentucky Derby?

DTR The walkover from the barn to the paddock for the Kentucky Derby was fantastic, but it went by too fast; we should have been allowed to take a couple of laps around the track to take it all in. There were so many wonderful moments and so much going on during Derby week that it is tough to single out any event. But one thing for sure, to have a modest entity like Dream Team be on that big stage with our partners and friends (some who have invested as little as $800 per share) is amazing. Our fondest memory is probably standing up and cheering our horse down the stretch of the Kentucky Derby with a chance to win; it was something indescribable.

Closing Comment from DTR Dream Team Racing has been successful in getting more horse-racing fans to join the ranks of Thoroughbred owners. The organization offers an attractive value proposition and competes at various levels of competition.

HRB Thank you.

Copyright © 2012 Horse Racing Business