The proposition advanced in this discussion is that the winner of each race in the Breeders’ Cup World Championships should automatically earn the Eclipse Award for his or her division. This procedure would remove the voting–and therefore the politics and subjectivity–from the Eclipse Awards, except for Horse of the Year, which would continue to be elected.  The end result would be to elevate the overall quality of the horses in the Breeders’ Cup World Championships because an owner of a top horse would not be able to skip the event and still count on his or her horse winning in the Eclipse voting what was not earned on the racetrack against the best competition.


Jess Jackson, co-owner with his wife of Rachel Alexandra, has stated that the sensational filly will not run in the 2009 Breeders’ Cup World Championships because the host track, Santa Anita, has an artificial surface. Jerry Moss, co-owner of the brilliant filly Zenyatta, is of a different mind.

Ray Paulick of the Paulick Report commented on the situation:

“Jackson doesn’t owe the fans anything. He’s put up his money and can do whatever he chooses with his horses. But for him to boycott the 2009 Breeders’ Cup with the sport’s biggest star, despite evidence that Rachel Alexandra has performed well on synthetics over Keeneland’s Polytrack, reminds me of the spoiled kid who didn’t like the way a game was going and decided to take his ball and go home.”

Jay Privman on quoted Moss, as follows, on the Rachel Alexandra/Zenyatta debate:

“The Breeders’ Cup was created for this kind of circumstance… I’m not sure where else to have this meeting. The national press usually centers around the Triple Crown and the Breeders’ Cup. I’m conditioned to respect the Breeders’ Cup…  I didn’t pick the place where the Breeders’ Cup is run. We’ve run in the Breeders’ Cup in all types of weather all over the place. If the Breeders’ Cup was run in New York or Churchill Downs, we’d be all over the country.”

This Rachel Alexandra/Zenyatta “calling out” raises questions about the importance or clout of the Breeders’ Cup World Championships in deciding who has the best horse in a particular division.

Assume for sake of discussion that the Breeders’ Cup World Championships really are the world championships. Now, say, an American-campaigned 2-year-old colt wins the Breeders’ Cup Juvenile and is acclaimed to be a world champion. Should he not also, ipso facto, be the Eclipse Award winner based on what he did on the racetrack in the world championships?

Jess Jackson’s Curlin won two Eclipse Awards in 2008–for Horse of the Year and Older Male–even though he finished third in the Breeders’ Cup Classic. Curlin’s recognition makes sense because the two horses that beat him in the Breeders’ Cup Classic were foreign-owned and raced. But what about American-based longshot Volponi in 2002? He won the Breeders’ Cup Classic but Left Bank was awarded the Eclipse for Older Male and the mare Azeri was voted the Eclipse for Horse of the Year. If Volponi was truly the world champion how could he not be the best in his own country in his division and therefore worthy of the Eclipse Award, regardless of his record prior to the Breeders’ Cup?

If a real-life Rocky Balboa (a human version of Volponi) lands a lucky punch and wins the World Heavyweight Championship, then he is the world champion in spite of the fact that he has always been a journeyman fighter. Buster Douglas’ shocking knockout of Mike Tyson in his prime is an example.

Suppose that Rachel Alexandra does not contest the 2009 Breeders’ Cup. Whoever wins the Breeders’ Cup Distaff is putatively the world champion in this division. Ergo, if the winner is an American filly or mare, most likely Zenyatta, how could Rachel Alexandra be awarded an Eclipse for being the best in this division and perhaps Horse of the Year in 2009?

Switch sports for the moment and consider a hypothetical. A speedy and quick finesse team like the Indianapolis Colts of the National Football League is built for competition in its domed stadium, whereas a muscular “grind-it-out” team like the New York Giants is tailored to outdoor competition, especially in inclement weather late in the NFL season. Further, consider that these teams win their respective conferences and are slated to meet in the Super Bowl, which will be contested in a domed stadium, Ford Field in Detroit. The powers that be with the Giants decline to participate, in spite of the fact that they have the best record in pro football, because the deck is stacked against them, so to speak, as the Colts have a decided advantage indoors. The Colts win the Super Bowl by default since the Giants don’t show up. Later, sportswriters vote the Giants rather than the Colts as the NFL Team of the Year, cutting them slack for their actions.

Ludicrous, you say, and could not happen. Agreed, not in the NFL, but very possibly in horse racing. Yes, indeed, this kind of bizarre and incongruous outcome could eventuate: The owners of Rachel Alexandra bypass the Breeders’ Cup and then she is subsequently voted the Eclipse Award as best filly/mare for 2009 and maybe Horse of the Year to boot.

If this were to happen, one could reasonably surmise that either the Breeders’ Cup races are world championships in name only or the Eclipse Awards voters are in a world of their own. How can a racehorse be a world champion and not the champion of his or her own country, including Volponi in 2002?

The view here is that legitimate championships in any sport can only be won and lost in head-to-head competition, on the playing field, in the arena, in the pool, on the tennis court–or on the racetrack. College football has no playoff system and there is usually controversy over what teams deserve to be in the title game, which is determined by an arcane computer ranking.

If American racing and its year-end showcase the Breeders’ Cup World Championships are to be taken seriously in crowning champions, the racetrack, in lieu of  Eclipse voting, is the place to decide who is best. An owner can race his or her horse anywhere and anytime, but to be a champion the horse has to show up and win when it counts most, irrespective of previous conquests, no matter how impressive.

If this were only true. In reality, a Rachel Alexander can be a no show and still have a high probability of winning an Eclipse Award or two, and in particular if the chief competitor, in this case Zenyatta, were to lose her Breeders’ Cup race. So a horse that does not compete wins the Eclipse Award over a horse that does compete and loses. Something is badly wrong with this picture. 

The Breeders’ Cup World Championships are prestigious but hardly world championships, as evidenced by the disconnect between the Eclipse Awards results and the Breeders’ Cup outcomes and the fact that some of the best horses in the United States and Europe are not entered. For instance, the arguably best turf horse in the world, Sea the Stars, will likely not be brought to the United States for the Breeders’ Cup Turf.

Tacking on the nomenclature World Championships to Breeders’ Cup is an advertising/public relations attempt to communicate to the general public that the Breeders’ Cup is an important event. However, those in the know know that world championships is a bit of puffery, to say the least. Jess Jackson, unless he has a change of mind, may be counting on this when it comes time for Eclipse Awards voters to be asked to confirm or reject what actually transpired on a plastic racetrack surface in California.

A way to strengthen the Breeders’ Cup World Championships and take most of the politics out of the the Eclipse Awards is to stipulate that the winner of each of the Breeders’ Cup World Championship races will have earned the Eclipse Award for his or her division. Eclipse voters would still cast ballots for Horse of the Year. This way, if a terrific racehorse, say a Triple Crown winner, were to be injured and unable to compete in the Breeders’ Cup World Championships, voters could recognize him/her with the award for Horse of the Year.

Copyright © 2009 Horse Racing Business


In the final week of December, 2008, a newspaper headline was ominous:  Retail experts predict more store closings, bankruptcies, layoffs in 2009.”


Will pari-mutuel retailer Magna Entertainment Corporation (MEC) be among the casualties?


The Toronto-based Magna Entertainment was launched in 1999 and its stock is traded on the Toronto Stock Exchange and on Nasdaq.   MEC states in its U. S. Securities and Exchange Commission  (SEC)  filings:  “Based on revenues, MEC is North America’s number one owner and operator of horse racetracks, and is a leading supplier, via simulcasting, of live racing content to the growing inter-track, off-track, and account wagering markets.”  


While this statement is factually true, Magna Entertainment is certainly not a leader when it comes to profitability.  The company has a consistent record of losses and the red ink is burgeoning, so much so that the “Going Concern” section in  its SEC filings is unequivocal: “…the Company’s ability to continue…  is in substantial doubt and is dependent on the Company generating cash flows that are adequate to sustain the operations of the business, renewing or extending current financing arrangements, and meeting its obligations with respect to secured and unsecured creditors, none of which is assured.”


Unfortunately, Magna Entertainment cannot survive on its present course.  Its current ratio, which measures the company’s capacity to meet its maturing obligations, is dangerously below 1, the bottom-line losses are mounting, the company has a negative cash flow, the debt load is growing, MEC is unprofitable on an EBIDTA (earnings before interest, depreciation, taxes, and amortization) basis, and the faltering economy is not conducive to MEC boosting racetrack handle and selling off properties to reduce the debt burden.  In short, the reality is grim and deteriorating rapidly.  Compounding the difficulties, the company has repeatedly had destructive turnover in its top management ranks.  To be sure, a bright spot for MEC is the likely prospect of getting slot machines for the company’s Laurel Park racetrack in Maryland, but that would not be nearly enough or soon enough to rectify the situation.


Moreover, although MEC did a 1:20 reverse stock split, effective July 22, 2008, in order to get its stock price over $1 per share and comply with Nasdaq requirements, the share price has again fallen below $1.  Consequently, MEC is in danger of being delisted by Nasdaq, in which case the stock would trade on the Over the Counter Bulletin Board or on the Pink Sheets.


Magna Entertainment has closed down some facilities and has a number of its smaller racetracks up for sale.  If  MEC could sell one or more of these, it would provide cash to at least mitigate the debt load, but this is a big if in the current economic downturn.  Even were MEC to sell all of the properties it has for sale, in the near future, it still might not be viable because it has a negative EBITDA in all of its geographic operations, including California and Florida where its two best-known racetracks are located.   


MEC’s dilemma is the result of too fast of growth fueled by too much debt to digest and perhaps of overpaying for acquisitions.  The company is de facto bankrupt with no good options left and has destroyed a lot of shareholder wealth.


The judgment here is that most of the MEC racetracks would have a better chance at profitability if they were sold off piecemeal, provided that the new owners bought at a reasonable price (i.e., a price justified by the cash-flow potential) and substituted an equity infusion for debt.  Recapitalization would free management of the onerous task of meeting the interest payments on the debt and thereby allow them to make capital improvements, enhance customer service, and devote more resources to sales and marketing.  


On their own, the racetracks would also be free of the corporate overhead now allocated to them by MEC.  Finally, privately-owned racetracks would not incur the significant costs that come with being a publicly-traded company and all of the associated government-mandated reporting.  And owners would not be as vulnerable to shareholder litigation. 


Magna Entertainment’s founder, Frank Stronach, has a personal story that is both remarkable and inspirational.  It is the journey of a young Austrian immigrant to Canada, who rose from being dirt poor to become one of his adopted country’s wealthiest and most prominent citizens.  Magna International, the auto parts company he started, was the centerpiece of Stronach’s rags to riches saga.  


Stronach also became one of the luminaries of Thoroughbred horse racing.   His farms have bred the winners of most of the sport’s premier events, including Breeders’ Cup races and the Preakness and the Belmont.  What he has tried to do for racing with Magna Entertainment is commendable and entailed a risk that he did not need to take on.  But it has not worked as planned.


Like Stronach and all serial entrepreneurs, they inevitably experience their share of failures.  For Stronach, the Achilles’ heel has been Magna Entertainment, which is not surprising:  an entrepreneur’s sparkling success in one industry does not mean that the person has gained the acumen to be successful in another industry with vastly different characteristics.  The skills and knowledge needed to start, build, and operate an auto-parts industrial company are not the same kinds of competencies required in a retail horse-racing franchise.


The racing industry and its many constituencies have an enormous stake in Magna Entertainment’s outcome.  The shock waves of an outright MEC failure would reverberate throughout the racing world, particularly if the company’s Santa Anita and Gulfstream Park properties were to go the way of commercial and/or residential development in a bankruptcy.  A bloodstock business with a shrinking base of racetracks from which to retail and showcase the product is on a precarious trajectory.   


Major stakeholders in the horse racing industry need to consider purchasing individual MEC racetracks and retaining the best sports/retail executives they can find to operate them, probably via equity-sharing incentive compensation.  Attempts have already been made to buy some of the MEC racetracks, but now that the company’s situation is so desperate, negotiations could be more productive.     


(Full Disclosure:  Bill Shanklin is not a shareholder in Magna Entertainment Corporation and does not have the company’s stock shorted.)


Copyright © 2009, Horse Racing Business


Coming Attractions:


January 17, 2009:  While Kentucky Slept


January 31, 2009:  When Kentucky Awoke


Racetrack companies whose stocks are publicly traded will be assessed in the coming months.