Stronach Group
Why Not?
Steven Crist on extending the Pegasus World Cup concept:
The central idea of the Pegasus is to raise purse money from owners rather than through an extraction from the parimutuel handle. Horseplayers have been told for generations that they must pay an exorbitant 20 percent takeout on their wagers because of the need to pay purses as well as to staff and maintain a racetrack. Now, however, we have a rare case where the purse has already been funded.
So, why not eliminate the takeout on the race entirely, or at least slash it to a low, player-friendly rate such as 10 percent? That would make this a revolutionary race for the customers as well as the owners.
(I think I hear someone muttering, “to hell with the bettors.”)
The other Steve of the turf trade press proposes a Pegasus reality show.
Stars Aligning
The Pegasus World Cup is coming to Gulfstream on January 28, 2017, and to get a spot in the 12-horse starting gate, owners will have to buy an entry for $1 million, which will go into the purse, making the $12 million Pegasus the world’s richest Thoroughbred race. (Somewhere, Sheikh Mohammed’s gritting his teeth at this trumping.) The money doesn’t only guarantee entry, though:
All entrants will not only be competing for the world’s largest purse, but they will also share equally in 100% of the net income from pari-mutuel handle, media rights, and sponsorships from the Pegasus World Cup, according to The Stronach Group announcement.
Aspects of the Pegasus plan, which allows owners buying an entry to also lease a starter or sell their place in their gate, immediately reminded me of Fred Pope’s star vision from 2011. You might remember this idea:
Maybe, just maybe, the system we have been using for compensating our talent in racing has become a problem, a big problem. This year, if things go well, Uncle Mo’s races could have total wagering handle of more than $200 million. With average takeout of twenty percent, the wagering revenue generated by Uncle Mo’s races, $40 million, will go somewhere else.
Of that $40 million, about $10 million (5% of the $200 million wagered) will go to the host tracks where the races are held and be split between track operators and future purses. The remaining $30 million (15% of the total wagered) will go to those simply taking bets on Uncle Mo’s races. Why?
Why can’t the top finishers in Uncle Mo’s races receive the $20 million in purses due from wagering on their races? Our stars need to be compensated for the revenue they generate. That’s how the real world works.
Racing’s welfare system is not working for those putting on the show, thus it is not working for Uncle Mo, and the other brands in the sport. Racing needs the same distribution model as the Apple brand, where Apple sells customers direct, through bricks and mortar outlets and through on-line vendors.
The Pegasus World Cup is selling direct. Even if it doesn’t upend the current economic structure of racing, it’s a step in that direction.
5/19/16 Addendum: I missed this Tom LaMarra story in January, which quotes Frank Stronach addressing the business model experiment angle:
“The basic idea is how can racing compete with other great sports?” Stronach said. “We’ve got to make things exciting, things the press will write about. We want to tell people that love horse racing that we say, ‘Look. We want to establish a new business.’ We would lease Gulfstream for one day and call it a new business.”
He was cagier about it when asked by T.D. Thornton last week:
TDN: If the profit-sharing concept works with a race of this magnitude, could the concept be scalable? By that I mean could you see profit-sharing trickling down as a way of funding other types of races or even entire racing programs or race meets?
FS: That’s possible. But smaller races are less interesting, right?
Suffolk Dates on MGC Agenda
The Massachusetts Gaming Commission takes up Suffolk Downs’ application for three days of living racing this year once again on Thursday — a vote on the three-day plan and a discussion of the 2016 racing season are on the agenda for the MGC meeting that begins at 10:30 AM. The track is amending its requested dates to September 5, October 3, and October 31.
Lynne Snierson reports for the Blood-Horse that there will be no lease deal with the Stronach Group to run a full meet at Suffolk Downs — the scenario sketched by trainer Billy Lagorio at the Commission’s meeting two weeks ago, prompting a delay on the application then:
“I can say definitively that we will not have an arrangement whereby The Stronach Group will lease or operate racing here,” Suffolk Downs chief operating officer Chip Tuttle told the Blood-Horse Aug. 5.
Tim Ritvo, chief operating officer of The Stronach Group and a Boston native who began his career as a jockey at the once-thriving New England tracks, did not respond to repeated requests for comment.
Tuttle and Ritvo talked on July 29 about any potential Stronach Group interest in running racing in East Boston. They had no further discussion. Ritvo did speak with the Boston Globe for a July 30 article, politely shutting down the idea of a Stronach-managed meet in the near future. “Boston is a very lucrative market and we’re interested,” he told reporter Sean Murphy. “We’re open to anything, but it seems like a stretch to get it done immediately.”
Opposition Delays Suffolk Decision
Thursday’s Massachusetts Gaming Commission meeting should have started with a bit of good news for Thoroughbred racing in the Commonwealth: It had a vetted application from Suffolk Downs to run three days this year on its agenda. It had a recommendation from state racing director Alex Lightbown to approve that application. It had Suffolk Downs COO Chip Tuttle in the room to answer any lingering questions about the proposed plan, which called for an organization helmed by racetrack executive Lou Raffeto to run live racing on August 8, September 5, and October 3 for up to $500,000 in daily purses, with at least three state-bred stakes carded.
Instead, after 75 minutes of sometimes contentious discussion and occasionally fantastical testimony from trainer Bill Lagorio that the Stronach Group was interested in leasing the track to run a full meet, the Commission voted 4-1 to delay a decision on the application for two weeks, in the vague hope of establishing that interest. “We would be interested in a bigger deal, if a bigger deal could be made,” said Commission chair Steven Crosby. “I would like to know if there is a viable option out there.”
Commissioner James McHugh was alone in pushing back, asking how two more weeks would clarify the situation. A letter of interest from the Stronach Group had been requested, he said, “and it didn’t materialize.”
Prediction: It won’t. The Stronach Group sent a rather tepid statement via email re: the discussions reported by Lagorio and confirmed by Tuttle:
The horsemen contacted The Stronach Group to see if there was any interest. We contacted the ownership of Suffolk Downs to see if there was any way to participate in the racing operation. We’re a racing company, we look at racing properties. Boston is a big market and we have a lot of racing content. There is absolutely nothing in place after a few calls were made.
Lagorio, the leader of a group of horsemen opposing the three-day plan on the grounds that it doesn’t adequately support Massachusetts racing, recounts more positively his conversations with Stronach COO Tim Ritvo in a July 20 letter to commissioner Gayle Cameron (page 27 in this PDF):
I also had major breakthrough with the Stronach Group, on Thursday afternoon I received a call from Tim Ritvo … he told me his company had reviewed everything I had presented to him … and that they would like to be … here in the Commonwealth … Stronach views the Boston market as being untapped with unlimited potential; they’re looking for an opening to make it possible … Tim wasn’t sure if he would be able to make on the 23rd but said he would email the commission to verify to you their interest in making Massachusetts part of their success story.
At one point in Thursday’s meeting, the trainer said that the Stronach Group was so sure of Massachusetts’ racing promise that Ritvo had said they “didn’t need” the Race Horse Development Fund, which is funded by a percentage of casino license fees and revenues. The money is split 75-25 with the state’s harness racing industry and is available to support purses and breeding.
“Anyone who says they don’t need the Race Horse Development Fund is crazy in my mind,” replied Crosby.
Tuttle told the Commission that Ritvo “expressed a polite level of interest.”
The opposition horsemen would like to run at least 50 days and believe the $1.7 million in Race Horse Development Fund money allocated for the proposed purses in the three-day plan is better banked for a longer meet. Lagorio stated in Thursday’s meeting that $1.7 million could support several weeks of racing at the level it was run at Suffolk Downs in 2014 — never mind that that’s hardly the kind of racing anyone wants to watch or bet, or the sort of meet a shrinking industry with too-few foals is capable of supporting.
Crosby became caught up enough in the possibility of Stronach interest that he tried exploring how the Commission could use their power over Suffolk Downs’ simulcasting license to compel negotiations. “What’s the incentive for Suffolk Downs to negotiate?,” the chair asked after McHugh noted that without control of the simulcast signal, the Stronach Group wouldn’t see value in a lease to run racing. The subject was dropped when Tuttle protested that there was no reason for the Commission to compel any talks with an application for racing that met all statutory requirements pending.
“I’m speechless at this point,” he said. “To allow the leader of the dissidents to get up and talk about a potential offer that realistically has no merit in the long run? They can talk about it all they want, but as soon as the Stronach people come and take one look at the balance sheet of Suffolk Downs, they’re going to run so far in the other direction, and the horsemen will be left hanging.
“There is no way in the world that any other entity can come in here and lease this track and make it viable. I’ve seen the balance sheet and that’s the fact.”
That fact is why an earlier proposal for the New England HBPA to lease the track and run a full meet this year had to be scrapped when it became apparent that — even with the Race Horse Development Fund and a legislative rejiggering of revenue splits — there was no way to run without still losing money. The national HBPA and New England HBPA support the three-day plan.
Tuttle told Matt Hegarty at Daily Racing Form (DRF+):
“I’ve learned to expect the unexpected with this commission,” he said. “We reached a deal with the horsemen and breeders, and we are going to do our best to honor that, within reason. If we get any additional delays, we’re going to have to look at some other options.”
Suffolk’s COO also pointed out that the Stronach Group has had plenty of time to make something of their interest, telling Snierson:
“The Stronach Group is a very reputable and respectable racetrack operator, but they have had 10 months to kick the tires and express any legitimate interest, and we have never seen a proposal from them.”
Years, actually. Rumors of Frank Stronach taking an interest in New England racing have been floated since at least the early ’00s, when he sent a string of horses to Suffolk Downs. “We need a legitimate racetrack operator,” Lagorio said to the Boston Herald. “The answer to racing in Massachusetts for years to come is the Stronach Group.” The trainer was pushing a similar line in 2005, the year before the current Suffolk Downs ownership group took over:
“It’s a great track for Stronach,” Lagorio said, citing the money the gambling chief could make “resurrecting this track and making it a showplace.”
Some dreams die hard.
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