A guest post by Jerry McMahon.
There was no one less surprised than yours truly at the recent disclosure by officials of the Los Angeles County Fair Association that indicated that the company was looking into alternative uses for portions of land and buildings currently devoted to its Thoroughbred operations, including barns utilized by Barretts Equine Limited, a company I helped start in 1989. In today’s brutal California economy (the one in which thousands of tenured teachers have been given pink slips) not even a not-for-profit company can afford to sit passively on 50+ underperforming acres. The Fair’s President, Jim Henwood articulated it well last week in statements to The Thoroughbred Times and Blood-Horse.
More than a year ago now, I looked at everything going wrong in the California game, and realized that I was neither persuasive nor talented enough to do much about it. Having been in a leadership role in the sales business for more than 25 years, it was time for somebody else to bring a fresh perspective. And the current staff at Barretts has done a terrific job under the circumstances.
After reading Mr. Henwood’s statements I decided to revisit some of my core beliefs about the industry. One of those is that you can’t run a commercial auction business in a vacuum. It has to be an integrated part of a healthy Thoroughbred breeding and racing circuit, whether that is local, national, or international.
On the horse supply side, Barretts was developed on the theory that if we built it, they would come. They did come…. from Florida and Kentucky and Virginia and South Carolina (and buyers from the UK, Dubai, Saudi Arabia, Tokyo and points in between), but not so many from Santa Ynez, Temecula, Fresno, or Paso Robles. It seems that the housing boom had wiped out huge amounts of acreage previously devoted to Thoroughbred production. Perhaps the current housing slump could actually be a good thing for the local industry, if we could figure out a catalyst for renewed production of quality runners. Also, I don’t think you can have a deep and healthy racing environment on the island that is California without a viable commercial auction business. The industry can HOPE that its owners and trainers will venture back east to the established markets there and bring back large numbers of future runners, but the truth is that many of those horses get poached along the way by racing circuits in those areas. (Don’t get me started on how our 10+% sales tax literally induces California owners to buy, train, and race outside the state!)
Filling California’s races with quality home-breds is never going to be the answer. That’s primarily because it is well-known within the industry that breeding to race is for billionaires and people who hate money. Just ask a Kentucky breeder how much they enjoy buying one back in September. Unless California’s stake-holders prefer to operate a weekend only and/or seasonal game (because that’s where we’re currently headed), racetrack managers, owners and trainers, regulators, breeders and all the other stakeholders need to care about what happens to Barretts and its first-class facilities, not to mention its track record of attracting top-class talent to the state. Remember Brocco, Brother Derek, Sharp Cat, Officer, Unbridled’s Song, etc.? Do you recall where the late, great Bob Lewis and current heavy-weight Jess Jackson bought their first horses?
So what kind of vehicle could be used to re-stimulate our commercial market? One idea that has been utilized elsewhere in various formats, and previously proposed by others in California, is the concept of providing enhanced stakes purses for runners that have passed through local auction rings. This has usually been undertaken by private auction companies like Magic Millions or Goff’s in an effort to compete with other, more established companies. In those cases most of the purse money is put up by the individual breeders and subsequent owners, a concept that won’t work in California due to the currently depressed breeding environment.
A plan that the industry here might consider would be a lucrative, year-round stakes program for sales graduates funded through a combination of: 1) current purse allocations at each track; 2) racing association contributions; 3) a portion of the funds currently allocated to breeders and stallion awards; 4) auction house contributions, based on commissions earned; 5) breeder/consignor contributions (on a sliding scale, based on sale price; and 6) buyers in the form of continuing eligibility payments.
Of course the devil is always in the details when it comes to these things, but the overriding goals would be to bring the entire industry together in support of California’s commercial market before it is too late to save it, and to insure a steady supply of quality runners for the state’s racetracks.
If Barretts is allowed to go the way of Bay Meadows and (soon to be gone) Hollywood Park, the rest of the industry might just follow sooner rather than later.
For more information about McMahon, see Contributors on the About tab.
Tuesday, March 30, 2010
Thursday, June 18, 2009
Sales Tax Rate to 9.75%: Final Nail in the Claiming Coffin?
by Jerry McMahon
For a variety of reasons nearly every U.S. racing secretary will say that claiming is the heart of the racing industry in this country. That’s why alarm bells are ringing as a result of significant (as much as 66%) declines in claiming activity at the current Hollywood Park meet. The downturn in Southern California has generally been attributed to the weak economy, and with the indicators being what they are, no one can really dispute that conclusion. I for one, however, think that the 1% state-wide sales tax increase that went into effect April 1, 2009 is a major contributing factor to the decline. And if that’s the case, what happens when the L.A. County rate rises to 9.75%, as it is set to do on July 1st?
I have to admit that my concern on the subject began years ago while running local auction companies and watching almost every expensive horse purchased being sent out of state. The reason? Nobody wanted to write a check to the state for $8,250 for every $100,000 horse that they bought. Because of this, local owners with top-tier tastes are usually out-bid by foreign and out-of-state buyers. After July 1st, L.A. County auction buyers wanting to keep their purchases in California will effectively be 9.75% behind their out-of-state competitors during the bidding process. The only way for local owners to get around this is to immediately ship their purchases out-of-state, and to make sure that they remain there for at least 60 days. The problem with that loophole for local racing secretaries is that many of these horses never make it back to California.
Now let’s get back to the issue as it relates to the claiming business. Let’s say a claiming stable begins the year with a $200,000 pot to finance claims. During the course of the year, they make 10 claims for an average price of $40,000, while of course losing several of their horses to other claiming stables along the way. That amounts to $400,000, times 9.75% for a total tax of $39,000. The stable claiming pot has been reduced to $161,000, WITHOUT paying one bill or losing a horse to injury! Disturbingly, and unlike procedures in some other racing states, you could claim the SAME horse three times, and still pay the full tax each time! As one prominent claiming owner told me, “The financial model here is already broken, and the sales tax rise will only make it worse.”
During the past few decades, the sales tax issue has been brought up by industry leaders on numerous occasions, only to have political consultants call any reform ideas D.O.A. with respect to California lawmakers. Not surprisingly, the California boating industry has effectively preserved more favorable sales tax rules during the same time period, despite the fact that relatively few boats are actually built in the Golden State.
From time to time the industry has had opportunities for legislative relief in various categories. This was recently evidenced earlier in the year during the tense budget negotiations that that resulted in significant racing license relief, as well as purse benefits for horsemen. I would strongly suggest that industry sales tax relief be thrown in the hopper in the unlikely event that a similar opportunity comes along again.
For the record, it should be noted that the additional 1% tax instituted in April is scheduled to sunset in 2011. Given the state of the state, I wouldn’t hold my breath on that actually happening.
Previous posts by McMahon: Stud Fees, Auction Prices Good Handicapping Tools, and Commercial Bloodstock Markets: Supply's the Key.
For information about Jerry McMahon, see Contributors on the About tab.
For a variety of reasons nearly every U.S. racing secretary will say that claiming is the heart of the racing industry in this country. That’s why alarm bells are ringing as a result of significant (as much as 66%) declines in claiming activity at the current Hollywood Park meet. The downturn in Southern California has generally been attributed to the weak economy, and with the indicators being what they are, no one can really dispute that conclusion. I for one, however, think that the 1% state-wide sales tax increase that went into effect April 1, 2009 is a major contributing factor to the decline. And if that’s the case, what happens when the L.A. County rate rises to 9.75%, as it is set to do on July 1st?
I have to admit that my concern on the subject began years ago while running local auction companies and watching almost every expensive horse purchased being sent out of state. The reason? Nobody wanted to write a check to the state for $8,250 for every $100,000 horse that they bought. Because of this, local owners with top-tier tastes are usually out-bid by foreign and out-of-state buyers. After July 1st, L.A. County auction buyers wanting to keep their purchases in California will effectively be 9.75% behind their out-of-state competitors during the bidding process. The only way for local owners to get around this is to immediately ship their purchases out-of-state, and to make sure that they remain there for at least 60 days. The problem with that loophole for local racing secretaries is that many of these horses never make it back to California.
Now let’s get back to the issue as it relates to the claiming business. Let’s say a claiming stable begins the year with a $200,000 pot to finance claims. During the course of the year, they make 10 claims for an average price of $40,000, while of course losing several of their horses to other claiming stables along the way. That amounts to $400,000, times 9.75% for a total tax of $39,000. The stable claiming pot has been reduced to $161,000, WITHOUT paying one bill or losing a horse to injury! Disturbingly, and unlike procedures in some other racing states, you could claim the SAME horse three times, and still pay the full tax each time! As one prominent claiming owner told me, “The financial model here is already broken, and the sales tax rise will only make it worse.”
During the past few decades, the sales tax issue has been brought up by industry leaders on numerous occasions, only to have political consultants call any reform ideas D.O.A. with respect to California lawmakers. Not surprisingly, the California boating industry has effectively preserved more favorable sales tax rules during the same time period, despite the fact that relatively few boats are actually built in the Golden State.
From time to time the industry has had opportunities for legislative relief in various categories. This was recently evidenced earlier in the year during the tense budget negotiations that that resulted in significant racing license relief, as well as purse benefits for horsemen. I would strongly suggest that industry sales tax relief be thrown in the hopper in the unlikely event that a similar opportunity comes along again.
For the record, it should be noted that the additional 1% tax instituted in April is scheduled to sunset in 2011. Given the state of the state, I wouldn’t hold my breath on that actually happening.
Previous posts by McMahon: Stud Fees, Auction Prices Good Handicapping Tools, and Commercial Bloodstock Markets: Supply's the Key.
For information about Jerry McMahon, see Contributors on the About tab.
Tuesday, February 24, 2009
Stud Fees, Auction Prices: Good Handicapping Tools When Assessing Maidens
by Jerry McMahon
A few years back, Daily Racing Form incorporated a couple of important items into its racing Past Performances relating to breeding and auction markets. These are the current stud fee for a runner’s sire, and the auction sale price (if any) for the runner itself. Each can be helpful in assessing potential, particularly when it comes to handicapping maidens in their first few starts. When both items are included for the same horse, they can be used together to present a better picture of how the horse in question might be expected to perform.
For example, newly retired Storm Cat, sire of the recent La Canada winner, Life Is Sweet, has been one of America’s most successful stallions on the track and in the auction ring. Over the years, his stud fee has been as high as $750,000, and his auction yearlings routinely commanded seven figures. On that information alone, his progeny have always garnered respect in their first few races.
Be that as it may, there have been plenty of occasions when his sons or daughters have brought less than $100,000 at auction. Generally speaking, that occurs when a sale prospect has serious conformation defects or significant medical issues that have been uncovered prior to the auction. Astute handicappers therefore give a lot less credence to his first-time starters that have been bought at auction for a relatively small percentage of his stud fee.
We’ll use the recently completed Ocala Breeders’ Sale of Two-year-olds in Training for an example at the other end of the spectrum. Hip Number 197 in that sale was grey or roan filly by the previously unheralded sire, Concorde’s Tune.
Florida-based Concorde’s Tune currently stands for an advertised fee of $2,500. The filly in question was knocked down to the highly-experienced Irish buyer, Dr. Demi O’Byrne, for the tidy sum of $225,000, nearly one hundred times the stud fee! Of course the Paul Harvey (...the rest of the story) on this was that the filly worked an eighth in less than 10 seconds and galloped out like she could run all day. The sale price coupled with the stud fee should catch the eye of discriminating handicappers when the filly makes her first start, probably later this year.
Keep in mind that Daily Racing Form attempts to provide current stud fee information. Therefore, the fee listed on the past performance line might be substantially different than what the breeder paid at the time of conception. The trend behind the change can be just as important as the fee itself. Similarly, the auction data presented for each runner is only the most recent information available. Quite often horses have been through more than one sale prior to making their first start.
Interested fans can easily bolster their knowledge on these issues by visiting thoroughbredtimes.com, bloodhorse.com, and thoroughbreddailynews.com. Just click the free links related to stallions, sales, or auctions.
McMahon is an auction industry consultant and former founding president of Barretts Equine Limited, California's premier regional sales company. He has more than 35 years experience in the racing industry, having previously served as auction sales manager for CTBA Sales and vice president of Fasig-Tipton California, Inc. In his previous guest post, McMahon discussed commercial bloodstock markets and supply. Watch for his upcoming guest posts.
A few years back, Daily Racing Form incorporated a couple of important items into its racing Past Performances relating to breeding and auction markets. These are the current stud fee for a runner’s sire, and the auction sale price (if any) for the runner itself. Each can be helpful in assessing potential, particularly when it comes to handicapping maidens in their first few starts. When both items are included for the same horse, they can be used together to present a better picture of how the horse in question might be expected to perform.
For example, newly retired Storm Cat, sire of the recent La Canada winner, Life Is Sweet, has been one of America’s most successful stallions on the track and in the auction ring. Over the years, his stud fee has been as high as $750,000, and his auction yearlings routinely commanded seven figures. On that information alone, his progeny have always garnered respect in their first few races.
Be that as it may, there have been plenty of occasions when his sons or daughters have brought less than $100,000 at auction. Generally speaking, that occurs when a sale prospect has serious conformation defects or significant medical issues that have been uncovered prior to the auction. Astute handicappers therefore give a lot less credence to his first-time starters that have been bought at auction for a relatively small percentage of his stud fee.
We’ll use the recently completed Ocala Breeders’ Sale of Two-year-olds in Training for an example at the other end of the spectrum. Hip Number 197 in that sale was grey or roan filly by the previously unheralded sire, Concorde’s Tune.
Florida-based Concorde’s Tune currently stands for an advertised fee of $2,500. The filly in question was knocked down to the highly-experienced Irish buyer, Dr. Demi O’Byrne, for the tidy sum of $225,000, nearly one hundred times the stud fee! Of course the Paul Harvey (...the rest of the story) on this was that the filly worked an eighth in less than 10 seconds and galloped out like she could run all day. The sale price coupled with the stud fee should catch the eye of discriminating handicappers when the filly makes her first start, probably later this year.
Keep in mind that Daily Racing Form attempts to provide current stud fee information. Therefore, the fee listed on the past performance line might be substantially different than what the breeder paid at the time of conception. The trend behind the change can be just as important as the fee itself. Similarly, the auction data presented for each runner is only the most recent information available. Quite often horses have been through more than one sale prior to making their first start.
Interested fans can easily bolster their knowledge on these issues by visiting thoroughbredtimes.com, bloodhorse.com, and thoroughbreddailynews.com. Just click the free links related to stallions, sales, or auctions.
McMahon is an auction industry consultant and former founding president of Barretts Equine Limited, California's premier regional sales company. He has more than 35 years experience in the racing industry, having previously served as auction sales manager for CTBA Sales and vice president of Fasig-Tipton California, Inc. In his previous guest post, McMahon discussed commercial bloodstock markets and supply. Watch for his upcoming guest posts.
Friday, January 23, 2009
COMMERCIAL BLOODSTOCK MARKETS: The Supply's the Key
From Hokkaido, Japan to Newmarket, England and points in between, vibrant Thoroughbred auctions hum along in support of regional, national, and international racing circuits. It’s been my longtime observation, particularly as industry costs and risks have increased, that very few individuals have the wherewithal to breed horses as a primary means to achieve success on the racetrack. Nature being what she is, the odds against success are simply too high to be borne by one individual, except in very unique circumstances (aka lots of luck or VERY deep pockets!). It’s no coincidence, then, that in this country the old-money families that dominated racing through the 1940s were gradually replaced by owners who utilized the auction ring or the claim box to fill their racing stables.
Other than the happy outcomes brought by the occasional Stymie or Lava Man, claiming is usually for those who love the day-to-day action and arbitrage that goes with it. Owners shooting for the home run most often find their way to auctions composed of unraced Thoroughbreds: weanlings, yearlings, or 2-year-olds. Perhaps the best West Coast example of this type of owner would be the late, great Bob Lewis, who rode the auction ring to success in the Triple Crown races and beyond.
So what makes a successful commercial market? The simplest answer would be a credible market that has a large, dependable supply of horses with enough depth in quality to attract large numbers of buyers. The only way to achieve this is for the auction company to have access to plenty of professional breeders and consignors whose over-riding goal is to produce the best runners possible. For the whole process to work, the auction prices have to be high enough to support the investment by the breeders; and… oh yeah, the resulting runners have to be successful enough to keep the whole cycle in motion year after year, even through difficult economic times like these. Ultimately, buyers have to believe they’ll get runners from that particular auction.
Next up: Sires and the Ring
McMahon is an auction industry consultant and former founding president of Barretts Equine Limited, California's premier regional sales company. He has more than 35 years experience in the racing industry, having previously served as auction sales manager for CTBA Sales and vice president of Fasig-Tipton California, Inc. Watch for his upcoming guest posts.
Photo by Benoit & Associates
Wednesday, December 10, 2008
Chatting with Jerry McMahon at Clockers' Corner
Wednesday morning I met Jerry McMahon at Clockers' Corner, Santa Anita, where he is a frequent visitor. McMahon recently announced his resignation as president and general manager of Barretts Equine Ltd., the Pomona, California Thoroughbred auction company he founded in 1989 with Fred Sahadi and former Fairplex Park CEO Ralph Hinds.It was not surprising to find McMahon at Clockers' Corner. "Clockers' Corner to me represents the focal point of our industry in Southern California," he said. "In some of the other states with breeding and racing centers, like in Lexington, KY, Ocala, FL, and Saratoga, NY, they have more structured social functions, dinners, and so on," McMahon explained. "Clockers' Corner is where all that happens here in Southern California, in terms of social networking and business networking."
Places like Clockers' Corner -- where ordinary fans mingle with racing's elite trainers, riders, owners, and industry representatives like McMahon -- are truly unique and special. And Santa Anita's Clockers' Corner is one of the best kept secrets in horseracing. It's a place where families can come on Saturday and Sunday mornings for a delicious trackside breakfast, or just donuts and coffee, and watch the horses training against the backdrop of the beautiful San Gabriel mountains.
"Clockers' Corner is, to my way of thinking, the single best marketing tool that we have for our sport in Southern California," McMahon agreed, "particularly in terms of what families can enjoy."
Speaking about his recent announcement, McMahon said, "I have had a really great 20-year run with Barretts, and I just felt that I needed freshening up, by looking for a new opportunity, hopefully within the business. The response I've gotten to the announcement has been really supportive. People have been expressing appreciation for the work I've done and wishing me the best. It has been really great."
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