Does It Make Financial Sense?

by Ed Meyer

posted on December 23, 2008 in Breeders Cup, News | No Comments >>

The Breeders’ Cup and the Oak Tree Racing Association are in negotiations about the size of Oak Tree’s financial responsibility for the shortfall at this year’s Breeders’ Cup.

The amount that Oak Tree could owe the Breeders’ Cup may be in the millions of dollars, according to sources that asked not to be named.

Sherwood Chillingworth, executive vice president of Oak Tree, would not comment on the specifics of the negotiations.

“We are still working on the numbers with the Breeders’ Cup,” Chillingworth said on December 16, “so it is too early to comment with any certainty.”

Oak Tree is a not-for-profit, non-dividend-paying group of California horse owners and breeders who have been operating a fall meet at Santa Anita, under a lease arrangement, since 1969. The 2008 Breeders’ Cup, run over two days in October, was the fourth time Oak Tree has staged the multi-million-dollar event since its inception in 1984.

Jack Robbins, president of Oak Tree, said that the association showed a profit of about $500,000 from the 2003 Breeders’ Cup at Santa Anita. Oak Tree’s profits are spent on racing-related organizations, projects and charities.

A source said that Oak Tree’s guarantee to the Breeders’ Cup for 2008 was about $5 million. Apparently revenues for the two days fell far short of that, perhaps by as much as $3 million. The Breeders’ Cup’s projected revenues for 2009 will be down about $10 million compared to 2008, said Greg Avioli, president of the Breeders’ Cup . Included in the estimated downturn is a $3 million drop in revenues for the 2009 Breeders’ Cup, which also will be held at Santa Anita under the aegis of Oak Tree. The 2008 Breeders’ Cup was the first to be run over a synthetic surface instead of dirt, and 2008-09 will mark the first time that the Breeders’ Cup has been run at the same track in consecutive years.

Like Chillingworth, Robbins declined to comment in detail about the losses incurred at the 2008 Breeders’ Cup. Avioli referred questions about the shortfall to Peter Land, his marketing chief.

“Our contractual relationship with Oak Tree is confidential, so we won’t be commenting,” Land said.

Recently, citing financial considerations, the Breeders’ Cup announced that it was discontinuing the supplementary stakes program, which called for the Breeders’ Cup to pump about $5 million a year in purse money into 100 races at 40 racetracks. A few days later, the Breeders’ Cup, under pressure from breeders, recanted and said that the 2009 supplementary program would still be in place.

The 2008 Breeders’ Cup, only the second to be run over two days, offered a record 14 races worth $25.5 million. Attendance at Santa Anita totaled 82,588, and overall betting surpassed $130 million. Only one other Breeders’ Cup has gone over $130 million in betting, at Churchill Downs in 2006, but that was an eight-race, one-day event, which presumably cost less to stage. Purses at Churchill were approximately $6 million less than what they were this year. Typically, most of the handle that isn’t returned to bettors is shared by the host track, the state, horsemen and off-track betting sites and hubs. In California, tracks receive about half as much from off-track bets as they do from bets placed on-track.

The Breeders’ Cup has conceded that ticket pricing and policies for the 2008 event were a mistake. At one point, the Breeders’ Cup turned over its allotment of tickets to Oak Tree because they were not able to sell them. The cheapest reserved seat in the grandstand sold for $200, which was for both days. It cost $600 to sit in four sections of the grandstand. It is commonplace for racing executives to say that their prices for top races — the Kentucky Derby, the Breeders’ Cup — are comparable to championship events in other sports, but their thinking is misguided, because in racing, unlike team sports, many fans incur betting losses after they pay to get in.

“. . . When we finalized our ticket plans and pricing in March, the economy was much stronger,” Land wrote in The Blood-Horse magazine after the Breeders’ Cup. “That being said, in retrospect, I wish we had provided more lower-priced options for fans and for horsemen, and we also should have allowed more people to choose to come on one day rather than requiring the two-day purchase.”

It is likely that the ticketing strategy will be different at Santa Anita in 2009. Early on for the 2008 Breeders’ Cup, Chillingworth battled with Breeders’ Cup officials over pricing, including the general-admission cost that entitled fans to walk-around privileges at the track. Now both the Breeders’ Cup and Oak Tree have millions of reasons to do better by the fans.