When Toronto’s Woodbine Entertainment Group (WEG) announced Jan. 26 it was making what it called necessary reductions to its Ontario Sire (OS) bonus program, the reaction from Ontario breeders was predominantly negative.
“Certainly, I’ve heard from people that they’re going to cancel breeding contracts or they’re going to sell mares or they’re not going to breed mares. I hope that is, ultimately, not what happens because that hurts everybody, significantly,” said Canadian Thoroughbred Horse Society (CTHS) Ontario president Glenn Sikura.
WEG chief executive officer Jim Lawson said he was astounded by the backlash that was fueled somewhat by social media. He said the changes were necessary to try to fill races and get in the greatest number of the some 1,800 horses on the Woodbine backstretch.
“We don’t have any agenda here other than to make our races go,” Lawson said. “This is the thing that astounds me about the backlash. I’m not saying we’re 100 per cent right, but we’ve got to give something a try.”
What’s changed and why
In his announcement, WEG director for racing Steve Lym explained the changes would amount to dropping the OS bonus on allowance races and maiden special weight (MSW) races from 40 per cent (in 2015) to 30 per cent. The bonus for all other eligible races would decline from 30 per cent to 20 per cent.
Citing “declining horse supply,” Lym wrote that WEG can also, “no longer support a parallel program of open races and restricted OS races. Therefore maiden allowance OS races for three-year-olds and older will be eliminated. MSW OS races for three-year-olds will be offered until midsummer, and continue all season for the two-year-olds.”
He stressed that WEG “is not planning any changes to the base purses of our overnight races in 2016.”
WEG management said filling races is a main reason for the changes. Too many races restricted to OS horses is causing the open races to run with short fields, or not at all. That is having a negative impact on WEG’s bottom line and the numbers seem to bear this out. Comparing the OS and open versions of the Maiden Special Weight (MSW) classes WEG ran in April, June, July and November of 2015 shows the open class consistently had fewer starters and lower wagering, thus justifying an adjustment to force more OS horses to race in the open. Taking all four months together, the OS version of the MSW averaged nine starters and per race wagering of $391,687, compared with 7.6 starters and an average bet of $344,390 on the open side. The OS MSW ran 64 times, compared to 48 for the open.
Sean Pinsonneault, WEG’s executive vice-president and chief operations officer, said the goal is a more balanced card.
“We have to be constantly looking at our stakes program, our condition books and everything else to make sure we’ve got it set up so we can get as many of the horses we have here already raced more often. We also have to make sure we’re attracting horses from outside this market. The problem is going to get increasingly worse if we’re not careful. Everyone is fighting for the same thing — horses. So, we have to be smarter than we’ve ever been in this area and be very strict with the way we run this thing to make sure we’ve got a balance and to make sure that it’s attractive to as many as possible because we struggle with the issue that we’re a bit of an island up here.”
Jamie Martin, WEG’s executive vice-president of racing added, “As our horse population shrinks, we’re trying to write a condition book that meets our needs with the number of races and number of horses per race. What that does is it offers fewer categories, generally… About half of the horses on the backstretch are Ontario Sired and we need them, but we need to funnel them into other categories in some ways to fill races, generally.”
Sue Leslie, president of the Horseman’s Benevolent and Protective Association (HBPA) of Ontario said WEG told the HBPA that, “if we become a jurisdiction that runs nothing but Ontario Sired horses we’re going to lose our major investors. Once we lose our major investors and the top quality horses, we’re going to lose the interest of the bettor, the customer. The customer wants to see large fields and quality products.”
Overpayment of the OS bonus was also a major issue.
“One of the reasons we created a bonus plan was to provide an additional incentive for Ontario Sired horses to run in open races,” Martin said. “We looked at our 2013 actuals and said, ‘If we apply the bonus it will be about $2 million.’ In 2014, it ended up being $3.6 million. So, probably 40 per cent was too rich, but based on our thinking and based on our 2013 experience, we thought it made sense. In 2014, that number went up to about $4.4 million.
“It’s a hard number to manage. It’s one thing to budget for purses, generally, but to budget for bonuses, you’re predicting which horses will do better in open races… So, it is a reduction — it absolutely is — but it is because the results far exceeded our expectations and we just have to dial that back.”
Sikura said breeders generally understand that the program paid out much more than it intended and changes were necessary.
“I think (breeders) may have reacted reasonably with regard to cutting back the percentage of the bonus, because you can’t spend what you don’t have and we don’t have that amount of money,” Sikura said. “Woodbine won’t get an argument from us on that. Any reasonable person in the breeding industry will understand the money that’s generated, you can’t spend a million or two million dollars in excess of that and run a business for too long.
“Where I think (breeders are) having difficulty is the idea that there will be fewer opportunities now for the Ontario Sired horse. So, the losing of the maiden races… and the loss of the non-winners of three condition, people are taking that very seriously.”
Lack of consultation?
What the breeders also take issue with is the fact WEG did not consult them directly before making changes.
Mike Rogers, the business manager at Adena Springs, said in an email on Feb. 3 that decision was “handled poorly” by WEG. “It would have been nice if Woodbine would have considered bringing the breeders into the discussion since they were the most effected by the decision,” he wrote.
Leslie said the HBPA spent some “six months” discussing possible changes to the OS program with WEG.
“I can tell you we consulted at length and for a long, long time and it was extremely difficult,” Leslie said. “The reality was, we couldn’t agree on a way to do this that we thought was fair to everybody… There was no vote taken by the board of the HBPA because there was no consensus. I just want it to be clear that this was a Woodbine decision, not an HBPA decision.
“The only thing the HBPA could agree upon is we did not want the maiden allowance and the non-winners of two Ontario Sired purses reduced. And, we wanted the bonus shared amongst everybody… We left it to (WEG) because we couldn’t agree on how it should be split.”
Leslie said WEG dealt with the appropriate participant group and she’s not sure whether consulting the CTHS directly would have resulted in much more than the little HBPA achieved in its negotiations.
“It was war between all of us (on the HBPA board), because there is no one solution,” she said. “The only thing I would say is it’s traditional across North America — and maybe it’s time for things to change, I don’t know — that there’s an HBPA in every state and every province and there’s a breeders organization in every state and every province. Horsemen’s organizations have a contract with the racetracks and the contract states that they must consult with the HBPA before they change purses. The next line of the contract says that after they consult with the HBPA, they can do what they want.
“Then you have the CTHS, the breeders’ organization, whose role is to look out for the breeders, handle breeders awards, discuss the criteria for mares and that kind of thing and HBPA doesn’t interfere in that. So, in the eyes of Woodbine, they consulted with the HBPA, which is what their contract requires them to do. They feel that most members of the CTHS are also HBPA members.”
Pinsonneault said communication over such a complicated issue has been difficult.
“It’s tough to communicate it with context all the time,” he said. “I think that’s part of the problem. If you sit down and really talk to someone, I think they can understand. There’s probably still a lot of emotion that goes with it for sure, but, ‘Here’s the rationale. Here’s what we’re trying to do. We’re not trying to skimp on purses. We’re trying to do a balanced program that will better for us in the long run.’ When I say ‘us’ I mean the industry in the long run.”
More notice, phase in changes, slippery slope?
Yet, Sikura said that, “certainly there’s debate whether (the changes are) too harsh, too quick, whether there should be notice given on a program change of this significance.”
Rogers added, “If Woodbine then found it necessary to make changes, it would have been easier if these changes were phased in so that breeders could prepare properly.”
Martin politely disagreed. “If we were cutting out the program, I would agree with you there,” he said. “(The breeders) will disagree with this because they are concerned with the slippery slope and they don’t want to lose any opportunities, but, to me, these are tweaks. We’re not eliminating the program.”
Leslie said, “horsepeople and particularly the breeders were owed more notice… but I’m sure when Woodbine first approached the HBPA they didn’t think we’d fight for six months and still not have a solution that we agreed to.”
Sikura said he and others are concerned that these cuts are just the beginning and there will be more to come, causing further instability in the breeding ranks.
“Let’s assume this has to be done and they made a difficult call. They did it, so be it, we’re all going to have to learn to cope with the new rules,” Sikura said. “But what happens next year and the year after that?
“To expect people to breed mares, the one thing you need more than anything else is stability. Where’s the stability and what can we do to show some confidence?”
Rogers emphasized that point. “Breeders like to operate in a stable environment because they base their business on making long-term time horizon decisions,” he wrote. “When the market becomes unstable, those decisions are drastically effected.
“It’s too early to tell the full extent of the impact, but (Adena has) received requests from a number of breeders regarding withdrawing their mares to breed to our stallions. If this trend continues there could be drastic changes in our stallion operation… (We have had) numerous calls and emails with breeders re-thinking their current mating decision.
“Adena has invested millions of dollars into the Ontario Sire program. If the early indications prove to be true, and breeders do cut back, there will be drastic cuts within the Adena sire program, such as relocating stallions, staff reductions etc.”
Leslie said the situation may have been inflamed because horsepeople, “don’t believe (WEG). That’s part of the problem. There definitely is a trust issue between Woodbine and horsepeople, because there’s been some history there that created that. So, right away, horsepeople, including the HBPA board, is always dubious, because that’s what we’ve been trained to do now, to be cautious and to be mistrustful and all of that. That, right away, sets the stage for trouble.”
WEG has serious challenges
On the flip side, Lawson said WEG is facing some serious business challenges of its own in the post-slots era with increased cost of content and operations.
“Now that I’m peeling back the onion on this I’m saying to my guys, ‘Holy jeez, how are we even operating this business at this level?’ They said, ‘Well, that’s exactly the problem and it’s getting worse because our costs are escalating, the rates we’re paying to other racetracks are escalating for their simulcast product,’” Lawson said. “Where we do we go from here?”
“The margins are so thin it’s very difficult to run a business,” Lawson said. “Our other source of revenue is our rent with the OLG, which is effectively fixed. So, at the end of the day, where do you get your growth? We can increase our pari-mutuel wagering, and we will, but even if we increase it one per cent per year, the margins are so thin today that if we increase it, it’s likely not keeping up with inflation.
“Our biggest assets are also our biggest liabilities, which is a 1956 capital plant (Woodbine) and 680 acres. The legitimate requests for capital costs this year were nearly $50 million. We’re not going to be able service anywhere near that amount. The size of the building, you would never build anything like that today. We use that building one day a year for that size of crowd. That’s not a cop out, it’s just hard.”
If not this, what?
Martin said he has asked horsepeople to come up with different solutions. Leslie said she is doing the same of her membership.
“Everyone that writes in, everyone that phones me — and I’ve talked to a lot of people the last week — none of them agree what the solution is,” Leslie said. “The only solution everyone can come up with is, ‘leave it the way it is.’ Woodbine is not going to do that. I keep telling people, ‘Bring me a better idea.’ Everyone has ideas, but they can’t get any support for them. What idea am I supposed to take to Woodbine?”
Martin said he understands it’s not easy for horsepeople to come up with alternative solutions, but, “I said to Glenn (Sikura), ‘We put out a condition book every two weeks. Things change.’ We know we can’t keep going with the status quo, which is what they want. We can’t keep going with the status quo because eventually we’ll pay the piper on it. We’re just going to have short cards. So, what are we going to do about it? This is what we’re suggesting we do about it,” Martin said.
Others support the changes
Those who have Ontario Bred horses (but not Ontario Sired) have expressed support for the changes, Sikura, Leslie, Lawson and Martin said.
“There are more people that have stomped their feet than have applauded this decision, but the ones that have applauded this decision have a major stake in the industry, as well. They choose not to participate in the OS program, as is their right, and they have complained, I guess, which is why we’re even entertaining these new rules,” Sikura said. “They have complained that they just don’t have opportunity to run their horses. They have horses that cost them a great deal of money to generate and they’re sitting in stalls without the opportunity for races to fill because so much of the horseflesh is running in the OSS program.”
Leslie said that’s where the HBPA got bogged down in the negotiations.
“There are more than OSS members in our industry. As an HBPA, we have to represent everybody,” she said.
In the end, most agree it is still a good program.
“It’s still a tremendous program. For the record, every horse I own is OSS,” Leslie said.
“If you look at what the program looked like many years ago, none of this stuff existed,” Sikura said. “It is bigger and better. Even the shaved down version that currently is being proposed is still bigger and better than what existed many years ago,” Sikura said. “I’m still breeding. I had a couple mares booked to Ontario stallions and I’ve done nothing because of the new program to change my thinking. I hope people don’t over-react.”
“We’re not trying to skimp on purses. We’re trying to do a balanced program that will be better for [the industry] in the long run.” — Sean Pinsonneault
