11/29/2002 12:00AM

Advice from the business world


The Breeders' Cup pick six scandal has opened a can of worms for the racing industry, which has struggled to show a unified front to the world.

Track operators Churchill Downs, Magna Entertainment, and the New York Racing Association act separately rather than in concert. Racing commissions in California, Delaware, Illinois, and New York offer their own pick six investigations or rulings.

Under this scenario I had an interesting talk with a Las Vegas horseplayer who is a retired executive for a blue-chip company.

Frank Fondnazio retired as a regional sales manager after 34 years with General Electric. Fondnazio worked under retired GE chairman Jack Welch, whom many consider this country's best corporate leader ever. Welch increased GE's value $400 billion in two decades.

Fondnazio was immersed in the GE culture, so I asked him to talk about that and make comparisons with what the racing industry is doing today.

"It was a simple philosophy at GE," said Fondnazio. "If you hire the best, incentive them, pay them well, retain them, then you're pretty much doing things right."

GE employees were well paid but it was pay for performance.

"You were charged with being number 1 or 2 in any business," said Fondnazio. "If you weren't, you were going to be sold or closed."

When GE and the racing industry each knew they needed to upgrade their technology, they reacted in different ways.

"We bought RCA in 1988 for their technology," said Fondnazio. "With RCA came NBC. We weren't interested in NBC. But as it turned out, we bought RCA for $6 billion, and six years later NBC alone was worth $25 billion. So Jack Welch hit a home run."

Two years ago the National Thoroughbred Racing Association and IBM recommended to racetracks a $100 million investment in technology upgrades and the purchase of a totalizator company. Doing that could have prevented the fraud problems racing faces today. The industry rejected the proposal outright.

Every company and industry will run into problems, including GE.

"We would do everything possible to shore up a problem, nip the problem as quickly as possible," said Fondnazio. "We always did what was right to avoid embarrassment, address integrity issues, and never lost sight of the customer as the end user."

Fondnazio added that GE was always "consistent and uniform in its approach," something that is more difficult for the racing industry to do.

"You need to bring the racing industry together more," said Fondnazio. "Everybody is out there doing his own thing. To me, that message is everybody is going in many directions. You cannot be successful running any company or industry when everybody is doing his own thing."

Fondnazio said he also was disturbed that the president of Catskill OTB, where the Breeders' Cup pick six wagers were made, said in the early days of the investigation that he saw no indications of wrongdoing.

"For a person to be questioned about a potential fraud of $3 million, it disturbed me that he pooh-poohed it," said Fondnazio. "He was so grossly wrong that that's frightening.

"If you have a strong person taking control and cleaning up this mess, it's going to be better for everyone."

Fondnazio felt the racing industry did well in hiring former New York City mayor Rudy Giuliani as a consultant.

"If it wasn't Giuliani, it had to be someone like him: a strong person, someone who can get his arms around this situation and bring continuity and uniformity to the industry," he said. "There is no one figurehead who is running the racing industry. Good leadership will lead to excellent results. For that reason, I was interested in reading about Giuliani."

Fondnazio thinks racing can bounce back because horseplayers are resilient and so is the industry. After what has happened, he said, racing must return to marketing basics.

"Our chairman, Jack Welch, was a brilliant man who used to teach us about ROI," he said. "Of course, that stands for return on investment. Then he'd ask if we knew what ROC is. It's an acronym for return of customer. He'd say, 'If we get return of customer, we will automatically get ROI.' That is true in any business or industry. Companies like GE, Nordstrom, and Wal-Mart believe in ROC. It applied to GE, in retail, and should to the racing industry."

Richard Eng is the turf editor for the Las Vegas Review-Journal and host of the Race Day Las Vegas Wrap Up Show.