07/09/2009 11:00PM

No easy solution to Cup's deficit

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NEW YORK - The Breeders' Cup began what it considers a new era in transparency and accountability Friday with a national teleconference call summarizing the results of a long-range strategic-planning study that was presented to its newly configured board of trustees only a day earlier.

Some encouraging things were said that bode well for the future direction of the series, but as Cup officials acknowledged, the devil will be in the details of an as-yet undeveloped tactical plan to implement those strategic recommendations.

The six-month strategic-planning study was performed by the Value Partners Group, a European consulting firm that presented four primary recommendations:

* A greater emphasis on internationalization of the series and building foreign handle.

* Development of new "mission and vision statements," and an attempt to better define the Breeders' Cup brand, which may currently be attached to too many programs.

* A commitment to "refocus" on the customers, whose betting handle is playing an increasingly large role in funding the Cup.

* Creating stronger alliances and long-term relationships with the top American tracks that are likely to host the event and many of the key races leading up to it.

The best news on the international front was the Breeders' Cup has at least for now tabled the somewhat nutty idea of running the races overseas.

"We don't think that's likely to be a desirable or sensible thing to do," said William Field of Value Partners.

Cup officials also acknowledged that building international handle is going to be tricky, given international regulatory issues. It's also unclear how the Cup is going to fulfill its new "vision statement" to be "the most prestigious and popular competition in world racing," without a better plan to attract international stars.

It was encouraging to hear that the views of actual customers will be solicited, though to date this has consisted of a single workshop with one group of heavy bettors.

The idea of long-term alliances with tracks raised the unanswered question of whether the Cup will be looking for financial contributions from its "partners." It sounded like this was the idea when Satish Sanan, a Cup director and trustee who chairs the board's Strategic Planning Committee, spoke of the tracks "sharing the risks and the rewards."

This gets to the crux of the Breeders' Cup's most immediate problem: an operating shortfall of $5 million this year for which there is no apparent remedy. Greg Avioli, the Cup's president and chief executive, acknowledged that fees from foal nominators have declined from $20 million to $16 million annually and "will stay there," in the current market of declining stud fees and bloodstock prices.

The Breeders' Cup takes in another roughly $15 million from its cut of the betting handle (about 10 percent of the $155 million bet over two days last year), and another $6 million to $7 million in sponsorship revenue. That all adds up to around $38 million in revenue against current Cup purses of $25.5 million, a $5 million stakes-supplement program, and another $10 million to $15 million in other expenses.

If international handle and new partnerships don't bridge the gap, purses or races may have to be cut. Avioli said this year's purses will not change, but might in the future. He said the report did not recommend a specific number of races. Many fans and commentators, however, have suggested that it may have been unnecessary to add a pair of $1 million turf races for 2-year-olds, a virtually non-existent division in American racing. Avioli said the report did recommend focusing on a smaller number of divisions in future version of its Win and You're In series, citing the difficulty of getting casual fans to follow 14 different divisions of racing.

The Breeders' Cup, and the outspoken Sanan in particular, deserve credit for going public with the process, however vague and mild these first strategic recommendations may have been. It does seem as if there is movement towards more accountability, perhaps best exemplified by the one slightly testy exchange on the teleconference.

Field had said early in the call that he was impressed that 80 percent of the Breeders' Cup's 46 trustees had responded to Value Partners's request to be interviewed. Later, a Breeders' Cup nominator on the call, Bill Landes of Hermitage Farm in Goshen, Ky., said he thought it was "deeply offensive" that nine or 10 trustees couldn't be bothered to participate in the organization's strategic planning. It's hard to disagree with him.

Governance has been a big issue with the Cup and could continue to be, given its new economics. When the series began 25 years ago, handle was only $16 million, and more than 90 percent of the Cup's funding came from nominations. The organization was, and continues to be, controlled solely by the breeders. With those nominations now providing less than half of the needed annual revenue, though, it may be time for the racetracks and their customers to have a larger role and voice in the future of the Breeders' Cup.