01/12/2018 4:36PM

Stronach Group reaches deals for two of its three Pegasus slots

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Debra A. Roma
War Story wins the Grade 2 Brooklyn last June.

The three slots held by The Stronach Group granting berths in the company’s own Pegasus World Cup later this month at Gulfstream Park have been marketed to potential entrants without any costs attached and with provisions that may allow the other nine slot holders to share in purse earnings, according to slot holders and company officials.

Two of the three slots have already been assigned by The Stronach Group to War Story and Giant Expectations. The owners of those horses did not have to pay any money to The Stronach Group to secure the slots, but they will be entitled to only 50 percent of their horse’s earnings above the $1 million price of the slot. The other 50 percent will be distributed to the groups that purchased slots in the race before the Dec. 15 deadline.

For example, if War Story wins the race, he will earn a first-place purse of $7 million. The Stronach Group will deduct $1 million from the payout for itself, the owners of the horse will receive $3 million, and the first nine slot owners will split the other $3 million, or approximately $333,000 each.

If War Story finishes fourth or worse, however, the owners of the horse will receive nothing, and The Stronach Group will receive the $650,000 guaranteed to any horse who starts in the race, for a net loss to The Stronach Group on the slot of $350,000.

“We felt like we had to do it this way because we didn’t want to give the last three people any better deal than anyone else,” said Tim Ritvo, the company’s chief operating officer. “And I think in talking to everyone that they all think this is a great way to do it.”

The highly unusual structure of the three slots is emblematic of the Pegasus itself, a race that has no precedent in racing history. Held for the first time last year, the Pegasus has allowed horse owners or investors to purchase slots guaranteeing a starting berth in the race, with those berths marketable up until entry time for the race. The funds raised from the sale of the slots is used to provide the purse.

While the 12 slots in last year’s race sold out in a matter of weeks, The Stronach Group encountered difficulties in selling the slots for this year’s version, even after increasing the guaranteed minimum payout to each starter from $250,000 to $650,000 and contributing an additional $4 million to the purse. That led The Stronach Group to purchase the last three slots when they did not sell by the Dec. 15 deadline.

Soon thereafter, The Stronach Group set up a committee to determine how to structure the slots, and it began marketing the slots under the current structure several weeks ago.

The structure of the Stronach Group slots led one slot holder, Ron Paolucci of Loooch Racing, to arrive at a novel strategy. A co-owner of War Story, Paolucci reached out to The Stronach Group for one of its slots despite already having his own slot. The Stronach Group accepted the horse, and then Paolucci wheeled around and struck a deal with the owner of Sharp Azteca to start that horse in the slot he had purchased.

To Paolucci, it was all about doing some simple math. Sharp Azteca, the winner of the Cigar Mile in his last start, likely will go off at odds of around 8-1, while War Story likely will be 15-1 or higher.

“The way the Stronach Group slots are structured, it’s a great deal if you’re a 15-1 shot or a 20-1 shot, anything that high,” he said. “It’s a free shot for $3 million [if the horse wins the race].”

With Sharp Azteca, he was able to get a piece of a horse who has a better chance to win, so he was willing to give up a piece of his slot, reducing his upside but also reducing his risk.

“I’m just trying to give myself the best chance to recoup my money,” Paolucci said, declining to provide details of the deal. “Believe me, this is a great deal for the guy who owns Sharp Azteca. There’s only upside for him.”

Last year, horse owners who struck deals to get into the field late had enormous amounts of leverage over slot owners, and several slot owners ended up reaching deals that did not require the owners of the horses to compensate the slot owners for the starting spot. Instead, the slot owners were guaranteed to receive a percentage of the horse’s earnings over and above the price of the slot.