04/30/2008 11:00PM

Wall Street makes a run for the money


LOUISVILLE, Ky. - The last time an ownership group from New York won the Kentucky Derby, the owners arrived at Churchill Downs in a yellow school bus and their horse was a New York-bred gelding who cost $75,000.

On Saturday, an ownership group from New York will attempt to win the Derby with two horses they bought into for an estimated $8 million. Among the modes of transportation the group will use to get to Churchill Downs are two 15-seat Hummer stretch limousines.

Michael Iavarone, a former Wall Street executive from Long Island, founded the International Equine Acquisitions Holdings, Inc., a month before Jack Knowlton and his nine friends that raced as Sackatoga Stable won the 2003 Kentucky Derby with Funny Cide. Backed by big-money Wall Street investors, International Equine has quickly become one of the more prominent owners in the sport. In the last 21 months, IEAH Stables has won 14 graded stakes, including the Breeders' Cup Mile and the Dubai Golden Shaheen.

In Saturday's 134th Kentucky Derby, IEAH will be represented by the favorite, Big Brown, and the live longshot Court Vision. Big Brown, whom IEAH owns with Paul Pompa Jr., is the brilliantly fast, undefeated winner of the Florida Derby. Court Vision, whom IEAH co-owns with WinStar Farm, was a multiple graded stakes winner at 2 and is arguably the best-bred horse in this year's Derby.

"This is friggin' crazy," Iavarone, 37, said in a recent interview. "The other night [Iavarone's wife] Christine was talking about hats, and I said I can't believe we're talking about sending the favorite to Churchill. On top of that, sending a horse like Court Vision that most people would rip their left arm off to have, and he's like our substitute in case there's a meltdown in pace - it's beyond my wildest expectations."

Iavarone is a casual racing fan who liked to gamble on horses. His partner, 54-year-old Richard Schiavo, many years ago lived within walking distance of Aqueduct but never attended the races. They are co-presidents of International Equine, which is actually divided into three companies. IEAH Stables and IEAH Corp. are subsidiaries of IEAH Holdings.

IEAH Stables is in charge of the racing, while IEAH Corp. oversees the construction of an equine hospital across the street from Belmont Park. The Ruffian Equine Medical Center, due to open in mid-to-late summer, is a 23,000-square foot facility whose projected cost is $16 million. International Equine is looking to build more hospitals in other states.

"It was the one part of the business that was reliable," Iavarone said. "You knew it was brick and mortar, you knew it was going to be consistent. You didn't have to worry if you were going to buy a $400,000 animal who wrenches his ankle in a hole. We knew if we could come up with a consistent business plan on one side of it, we could be a little bit more speculative and aggressive on the other side of it."

In the last two years, International Equine has attracted some big-money investors who have enabled Iavarone and Schiavo to be aggressive in the purchasing of quality, proven runners. Wall Street executives James Tagliaferri and Andy Cohen joined International Equine and have brought in partners who have invested more than $25 million into the organization.

International Equine has scored by purchasing all or part of Kip Deville, who won the Breeders' Cup Mile, Benny the Bull, who won the Golden Shaheen, Pure Clan, who was to run in Friday's Kentucky Oaks, Sharp Susan, who will run in Saturday's Edgewood Stakes at Churchill, and Irish Smoke, a Grade 1-winning 2-year-old filly set to make her seasonal debut in Saturday's Nassau County at Belmont.

Iavarone has become one of the primary targets of bloodstock agents looking to sell a horse. But Iavarone said he has said no many more times than he has said yes.

"We turn down 95 percent of what we see," Iavarone said.

Last summer, on closing day at Saratoga, Iavarone watched a first-time starter by Boundary win a maiden turf race by 11 1/4 lengths. He immediately called his trainer, Richard Dutrow Jr., to tell him he wanted to buy the horse. Dutrow told him, "I'm all in, babe."

Iavarone negotiated a deal with Pompa to buy 75 percent of Big Brown for a ballpark figure of $3 million. Quarter cracks sidelined Big Brown until March, when he won two races in 24 days, including a five-length romp in the Florida Derby.

Court Vision had a solid record as a 2-year-old, winning 3 of 4 starts including the Grade 2 Remsen. IEAH bought half-interest in him from WinStar in late January. Court Vision is a son of Gulch out of the dam Weekend Storm, who is a full sister to the 1990 Derby runner-up and Preakness winner Summer Squall, and a half-sister to the 1992 Horse of the Year and Belmont winner, A.P. Indy.

"He may be the best-bred horse in training right now," Iavarone said.

Breeding will soon be another key component of the International Equine empire. It is building a solid broodmare band and breeding the mares to top stallions. The plan is to sell the offspring at auction and use that money to continue to buy proven racing stock.

With a full-fledged and highly successful racing operation combined with the breeding operation and the equine hospital, Iavarone believes his company has assets that will be intriguing to high-end investors. Thus, International Equine will soon start what Iavarone is calling a horse hedge fund that people can invest in.

The fund, which will consist of horses and be managed by International Equine, will be appraised on a quarterly basis and investors can either stay in or get out. Later in the year, Iavarone hopes to take the company public.

"Investors will have the option to buy into the holding company, which gives them a little bit of everything, or buy directly into the fund and just be involved in the horse racing side of it," Iavarone said. "What we're trying to do is create a platform for the investment bankers, and by creating a management company instead of a racing stable it's a lot more palatable for them to sell to their investors."

While it all sounds so corporate, the International Equine team does enjoy its success. According to Iavarone and Schiavo, they have spent more than $500,000 in transportation, hotel rooms, and tickets to get all the International Equine employees and their families to the Derby. They could have as many as 102 people at Churchill. A victory by Big Brown in Saturday's Derby could result in chaos in the winner's circle, as an official from Churchill told Iavarone the winner's circle would be limited to 50 people.

"If she tries to stop my people from getting in the win photo, I'll run her over with the harrower," Iavarone said.