Daily Racing Form National Digital Edition
Pegasus flight faces headwinds
The Stronach Group has sold four shares so far for the second running of the Pegasus Stakes scheduled for late January at the company’s Gulfstream Park in South Florida, according to an official at the company, in stark contrast to last year at this time, when all 12 slots in the race had already been bought.
The slow pace of sales illustrates the growing pains that The Stronach Group is experiencing as it attempts to sustain a race that last year offered a record purse by selling 12 rights to start a horse in the race for $1 million each, with all the proceeds going into the race’s purse. Three of the four shares that have been sold were bought by groups that purchased shares last year, including Frank Stronach, owner of The Stronach Group, and the international breeding and racing operation Coolmore, which last year reached a deal to start the eventual winner, Arrogate, in the race.
Last year, The Stronach Group announced that all 12 slots for the race had been sold in mid-May, eight months before the race was held. Company officials said the slots had been sold in a matter of days after the company began marketing the shares with the promise of participating in a novel scheme that cut the slot owners in on a share of some of the revenues connected to the race.
Tim Ritvo, chief operating officer of The Stronach Group, declined Friday to identify for publication a fourth individual that has reached an agreement to buy a slot. Ritvo said that the company is “confident not only will [the Pegasus] go off but will be even more spectacular than last year” and that officials remain in discussions with slot holders from the first Pegasus and with other individuals.
“We feel very confident we will get to 12 horses,” Ritvo said.
The Stronach Group is encountering difficulties selling the slots, despite significant modifications to the race’s structure that were designed to reduce the financial risks to slot owners. The changes included a $4 million contribution to the race’s purse this year from The Stronach Group, boosting the total purse, on paper, to $16 million, and a guarantee to slot owners that each horse that starts in the race will earn a minimum of $550,000.
However, those changes have not eliminated the fundamental weakness of the race’s structure: Owners of horses that may be competitive in the race have little to no incentive to buy a share early and every incentive to wait until weeks before the race to strike a deal highly favorable to themselves, a predictable dynamic that became strikingly obvious in the run-up to the first Pegasus.
David Fiske, the racing manager for Winchell Stables, which co-owns one of the top horses in the country, Gun Runner, said this week that the owners of the horse have no intention of buying a slot for the Pegasus, even though the race is “on the horse’s radar if we’re doing good” at the end of 2017. The Pegasus is scheduled for Jan. 27.
Gun Runner did not start in this year’s Pegasus, even though several groups owning slots reached out to the horse’s owners to strike a deal. At the time, Gun Runner had spent several weeks under a general quarantine of the Fair Grounds backstretch due to an outbreak of equine herpesvirus at the New Orleans track, and officials at The Stronach Group would not allow the horse to be admitted to the Gulfstream backstretch.
“All you have to do is look at what happened last year,” Fiske said. “The offers started coming in the moment we won the Clark [Handicap at Churchill Downs on Nov. 25], and the deals just got more attractive as the year went on. It seems like there is always going to be someone ready to do a deal with their share.”
Dean Reeves, the third party to buy a slot this year, said this week that he re-upped his commitment to the race because of his belief that the Pegasus will become a “really good thing in the future” and cited the tweaks this year, such as the $550,000 minimum, for “shortening the risk” to slot holders.
Last year, Reeves, who is friends with Ritvo, had trouble securing a horse for his slot until he reached a deal late in the game to purchase a share in Breaking Lucky, who finished eighth at 74-1, earning last year’s minimum of $250,000. The Pegasus will be Breaking Lucky’s target again, Reeves said, unless “we can come up with a better horse, someone like Gun Runner.”
Under the Pegasus structure, the slot owners are eligible for shares of several revenue streams connected to the race, including sponsorships, TV rights, and a portion of the race wagering. Last year, it was estimated that each slot owner earned $150,000 from those sources, though officials for The Stronach Group would not provide detailed figures.
This year, the structure has been modified slightly so that owners will not share in those revenue streams until the revenue hits certain levels, according to several officials with knowledge of the conditions of the agreements for the slots. The change was put in place after The Stronach Group decided to contribute $4 million to the purse, and it will allow The Stronach Group to recoup a large portion of that expense before owners begin to share in the revenue as well.
Despite the additional purse contribution, the winner of the race will receive the same purse payout as last year, $7 million, while the runners finishing second through sixth will receive larger shares than in 2017, according to Reeves and other officials. Because every horse will receive at least $550,000, the total amount distributed through the purse over and above the guaranteed minimums is actually $9.4 million.
The Stronach Group is hoping to juice the revenue streams attached to the race by marketing slots to owners in both Hong Kong and Japan, according to the people connected to the race. Japan recently opened up its enormous betting market to limited simulcasts from foreign countries, with the condition that a Japanese horse be in the field of the race, and North American racing officials have been aggressively courting Japanese runners since then.
Owners of slots last year had until July 1 to make a decision to buy a slot again this year, but that deadline was extended several times as Stronach officials met personally with the owners to convince them to buy back in. Still, nine of the 12 shareholder groups turned down the offer.
Jack Wolf, manager of Starlight Stables, which last year started the third-place finisher, Neolithic, in the race, said he decided against buying a share this year because “the economics didn’t make sense to us at this time.” For the first Pegasus, Wolf was employed by The Stronach Group to administer several aspects of the race, but the relationship was severed just after the race was run.
Still, Wolf said that it’s not unreasonable to imagine a Starlight horse in next year’s Pegasus.
“I really hope it goes off,” he said. “Because we might have a few horses that might be a good fit in there. Provided we get a good deal.”