CHRB Eyes Licensing of Stronach Companies

Six publicly traded racing companies would include thousands of shareholders.

A proposal by Frank Stronach to publicly offer shares in six racing companies, each with a 20-horse stable, can legally conduct business in California, a staff report for the state's horse racing board concludes.

The matter came before the California Horse Racing Board for discussion during the board's meeting at Santa Anita Park Feb. 23.

According to CHRB staff, each of the companies would be required to register as a separate corporation with at least one responsible managing employee listed who must be approved for an ownership license. Stronach is the state's major track owner; The Stronach Group owns Santa Anita Park and Golden Gate Fields in California.

The Stronach Group has proposed selling shares in six new racing companies to the public for $10 per share. The companies are named for prominent Thoroughbreds he has owned or bred through the years.

Golden Pegasus Racing Inc. has been organized to supervise all training and racing development of the horses owned by the companies.

In a letter to CHRB counsel Robert Miller, Michael Rogers, chief executive officer, said the 120 horses in the six companies cost about $7.3 million. Each of the companies, he said, has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission "pursuant to which it intends to conduct an initial public offering of its common stock."

"Among other things, the indirect owner licensing requirements may be deemed to require that each owner of common stock of a company be identified in order for horses owned by that company to race in California," Rogers wrote. "Because the stock sale will be made in connection with proposed public offerings, it will be practically impossible to (list) any stockholder owning less than 5% of the companies other than as of the closing date of any public offerings that may occur."

Frank Demarco, attorney for the Los Angeles Turf Club representing The Stronach Group, told the board Golden Pegasus is seeking a "comfort letter" from the CHRB confirming that the companies will not be prevented from racing nor would it be subject to fines or other penalties in the event that an ownership interest is not disclosed as a result of, for example, a secondary sale. 

According to registration papers filed in December with Securities and Exchange, 405,000 shares are to be offered in each company, potentially raising $4,050,000 each. Each company would race horses purchased as yearlings last year and are now 2-year-olds.

The yearlings were all purchased by Alpen House, which is controlled by the Stronach family trusts. It provided operating capital for the racing companies, which began operations in September.

"We formed these corporations to get more small shareholders invested in horse racing," Demarco said, noting that if the public offerings are successful, "There will be a lot of shareholders."

The racing corporations are named after Stronach’s horses Awesome Again , Ghostzapper , Ginger Punch, Macho Uno , Perfect Sting, and Red Bullet.

Demarco said Golden Pegasus would like to have a letter of assurance from the CHRB by March 12.

Elsewhere, the board deferred action until March on a license application from Hollywood Park to run the spring/summer meet from April 25 to July 17.

Stephen Burn, representing Betfair/TVG, urged the board to continue the regulatory process for exchange wagering while the advance deposit wagering company works with the Thoroughbred Owners of California and others who expressed concerns about the new form of wagering at a CHRB committee meeting Feb. 9.

Exchange wagering was legalized through legislation signed into law last year but encountered some strong opposition from horsemen, the Jockeys' Guild, and The Stronach Group during the meeting.

"It was an illuminating experience going through the hearing," said Burn, who noted he would work to rectify the "misunderstanding" of what exchange wagering is.