'Tour' Plan: Franchise and Rights Fees for Owners

The proposed Thoroughbred Championship Tour hopes to create a sports franchise for horse owners and a network television package that rivals that of Triple Crown Productions. But the limited liability company that would own the racing series expects to lose an average of $3.7 million in each of its first five formative years because of purse contributions.

The TCT concept was unveiled last year by the Thoroughbred Owners and Breeders Association, whose goal is to showcase the best horses in America and in turn increase economic benefits for owners and others in the Thoroughbred industry. Though losses are anticipated early in the series, the company expects to generate revenue through pari-mutuels, host fees, and, in the long-term, a television contract. If it does eventually obtain its goal for a Triple Crown Productions-type contract--$51.5 million for television rights over five years--it would be on firm footing.

Officials with TOBA and the National Thoroughbred Racing Association met to discuss the plan the afternoon of April 15. The TOBA board of trustees met April 11 and decided to move forward and present the plan to industry groups.

The April 15 meeting was attended by TOBA president Dan Metzger and TOBA trustees John Amerman, Reynolds Bell, Seth Hancock, Stuart Janney III, Bob McNair, and John Phillips. The NTRA was represented by commissioner Tim Smith, vice chairman D.G. Van Clief Jr., and board members G. Watts Humphrey Jr., Jim McAlpine, Tom Meeker, and John Van de Kamp.

"It was a positive, productive first meeting," Janney said in a joint statement released after the meeting. "There will be additional follow-up sessions to explore the future possibilities of working together to grow interest and exposure for the sport."

"We were impressed with the hard work, research, and preparation that went into the TCT plan, and with the offer of new investment capital being made by the TOBA/TCT group," Smith said in the same release.

The group plans to meet again in May.

One of TOBA's objectives is to increase the financial appeal of racing for horse owners. In an earlier interview, TOBA chairman Gary Biszantz said distribution of pari-mutuel revenue needs to be reworked to ensure owners are getting their fair share, and that the TCT is a part of the equation.

According to a draft of the TCT business plan obtained by The Blood-Horse, six divisions of races for older horses would correspond with the Breeders' Cup World Thoroughbred Championships. There would be a TCT Sprint, Mile Turf, Ladies Turf, Ladies, Turf, and Classic. There are two purse scenarios in the draft, but on the high end, the Sprint, Mile Turf, Ladies Turf, and Ladies would each go for $500,000; the Turf would be run for $750,000; and the Classic would carry a prize of $1 million.

All races would be weight-for-age events. To reach the TCT minimum purse, racing associations and horsemen's groups would have to agree to rearrange stakes schedules. Half of the purse increase would be covered by the schedule shift, and the TCT would provide the other 50%, according to the plan. Breeders' Cup would provide $3 million to fund year-end point awards.

The initial members' investment in the plan is $7.1 million. Additional capital contributions on a yearly basis would bring the total investment to about $19.4 million over five years. Projected losses would drop from $6 million the first year to $1.4 million by the fifth year, thus the $3.7 million average.

Under the financial proposal, host tracks would have to give the TCT any revenue over and above what a race generated before it became a TCT event. If a race generates less revenue, the TCT would compensate the host track up to the baseline.

The TCT proposal also calls for a hike in the host fee paid for the signals of races that would be included in the series. The effective rate of 3.8% would jump to 6% and increase export simulcast revenue from $1.07 million to $2.15 million, according to the business plan.

"The implementation of this plan will require execution of a number of contractual and commercial arrangements, including arrangements that may involve changes in the way certain industry participants have previously conducted business," the executive summary says. "There can be no assurance that all of those arrangements can be obtained or can be obtained from participants who would represent the TCT's first choice of business partners."

To maximize revenue, the plan relies on participation by the NTRA. The TCT business plan says the company "is better served by working within the existing NTRA structure for television and the related sale of ad time and corporate sponsorship." The financial model calls for the TCT to spend about $3 million to pay for televised racing in its first five years.

The company would have "founding members," up to 10 Thoroughbred owners who would commit the capital necessary to fund the business plan. The goal is $25 million, and contributions from founding members would be "paid down" if the company exceeds its initial goal.

"Stage II members" as listed in the business plan would have the right to acquire equity at or above a significant minimum threshold. (The draft uses $300,000 as an example.) "Stage III members" would make little or no cash investment in the TCT.

The board would look like this: three representatives elected by founders, two by stage II members, one by stage III members, one by the Thoroughbred Owners and Breeders Association, two by Breeders' Cup, and one by a majority of the other managers. The final seat would go to the chief executive officer unless eight of the other 10 managers want to give the seat to someone else.

Each TCT member must commit each horse they own or control to the series subject to certain exceptions. All horses are eligible to register with the TCT. In addition, a uniform medication policy "equally or more stringent than the strictest TCT host state" would be in place and enforced.