By FRANK STRONACH — The horse racing world was rocked earlier this year by a large number of horse deaths at Santa Anita Park. These highly publicized deaths, which sparked widespread public outcry, were the result of negligence on the part of management.
The breakdowns at Santa Anita Park were due to over-medication and a poor race track foundation. Both of these issues could have been corrected by management but it was driven by profits instead of what was best for our industry and its stakeholders. The tragic deaths at Santa Anita were a wake-up call for the entire horse racing industry.
Clearly, we need a different model for running our sport – one that puts control of our industry in the hands of stakeholders and preserves our industry for the benefit of future generations.
The Reason and Rationale Behind My Proposal
Before I go into specific details regarding my proposal for a new industry framework for our industry, I should provide some background about how I came up with the idea.
In 2010, I decided to sell operating control of Magna International Inc., a company I had started in a garage as a one-man operator. By the time I sold my ownership in Magna more than 50 years later, the company was listed on the Toronto and New York stock exchanges, had annual revenues of approximately US$40 billion and 160,000 employees working in nearly 30 countries around the world.
My reason for selling control of Magna was to take the wealth I had accumulated and invest it into businesses that rested on a strong foundation of valuable real estate. My concern was that if I passed away, there was a possibility that my children might sell the shares from their inheritance and spend the proceeds, leaving nothing for future generations. If you don’t earn the money yourself, money is always hard to hold onto. I did not spend my entire career building valuable companies and generating substantial wealth so that the companies I created could be dismantled and sold. I built these companies for benefit of the Stronach family and its future generations.
This desire to preserve my family assets for future generations, together with my desire to protect the horse racing industry, is when I came up with the concept for a new industry framework. I believe it is a framework that that would not only provide future income to the beneficiaries of my estate but also preserve and enhance the horse racing industry.
Proposal: A Not-for-Profit Horse Racing Trust
The proposal I am putting forward involves placing our family racetrack properties into a not-for-profit trust managed by industry stakeholders (e.g., racehorse breeders, trainers, owners, etc.) The trust would enter into a lease arrangement with these stakeholders to ensure the continued operation of the tracks. As a general guideline, the annual lease payment would be 2% of the Stronach family investment in each track and 1% of the annual handle of each track. This lease arrangement would be very similar to a retail lease, in which the tenant pays a rental fee to the property owner together with a portion of the store sales.
To provide an illustration of how the funding model would work, take Santa Anita Park as an example. The Stronach family invested approximately $250 million in the race track. As a result, an annual lease payment of 2% would equal $5 million. The annual handle at Santa Anita Park is approximately $900 million, so 1% of the handle would be $9 million. Together, this would represent an annual lease payment of $14 million, which would be paid entirely out of proceeds from the handle, with no liability to the stakeholders. As long as the lease obligations were fulfilled, the horse racing industry stakeholders could continue to run the tracks in perpetuity. In the event the lease was not paid, then ownership and management of the tracks would revert back to the Stronach family.
Furthermore, via a Horse Racing Bill of Rights, our industry could demonstrate to the public that it is committed to running a world-class sport which makes the safety and concern of the horses a priority – not only while the horses are racing, but also once their racing careers have come to an end.
A Win-Win Proposal
This proposal would not only help preserve the horse industry, which has a significant impact on the US economy, employing some 5 million people on a part-time basis and 1 million people directly, but it would also protect and conserve the Stronach family assets for future generations while providing a steady and reliable stream of income. This proposal also has the added benefit of preventing future family disagreements or disputes over the control of the assets.
To date, my daughter Belinda has not made a strong and unequivocal commitment to preserving our family’s horse racing assets. However my wife, son and I are in strong agreement that a not-for-profit trust is the best solution for the preservation and division of our family assets.
I strongly believe that my children, my grandchildren and all of our family’s future generations would be better served by this proposal. By placing the racetrack properties into a not-for-profit trust, our family will receive a steady and substantial flow of income without having to liquidate any of our assets.
Most importantly, we would safeguard an important industry that is much more than a business but also a deeply rooted culture and cherished way of life. A not-for-profit trust would help preserve that culture for the benefit of the millions of people who work with horses and the millions more who love the sport of horse racing.
The not-for-profit trust is a legacy I would be proud to leave behind.