Sales Transparency - an invaluable development

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As this issue of Trainer reaches its readers, the Thoroughbred industry will be approaching its single most important day of the year—not January 1, not Derby Day, not Breeders’ Cup Day—I’m talking about the beginning of the major yearling sales season.

Avoiding controversy is neither my style nor my publisher’s goal in these columns, but I suspect that one of the safest statements I’ve ever made in print is that Jess Jackson is not going to be the most popular man around the sales venues this year. To me, though, he is a hero. Maybe it’s the fact that he’s a brilliant billionaire attorney/ businessman/vintner and I’m just a schlep who loves the Thoroughbred business and writes an occasional column about it, but in three short years, Mr. Jackson has managed to accomplish something I’ve been trying to do unsuccessfully for more than 35 years.

Largely as a result of Mr. Jackson’s efforts, this year for the first time, sales will be conducted under a different, more transparent, set of rules and conditions as in the past because Kentucky sales will be operating under a new law of agency (well, to be more precise, it is a similar law to that which has been on the books for years, but designed specifically for horse sales) even as the industry’s Sales Integrity Task Force continues to meet in an attempt to iron out rules and regulations which will be a significant boon to buyers, but are causing a great deal of consternation among consignors and bloodstock agents.

The root cause of all this is that Mr. Jackson came into the business as a novice three or four years ago and was immediately taken to the cleaners by several of the trusted advisers whom he had hired to guide and protect him from some of the less savory sales practices, public and private, which are all too prevalent in the business—notably, he discovered his agent/advisors were not only taking commissions from him as the buyer of the horses but, unbeknownst to the man they were “representing”, they were also taking commissions from the sellers.

            Before continuing, there are two very important points that need to be made, here. Known as undisclosed dual agency, the above-mentioned practice is, to the best of my knowledge, illegal under all laws of agency, whether you’re trading in horses, cars, boats, widgets or real estate, the point being if a person would logically expect his agent to be representing him, that agent should actually represent his client to the best of his abilities.   On the other hand, there is absolutely nothing illegal, immoral or fattening if all the principals and parties to a transaction are made aware that it’s being employed. In fact, dual agency is so prevalent in real estate transactions that most boards of realtors provide pre-printed forms to be filled out by parties to a dual-agency transaction acknowledging that they have been informed that one agent is representing both sides, that agent has explained the rules under which he is permitted to operate and that the arrangement is acceptable to them.

            Unlike so many new—and experienced—owners and/or buyers who had been victimized in the past, Mr. Jackson refused to take the calumny of his advisors/agents lying down. He hired the most aggressive lawyer he could find, who began suing everyone in sight—some guilty, some unfortunately not(many have been dropped from the suits)—and used his experiences as leverage to get a law passed in the Kentucky Legislature that should increase the transparency of the sales process, which, in turn, will, I believe, help the horse business in the long term.

            However, change doesn’t come easy in life and the horse business is particularly resistant to it. So here are a few of the most common objections to the work of the Sales Integrity Task Force, followed by the reasons that I think it can perform a great service for the horse business.

1.      The good shouldn’t be lumped with the bad. The vast majority of sales companies, consignors, bloodstock agents, etc. are honest, hard-working, competent individuals and agencies who will do a good job for their clientele and will protect them to the best of their abilities, but there always have been and always will be those agencies and/or individuals—top to bottom, large and small—which will bend someone over the barrel given the chance. They need to have something which will, at the very least, make them pause to consider the consequences before they screw somebody—and there should be actual and effective consequences if they’re caught doing so.

2.      The bloodstock industry has not been regulated, heretofore, and regulation would drive off big agents from the American market, particularly the big spenders. There should be some form of licensing or certification process for agents and advisors, and, just as out-of-state and foreign licenses are acceptable temporarily in most jurisdictions, so could bloodstock licenses. Owners are licensed; trainers are licensed; insurance agents, jockeys, grooms, pari-mutuel clerks and even the guys who sell beer are licensed. And, in order to get their license, with the possible exception of the last few, they had to take a test to demonstrate at least some passing knowledge of the rules in order to obtain the license. I’m not talking an MBA in the economics of the horse business or a PhD in conformation, here; anyone who’s been in the business for two weeks knows it doesn’t take a genius to pass the trainers’ exam and I can also tell you from personal experience if you can’t pass the real estate exam, you shouldn’t have a driver’s license (however, there is a substantial emphasis on ethics in the curriculum). Why the hell should agent/advisors be the only people in the business who aren’t educated, licensed or certified to represent people who literally spend hundreds of million dollars on horses.

3.      The physical reporting requirements of the repository are already getting to be a pain in the butt, why should we add another level of paperwork to report ownership of sales horses honestly? I’ve actually heard of yearlings (or interests in them) being sold at an auction before going into the ring and the new owner bidding the horse up in the ring because he knew a client would spend more than what he had paid. I wouldn’t like to be a client of that agent, and neither would you, so making practices such as that more difficult is, to my way of thinking, good for the industry.

Over the past couple of years, I’ve heard dozens of additional arguments why bloodstock agents should not be regulated, but thus far I’ve failed to hear any that impressed me much.

For the past decade and more, I’ve also heard increasingly-desperate cries from breeders, trainers and bloodstock agents, etc., that we need more horse owners. Those people as much as anyone should know how difficult it is to survive, much less be successful, in the horse business ad adding a layer of difficulty in the form of less than total honesty at the sales is no help in attracting or keeping buyers.  

In today’s climate of needing new blood for the Thoroughbred business, the hundreds of good, hard-working, honest bloodstock agents in the business would realize that, like it or not, they are being tarred by the same brush as the few who are skating along the edges and get with the program, rather than fighting it.