Stuart S. Janney III: John Messara has served in a variety of leadership roles in the Australian Thoroughbred industry. He's going to tell us a little bit about the challenges and opportunities he sees on the horizon, not only in Australia, but around the world. We're happy, very happy, to have John with us today, he's come a long way, and Jim Gagliano, our president, is going to have a little Q&A with John. So thank you.

JIM GAGLIANO: Well thank you, Stuart, and good afternoon, everyone. I know it's afternoon so we're into a little bit of overtime, but, John, thanks so much for being here at Saratoga. This is a place where so many new fans are developed. As McKinsey taught us last year, it's venues like this that really bring the new fan. Tell us about your experience, when did you first get hooked on racing?

JOHN MESSARA: I grew up in a family that raced some horses over the years. And as a teenager I started going to the track with my parents a little bit. But I was a stock broker at my profession. When I graduated from university in accountancy and finance, I went on to stock brokering and so I was in the investment world. Years later when I set up my own little business and it was going well, I did what a lot of other Pit Street farmers did. Pit Street farmers were people like me in the finance industry who generally were, had, their offices in Pit Street Sydney, and looked for some diversification. And most often in Australia they looked towards the countryside and cattle farming or horse breeding. Because of my affinity with horse racing, I decided that I would try my hand at horse breeding, and I started with one mare in 1979. And I started big because she was the Oaks winner. I took advice from the then champion trainer who was Bart Cummings, who was famous for winning so many Melbourne Cups. And he said you should stay at the top end of the market and I'll help you select a filly that I'll then train for you to go on to greater things. And that was the beginning and from this one mare we built up the business that is Arrowfield today.

And I say we because it would be wrong for me to say that I did everything myself. I had a great team and perhaps the luckiest thing about my life is that I've always been able to choose the right team from my own wife, who's been a great help, but also the people around me. It's all about personnel at the end of the day. Everything's about personnel and by having a great team we were able to build Arrowfield into what it is today.

JIM GAGLIANO: So besides Chris, who is here with you today, what's the greatest accomplishment at Arrowfield?

JOHN MESSARA: I guess the thing that really launched us on to this big stage was the acquisition of Danehill, the son of Danzig, and this is where the analytical skills that have come from the financial world were useful. At that time in the early '80s, Northern Dancer was the great champion sire and his seasons were selling for up to a million, no guarantee. And we in Australia thought we should have some of that Northern Dancer line.

So I went looking and I discovered that of course I couldn't afford a direct son of Northern Dancer, so I needed to find a grandson. And so we went through a comparative analysis of all the sons of Northern Dancer to find which son's son we should buy, the progeny of which son of Northern Dancer should we be chasing.

And it became very clear quickly in that comparative analysis, Jim, that there were two outstanding sons in terms of their statistics. Their winners to runners, the stakes winners to runners, the champions to runners, the sort of things you look at. And those were Nureyev and Danzig. And Danzig was one that went under the parapet because he was mainly a grass horse and he was mainly a speed influence and that didn't suit everybody in America. So a lot of them ended up in Europe and did well there, but if you added up the European and the Australian results and the American results, you found that he was probably if not the best very close to the best son of Northern Dancer.

We went then looking for one of his sons and we zeroed in on a son that was owned, unfortunately, by a very wealthy man, Prince Khalid Abdullah, who was unlikely to want to sell. But we were a couple of hicks from Australia that turned up in England to try and persuade the prince to see if he would sell and in the end we paid a very big price for him and secured him.

And he turned out to be an extraordinary horse, he turned — well he turned Australian breeding around and even today, of the horses in racing today, nearly 50 percent, Jim, have Danehill in the first three removed. So we have actually been a victim of our own success, we're now looking for the next one, we have got to find something else.

JIM GAGLIANO: So that's the next question, how do you, what's the encore to that? What's next for the farm and for you?

JOHN MESSARA: Well, it's all about excellence. We like to breed the best horses at the farm and it's all about quality and not quantity.

And we keep looking for an edge, a stallion line that we think's going to blend well with Danehill; mares that are going to give us a result. We're very demanding and we just keep trying to get up the scale of excellence if we can.

JIM GAGLIANO: So since you entered into the game and in such a big way, what's changed from then to now? How can you characterize the business of racing and breeding in Australia as having changed?

JOHN MESSARA: Well, it's a new game entirely today from when I came into it in late '70s, early '80s.

The first thing was that in 1985 we lobbied hard for a change to our depreciation rules on breeding stock in Australia. We were disadvantaged as compared to our closest competitor in New Zealand. They had higher accelerating depreciation provisions, which, after all, recognized the lead time in getting a result from horse breeding, that it was a reasonable thing.

So we went to the Prime Minister and we said, look — and he was a great racing fan by the way in those day, Bob Hawk, who passed away recently — and we said, look — the main pusher of this was the great trainer, Colin Hayes. I was just a scribe in those days, you know I just did the submission to Treasury, he did the talking with the politicians. And he persuaded the prime minister, I went to Canberra and persuaded the Treasury and in the end we got exactly the same regime fiscally as New Zealand.

That was the breakout point. And from that moment on shuttling of horses, acquisition of international stallions, Danehill, the entering into the marketplace of the likes of Coolmore and Godolphin, all of those things made us a really international potpourri, and we're now furnishing horses to places all over Asia, which are growing, like Chinese and Hong Kong and all those places.

JIM GAGLIANO: Well we're certainly familiar with the legislative process, how difficult it can be. You've got a great example of success there and we congratulate you on that. That seems to have unlocked some real potential in the industry that has come out. Now that you've been here in America for about a week, and I know you come at least once a year and you've got great partners here and friends, tell us a little bit about how Australian racing compares to what you see in America right now.

JOHN MESSARA: Australian racing has the clinical approach, business approach, that American racing has, but is more akin, because of its grass surfaces, it's a grass monopoly there, to Europe. We think we have got the best of both down there. But I'm biased, of course.

JIM GAGLIANO: Sure.

JOHN MESSARA: And, I mean the one thing that we have that's different to here is the one thing that you're arguing about today and there were some very eloquent speakers that made the case and I'm a guest here so I'm not going to push that too hard.

JIM GAGLIANO: You're welcome to.

JOHN MESSARA: Okay, I'm going to say one thing only and that is a bit like what happened to us when we got those legislative changes on tax, I think that having a national drug policy — no drug policy, actually — akin to the other developed industries and jurisdictions in the world, Australia, Europe, etcetera, would unleash a monster here, an economic monster that I — everyone's talked about why people don't want it, well, I think one of the benefits is going to be that the likes of myself will start to look at America again as somewhere to shop for horses.

As it stands today, it's difficult for us to judge whether we should be buying a mare, was she treated with Lasix, did she, you know, was she on bute at some stage, what went on, you know?

So rather than get bitten by it, we stay clear. The same is applying to us as far as stallions are concerned.

So America's credibility as an international provider of bloodlines is low compared to what it could be and yet you've got the horsemen, you've got the best horsemen, the best administrators, you've got wonderful infrastructure in tracks, you've got a deep economic treasury here for people to come into the business, you've got an entrepreneurial spirit — hell, you've got everything.

And you've got Kentucky. Kentucky, which can be compared with nowhere in the world. It's a magnificent breeding ground.

You've got everything to unleash a monster of economic rewards if you were to join the rest of the world in this harmonization in terms of the drugs rules.

JIM GAGLIANO: So Australia has a somewhat of a similar state-based system. You've heard some discussion today about our challenges. What advice do you have for about how, with your knowledge, and with this recognition that there's a monster opportunity. What advice would you give us on how we can better unite, based upon your experiences, which were obviously very successful.

JOHN MESSARA: Well, and it was a lot easier with us because we had six states. Each state has, each state's industry is regulated by a state act or more than one state act quite often. We have a state minister for racing. So if I've got a problem in New South Wales I just go straight deal with a minister whose job it is to look after the industry, expand it, support it.

You’re a different situation here and I respect that and I know how difficult it is. But I would just appeal to American horsemen, trainers — I know you call your trainers horsemen here — but all of the various participants to join together in what is a difficult situation because of the vastness of the industry and its diversity, to join together in putting this new bill through that we heard about earlier today.

That's going to be a great base for the future, if you can get it through. And to say to them that it will create a level playing field, which is all that matters at the end of the day, because if you're good enough you'll win.

But importantly, you'll become a far more international industry from an economic point of view, and I think that's going to be really valuable for all those that are involved.

JIM GAGLIANO: Well thank you for that advice. I know that when we had lunch last September you had just completed a review of racing in New Zealand. You were asked by the government to come in. Can you just briefly let our audience know about that process, what you saw and what you recommended.

JOHN MESSARA: Now you've got a few problems, but New Zealand is far worse, let me tell you. I got a call one day from the deputy prime minister's office in New Zealand. I got a shock, picked up the phone, and would I be interested in doing a review of their industry and making some recommendations.

Because they're truly on the edge, I mean they're in a very difficult position where a lot of trainers are looking at either giving up or moving to another jurisdiction, such as Australia or South Africa or somewhere else.

And the reason for all that is that their returns to owners there are so poor. On a Saturday at a major track in Auckland, which is the major jurisdiction, prize money can be as low as $6,000 U.S. for a race. I mean it's just nonsensical.

It's got down to that because they haven't exploited the various sources of revenue that could be exploited and also because there are too many tracks, they have got a wagering system that needs to be reviewed, there's a bunch of things that need to be done.

Anyway, I went through and I had a look at it over five or six months, I then finally wrote a report which was about 80 pages long and had about 17 recommendations. And I'm very gratified to say that the first few of those recommendations have already been enacted through the parliament and that they're working now on the second act, in relation to — well the first ones were the lower hanging fruit, I must say, the minister went for the easy ones first.

Now we come down to closure of tracks. They have got, it's a small country, and they have got 48 tracks. They should have 28 tracks. And the money realized from the sale of those tracks should be spent on the remaining 28 tracks to give them a product that can be marketed, a betting product that can be marketed to Asia and Australia.

Because New Zealand has come from Scottish stock, so they're very cautious. Unlike Australians, who come from Irish stock, who love to gamble. So the gambling dollar in New Zealand is a lot lower than it is in Australia on a per capita basis.

So what we have got to do there is we have got to produce a product that will be competitive at world standards and that can be sold to bettors in Singapore and Australia and Hong Kong, hopefully, Kim, and other places.

And if that happens, and I think it can, they have got everything else they need down there. They also are good growers of horses and they have got an enthusiasm for racing, but it's not matched with a betting enthusiasm, okay, so we need to augment the betting through offshore sources.

And it can all be done and it's hopefully underway. So I got a lot of satisfaction out of that one.

JIM GAGLIANO: That sounds like great accomplishments. We're going to wrap up — Kim talked earlier about borderless wagering and certainly the world is becoming a smaller place when it comes to trade in simulcasting and trade in horses. We thank you for being here. Do you have any final words and recommendations for us, having been part of this conference and been a keen observer of American racing, anything you wish to share?

JOHN MESSARA: I'm going to say that listening to all the speakers here today and meeting all the great people I've met over the last time and the very competent people I've met over last week, I think you've got it. You know exactly what needs to be done. It's just a question of accomplishing that now and that's a political issue, and I certainly wouldn't be qualified to help you on that one.

JIM GAGLIANO: Well, John, thank you, and thank you for being a great friend.

JOHN MESSARA: Thank you.