Ogden Mills Phipps: We see and we hear a lot about company "brands," and when it comes to management consulting, very few have attained the stature of McKinsey & Company. We reached out to McKinsey 20 years ago for guidance on building a world-class drug detection system and that report was delivered in 1991 at the Round Table (Conference).

It has served us well in the years since.

The Jockey Club reached out to McKinsey again at the beginning of this year. This time we had a broader focus: How could we grow the industry and sustain that growth?

McKinsey & Company assigned some of its top talent to the assignment, and over the course of the past several months, they have worked closely with Jim Gagliano, president and chief operating officer of The Jockey Club, and Jason Wilson, vice president of business development at The Jockey Club. Numerous other individuals from both companies have also devoted a great deal of time and thought to the effort.

Jim will provide some more background on the study and get us started with this segment of the program.

Jim...

James L. Gagliano: Thank you, Dinny, and good morning everyone. In the next 30 minutes or so, you are going to hear the results of a comprehensive economic study of our sport, conducted over the past several months by McKinsey and Company in conjunction with The Jockey Club.

It is called "Driving Sustainable Growth for Thoroughbred Racing and Breeding."

The genesis of this study really began one year ago, when I stood at this podium and talked about industry trends, including a contraction of the foal crop and "a flight to quality."

We also pointed out that some of our historically most significant breeding states had experienced steep declines in foals, while states with alternative-gaming-supplemented purses and state-incentive programs had experienced growth.

In the wake of last year's Round Table, I had a visit from one of our members — Nick Brady — who suggested that perhaps the time had come for a comprehensive and objective study of the industry. In fact, this was similar advice that I had received from Ted Bassett, and my predecessor, Alan Marzelli.

Our records showed that the last study of this depth and magnitude was a 1975 report commissioned by The Jockey Club and conducted by Pugh-Roberts Associates of Boston. It was called, "The Future of Thoroughbred Racing in the United States."

When I dug a copy of that document out of the archives last fall, I found references to actions that "might significantly affect the industry's future." Among them:

• Changes in takeout
• Expansion of off-track betting
• Changes in federal tax treatment of the industry

One of the primary questions addressed in the study was: If the industry continues as it's going, what are the prospects for the next 10 years?

In the end, the authors predicted that "it was inevitable that a period of consolidation is ahead."

So we made copies of the report and circulated it among several colleagues, many of whom remarked about its accuracy, particularly from the perspective of 36 years later.

Surely, we concluded, this industry was long overdue for another such examination.

With enthusiastic encouragement from Chairman Phipps and The Jockey Club's board of stewards, and after careful consideration of other prominent consulting firms, we engaged McKinsey, and specifically its Sports, Media and Entertainment Practice.

They are well versed in many areas as you can see on the slide.

As Chairman Phipps mentioned, The Jockey Club and McKinsey have collaborated in the past, most notably in 1991 when the company produced the seminal report, "Building a World Class Drug Detection System for the Racing Industry: A National Strategic Plan."

In fact, recommendations emanating from that document are still being implemented. Earlier this month, the Kentucky Horse Racing Commission's successful new system of intelligence-based post-race testing was cited as an outgrowth of the McKinsey Report.

But we didn't select McKinsey based on tradition; we selected McKinsey for its expertise within the media and entertainment world.

At the outset, we said this would be an in-depth look at Thoroughbred racing and breeding from an economic and consumer standpoint, with three main areas of focus:

• An examination of the current course of the sport and where it would be over the next 10 years without change
• An evaluation of a range of alternatives that could be undertaken to improve the short- and long-term health of the sport
• A broad strategy for implementing the most promising courses of action

We said then — and we believe even more strongly now — that this study would identify the best opportunities for bringing sustainable, positive change to our sport.

It creates a credible frame of reference for building consensus among breeders, owners, racetracks and other constituencies to move this sport forward.

Yes, we are challenged by competition, fragmentation and capital constraints but there are actions this industry can take.

Actions that our consumers will appreciate.

And actions that can put us on the right path to future growth and, perhaps, prosperity.

Before I introduce Dan Singer and Mike Lamb of McKinsey, I want to tell you that they will be covering a lot of ground in a short period of time. We'll make the entire PowerPoint deck and some other materials available on The Jockey Club website so you can review them and absorb some of the facts at your leisure.

Together with a number of their colleagues, the McKinsey team jumped into the project enthusiastically. By virtue of an immense amount of research as well as in-depth interviews with scores of stakeholders from within — and outside — our industry, they came to understand virtually every nuance of our business.

The time they spent with bettors while conducting their research was particularly enlightening. I learned from the McKinsey team that their approach is called "ethno-graphic" research.

After hearing the story when Dan came back from Toronto about how he lent a complete stranger at a Toronto OTB $100 so they could share in a parlay — I might have suggested a different term.

Dan is a senior partner and a leader of McKinsey's Sports, Media and Entertainment practice. He has worked with a variety of professional sports leagues, teams, and networks to capture new revenue sources and drive sales and marketing performance. Beyond sports, he has served industry leaders in every segment, including cable, filmed entertainment, newspapers, magazines, and consumer electronics. He is a graduate of Yale and Harvard universities.

Mike Lamb, to my right, is a partner and a member of McKinsey's Sports, Media and Entertainment practices. He serves clients in telecommunications, programming, publishing and sports on issues including growth strategy, customer lifecycle management, digital marketing and pricing. Mike holds degrees from the University of Oxford and Harvard University.

Both of them are here today to share their findings. As you watch and listen to their presentation, I highly recommend that you keep in mind their information near the start about where this sport is headed if it follows it current and unchanged course.

Dan and Mike, welcome to the Round Table Conference.

Dan will start the presentation.