Stronach Talks Stakeholder-Controlled Trust, Bitter Family Feud

|

Frank Stronach | Horsephotos

By Dan Ross

During an evening that was as high in drama as it was short on specifics, Frank Stronach laid out Tuesday a broad pathway for what he said would help ensure the long-term survival of the sport: that his racetrack assets are placed into a trust controlled by industry stakeholders, like the trainers, owners, jockeys, breeders, and racetrack management.

“I’ve said numerous times in public that I want to put the racetracks in a trust,” said Stronach, before an estimated 200-plus people–predominantly owners, trainers, and other industry figures–who were crammed into an austere conference room, deep in the heart of the Embassy Suites Hotel, Arcadia, in the shadow of Santa Anita racetrack.

“What does that mean? It would mean they could never be developed,” Stronach said. “Yes, we could build some hotels, we could build some condos. But not so it impedes the racing. It should complement the racing.”

Stronach acknowledged the one big stumbling-block to seeing his vision brought to life, however: that he and other members of his family are currently embroiled in a bitter legal tussle with his daughter, Belinda Stronach, who currently controls these assets.

In October of last year, Frank Stronach dropped a bombshell lawsuit alleging that his daughter, Belinda, the current chairman and president of The Stronach Group (TSG) and the person he appointed to run his empire, has mismanaged the family’s chief assets and trust funds, and has strong-armed control of the business from her father.

The suit seeks to remove Belinda from all corporate officer and trustee positions related to TSG, and demands $540-million (CDN) in compensation and damages.

In January of this year, Belinda responded with a statement of defense and countersuit, alleging that her father’s erratic behavior and ill-advised “passion projects” have cost the family some $850-million (CDN), “with hundreds of millions of this amount likely being irretrievably lost.”

“I was shut out of the process the last two years. But I thought I should come out here and speak to the people,” said Stronach Tuesday evening, one of a number of times he appeared visibly upset and frustrated with the current status quo regarding control of The Stronach Group’s (TSG) numerous assets. “I’m really the rightful owner. Presently, those are not the rightful owners.”

Stronach announced the Tuesday meeting in an open letter in Sunday’s LA Times, catching the industry off-guard, including the TSG itself, which was quick to distance itself from the event. Tiffani Steer, the company’s vice president of communications, wrote, “the host of the proposed meeting has no involvement with or oversight of any of our tracks and does not speak on behalf of TSG or Santa Anita Park.”

Interestingly, over the past seven weeks during which time seismic changes have ruptured the industry in the Golden State, Stronach has been a largely absent figure, at least publicly. Stronach made amends for that Tuesday, holding court at the front of the conference room, flanked on one side by owner William Deburgh, and on the other by Ron Finley, the self-professed “gangsta gardener,” who has brought urban gardening to deprived inner-city areas, including neighborhoods around the Stronach-owned Pimlico racetrack.

In sometimes rambling fashion, Stronach interwove jokes and anecdotes and pointed criticism, the latter of which was aimed squarely at the feet of the current Stronach Group management. Indeed, when asked at one point by a member of the audience what he would specifically do to reduce catastrophic breakdowns, Stronach quipped, “hire new management.”

Stronach spent the first portion of the evening laying the foundations for why he believes a shareholder-controlled trust is the best way of ensuring the industry’s longevity, using as an example the “corporate constitution” he first employed in his own company years ago.

“A corporate constitution, its foremost principle was what we do with the profits,” he said. “Twenty percent goes to the shareholders, 10% to the workers, 7% goes to research, because research is the foundation. A company that doesn’t do research, it won’t be there in the future. And 2% goes to charity. The great thing, the company grew and grew and grew.”

Nevertheless, Stronach prevaricated when it came to nailing down the specifics of what his proposed trust would look like, and how it would operate. Indeed in that regard, Deburgh offered the clearest outline of a possible plan.

“Let’s take for example Santa Anita,” said Deburgh. “The assets that are necessary to operate racing into the future–for example, the grandstand, the racetrack, the training areas, the stabling, the key assets that are essential to horseracing–would be set aside…into a company, an entity, which then would be leased to the horsemen at a rate of return to the Stronach trust of say 4% to 5% yield, or return. That would be for a say, 20-year period, which would keep rolling.”

At this point, Stronach interrupted to say that the horsemen would have the right to renew that contract “forever,” and that the basic principles of the arrangement “are laid down” at the beginning. Nevertheless, hovering in conspicuous fashion over the proceedings was the family’s bitter fued, and the lawsuit Stronach is using to try to wrestle back control of the company.

When asked about his chances of winning the lawsuit, Stronach replied, “I think I have better than a fighting chance.” Nevertheless, the situation clearly rankles.

Repeatedly throughout the evening, Stronach questioned the current TSG management’s motives when it comes to the long-term future of the sport. “Within management, we have forces who do not want to race,” Stronach said. “They want to see the tracks developed. I’m totally against that, and for the past few years, I’ve been outspoken about that.”

The last hour of the evening devoted to questions from the audience didn’t bring much clarity either. Gary Hartunian of Rockingham Ranch, owners of the Peter Miller-trained Arms Runner, who was catastrophically injured on the Santa Anita downhill turf course Mar. 31, suggested a temporary boycott of the track.

“Why don’t we just shut the track down and you compensate the people that are losing money while we do it?” Hartunian said, to loud disapproving groans throughout the audience. “I mean, he wants to take over, how’s he meant to do it with the conditions of the management in there now?” Hartunian added, in explanation.

After the event, some of those present appeared to have conflicted emotions in response what they heard. “It gives you some indication of, when and if the lawsuit is completed one way or the other, as to what the direction is,” said Tim Cohen, of Rancho Temescal and Red Baron’s Barn. “But now would be the time to solidify what that really means. Why waste the time?”

Trainer Matthew Chew said that he came in with a lot of questions, and still had a lot of questions afterwards. “I don’t understand the family feud, but it seems like both sides are trying to do the right thing,” he said. “When you talk to her, she’s trying to do the right thing. When you talk to him, he’s trying to do the right thing. It’s confusing being in the middle.”

Not a subscriber? Click here to sign up for the daily PDF or alerts.