Insights into litigation, sports law, media and legal culture

It’s a confidence game: Horse racing owners entitled to question Richard Callander penalty

One of the biggest hurdles racing has to overcome is the perception that everything and everyone is shady… There is a huge audience that racing miss out on because of this…” – Spike’ commenting on ‘An open letter to Richard Callander’ on punters.com.au

It was a particularly wet June when Inglis held its 2012 Australian Weanling and Bloodstock Sale at Newmarket, New South Wales. Held over three days, there would have been the usual blend of serious purchasers, tyre kickers and those caught up in the carnival atmosphere. Which of these very young horses would fetch a good price and go on to become a champion?

Visitors to Stable 4, housing the Coolmore Stud horses, would have come across Lot 133, a Bay Colt less than nine months old. Sired by ‘Holy Roman Emperor’, with ‘Natural Lil’ the Dam, his pedigree was solid rather exceptional.   The reserve price was a relatively modest $23,000. We do not know his conformation, how he walked, the shine of his coat or any X-ray results.

2016 Inglis Melbourne Premier Yearling Sale, Melbourne

2016 Inglis Melbourne Premier Yearling Sale, Melbourne – It provides an idea of the carnival atmosphere

 

A potential owner putting a horse through its paces at 2016 Inglis Premier Yearling Sale, Melbourne

A potential owner putting a horse through its paces at 2016 Inglis Premier Yearling Sale, Melbourne

What we do know is that this very young horse did not have the mark of a future champion. No one bought him at auction.

However, even though he was passed in at $22,000, there was no Black Beauty- style story of sadness for him. Our Bay Colt found himself at the Rosehill stables of one of Australia’s leading trainers, Chris Waller. His enthusiastic host of owners included media personality Richard Callander. This colt gained himself a name: ‘Lil Caesar’. And like many colts he was soon gelded.

Unfortunately for Lil Caesar, his racing beginnings were inauspicious. He joined nine other horses in his first barrier trial in May 2014. And came last. He went out for a spell.

Several months later, it was time for another go. With another jockey and a much smaller field, he came fourth out of six.

Ben Weiss, an owner with a 5% interest, had not owned a horse for 30 years but had a passion for breeding. He had liked the bloodlines of the horse, and so he bought a share and encouraged a friend to do the same. As he told Shane Anderson on Racing.com, Chris Waller advised the owners by voicemail to sell the horse, shortly after that second barrier trial. In Mr Waller’s view, Lil Caesar would be unlikely to make city grade.

Owners were then told of the game plan. The horse would have another trial. This time though, the trial would be a sales tool. Lil Caesar would hopefully go well and fetch a good price. So, reading between the lines, there would be no sitting back near the rear of the field next time.

Trials are not races, and are often used to help ‘school’ a horse for the rigors of competition. Horses can sit in the body of the field during a trial for a range of reasons without sanction. For example, a horse can use a trial to learn how to go from last to first, to get to know the feeling of being ‘boxed in’, or perhaps for some good horses, to fly under the radar of betting markets.

And so it proved. On 14 October 2014, in a larger field of 10 horses, Lil Caesar won the trial impressively.

We pick up the story using key findings of a New South Wales Stewards Inquiry into this saga.

Almost immediately after Lil Caesar won his trial, jockey Glyn Schofield was engaged to approach Hong Kong connections about purchasing Lil Caesar. Using information supplied by Chris Waller’s Foreperson, Liam Prior, a buyer was soon found, namely, Hong Kong trainer, Danny Shum.

Glyn Schofield pitched a sale price of $200,000 to Danny Shum, who accepted it with alacrity. Danny Shum also agreed to pay Glyn Schofield commission, thinking 5% reasonable. This led to a total price of $210,000.

However, the owners were told something quite different.

On 27 October 2014 at about 2 pm, Managing Owner Richard Callander sent his fellow owners an email that said: “I believe an offer has been made around the $130-$140 mark”. That same day, a number of horse owners responded, agreeing to the price. With only a 5% interest, Ben Weiss accepted the sale as a fait accompli.

The transaction concluded the following day. Chris Waller asked Liam Prior and Richard Callander by email, “Any idea on price yet?” We do not know what he was told. What we do know is that Danny Shum asked for an invoice, and Richard Callander obliged, preparing an invoice for $200,000. Glyn Schofield passed on the invoice to Danny Shum, and also provided his bank account details so he could receive his promised 5% commission of $10,000.

It is important to note that Stewards have cleared Chris Waller of any involvement. From the above facts, it is relevant to consider that the initial purchase price for Lil Caesar was very modest compared to many of the horses in Mr Waller’s stable, that Lil Caesar’s initial trials were poor, and that Mr Waller’s training fees will be more in keeping with a city class horse rather than a horse of lesser ability.

Also on 28 October 2014, the Status Notes for Lil Caesar were updated: “We have received a final offer of $140,000 which includes a commission payment of $2,500 to the agent. This leaves $137,500 to the owners which I believe is a fair and reasonable offer. The initial offer was $130,000 but we were able to negotiate to a slightly higher price on your behalf … I appreciate your support with this horse and hope that you can race with me again in future.” The author of these notes is unclear, and it is also unclear from the stewards’ summary whether or how the owners had access to them.

On 11 November 2014, Danny Shum informed Glyn Schofield that he had transferred the whole $210,000 to Mr Schofield’s account. He asked Mr Schofield to disperse the funds.

Mr Schofield then transferred $200,000 to Richard Callander, retaining his 5% commission.

Two days later, Mr Schofield came to Mr Callander’s home and Mr Callander handed him another $10,000 in cash.

In five instalments over the next five days, Mr Callander also transferred a total of $24,000 into Liam Prior’s account.

Mr Callander kept about $37,000.

Mr Callander then transferred the balance of $129,405.20 to Mr Waller’s bank account for distribution to Lil Caesar’s owners. This then happened.

For Lil Caesar, his adventures took an unexpected upswing, although perhaps not to a new owner who had just paid $210,000 for a horse from one of Australia’s leading trainers.

The now Bay Gelding moved to Hong Kong and was given a new name ‘Lucky Year’. And the year did indeed prove lucky for his new owner.

The now familiar barrier trial experience began once again, although this time at Sha Tin. The first trial was a bit unexciting. But Lucky Year came third in the second, and he won the third trial. It was time to race.

Lucky Year won his first race. He won his second race. He then placed in a couple of races. And then won another two races at Happy Valley in late 2015 and 2016. Lucky Year has now earned many, many hundreds of thousands of dollars.

It is therefore no surprise that some of Lil Caesar’s owners started to ask questions. As Ben Weiss said, “I wrote to Liam Prior and congratulated him for selling a horse to Hong Kong with such limited ability as he was doing exceptionally well for his new owner.”

After his second win, in May 2015 former part owner Steve Sandor asked Liam Prior for a copy of the contract of sale. Liam told him there was no sale contract.

Ben Weiss followed up with Richard Callander, requesting detailed evidence of and printed copies of the sale of the horse together with evidence of the amount it had sold for. Mr Callander fudged the response, stating that “the horse was sold in the best interest of the owning group at that time” (noting that he was, of course, one such owner) and he would “write a more detailed e-mail when time permits”.

Mr Sandor and Mr Weiss did not let the issue go. Racing Victoria was investigating the circumstances by which another horse had been sold to Hong Kong, also with the involvement of Glyn Schofield. Mr Weiss had heard of this.

In early February 2016, in response to the application of further pressure from Mr Sandor and Mr Weiss, Liam Prior re-affirmed the sale price of $138,700 and attached a sale record showing the deposit from Richard Callendar.

This did not satisfy Mr Weiss who warned that he would take it up with Racing NSW Stewards unless an invoice was produced. Mr Weiss told Shane Anderson that Mr Callander then confessed “that we had been done for $50,000”, apologized and the next day Mr Callander paid him the additional money he was owed.

Mr Weiss also said that Chris Waller has rung and apologized for the misjudgment in selling the horse.

The Penalties

Those charged, being Mr Schofield, Mr Callander and Mr Prior, all pleaded guilty to charges laid by the NSW Stewards.

Glyn Schofield was charged under a rule preventing a jockey from being involved in the buying or selling of horses.

Richard Callander and Liam Prior were charged under Australian Rule of Racing (AR) 175(a) by which the Committee of any Club or the Stewards may penalise “Any person who, in their opinion, has been guilty of any dishonest, corrupt, fraudulent, improper or dishonourable action or practice in connection with racing”.

These are very serious words. And the stewards agreed, noting that these were “extremely serious” charges.

They said that Mr Callander was “the orchestrator”.

When deciding penalty, they referred to the importance of sending a message to the community about integrity and welfare issues.

They then disqualified Mr Callendar for a period of six months to expire on 10 September 2016, and fined him $10,000.

Mr Prior also received a six month disqualification.

Mr Schofield was fined $20,000.

The stewards took into account the previous good character of the protagonists, their guilty plea, their frank evidence and cooperation, the compensation to the owners, the potential impact on their livelihoods and families and, in the case of Mr Callander, his contribution to charities and the impact to reputation caused by publicity.

The stewards did not refer to owners’ interests generally, and that the industry depends on potential owners having the confidence to participate.

As Mr Weiss told Shane Anderson, “This was my first horse purchase in 30 years. It will likely be another 30 years before my next one.”

In an open letter to Richard Callander on punters.com, and in the aftermath of this saga, Isaac Ling put himself in the shoes of a prospective horse owner requesting some advice: “In a nutshell, I’m wondering if it’s worth my while getting involved in the ‘Sport of Kings’…I’ve heard racing can be a bit dodgy and I’m sh*t scared about getting ripped off”.

There has also been significant media attention given to Mr Callander’s observation during the inquiry that the world of secret commissions and kickbacks in selling horses was “racing’s dirty little secret”. He reportedly told stewards he had been in racing his whole life and there are “backhands” and “commissions” paid in nearly every horse sale. “It happens every single day in racing in every sale”, he said.

The Federation of Bloodstock Agents Australia has strongly contested this claim, issuing a statement in which its President, Adrian Hancock expressing disappointment at the comments and adding, “Those comments are a slur on the participants in the industry who operate professionally and honestly.”

That might be so, but perception matters, and the Callander case is by no means isolated.

Did the penalty sufficiently prioritise owners?

Only last year, the Victorian Racing Appeals and Disciplinary (RAD) Board convicted and disqualified trainer Dean Howard for a period of 18 months in relation to the sale of ‘Convincible’. He also pleaded guilty. He also was charged under AR 175(a).

The RAD Board adopted a very stern tone in relation to Mr Howard.

The introductory comments of the Chairman bears this out –

CHAIRMAN: The Board agrees with the Stewards’ submission that this is an egregious case of calculated and sustained dishonesty, compounded by lies and deceit. The Board is of the opinion that Mr Howard’s plea of guilty is but a recognition of the inevitable.

The Chairman added that Mr Howard’s conduct represented an “abuse of his position” and “a breach of trust in relation to his owners”. Mr Howard’s conduct was said to be “disgraceful” and “harmful to the image of racing”.

Most importantly, he concluded that “[t]he principles of general deterrence and denunciation of this type of conduct are important sentencing considerations”.

True it is, there are differences between the two cases. For example, Mr Howard, according to the RAD Board, showed no evidence of moral contrition. He also tried to justify his retention of the money. By contrast, Mr Callander and Mr Prior provided full and frank evidence and compensated the owners.

Yet owners are entitled to ask further questions about whether six months was an appropriate penalty, having regard to the following matters:

  • Lil Caesar’s owners were misled about the sale price and commission, and it appears that the kick backs were dispersed in a method designed to conceal (e.g. a $10,000 cash payment, and five deposits of small amounts into a bank account rather than via one lump sum). In circumstances where a person can be disqualified for 18 months for simply being found in possession of a jigger at trackwork (Damien Bradbury, RAD Board, 2 June 2015), does 6 months sound reasonable where a person has been found guilty of “any dishonest, corrupt, fraudulent, improper or dishonourable action or practice in connection with racing”?
  • Lil Caesar’s owners were denied the opportunity to consider the impact of being offered $200,000 for a horse they bought for around $23,000. It is one thing to be misled as to an offer of $140,000, nudged up from $130,000 on the back of a good barrier trial. An offer of $200,000 though, might suggest there is something owners are missing about the potential quality of the horse.
  • The perpetrators maintained their position, in the face of questioning by owners, until the prospect of investigation by NSW Stewards was imminent.
  • Were it not for the efforts of at least two owners, and the changed fortunes of the horse, it is unlikely this ‘dirty little secret’ would have ever come to light.
  • The NSW Stewards failed to apply the sentencing principles of deterrence and denunciation, focusing instead on the personal circumstances of those involved.
  • There is a deafening silence about whether the industry is prepared to investigate the allegation that kickbacks and commissions are racing’s dirty little secret, let alone (if it exists) any publicized commitment to clean it up.

Conclusion

In 2014/2015, there were 103,422 people who owned racehorses in Australia (including syndicate members).

Statistics courtesy of 2015 Racing Australia Annual Report.

That is a lot of owners. This is a huge industry.

It is also an industry depending on confidence. Accordingly, we expect those with integrity oversight to investigate whether kickbacks and commissions are a broad problem, or not.

In exchange, horse owners should consider taking some practical steps of their own:

  • Consider whether you are obliged to sell even if you only have a 5% interest. ‘Majority rules’ may have moral force, but legally there may be no requirement forcing you to sell your share if you do not want. Look at the fine print.
  • If your trainer does not think the horse has the ability to be city class, consider all the options. This may include moving the horse to a cheaper, regional trainer. Talk to all the other owners. Negotiate. You also have the right to talk to the trainer. Do not be intimidated that because someone is a ‘name’ and you only have 5%, you cannot talk to them. Set up a time for a proper discussion. Selling a horse is a big deal.
  • Consider whether to go into horse ownership with strangers, or friends. Perhaps those honest conversations are easier with people you know. This might increase the chance that you will have similar views about what you are hoping to get out of the experience.
  • Undertake research about the industry you are participating in. What are typical training fees? What are typical profit margins? How does the industry work? Find people you trust who can help you understand how the process works.
  • If there is a decision to sell a horse ask the hard questions up front. Will there be a commission? If so, how much?
  • This is an industry where paperwork is often an afterthought. Make it front of mind.

For another post about the dangers of not focusing on paperwork, see ‘Trainers and owners beware! Sheila Laxon & John Symons judgment offers lessons for all’

NOTE: The author owns a part interest in a few racehorses. She has found the experience to be excellent. Sharing the trials and (many) tribulations with her co-owners and friends is a great life experience. Finding the right trainer and developing a good relationship can help ensure that these great experiences continue. Horse ownership should be a learning experience, and not a passive experience.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Basic HTML is allowed. Your email address will not be published.

Subscribe to this comment feed via RSS

%d bloggers like this: