Racing's financial crunch

Transparency is not a concept embraced by the Middle Eastern monarchs, so the deep bruising of global financial markets that followed last week's news that Dubai World, the principal corporate entity of the emirate's government, would be restructured and creditors were asked to accept a six-month deferral of payment, came as a shock that rippled bloodily through Asia, Europe and finally, after a brief delay for the observation of Thanksgiving, the United States.

While Sheikh Mohammed bin Rashid al Maktoum and his family, known in the racing world as Godolphin, Darley and Shadwell -- which are no more easily separated than Dubai Holdings, Dubai Ports World and Nakheel Development -- were unsuccessfully balancing the emirate's checkbook, trainer Saeed bin Suroor was spending the Thanksgiving holiday weekend in New York, where Flashing won the Gazelle Handicap and Sarah Louise took the Top Flight at odds of 2-5 at Aqueduct. Every little bit helps these days. The Dubai racing machine conducted business as usual over the weekend, but recent events raise questions concerning the sustainability of a global racing juggernaut that, despite its size and scope, is almost certainly a losing proposition.

In Kentucky, the absence of Maktoum family representatives at the recent dispersal of Overbrook Farm's glitzy bloodstock inventory was suddenly explained while those who do the family's bidding in the U.S. toed the line and expressed no concern for the future. In Europe and Asia, while financial stocks plunged, leaders of the racing community were less guarded in their alarmed.

"It is impossible to underestimate [Sheikh Mohammed's] influence on British racing. He has transformed the landscape of the sport," Jon Ryan, director of communications at the British Horseracing Authority, told the Wall Street Journal. "To own and breed on the scale that he does is a pretty extraordinary commitment and now an integral part of racing in this country. If he wasn't there he would be hugely missed."

Sheikh Mohammed's racing empire and those in the names of other family members extend beyond the United States and Britain to Ireland, Japan and Australia's, where recent acquisitions have made him the most powerful figure in nation's country's racing industry. Darley and Shadwell's international holdings, separated from Godolphin in name only, are also vast and no less typified by excess.

The Maktoums have made racing in Europe their own and are the spinal column of breeding in England and Ireland. They own farms in Kentucky, the elegant Greentree training facility adjacent to Saratoga Race Course and private stables in Saratoga Springs formerly owned by Virginia Kraft Payson. They have enriched many, from those hired in the racing operation to owners of young horses they have purchased after little more than a flashy maiden win on the right stage. They have built lavish racetracks in a place where gambling is against Islamic law and pick up the tab for purses at the Dubai Racing Carnival and World Cup, the world's richest race.

A business plan based upon indiscriminate use of endless resources is obviously flawed and the Maktoums' development of Dubai appears to be based upon the same model as they have used in the family racing enterprises.

Excess qualifies as the Maktoum family's mantra. Man-made islands off the Dubai coast, one the site ofa hotel built in the shape of a soaring sail – the world's only six-star hotel -- are visible from space. What will be the world's tallest building is under construction on sands of the arid city-state where unoccupied luxury condominiums frame an indoor ski resort and the new, beyond-lavish Meydan racetrack perhaps best represent the rulers' tenuous grasp of fiscal reality. In comparison the development of Dubai makes the ruling family's countless multi-million-dollar acquisitions of promising if eventually failed and forgotten racehorses almost insignificant. Less visible in the West than the family thoroughbred racing enterprises is an expansive, expensive and at time shadowy camel racing operation.

While published reports of non-Arab workers relocated to Dubai abandoning luxury automobiles at the airport and fleeing the country while huge construction projects came to a halt raised concerns about the emirate's economic stability, Sheikh Mo has downplayed the severity of the debt crisis. At the opening of the city's new public transport system in September, he said "I assure you we are all right" and, until last week's announcement, insisted that Dubai would meet its debt obligations.

Credit agencies have lowered Dubai's ratings and the Maktoum family awaits a decision on a bailout from their far more conservative brethren in Abu Dhabi, the wealthiest and most oil-rich of the United Arab Emirates. Under any circumstance, there will be imposed belt tightening and since there is no apparent disconnect between the family's real estate development and racing enterprises it may be felt first in the world of racing. The leaders of Abu Dhabi will almost certainly seek concessions under terms of a bailout. No elaborate racetracks exist in Abu Dhabi, but much oil, the lack of which inspired the development of Dubai in accordance with Sheikh Mo's expansive if imprudent vision.

The developments in Dubai, seen by some in the financial world as the just deserts of wretched and arrogant excess, will make racing people very queasy in Lexington, Newmarket, Tokyo, Dublin and Sydney while playing out on the world's ever-nervous financial stage.

What happens if the Maktoums stops buying horses? Sell valuable real estate in depressed markets? Sell bloodstock? Reduce the number of horses they breed? Stop breeding altogether? What happens in the racing world if the current rulers of Dubai are deposed?

All of this is ranges from unavoidable to plausible in light of last week's news.

Paul Maidment, of Forbes.com, writes in an analysis of the Maktoum family crisis:

"Abu Dhabi has little choice but to continue to bail out Dubai. A financial collapse of the emirate would make it unlikely that Sheikh Mohammed or Sheikh Hamdan could remain in power as the government and the ruling family's management of Dubai Inc. are so closely intertwined. That could be politically unsettling for the region as many of the states are likely to be tarred with the same bush by investors as Dubai. Following the restructuring announcement, credit default swap rate on Dubai debts rose by more than 100 basis points, taking it to 434 points, comparable to the level that Iceland incurred at the height of its crisis.

"By continuing to underwrite Dubai, Abu Dhabi will be able to impose strict conditions on the emirate and to rein in the Dubai ruling family's autonomy. That low-key approach to political realignment with, no doubt, an eventual succession to power of an Abu Dhabi friendly member of the al-Maktoum family, would fit better with the Gulf States' culture. It would, though, leave Dubai a lesser, chastened place, resorting to its old role as a regional entrepot, with its ambitions as a world city left in the sand."

The thing that made the racing enterprises headed by the various members of the Maktoum family unique -- the backing of a government -- may be a luxury no longer affordable, at least at the otherworldly level to which the international racing world has become accustomed if not dependent.

What happens if the Maktoums are no longer the 800-pound gorilla in every country in which racing is conducted?

If may not be long before the answer becomes apparent.

Paul Moran is a two-time winner of the Media Eclipse Award, and has received various honors from the National Association of Newspaper Editors, Society of Silurians, Long Island Press Club and Long Island Veterinary Medical Association. He has also been given the Red Smith Award for his coverage of the Kentucky Derby. Paul maintains paulmoranattheraces.blogspot.com and can be contacted at paulmoran47@hotmail.com.