When Churchill Downs asked the Federal Trade Commission to investigate HISA, I wrote that I had no problem with it. Investigate HISA. Investigate HIWU. Investigate the Marshall Gramm matter. Investigate the Fair Hill Five. Investigate the relationship between HISA and The Jockey Club. Follow the money, examine the relationships, look at the enforcement and ask every uncomfortable question that needs to be asked. Just don’t stop there. Apparently those last four words need some clarification. I didn’t mean don’t stop until you get the answer you want. I meant don’t stop anywhere. Not at HISA. Not at The Jockey Club. Not at Churchill Downs. Not at Mike Repole. Not at anyone else demanding transparency from everybody but themselves.
Since we wrote that article, the temperature has gone up considerably. Mike Repole has offered as much as $10 million of his own money to fund an independent investigation of HISA by a mutually agreeable third party. Questions have surfaced regarding a reported $1.85 million loan from The Jockey Club to HISA that was ultimately forgiven. There have been accusations involving HISA’s bylaws, Covered Persons, conflicts of interest and even the possibility that federal law was violated. Those are serious questions. Serious questions deserve serious answers, but serious accusations require something more than questions.
Let’s start with the $1.85 million because I have questions too. What exactly was the transaction? Was the original loan permissible? How was the subsequent forgiveness legally characterized? Was it considered a donation, a contribution, forgiveness of indebtedness or something else? Who reviewed it? Did counsel provide an opinion? Was the transaction presented to the HISA board? Were conflicts disclosed? What provision of the Horseracing Integrity and Safety Act, HISA’s bylaws or applicable regulations governed the transaction? If there is a straightforward legal explanation for the $1.85 million, give it to us. If there isn’t, that creates a very different conversation.
There is also an important distinction being blurred in some of the discussion. HISA’s bylaws identify various participants in racing, including owners and breeders, as Covered Persons. The Jockey Club’s Board of Stewards includes prominent owners, breeders and other racing participants. Does the fact that Covered Persons sit on the Board of Stewards make The Jockey Club itself a Covered Person for purposes of this transaction? I don’t know. That is why it is a question and not a conclusion. If the answer is yes, explain how the forgiveness complied with the restriction. If the answer is no, identify the provision and explain why. What I am not prepared to do is take the status of individuals associated with an organization and automatically transfer that status to the organization itself without establishing the legal basis for doing so.
That distinction is significant because we are rapidly reaching a place in horse racing where asking questions and declaring guilt are becoming interchangeable. They aren’t. Ask whether the $1.85 million violated HISA’s bylaws. Don’t announce that it did before establishing that The Jockey Club was subject to the provision in question and that forgiveness constituted the type of prohibited transaction covered by it. Maybe both propositions can be established. If they can, we have a significant story. Until then, we have significant questions. There is a difference.
Mike Repole wants those questions answered, and I have no problem with that either. I like Mike. I think Mike Repole challenging horse racing’s status quo is better for the game than another generation of the same people sitting around the same tables telling everybody how wonderful everything is while the business continues losing customers. Mike has the resources, platform and willingness to force conversations other people would rather avoid. That makes him better than the status quo. It does not automatically make him the standard. That is earned, and I want him to earn it.
Mike wants to lead horse racing. Good. Horse racing could use some leadership. But leadership isn’t measured by the size of your bank account. Plenty of people throughout history figured out how to accumulate money without becoming people anyone should follow. John Dillinger did pretty well financially in his day. Leadership is what happens when the standard you demand from somebody else becomes inconvenient when applied to you. That is when you get to show everybody whether transparency is a principle or merely a weapon.
Mike recently questioned the depth of the investigation into Marshall Gramm and the leaked past performances, citing approximately $80,000 and asking how comprehensive an investigation could possibly be at that cost. There is a problem with that premise that deserves clarification. In her September 9 letter to the FTC, Lazarus states that HISA triggered its cyber insurance policy and retained an independent third party cybersecurity expert to conduct the forensic investigation. HISA says that investigation identified Gramm, led to disclosure of the vulnerability, notification of law enforcement, an internal enforcement action and remediation of the exploited vulnerability. HISA also says it accelerated the independent IT audit required by the FTC’s Oversight Rule. So was $80,000 actually the cost of the Arete forensic investigation, or was approximately $80,000 HISA’s deductible or other out of pocket cost under its cyber insurance policy?
That isn’t nitpicking. Anyone who has ever dealt with insurance understands the difference between the cost of a covered event and the insured’s deductible. Mike Repole is an exceptionally sophisticated businessman. He certainly understands it. Before we use $80,000 as evidence that HISA couldn’t possibly have conducted a serious investigation, shouldn’t we establish what the $80,000 actually represents? What did Arete charge? What did the insurer pay? What did HISA pay? What was the scope of Arete’s work? Those are answerable questions. Ask them.
There are questions for Mike too. He owned Forte when Forte was scratched from the Kentucky Derby and vehemently disagreed with the decision. Forte later received the Eclipse Award as champion three year old male and Mike accepted it. There was a pending positive at the time that was not made public. Should every veterinary communication, every conversation, every document and every piece of information surrounding Forte have been made public? Maybe Mike believes they should have been. Maybe there were legitimate reasons some information remained confidential. If confidentiality can sometimes be legitimate when the matter involves your horse, can it sometimes be legitimate when somebody else is answering a question? Sometimes “I can’t talk about that” may actually be an appropriate answer. If Mike gets that latitude, who else gets it? Lisa Lazarus? HISA? Churchill Downs? The Jockey Club? Where does legitimate confidentiality end and unacceptable secrecy begin? More importantly, who gets to decide?
On the recent TDN podcast, Mike also stated that Lisa Lazarus initially said the Gramm breach did not occur through the HISA portal. That is not quite what Lazarus said, and when you are throwing haymakers at someone over transparency, you have to get the distinction right. What Lazarus initially said was that the breach did not originate from someone within HISA. That was correct. Gramm was not a HISA employee or insider. He was an owner with authorized access to the HISA portal who allegedly exceeded the scope of that access. Once HISA determined how Gramm had obtained the information, it acknowledged that the portal was involved, identified the vulnerability and publicly disclosed the additional information. In her September 9 letter to the FTC, Lazarus again states plainly that Gramm was “a user with access to the HISA Portal” who exceeded the scope of his authorized access, and that HISA took responsibility for the vulnerability that permitted it. There is plenty to question about how the vulnerability existed in the first place, how long it existed and whether HISA should have discovered it sooner, or perhaps closed it sooner. Those are fair punches. Saying Lazarus initially denied the breach occurred through the portal is a different punch, and the record doesn’t support it. If you are going to demand complete transparency and absolute accuracy from the people you are challenging, you have to bring the same accuracy yourself.
Relationships are another major part of this debate. Mike Repole and Vinnie Viola have partnered on significant racehorses. Viola has been a prominent figure within The Jockey Club. There is nothing improper about that. Racing partnerships are commonplace and friendships are not conflicts simply because someone decides to draw a line between two names. But let’s change one name in the equation. Suppose Mike Repole’s racing partner were Everett Dobson, Chairman of The Jockey Club. Would some of the people scrutinizing the relationship between HISA and The Jockey Club suddenly view Mike’s campaign differently? If the answer is yes, why? If relationships are relevant evidence of potential influence, when are they relevant and when aren’t they? We cannot decide a relationship matters when it supports our theory and becomes meaningless when it doesn’t.
Then there is Churchill Downs, which may have the most interesting transparency problem of everyone involved. Churchill’s August 28 letter criticized HISA over the Fair Hill Five, including unanswered questions involving wagering. Lazarus’s response to the FTC makes a rather obvious point. HISA does not regulate pari-mutuel wagering or the markets. Churchill, by its own description, owns an advance deposit wagering platform and has a direct and substantial interest in wagering. Lazarus then points out that when a horse connected to the Fair Hill Five was scheduled to race at a Churchill owned racetrack the following day, Churchill did not prevent the horse from racing despite being made aware of the issue. HISA ultimately acted. If Churchill believes somebody should have identified suspicious wagering and acted, what did Churchill know, when did Churchill know it, what did its wagering operation see and what did Churchill do about it?
Lazarus goes further. Her letter reminds the FTC that Churchill has previously excluded participants when it believed their presence compromised the integrity of racing or threatened public confidence, yet did not exercise that authority in this instance. She also points to Fair Grounds in Louisiana, where racing currently operates outside HISA oversight because of pending litigation, and states that participants suspended under HISA rules have been permitted to race there. Churchill wants the FTC examining selective enforcement. Fine. What exactly is Churchill’s standard for its own enforcement, and is it applied consistently?
We can add another example Churchill’s letter doesn’t discuss. Irad Ortiz Jr. and José Ortiz were investigated regarding their involvement in cockfighting in Puerto Rico. They acknowledged their participation and described cockfighting as part of their culture. Kentucky ultimately took no action against them. HISA maintained that its jurisdiction did not extend to jockey conduct away from racing. Churchill, however, has repeatedly demonstrated its willingness to exercise its rights as a private property owner independently of a regulator. It famously did exactly that with Bob Baffert. Yet Irad and José Ortiz were allowed to ride in the Kentucky Derby and finished first and second. What was Churchill’s standard there? Why did its private property authority warrant exclusion in one circumstance but apparently not the other?
Culture can explain conduct. Culture does not determine whether conduct is legal. Cockfighting inherently involves animals being made to fight and gambling surrounding those fights. Saying an activity is culturally accepted somewhere does not automatically answer whether participation in it should matter to a racetrack claiming the authority to exclude people whose conduct threatens public confidence. Churchill has every right to explain why those circumstances were different. That is precisely what transparency means. Explain the difference.
Then we come back to Lisa Lazarus, and apparently I am going to continue getting myself in trouble by saying what I actually see. I have criticized HISA and will do so again. I don’t work for HISA, The Jockey Club, Churchill Downs, Mike Repole or anybody else in this fight. I am not a journalist. I am a gambler who writes a column and asks questions when something doesn’t add up. I have personally asked Lisa Lazarus difficult questions. I watched others do the same during the Marshall Gramm press conference. She answered them.
HISA’s September 9 letter makes the same argument about its handling of the Gramm matter. Lazarus says HISA acknowledged the vulnerability, retained an outside cybersecurity firm, identified Gramm, disclosed his identity and the vulnerability, notified law enforcement, initiated enforcement proceedings, repaired the vulnerability and accelerated an independent audit. She also points to press conferences, podcast interviews, public statements and responses to media inquiries as evidence of HISA’s transparency. You can dispute HISA’s conclusions. You can ask whether it moved quickly enough. You can question its security. You can question its rules. But if we demand answers and somebody actually answers, intellectual honesty requires acknowledging the answer before moving the goalposts.
None of that gives HISA a pass on the $1.85 million. None of it means Mike Repole should withdraw his offer. None of it means Churchill shouldn’t criticize HISA. None of it means people asking questions about The Jockey Club should stop asking them. It means something much simpler. Transparency cannot mean everybody I disagree with owes me every answer I demand while everybody I agree with gets an exception.
There is another danger here. Questions lose their power when we put the verdict inside them. Asking whether HISA violated its bylaws is legitimate. Declaring that HISA violated federal law before establishing the legal predicates is something else. Asking whether a relationship created a conflict is legitimate. Declaring a conflict because two people own horses together is something else. Asking whether an $80,000 investigation was adequate is legitimate. First establish whether there actually was an $80,000 investigation. The strongest question is the one you are willing to have answered in a way you didn’t expect.
That applies to me too. If HISA produces a legal explanation showing exactly why the $1.85 million forgiveness complied with its bylaws and the Act, I have my answer. If it can’t, I have another question. If Churchill explains a consistent principle governing whom it excludes and whom it allows to participate, let’s hear it. If Mike explains what the $80,000 represented or why some matters involving his own interests legitimately require confidentiality, I’ll listen. The point of asking a question should be finding the answer, not forcing the answer we already wanted.
Mike Repole wants to lead. I hope he does. Horse racing needs people willing to challenge institutions that have controlled the game for decades. But if Mike wants to be something more than another powerful person replacing the powerful people who came before him, the bar has to be higher. Don’t tell racing what leadership looks like. Show racing what leadership looks like. Don’t merely be better than the status quo. Be better than that. Answer the question you would demand somebody else answer. Disclose the relationship you would demand somebody else disclose. Correct the record when something turns out to be wrong. Apply the standard when applying it costs you something.
That is leadership. It isn’t wealth. It isn’t influence. It isn’t the biggest microphone in the room. It isn’t offering $10 million for an investigation. It is example. Horse racing has had plenty of people telling everyone else how the game should be run. What it desperately needs is somebody willing to demonstrate it.
So yes, investigate HISA. Examine the $1.85 million. Ask The Jockey Club about its relationship with HISA. Examine the Marshall Gramm investigation. Ask about enforcement. Ask about conflicts. Ask about money. Ask about independence. But while we’re doing that, ask Churchill Downs about Churchill Downs. Ask Mike Repole about Mike Repole. Ask The Jockey Club about The Jockey Club. Ask HISA about HISA. Ask all of them the uncomfortable question and give all of them the opportunity to answer it. The standard doesn’t change because of how we feel about who is standing underneath the light.
That was what I meant when I wrote Investigate HISA. Fine. Just Don’t Stop There.
I meant everybody. And I still do.
