04 May 2018
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How to Win the Kentucky Derby

West Point Thoroughbred President and CEO Terry Finley (OPM 45, 2014) describes what it’s like to win horse racing’s most coveted trophy—and how to get in on the action

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Terry Finley turns race horses into investment opportunities. As president and CEO of West Point Thoroughbreds in Saratoga Springs, New York, Finley buys promising colts and fillies and then offers other buyers something akin to shares in those horses, making ownership much more accessible. As an investment manager, Finley’s got a strong track record, with four of his horses making it to the Kentucky Derby, including a win by Always Dreaming in 2017 and a run this year with My Boy Jack, a horse he purchased a share in just a few days after this recording. In this episode of Skydeck, associate editor Julia Hanna spoke with Terry about what it felt like to be in the winner’s circle with Always Dreaming—and what it takes to make it there.

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Julia Hanna: Where do you think your love of horses and of racing comes from?

Terry Finley: I used to go to the race track after school with my father on a regular basis, and all my brothers and sisters—actually four brothers are in the construction business. They're all in the cement mason business, and in the unions. I really kind of just saw the horse business as an alternative to get into the construction business. Because I used to see my brothers, they worked so hard day after day.

And I had a chance at 12 years old to work on a racehorse farm in New Jersey. I think at that point I really felt like if I got lucky in life and I was able to follow my dream, that ultimately I'd be in the horse business.

Hanna: 12 is really young. What were you doing at the barn, and what did you love about it?

Finley: I can tell you the things that I loved about it, I still love. One of the best things is that, if you're on the backside of a race track, you go to the barn at about 11:00 o'clock. And everything's cleaned up. Because at the race track, they do all the work from like 4:30 in the morning till about 10:00. And after 10:00 o'clock, all the horses, all the bandages are on, and all the shed rows—you know, the area in front of the stalls—are all raked. And the feed is actually put into the stalls. And everything's cleaned, and all the leather and all the saddles are cleaned. And you put all the smells together, and it's like a magical smell. And it never changes, because all the ointments and the lotions, they're all the same as they were 40 or 50 years ago.

Hanna: I'm guessing that you were probably part of making the barn clean—that you were picking stalls and stuff like that, which is pretty tough work really.

Finley: Well, I didn't answer the second part of that question, but you're exactly right. It's an amazing—when you look at the economic impact and the number of people. I'll give you an example. In New York state, the horse racing business, they employ over 40,000 people. And the economic impact is above $5 billion every year. So it's an engine that really, I think, oftentimes is not brought to the attention of the public and of the legislatures and the politicians. But it's a huge engine that I believe is just getting bigger and bigger.

But a big part of that are the people that are on the ground. You look at a place like Saratoga where I'm from, every summer the population increases by probably about 10-fold. And it's an amazing driver and a lasting effect, even after the horses go.

And last year, your horse Always Dreaming, that you own a share in, won the Kentucky Derby. Can you walk us through that time, from the moment you first saw Always Dreaming to when you were in the Winner's Circle at Churchill Downs? What was involved along the way, and did you ever have any doubts that you would get there?

I will say from a global perspective that the horse racing business is really based on hopes and dreams.

Hanna: Yeah.

Finley: And everybody knows that. You know, there are people who come in on a regular basis, and they try to apply a business model. There is no business model that you can apply to the racehorse business, because you're dealing with a thoroughbred racehorse. And you're dealing with jockeys and trainers and other people who take care of your horses. So, yeah, you try to run it as much like a business as possible, but to think that you're going to apply a model to it, you're in the wrong business. You need to go do something else.

And certainly the Derby is the pinnacle. And people that get into the business in a substantive way, if you ask them what their goal is and what their dream is, 98% of them will tell you that my dream is to stand in the Winner's Circle late in the afternoon of the first Saturday in May at a race track by the name of Churchill Downs.

I'd look at Always Dreaming. We had run against him last spring at the beginning of March, and we finished fourth to him. And he won by about 10 lengths in the race that we competed against him in Florida. And he probably could have won by 25 lengths. And I was so impressed, because he's not a big, strapping horse. He's not a horse that you would think, wow, that looks like a Derby horse. But there was an elegance to him that I couldn't get out of my mind.

And one thing led to another, and I'm good friends with the two gentleman that owned him and that bought him at the point where he was about 18 months old as a yearling in Kentucky. And everything just fell into place. They put an ungodly high number on him in terms of valuation. And I had a partner that, when I told him the number, I felt certain that he would say, well, we'll find another one. And the first thing he said was, get the deal done.

"Ready for the starts. They're off in the Kentucky Derby! Always Dreaming's going out to the lead with State of Honor.

He's sitting pretty! He's sitting pre— ooh! He's sitting—they're going to have a tough time with him.

As they turn for home, and it is Always Dreaming in front! Hey, Johnny! Hey, Johnny! Oh my god!

They're coming to the line, and the dream comes true! Always Dreaming has won the Kentucky Derby!"

Hanna: The Kentucky Derby is often called the most exciting two minutes in sports. And I've always wanted to go myself, but have never been. Can you give a sense of some of the sights and smells and sensations of that day, just as someone who might just go on their own, maybe not have a horse in the race?

Finley: It's on a lot of bucket lists. On Saturday morning, you wake up and you can just feel it. And every hotel for 50 miles around the city is packed with people that have come in to be at the Kentucky Derby. So you'll see all kinds of colors of hats, and men that are dressed up in their best suits, and all the shoes are shined. And everybody from that point, they get into cars or Ubers or buses or anything else to get them to Churchill Downs.

And then you get a chance. The races, they usually start about 11:00 o'clock. You're in a position where every 30 minutes they'll run a race. And every 30 minutes, you can just feel the intensity, the drama, and the noise level increase. The Derby is about 6:30 every year. It's amazing. It goes from every 30 minutes to about every 10 minutes. You can just feel and experience and hear the decibel level increase.

And when they come onto the race track, and they sing "My Old Kentucky Home," probably about 80% of the people are crying. It takes your breath away when you know that the same song has been sung for over 100 years, 10 minutes before the Kentucky Derby.

And you get a shot to see the horses. And I really believe that they know that they're ready to do something special, and there's going to be one out of 20 that is going to do something really special. And the jockeys are the same way. There are some jocks that will ride in the 2018 Kentucky Derby that have done it 20 times. And there are others that will be doing it for the first time.

So I love to see the faces of those jocks, because even the newbies—they want to convey that they're calm, cool and collected. But you know that their hearts are beating at 200 beats a minute, and their stomach are tied in knots. But they all have a job to do, and they have to do it, from the point they spring the latch to the starting gate until they cross the wire about two minutes later. And that really encompasses the slogan and the saying, which I think is very accurate, that the Kentucky Derby is the greatest two minutes in sports.

Hanna: Tell us about your filly Coach Rocks who's going to be in the Kentucky Oaks, which is, I guess, a mile and an eighth for three­year-old fillies. What's special about this horse, and how do you like her chances?

Finley: I'll reiterate, I'm biased. You have to be biased in the horse business. And your horse that you're buying or selling or you're racing is always the best. She had an OK year as a two-year-old in '17. All of a sudden at the beginning of the year, she just kind of put everything together. So she's kind of like the fifth-round draft pick in the NFL, who after two years puts everything together, and then is an MVP and a Pro Bowl player. And that's the analogy I garner with her.

She broke her maiden after, I think, six or seven starts. All of a sudden everything changed. She was a different filly. She was eating better. She had a lot more confidence. And after she broke her maiden, they put her into a really big stake race about three weeks ago at Gulfstream Park that was a final prep for the Kentucky Oaks. And she really blew them away, and ran so well that people are talking about Coach Rocks as being in a position where she is a legitimate shot to win the Kentucky Oaks.

Hanna: Now, there may be some listeners out there who are interested in horse racing, but believe it is beyond their financial means. And I wondered if you can describe the nitty gritty details of how the racing partnerships that you create at West Point Thoroughbreds work.

Finley: Yes. And I say to the vast majority of people, the way our business has evolved and our industry has progressed, there are very few people who are not in a position to invest in a horse. You can get into a piece of a horse for a couple thousand dollars.

Hanna: Oh, that was one of my questions. OK.

Finley: So, you compare and contrast it. Back in the '50s, '60s, and the first part of the '70s, what you had were a lot of families, old money, old families—the Phippses and the Mellons and the Vanderbilts. And so they individually, a single owner would have 50 horses.

Well now, there are 10 owners in on a single horse. And so that's really changed the dynamic. You can't buy into a piece of the Yankees or the Patriots or the Phillies or any other professional sports team. But you can buy into a professional sports team by buying into a piece of a racehorse.

There are people that we have that are partners with us who invest a couple $100,000, but there are plenty that invest $10,000 or $12,000 or $15,000. And the real key is, the horses don't know what they cost at auction. And we buy almost all of our horses at auction. When they get on the racetrack, they're all equal until they're not. And that's what I'll say. They're all good and they're all talented until they're not, until they prove that they're just not up to their peers.

Hanna: Yeah. And I don't mean to put you on the spot. You can answer this as you wish, but Always Dreaming, I read was purchased for $350,000, I think at Keeneland, which is a sale where they sell quite a few yearlings. And then you bought into the horse a while later, and then the horse won the Kentucky Derby. The horse was doing pretty well when you bought into it. How much did you have to invest, and do you feel like you got a return on investment from that?

Finley: Yes. There are a lot of horses that don't turn out the way we think they are. And that's really for two reasons. On one side, they're just not as good as we think they are, because they just don't run to their pedigree or their athleticism. Because a lot of cases, they don't have quite the courage that they need to be competitive against their peers.

And the other side is, they get hurt. They are fragile, and they get hurt on a regular basis. The industry overall, we're doing a better and better job in the attempt and the pursuit to keep our horses healthy and on the race track.

But every once in a while, you get the $300,000 horse that turns into a $5 million purchase, that does well, and then is sold as a stallion prospect for $12 million. Those are the kind of multiples that you're looking at with a horse like Always Dreaming. You just don't see that as often as you'd like, because it's a numbers game.

There's only a single colt that is going to win the Derby, and a single filly that's going to win the Oaks, out of about 22,000 that were born in 2015 when this crop and class of three-year-olds were foaled all over the world. So the numbers are against you to even get to the starting gate. They're certainly against you to get to the Winner's Circle. But that's all part of the magic and the mystique of this incredible business that we all love.

Skydeck is produced by the External Relations department at Harvard Business School and edited by Craig McDonald. It is available at iTunes or wherever you get your favorite podcasts. For more information or to find archived episodes, visit alumni.hbs.edu/skydeck.

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