A Case of Triple Indemnity : If Alysheba Wins the Belmont Saturday, Insurance Companies Will Lose $2.6 Million

The other day, Gerry McKeon, the president of Belmont Park, Aqueduct and Saratoga, got a phone call from John Mabee in San Diego.

“He hasn’t been scratched yet, John,” McKeon said as he kiddingly began the conversation.

The reference was to Alysheba, the 3-year-old colt who is one race, 1 1/2 miles and about 2 1/2 minutes away from the biggest payday in racing history. Alysheba, who has already earned $1.3 million with victories in the Kentucky Derby and the Preakness, needs a win Saturday in the Belmont Stakes to become the 12th Triple Crown champion, and with it his three-race earnings would soar to $5 million.

Mabee, the president of the Del Mar race track, doesn’t have a horse running in the 119th Belmont, but his interest is just as high as that of the Clarence Scharbauers, who own Alysheba.

Mabee is caught between a rock and a soft place. The rock is the insurance policy that his company sold the Triple Crown tracks last year, covering more than half of the $5-million guarantee.

From that standpoint, Mabee probably wouldn’t want to see Alysheba win. But on the other hand, Mabee, a prominent California breeder who owns a 400-acre farm near Ramona, bought a lifetime breeding share in Alydar, Alysheba’s sire, for an estimated $2.5 million in 1980, and a win by Alysheba in the Belmont would increase the value of that investment.

“But it wouldn’t go up by no $5 million,” said J.T. Lundy, the president of historic Calumet Farm, the Lexington, Ky., nursery where Alydar stands at stud.

Mabee hasn’t underwritten the entire $5 million. Should Alysheba win Saturday, here is the breakdown on the payoff:

--Kentucky Derby purse, $618,600.

--Preakness purse, $421,100.

--Belmont purse, $332,160.

--Point-total bonus, $1,000,000.

--Insured guarantee, $2,628,140.

Most of the purse money is divided equally among Churchill Downs, Pimlico and Belmont Park, with $321,860 coming from the horse owners who paid nomination, entry and starting fees for the Triple Crown races.

The $1-million bonus for most points--based on high finishes in the three races--will be paid regardless of whether there’s a Triple Crown champion. That $1 million wasn’t insured and comes from a $200,000 payment by Churchill Downs, $300,000 by Pimlico and $500,000 by Belmont Park. The host tracks for the last two races in the series--the Preakness and the Belmont--pay more because of the promotional advantages they derive by having the Derby winner and other Derby horses run in their stakes.

It is believed that the premium the Triple Crown tracks paid for the $2.6-million insurance policy was about $400,000.

“I’m fairly certain that Mabee has spread his obligation around with at least one other insurance company,” McKeon said.

In bookmaker’s parlance, that’s known as “laying off” your bets. Mabee didn’t return phone calls to discuss his role in the Triple Crown.

Before the Triple Crown inducement came along, million-dollar bonuses had become almost passe in racing, mainly because too many of them were being won, and insurance companies, having been burned, were high-balling the premiums.

All Along, the French filly, won $1 million at the end of 1983 by winning three grass races, in Canada, New York and Maryland; Slew o’ Gold picked up an extra $1 million in the fall of 1984 for sweeping three Belmont races, after winning two and losing by a neck in the third the previous year; and Spend a Buck collected a $2-million bonus for his owners by winning three Garden State stakes and the Kentucky Derby in 1985.

The insurance to pay All Along’s bonus was a bargain, costing the three tracks just a little more than $5,000 apiece. The insurance company connected with the Garden State bonus reportedly made sizable bets on Spend a Buck in the Kentucky and Jersey derbies, hoping to recoup some of its losses.

The Garden State bonus was discontinued this year, mainly because President Robert Brennan’s track is financially distressed.

“I ought to get 10% of Alysheba’s money if he wins the Triple Crown,” Brennan facetiously said recently.

It was the Garden State bonus that galvanized the Triple Crown tracks into organizing and putting together this year’s $5-million package. It was an embarrassment to the Triple Crown when Spend a Buck, after winning the Kentucky Derby, bypassed the Preakness in favor of the Jersey Derby, and then didn’t run in the Belmont Stakes, either.

McKeon said that it wasn’t difficult obtaining a company to insure the Triple Crown guarantee.

“Besides Mabee’s, there were two other companies involved in the negotiations,” McKeon said.

Taking about $400,000 to cover approximately $2.6 million doesn’t seem like much of a risk when the history of the Triple Crown is considered.

Since Sir Barton won the Derby, Preakness and Belmont in 1919, only 10 other horses have swept the series, and the Triple Crown champions have come in bunches. Gallant Fox, Omaha and War Admiral won the series in the 1930s; Whirlaway, Count Fleet, Assault and Citation were the champions of the 1940s; and Secretariat, Seattle Slew and Affirmed prevailed in the 1970s, with Seattle Slew and Affirmed, in 1977-78, being the only consecutive titlists.

Secretariat ended a Triple Crown drought of 25 years when he swept the races in 1973, and in the 1980s it was beginning to look as though there would not be a sequel to Affirmed, for until Alysheba, only Pleasant Colony had been able to put together the Derby-Preakness double.

In explaining the 1980s, horsemen point out that there are now about 50,000 thoroughbreds foaled each year. In 1919, Sir Barton was the best of a crop that numbered fewer than 2,000.

Based on probabilities and the law of large numbers--the odds against a Triple Crown champion are about 9 1/2 to 1--11 winners divided into the 104 years that it’s been possible to win all three races.

Even if Alysheba wins the $5 million, Tom Meeker, the president of Churchill Downs, doesn’t anticipate difficulty getting the guarantee insured next year.

“It will be the law of averages, as far as the insurance companies are concerned,” Meeker said. “The chances of a horse winning the Triple Crown two straight years would be doubly remote.”

Some critics of bonuses are uncomfortable with the $5 million guarantee for these reasons:

--The $1-million point-total bonus requires that horses run in all three races to be eligible. This could result in a sore horse with a high point total being forced to run in the Belmont.

And beyond that there is the potential for a horrible sight--a horse such as Demons Begone, who bled and didn’t finish in the Derby, being forced to complete the course just because he had a high point total in the first two races and must reach the finish line in the Belmont to collect the bonus.

--A horse can win the Belmont but not collect the most money. This could happen Saturday. Alysheba has 10 points, 5 each for winning the Derby and Preakness. Bet Twice got 6 points for finishing second in both races. If Bet Twice wins the Belmont and Alysheba runs second, Bet Twice’s payday would be $332,160, but Alysheba would bank $1,121,792--the $1-million bonus plus the second-place purse of $121,792.

Alfred G. Vanderbilt, who used to head the New York tracks, has a problem with any race in which one owner stands to win more than the others. Vanderbilt says that such a situation makes the race vulnerable to public perception of hanky-panky.

Ed Bowen, editor of the Blood-Horse, a trade magazine, suggests that bonus insurers be identified by racing authorities right along with the owners of the horses. In a recent editorial, Bowen said:

“Under general practices of the insurance business, liability for a large number like $2.5 million is spread around among various underwriters through the re-insurance market. . . . Racing rules stipulate that any owner of a significant percentage of a horse be fingerprinted and licensed. When bonuses are provided through insurance policies, however, parties standing to gain or lose several millions of dollars based upon the outcome of the race can become a nebulous network.

“Members of the insurance business are not sinister by nature, any more than are race-horse owners, but to license one element and not even identify the other is an inconsistency which should be addressed. Racing stands to gain by infusion of moneys from bonuses and corporate sponsorship, so a lid should not be clamped on the practice. Instead, racing’s self-regulation needs to be extended.”

Meeker, McKeon and Frank De Francis, the president of Pimlico, will meet here later this week to discuss next year’s Triple Crown bonus.

“There may be a better system than the one we have, but we haven’t seen it yet,” Meeker said. “But we won’t be myopic. When the Triple Crown is over, we’ll sit back, take a breath, and then consider ways of improving what he have.”

If the Triple Crown tracks could land a sponsor for the three races, an insurance policy might not even be necessary. They could have had a sponsor this year, but it was a cigarette company and that would have been a problem on national television, which doesn’t permit tobacco advertising.

McKeon said that another potential sponsor, a camera company, would have been ideal but dropped out of the discussions because of heavy commitments to the Olympics and the Pan American Games.

Naturally, all three Triple Crown tracks are rooting for a victory by Alysheba Saturday. “It’s hard to sell a sponsor on something that doesn’t exist,” said Audrey Korotkin, executive director of the Triple Crown tracks’ alliance. “If Alysheba wins, then we’ll be able to show potential sponsors how all this worked.”

Meeker figures that even Mabee might be happy with a victory by Alysheba.

“He knows it will all be for the good of the game,” Meeker said.

Easy for him to say.