Interview with Robert N. Clay, September 3, 2008

SMITH: Okay, this is Kim Lady Smith and today is September 3, 2008. I'm at Three Chimneys Farm conducting a second interview with Robert Clay for the Horse Industry in Kentucky Oral History Project at UK. Um, I went back and listened to most of our last interview and there were a couple of things that I, uh, we really didn't go into depth that I wanted to go back to and then we'll bring us forward here. Uh, one of it is racing. You had mentioned somewhere in there that you had come back, you had graduated in 1968 and you got back in time to get to the Kentucky Derby. Now do you remember your first Kentucky Derby?

CLAY: I remember the first Kentucky Derby that I, uh, saw on television and uh, it would have been, um, back, you know, in, in, in the late fifties, probably. But I, I remember Tim Tam uh, winning the, the 00:01:00Kentucky Derby. I remember Iron Liege winning the Kentucky Derby and Chateaugay, so that was back in the, back in the fifties, I remember watching those as a child. The first Derby I ever attended, um, I, I don't, I don't remember exactly which one it was. I remember taking my wife to the Derby in 19-, my future wife, she, she was my fiance in, in 1968 when uh, Forward Pass and Dancer's Image, you know, that famous Derby

SMITH: Um-hm.

CLAY: Which we, we came home on the train from college and then went with my parents to the Derby that year.

SMITH: Hmm.

CLAY: I can't remember the first Derby I ever went to.

SMITH: Did you like the races? Did you--

CLAY: --I do like--

SMITH: --like going?--

CLAY: --I do love the races. Yeah, I like, I like going to the races and uh, I, I love big races. I don't like going to the races and sitting all day watching claiming races but I, I love watching good 00:02:00horses compete.

SMITH: Um-hm. And did, was this something your family did? Did your family?

CLAY: No, we, we didn't go to the races much. We uh, growing up we, we uh, I, I don't really ever remember coming to Keeneland very often as a, as a, as a young child--

SMITH: --um-hm--

CLAY: --you know, like our children and grandchildren started going to the races, you know, when they were six, seven, eight, nine, I guess. But I, I probably didn't go to the races until I was a teenager.

SMITH: Okay. So Keeneland wasn't the event?

CLAY: Wasn't part of my, my growing up life, no.

SMITH: Hmm. But you uh, go on a regular basis now?

CLAY: I go on a regular basis. I'm, I'm there, I'm not, I'm not at, at Keeneland every day, but uh, and at, at Saratoga in the month of August I'm, I'm there almost every day at the races. But here I've got other things to do and I don't get there every day. I get there every 00:03:00Saturday and maybe once, once a, one other day a week.

SMITH: So it wasn't racing that brought you to the industry?

CLAY: Well it, it was the uh, it was sort of the intrigue and the magic of the, of the sport as a business that probably brought me to the industry. It was uh, you know, doing that college paper on, on uh, on the industry, then coming to a horse sale, then riding with uh, veterinarians and, you know, just sort of the, the magic of the, of the sport and then, and, and, and it also being a business opportunity which, you know, I enjoy was the perfect combination.

SMITH: Okay. Okay. Now uh, you say you go to Saratoga, now that, that's certainly a tradition. Is that something you've done for 00:04:00several years?

CLAY: Over thirty years I think we've probably gone to Saratoga. Um, I first went to Saratoga um, with my dad and uh, you know, I remember staying at the Holiday Inn with him. I went back with my wife when we, we ran a filly that we owned uh, Aladancer and won the Ballerina, so it was a very early-on positive experience. We've gone for over thirty years, we've rented every bad house in Saratoga. (Smith laughs) We've uh, finally bought a house there and it's just sort of part of our year now, we spend a month up there. And uh, it's a, it's a great place to be. It's got great racing. We can see the results of some of our, our breeding work.

SMITH: Um-hm.

CLAY: Some of the horses we race ourselves. It's a social environment.

SMITH: Um-hm.

CLAY: Um, it's a nice place to be in the summer, so it's part of our, Saratoga's now part of our life. And uh, it's, it's racing at its best 00:05:00because it's festival racing, it's got a start and a finish. Uh, people come uh, to watch good horses run, they come to socialize. Um, it's, it's just racing at its best. It's the only place that I know where people really get invested--(coughs)--on a daily basis in the training of their horses. They're out watching their horses in the morning--

SMITH: --okay--

CLAY: -- and um, and they're watching their horses run in the afternoon. In, in most racing environments uh, that opportunity doesn't present itself in a small town like that.

SMITH: Um-hm.

CLAY: You know, New York City people aren't out watching their horses train every morning at Belmont Park um, some, some are at Santa Anita and some are at Hollywood but for the most part people are busy and they've got other jobs, but here they, they take the month to, to go invest themselves in their own horses.

SMITH: Is that a good place to do business?

CLAY: It is a good place to do business. I mean traditionally, uh, you 00:06:00know the, the old, the old stories and, uh, Bull, they said Bull Hancock could walk down the box section of, of uh, Saratoga and syndicate a horse in fifteen minutes and I, I'm, I'm sure that's the case. It, it's not the case today, it's a little, little more difficult to do, uh, than that. But, uh, it's a, it is a place to do business because everybody's there and uh, if you've got something to buy or something to sell, you, you know, the decision-makers are close by.

SMITH: Um-hm. And then of course there's the Fasig-Tipton sale.

CLAY: Fasig-Tipton's sale's there and we take a consignment up there every year and sell. So it's a, it's, it's a, it's, it's, its business and pleasure combined at its best.

SMITH: I'm gonna have to get there sometime. The uh, um, Mack Miller told me that was his favorite track.

CLAY: It, it is, it's my favorite track just because it's, you know, 00:07:00it's everything wrapped up in one, all the history that's involved there and--

SMITH: --um-hm--

CLAY: --um, there's some wonder-, wonderful tracks around the world but uh, this cer-, this certainly ranks in the, in the top ten.

SMITH: Um-hm. Now um, I'm gonna forget this, bring you right up into the present, the Hopeful Stakes, is this um, tell me about your decision to sponsor that race at Saratoga?

CLAY: Well, we've, uh, we have uh, been sponsors at Saratoga for, for several years as, as, with the back page of the Saratoga program. And uh, that came up for renewal and NYRA asked us if we'd be interested in expanding our sponsorship, um, past, beyond just that and the uh-- (coughs)--they're, they're being more proactive in sponsorships and the Hopeful Stakes has always been one that we feel like is a great uh, stallion-making race.

SMITH: Hmm.

CLAY: And um, so we, we agreed to sponsor the Hopeful this year. We've 00:08:00sponsored different races at different places--

SMITH: --okay--

CLAY: --at different times. But um, we've got, we're gonna, we, we've agreed to a two- year contract to sponsor the Hopeful and hopefully it will go on for many more years than that.

SMITH: Okay. Are you sponsoring any other races right now?

CLAY: That's um, the only racing, race that we're currently sponsoring

SMITH: Okay.

CLAY: We have sponsored the Spinster at Keeneland. We've sponsored the WHAS Stakes at Churchill.

SMITH: Okay.

CLAY: We sponsored the Dewhurst Stakes in Newmarket, um, but this is the, the only race we're currently sponsoring.

SMITH: Okay. Um, I'm gonna take you back up now to uh, where we ended our, our last interview.

CLAY: Okay.

SMITH: And there will be some, some things from the last interview I'll pull in. Um, one in particular, Kenirey Stud. What can you tell me about your purchase of, you mentioned that you had purchased the land with an Irishman and that was as much as we got on that.

CLAY: Well uh, stop me if I'm repeating myself--

SMITH: --I will try--

CLAY: -- here, um, because I can't remember from the last interview. But in 1978, um, I had sold a mare to Captain Tim Rogers who got his title uh, legitimately; he was Winston Churchill's Aide-de-Camp, ADC. And, um, he had Airlie Stud in Ireland which was the biggest stud farm in Ireland at the time and he stood Habitat and Ela-Mana-Mou was a, was a very um, it was the, it was the best, uh, stallion station in Ireland. And uh, he was great friends with Bull Hancock, actually.

SMITH: Hmm.

CLAY: And, um, he bought a, a foal from me in the sale and uh, asked if he could, or he bought a yearling, and asked if he could see the mare and the, and the next year's foal. And I brought him out to the farm 00:10:00and we, we only had one barn and it wasn't a very glamorous place. Uh, but I did say to him that if he ever came back, um, he had a bed and he'd be welcome to stay with us, not thinking he'd really take me seriously on that. Um, but the next November, he called three days before the November sale and said, "I'm coming and if you're serious about me staying with you, um, I'll accept your invitation." And, we at the time had lived in our house four years and we didn't have a very glamorous guestroom so my wife scrambled, um, and we, we uh, picked up Tim at the airport I think on a Saturday night, took him straight to Hi Petter's party, took him to the sale on Sunday, dropped him off, brought him home Sunday night, uh, same on Monday, and on Tuesday morning I said, "How about driving down the road with me on the way to the sale? There's a farm for sale down here that I'm thinking, I'm looking at." And uh, we drove through Kenirey Stud, uh, ultimately named 00:11:00for Kentucky and Ireland, K-e-n-i-r-e-y, and, uh, we, we were on the way to Keeneland and at the stop light in Versailles, he said, "If you want to buy that farm I'll take half of it." So I spent the rest of the afternoon, uh, checking him out, went into Mr. Bassett's office and said, "Well, tell me about Tim Rogers," and the long and the short of it, a week later we owned the farm. That was 1978. He died in 1984--

SMITH: Hmm.

CLAY: --of leukemia and I have been partners with his wife and now his son, uh, ever since. It's been a fantastic partnership.

SMITH: So they still own part of the land?

CLAY: Well we, what we did is, uh, we traded out. We sold Kenirey Stud and bought the King Ranch.

SMITH: Okay.

CLAY: So, uh, which is another great story. Um, the King Ranch came 00:12:00up for sale and, um, I, I felt like it was a great opportunity really, and uh, I called Sonia Rogers and said, "I've got to come over to talk to you about something". I didn't tell her what I was coming to talk to her about and she was gonna be in London. They have a flat there and um, I came into her apartment and I put this brochure down on the table and I said, "I've come to talk to you about something," and she looked at the brochure and she said, "This is incredible, my husband--" her husband Tim had come to Kentucky for years and he had told her if he had ever bought a farm it would be the King Ranch and there was the brochure for the King Ranch and so it took us about five minutes to decide to sell Kenirey and reinvest the money in the, in the King Ranch.

SMITH: Okay.

CLAY: So it was a short meeting.

SMITH: About what year was that?

CLAY: That was, that was around, you know, around 2000.

SMITH: Oh, okay. ----------(??).

CLAY: Yeah, several years later and her son came in as, you know, her son had come over and worked for us for a year and is, uh, close to my son's age. They're very close, so I think this partnership will continue for another generation. They, they'll be here on Friday of this week.

SMITH: Oh, the sale.

CLAY: We're selling a couple for them, and, um, it's been a great relationship, a great partnership. Um, it's one of those thirty-year partnerships where we've never had a single issue that we haven't agreed upon. Just one of those easy-going things and, uh, I think it's been lucrative for both parties, so.

SMITH: Now, um, in '70--let's see you bought Kenirey Stud with Mr. Rogers in--

CLAY: --'78.

SMITH: Captain Rogers

CLAY: Captain Rogers

SMITH: --in '78. Now that's about when Dan Rosenberg came on board.

CLAY: It was, it was the same year Dan Rosenberg came onboard. Um, we, uh, the, the farm was expanding from our original hundred to three- hundred. My friend, Charlie Moreland, had decided to go out on his own and I obviously needed somebody to, to um, make this work. And Dan I think started the first of the year and we would have bought that, that farm in, at the end of the year so he, he had, he, he was working for me at the time. I don't think we could have bought that if I hadn't had the comfort level that Dan was gonna be there and able to, to run them both because at the time I was not in the business full-time.

SMITH: You were still with the fertilizer--

CLAY: --right--

SMITH: --company?

CLAY: Yeah.

SMITH: Okay. Now at this time, you know, I've read in various articles that you developed a five-year plan. What was the five-year plan, what's the--

CLAY: Oh, I'm not sure I can remember that. (Smith laughs)

SMITH: Well, can you remember what your thinking was? As where you, 00:15:00where you, how you wanted to grow the farm?

CLAY: Well, you know, we were, we were basically a non-entity in the, in the business. We had um, a hundred acres and ten stalls and ten boarders and, um, my dad had a, had some, had three or four mares that I was gonna be able to sell yearlings out of. The Burrells, uh, allowed us to take a few horses, three horses to Saratoga one year, I think that was about '78. We were just, I, I'm not sure that, I can't remember what the five-year plan was but we, we wanted to become a legitimate, uh, consigner of horses and, and a boarding operation and, um, we had no vision of how big we would ultimately come. Frankly, we, we said that we would not get into the stallion business until we got a really great opportunity to have a really top horse and a boutique setting and, uh, that, that opportunity came in '84, but in, in, in, in 00:16:00those early years probably, um, from '78 to '84 we were, we were just trying to attract, um, enough boarders to pay the bills and we got a, a great opportunity in, in '78 or '79, um, when John Mabee, um, basically agreed to send most of his mares to us and he became our principal client. He was, he was our primary client, um, throughout the eighties and, and, um, into the nineties, uh, and, and really allowed our consignment to be major summer sale material because he was breeding all the top stallions. A lot of Mr. Prospectors, Northern Dancers, Seattle Slew, and, uh, he was a, he was a real bread-and-butter client for us. And Allaire duPont became a good friend and a good client. 00:17:00Um, she was from Chesapeake City, Maryland and she was also a, a real stalwart client for us and we did a partnership deal with her where we actually, uh, bought a big group of her mares and syndicated it, uh, to, to a group of people which gave us a, a ready supply of yearlings to sell every year. So we were just sorta growing the business as the opportunities came along.

SMITH: Now, in regards to sales, I mean you started basically selling more horses in '78, '79, and by 1984 you were the leading consigner at the Keeneland sale, did I read that?

CLAY: I don't think so.

SMITH: I read that somewhere.

CLAY: Um, maybe if, if we were that's, um--

SMITH: You were one of the leading consigners--

CLAY: --we, we were one--

SMITH: --in 1984--

CLAY: --we were one of the leading consignors but again, uh, we, it was, it was John Mabee's horses and Allaire duPont's horses. We, we 00:18:00got some, we got some good clients, uh, all of a sudden. I, I think that, maybe I'm repeating myself here, but I think there was a, there was a, there was sort of a, there was competition out there that was, uh, absolutely legitimate, uh, honest, straight, forthright, and then there was also competition that was, that was, that were playing a lot of games and I think that there was a large part of the customer base that was, that were looking for legitimate players and I think that's where our business came from. They, they, they didn't want to go to the places that were playing games.

SMITH: Um-hm.

CLAY: I think that continues to this day, but in those days there was a lot of game playing going on.

SMITH: Um-hm. Now I've, uh, throughout our last interview and, and talking with other people associated with Three Chimneys, integrity just seems to be the foundation that, uh, this place is built on.

CLAY: Yeah, that, that, that's the whole, that's the foundation of the whole, the whole concept of the Three Chimneys and it's, it's--from day one we just said look, we're not very good deal makers, so we're not gonna make any deals and, uh, it's honesty without hesitation and that's what we're gonna do. If, if we lose business for it, so what? And we've, it's just been, it's, it's the core value of the company and I think it runs through the veins of everybody that works here, uh, almost everybody anyway.

SMITH: When you talked about it the last time, we talked about it being a differentiating component now. And while you're saying that there were some, you know, there's still a lot of legitimate sellers out there, people in the business, but why would it be so unusual, why would it make you so different to be, have that core value?

CLAY: I think, I think, uh, I, I haven't thought a lot about this, but 00:20:00I think that we actually were different, we dif-, because we, we said what we stood for. We actually came out and put it in our ads.

SMITH: Okay.

CLAY: We, we said uh, if you want to do business with us you're, you're gonna get the straight scoop and the straight answers and you're not gonna get any behind-the-back dealings and, and, and we were very upfront about that and we, we, we weren't embarrassed to say it.

SMITH: Yeah.

CLAY: We, we may have offended some but I think, um, that it did differentiate us because it was sort of, you know, there were unspoken things going on and, uh, people didn't talk about 'em much. They're talking about 'em today and it's a much more healthy environment today.

SMITH: Um-hm.

CLAY: But I think that did differentiate us some because we said we're gonna play the game honestly and if you want to play ball that way, come do business with us and I think that people came though the gate.

SMITH: Um-hm. Now by, um, describe the difference in the farm from '78 00:21:00to '84? What was the farm like in '84?

CLAY: Well, in '84, uh, we still had only the three hundred acres, we had, um, um, the original hundred acres and Dan was living in a mobile home on the back of the farm and we had the, the two-hundred acres of the Kenirey Stud and the manager down there was a guy named David Craig who still works for us and is our maintenance, uh, manager. Um, I, I think the farm just uh, I wasn't in it full-time. We tried to just continue to pick up customers, our consignment, consignments continued to grow. Um, we looked for sort of stallion opportunities but not really very seriously, um, until I wrote this letter to Jim and Micky 00:22:00Taylor that maybe I've talked about.

SMITH: I don't think we did in the last interview; we didn't get to Seattle Slew.

CLAY: In 1984, um, I wrote a letter to, uh, Jim Hill and Mickey Taylor and I said, "You know we don't have a stallion business, but and we're not going to have one until we can get a top horse and, um, you've got a horse, Slew o' Gold, that um, I'd, we would love to be able to talk to you about building a boutique stallion operation and building a barn, uh, that would hold six horses and, um, if you would be interested in talking to me uh, I would love to meet with you." And I had watched Slew o' Gold at Saratoga, um, and, and I, I was sorta intrigued by him and, um--have I told you the story of my phone call in Spain?

SMITH: I've read the story, but I don't think it's on tape.

CLAY: Well, um, I was in, we'd, we'd taken a trip to Spain with our 00:23:00friends Bud and Anne Greely and we were down in Marbella on our way to the Arc de Triomphe and, um, the phone rang about three in the morning and when that happens you always think it's something wrong with the children. And, uh, I picked it up and it was Mickey Taylor who was in Washington state, so the time difference was--he was not paying much attention to. And, um, he said, uh, "We got your letter and, uh, we want to sell, um, two, uh, fo-, twenty-six of forty shares in Slew o' Gold, um, we want to sell it for fourteen million dollars and, uh, if you're interested we'd, we'd like to talk to you about it." And, uh, I said, "I'll come, I'll come right home because this is a big 00:24:00deal for me," and they said, "No, you know, stay through the weekend. You're going to the Arc de Triomphe. Um, we'll, we'll meet you in New York on, on, uh, Tuesday of next week." So, um, I woke--went over and knocked on Bud's door. We had a little four, we had a sitting room in- between two bedrooms and we sat in our undershorts from about 3:30 to 5:00, um, talking about whether Slew o' Gold was worth fourteen million dollars and whether I could syndicate him because I didn't have any money of that nature in the bank and I was gonna have to basically get, uh, twenty-six people to buy shares at three hundred and fifty thousand apiece. (coughs) So there were other farms after Slew o' Gold but the, the, the main, the competitor that you would assume was gonna go after him was Spendthrift because they stood his father, Seattle Slew, 00:25:00and, um, but for, they had sorta indicated to the Taylors and the Hills that they weren't gonna pursue Slew o' Gold because he only had one testicle which may have been the luckiest thing that ever happened to me. (Smith laughs) Um, so, we, we went on to the Arc. We came home on Monday. On Tuesday I flew to New York and met with Jim and Mickey and Karen and Sally. Uh, I took an attorney with me, um, who drafted the document in their, in their dining room. I gave them a twenty-dollar bill as a down-payment and we shook hands and had a deal. It was, it was sort of an incredible thing. Uh, I came home and got on the phone and by the weekend had completed his syndication.

SMITH: Was there a time limit? Did you have to do it within a certain amount of time?

CLAY: Well, technically, I was responsible no matter what, but, uh, 00:26:00I had--the burden was on me. I mean it was a big, it was a big bet. Uh, if I hadn't been able to syndicate him, I would have had to go, you know, borrow the money to make up the difference but, um, he was a very outstanding horse, he was still running, he had upside potential and, um, I, I actually sold him out in about forty-eight hours. And, a couple of things happened there, I think. You know, Jim Hill, looking back, um, I said, I, I, I asked him, I said, "What, what's, how come you gave me the call?" And I've got two of the three interpretations, I think, of why they did, but his answer to me was, "Well we, we made a lot of phone calls and we couldn't find, uh, anybody that was your enemy." Now it, I was young enough, I hadn't been in the business 00:27:00enough long enough to make any enemies, I guess-- (laughs)--but he couldn't find anybody that would say anything bad about us which was good news. So that was sort of the vetting that they had done. I do think that their management style was one where they liked, they were hands-on and they, they couldn't necessarily go in a big farm and be as hands-on perhaps as they could be at a small farm with a, with a young start-up, uh, which was fine with me. I was, I was okay with that, you know, and they both had more experience than I did, really, and Jim was a veterinarian.

SMITH: Um-hm.

CLAY: So um, we, we, uh, we broke, well we, uh, we, we syndicated Slew o' Gold, but we didn't have a farm, we didn't have a barn, we didn't have a farm to stand him on and, uh, we thought about building a stallion barn over by our house, but that didn't seem to be too attractive and, uh, this was about, um, he was gonna race another year 00:28:00so we had a year to do it. And late October, Dr. Yoakum, who owns this, owned this house where we're sitting today as our office, uh, called me and he said, "Marie and I are thinking about moving to town. Would you all be interested in buying our place." And I said, "I'll be right over there," and I drove over here, it was a Sunday night, was about five minutes to five and I drove over here and there was a fire going in there and they were sitting in their den and I said, "What do you want for this place?" and he told me and, and I said, "I'll take it." And we went down, uh, on Tuesday and put the papers together, uh, and signed a contract. And it was a great opportunity for me because it's, it was just far enough away from my house that I have to get up in the morning and go to work, um, but as it turns out, you know, we could not have accommodated the visitors, the stallions and everything 00:29:00on our place so, it, and it, it's, it was perfectly located, we had to tear a barn down and we built our six-stall stallion barn, so we had a year to do that. Made this our office--SMITH: How many acres came with the property?

CLAY: A hundred acres. It's actually ninety-nine acres I think. And, um, so that was just one of those lucky things, uh, that I, that I did the, the, uh, deal. Actually I'm, I'm sorry that, late September was when I got the call, the Arc is the first Saturday in, the first Sunday in October and, uh, this farm came up for sale, you know, at the end of the month so I, so then we went under, under construction and, um, I, in March of that year, '84, uh, I had sold my fertilizer business and so, so it was a huge, you know, transition.

SMITH: Um-hm.

CLAY: But anyway, that that was the, that was our, our first, um, our 00:30:00first stallion. That year, uh, the next year he reti-, he, he ran second in the Breeders' Cup Classic and, um, he didn't get Horse of the Year that year, but, um, retired here and, and that first year we only had one stallion. That was it, so we, we, uh, we, we, we concentrated on, on him, we, you know, I knew every mare, every, everything he did, he was our total focus.

SMITH: What size of a, uh, was his--if I'm saying this correctly--what was his booking or his book? How many mares did he have--

CLAY: Well, he was a forty-share horse and, uh, there were four breeding rights and there was Breeders Cup breeding right and a trainers breeding right so he had forty-six. In those days, you know, we didn't breed a hundred mares, so we had forty-six to the horse and, um, he 00:31:00stood, uh--the shares cost three hundred and fifty thousand and he stood for one hundred thousand so it, it was a very lucrative deal for the shareholders. He got five grade-one winners in his first crop, which was unprecedented almost, uh, but he was not a commercial sire. He got these big gangly yearlings that people didn't pay a lot for. Uh, owner breeders, owner breeders were the ones that had break these stakes winners. Um, say, he, he was not a commercial horse and then he fell out of favor from a commercial point of view.

SMITH: Oh.

CLAY: But he was the, um, he, he was the relationship that lead to us getting Seattle Slew.

SMITH: And also before I forget, you, the people that you syndicated this horse with these are some big names in the industry. So at this time were these friends and colleagues?

CLAY: Um, I, I wouldn't say friends and colleagues. Um, they, I, I 00:32:00had tried to befriend them and become acquainted with them and gone to their places to meet them and, um, the-, you know, knew who they were a lot more than they knew who I was, but I think that they did know, they sorta did know who I, who I was and, um, um, again reputation is, your name is all you have at that--you know, I think that, uh, we didn't have any marks against us anyway.

SMITH: And that was your first major syndication?

CLAY: That was the only, yeah, my first syndication of any kind.

SMITH: Okay. (laughs)

CLAY: I, I, I think that the lesson in it to the great extent is if you have the right horse and, and they have some confidence that you know how to manage a horse that the, the horse sorta sells himself.

SMITH: Um-hm.

CLAY: I don't think that we were selling Three Chimneys as much as we were selling Slew o' Gold and he was, he was the best horse out there.

SMITH: And by making this syndication happen, did this, um, help your business? Now you became more associated with these individuals?

CLAY: Absolutely.

SMITH: Okay.

CLAY: Yeah. I, I, you know it's, it's, uh, now all of a sudden they're, they're, they're your customer, you're servicing them, you're, um, managing their asset.

SMITH: Now who were some of these people? I have it written down but let's--

CLAY: Well, you, you could probably give me, give me the list. (Smith laughs) I mean I, I remember some of 'em, um, um, Moyglare Stud, Walter Haefner, who was a Swiss, uh, guy that, that owned all the, uh, Volkswagen dealerships in Switzerland. Um, and had, had come over for the sales, was a big client of Lee Eden's, a wonderful man, um; Sheikh Mohammed, Sheikh Maktoum and Sheikh Hamdan, I think all three of the Maktoum brothers bought a share; um, the Phipps: Dinny, Ogden Phipps 00:34:00bought a share; um, John Mabee, my good client; Allaire DuPont, my good client, um, um--

SMITH: I've got Warner Jones down here.

CLAY: Warner Jones, who was my great friend, and, uh, but again you know as good, as good a friend as you may have, he wasn't gonna buy a share, as good a friend as Warner was he wasn't gonna buy a share unless it was, it was something he believed in and he, and he was the top horse in training. Um, so, um, it was, it was, it was a pretty much a who's who of, of the racing world at the time.

SMITH: Um-hm. Well it sounds like 1984 was a very pivotal year for Three Chimneys?

CLAY: Pivotal year. Absolutely a pivotal year because it lead to, to 1980, you know, his retirement in '85 and ultimately Seattle Slew's 00:35:00move here in '86.

SMITH: Well, let's talk about that; let's talk about getting Seattle Slew.

CLAY: Well, uh, again, stop me if I'm repeating myself from the last interview. I think I did talk to you about uh, Mickey Taylor stopping me at Saratoga and asking me if I wanted to--

SMITH: I think so.

CLAY: Well, um, he, Seattle Slew stood at, at Spendthrift, he had been syndicated for twelve million dollars over there. Um, Triple Crown Winner, um, he had, he'd won the Triple Crown in, in, uh, 1977. (coughs) He, uh, retired in '78 so in eighty, '85, when he moved, um, he'd been, he'd been there seven years at stud. And um, Spendthrift had, had, uh, fallen on some hard times, I guess you could say, and 00:36:00had called Jim Hill and Mickey Taylor in to see if they would like to buy the place and, um, they sent their auditing team in and, um, they came out. And, uh, I was in Saratoga, walked by Mickey's box and he said, "How would you like to stand Seattle Slew?" And this is after a year of us having managed Slew o' Gold as our only stallion. And, uh, I said, "You," you know, "Are you serious? If you are, I'll run home and bed down a stall," and he said, "Absolutely, um, we're gonna come to Kentucky, uh, day after tomorrow and, um, have, get the syndicate together and have a vote and move him." So that's what happened. He came down. They, they stayed with us. Uh, they rallied around, uh, the syndicate. They had an official vote and, uh, they sent a van over to the farm and loaded him up and brought him over here. It was sort of a miraculous ten days and, uh, his groom, Tom Wade, got on the, 00:37:00on the van with him there and, um, was told that if he left with the horse, he didn't have a job. And he got off the van here and, uh, came over to me and said, "I'm looking for a job," and I said, "I'll give you a job for a week and then we'll talk." You know, so that all worked out; he was with the horse until the day he died. Um, but it, it was a, it was really a huge, huge break for us; I didn't realize how huge it was at the time, I don't think, but, uh, it, it showed that we, that somebody had the confidence in us that we could manage a big horse. I think that Jim and Mickey again were inclined to come to us because they'd seen us manage this one, Slew o' Gold, for a year but they also could have some input here.

SMITH: Um-hm.

CLAY: Um, we, that same year we, we actually did a, a twenty million 00:38:00dollar deal, ten million for half of, of Chief's Crown, who went on to win the, the Juvenile that year. So our, our second year in business we had Seattle Slew, the champion two-year-old Chief's Crown, and Slew o' Gold. So we had three horses, so it was like, you know this, this, we, we, we're really landing on our feet here and, um, you know it's, it's sorta been the same ever since. Things uh, um, tend to fall in our lap, I'm, I'm not sure why, but I do think that, that the, our core values have a lot to do with it.

SMITH: Um-hm. So you had three important stallions. Um, obviously you were going to be getting a lot of attention at this point, but you're also at a time period when the industry's starting to experience a serious downturn. So tell me how, how that works? Suddenly, you're, 00:39:00you're way up to the top and the industry's in trouble. How does that impact Three Chimneys?

CLAY: Well, we didn't know, um, it, we didn't really know that we were in trouble if we were really honest with ourselves. You know, in 1984, when Slew o' Gold came here I think there were, there were forty-six stallions at Spendthrift and forty-five stallions at Gainesway and twenty-two stallions at Claiborne. They were the GM-Chrysler-Ford of this business, you know. We were a little boutique over here on the old Frankfort Pike. Um, we were going through an inflationary spiral from, from probably seven, he mid-seventies up to the mid-eighties that, you know, the prices of everything were, was, was, was going up and, um, it, we, we didn't see it coming. Um, the industry really didn't, 00:40:00didn't, uh, take its turn down until the tax law of '86 passed and, uh, that took people that were taking write-offs in the horse business as active players and made them passive players and which made them less interested. Uh, and there, there were a lot of industries, especially the real estate industry that took big hits at that time, and so the tax law of '86 really changed the dynamics of the new investment in, in the horse game. It took a year or two for that to filter through, um, our, our business because, you know, stud fees are paid and, uh, yearlings are, are being raised, but by eighty, '88 we were starting to feel the impact of the '86 law and, um, that downturn from '88 to 00:41:00probably '92 was, was rather severe. It didn't affect us that much. We only had three horses. Uh, they were popular. Um, our customers were able to pay us. Uh, we were operating at the top of the game. Uh, I didn't feel, uh, the sting quite as badly as others did, but, uh, make no mistake, many, many, many nights from, you know, for many, many, many years I'm, I'm, I'm laying awake fig-, figuring out how to make the payroll and pay the bills and, uh, stay competitive. I mean it's, it's, it's a, that's a continuous part of being an entrepreneur.

SMITH: Um-hm. So basically since you were, since you had such high quality horses, that helped you out.

CLAY: Yeah, and that's been a part of our sort of, uh, plan from the 00:42:00beginning was, you know, don't, don't mess with it if you can't stay at the top of the game because if, if the industry takes a hit, it's gonna take it at the bottom, and we've continued to try to do that. It's, as you get bigger, it's harder to stay completely at the top, but, you know,our stallion recruiting we, we, we, we try to go as, as high up as we can afford to.

SMITH: Now during that time period did you acquire more stallions?

CLAY: We did. Um, we, actually through the Hill and Taylor connection, we were able, uh, to, uh, move a horse from Florida named No Double. He was quite a successful stallion but he was, he was older and, uh, he became, he was here, active, fertile for, uh, two or three years. Um, then, uh, I, I made a, I, I went and made a mistake. Uh, I, I didn't see the downturn coming and, uh, went over and met with the Aga 00:43:00Khan and bought the English Derby winner Shahrastani and paid, uh, the, the sort of pre-recession price for him. I don't think anybody's ever outsmarted the Aga Khan--(Smith laughs)--I certainly didn't. Um, and, um, that was one of those deals where I paid too much and could not get it syndicated and had to sort of eat the rest. Uh, that doesn't happen that often, um, but it's painful when it does, and so I overpaid for him and he was not a success. We ended up, uh, selling him off to Japan, but that was a losing proposition for us. So, you know, you drill wells here and some hit and some don't, more don't than do, actually. Those, back in the eighties and early nineties, syndication 00:44:00was sort of the way these things went down. Um, beginning in the, sorta in the mid-nineties syndications be-, became out of favor and we started to had, we had to invest in horses in different ways. We either had to get owners to keep half or we had to get three or four partners to buy, to buy a horse rather than syndicating with forty or fifty shares. Now we, we still syndicate horses and we syndicated Smarty Jones and, uh, but it's a, it's a different ways of raising capital than, than it used to be.

SMITH: Hmm. What kind of challenge has that presented to the farm, if you--

CLAY: Big challenge because we are, um, we, we have no other revenue source than, than our, than horse income. We're not, there's, we have no oil wells or no outside revenues, so we've got to make, we've got to make the budget work, uh, so we have gone out and raised capital for stallion investment, raised capital for racing investment and it again 00:45:00it, it is, sometimes you can raise capital if people trust you with their money, that your going to invest it wisely, knowing that this is a high risk game and, uh, we, we formed a stallion fund, um, in, um about 2004, uh, where, that we have used and are still using to, to invest in stallions.

SMITH: Okay, now you touch on something that, you know, Three Chimneys, you have to tell me how unique it is or unusual it is in that this farm pays its way, this is, this is?

CLAY: How unusual it is?

SMITH: Yeah--(laughs)--well this is your business. You don't have that, as you say, outside source of revenue. This, this, this is your income.

CLAY: I, I think it's a bit unusual. I, I think that, um, not, we're 00:46:00not the only one that does that but, um, those people that sorta try to do this in a absentee way, uh, in, in, uh, in any kind of hobby-like way, um, have, have a very hard time making, making, making a profit in this business. So you have to treat it like--I've said this many times before--you have to treat it like any other business. You have to put out a good product, you have to take care of your customers, you have to take care of your employees, you know, and you have to pay attention to business, and, um, so it's, it's not much different than any business in that, in that regard. You have to be careful in, in, in which segments of the market you tread, uh, try not to make a big mistake. If you make a big mistake, it can really hurt you. The, 00:47:00the underlying asset of the land is, uh, gives, gives you some comfort because it's not going anywhere, and, uh, so the more land you have the, the better your balance sheet looks but, but it doesn't necessarily generate cash unless you keep it full of horses. So it is a bit unus-, unusual in a way, uh, not all that easy to do, but, you know--

SMITH: But you've shown that you can do it.

CLAY: --we're not the only ones, were not the only ones doing it. Right.

SMITH: Now during this time period you were, when did you begin to acquire more land?

CLAY: Well, we bought you, we bought that two hundred acres at Kenirey Stud in, in, um '78. We started to lease land next, next to us, um, we leased, uh, uh, about, about, uh, um, about that time, uh, in about 1980, we leased another 130 acres next, right next door to us. We 00:48:00subsequently leased another two hundred or ac-, acres next door to us. We leased, uh, a farm called Tracewood on the Hedden Pike which was two hundred in the late eighties. Uh, we bought the King Ranch which was, uh, nine hundred acres, excuse me, seven hundred acres in, um, in about 2000. We bought, um, Big Sink Pike which is Big Sink Farm, which is 325 acres in, in about 2004. Um, we have, we are just, and we manage two farms: one for Tracy Farmer, which is 119 acres and we are getting ready to manage a farm for Padua which is, uh, 275 acres, so we're up to about two thousand acres under management, leased and owned.

SMITH: Okay, tell me what that size means in terms of the industry, very 00:49:00big, average--

CLAY: Um--

SMITH: --as much as you want to grow?

CLAY: Um, I, it's, it's probably as much as we want to grow. I'd say two thousand acres of active horse farm land, um, is in the top, um, is certainly in the top ten in Central Kentucky. It could be in the, in the, in the top five or six.

SMITH: Okay, okay. All right, so all this time you're developing land, you're also developing a large, um, a larger client base, a larger number of employees. Um, with growth, there comes headaches. So what were some of the challenges that you faced from a management perspective, coming through this and how did you and Dan work together as you built Three Chimneys?

CLAY: Well, Dan had, Dan and I worked just hand-in-glove. We, we really 00:50:00never had a bad day. Um, Dan was a, was a great developer of, of human talent, um, and, and he brought, he brought some great managers through here and so they've hired good assistants and so it's, it's good people hiring good people. Um, I, I brought sort of the business side to, to, to the model and, uh, you know, worried about the financing and the funding and that's always the biggest worry, you know, the cash flow, is there enough cash flow to keep the growth going? Um, and organizational structure and, um, planning, you know. We do a lot of retreats and we do a lot of, we do a lot of off-site planning and, uh, so that everybody's sorta on the same page. We do a lot of internal communications.

SMITH: Again, is that unusual or can you even comment to that?

CLAY: I, I don't know. I'm not sure--

SMITH: Okay.

CLAY: --what others do in that regard. I, I assume that that they do. Um, I think you know every company has a culture and, um, I think that creating a culture where people enjoy coming to work is the most important culture to create and I, I'm not sure how you do it, and I'm not, you know, I'm not sure if, if I had it over again, to do over again I'm not, who knows if I could replicate it. But I, I do know that every, almost everybody enjoys coming to work here. They're sort of proud to work here and, uh, it's, it's a happy environment in which to work. Now, I think, uh, communications is critical to that; no surprises, everybody knows it's a team effort, the right hand knows what the left hands doing and everybody's compensated on everybody 00:52:00else's success. So what--if the farm makes money, everybody makes money. If the farm doesn't make money, everybody loses, everybody makes less money. (laughs) It's, it's, um, you know, it's one-for-all, all-for-one kind of environment. So I, I think it's a healthy culture here. I don't want to be too braggadocious about this, but I think it, it's a fact that people like, like coming to work here.

SMITH: Um-hm. Um-hm.

CLAY: I hope you can verify that in some of your other interviews.

SMITH: Yes, think it was Sandy that said this was the only other farm she'd have considered coming to when she came here, so yes, you had a, a good reputation for taking care of your employees or being a nice place to work.

CLAY: Well, I think everybody feels a part of the effort and it, it's, it's a, it's a monumental effort, um, but it oug-, again it comes down to the basics of customer service and, uh, and product and, and happy employees. It's real fundamental stuff.

SMITH: Um-hm. I think when, I think this was Sandy, uh, who said that, 00:53:00uh, she appreciated that you are listened to here, that you listen to your employees, that they're part of the process.

CLAY: Well, you know there's a reason for that, they know more than I do about what they, what they do, so if I didn't listen to 'em I'd be, I wouldn't be very smart. (laughs)

SMITH: Um, let's, uh, go back and talk a little bit more about, uh, the stallions. Now as I understand, a farm makes money off of stallions and makes money off of sales and the broodmares just basically help feed that piece of the operation.

CLAY: The boarding, the boarding operation--

SMITH: Right.

CLAY: --yeah, helps, helps sorta cover the overhead.

SMITH: Okay, so in various articles I've read, you know, we're only going to have six stallions, you know, then we're only going to have so many. Now I think the last thing I read said we'll never have more than fourteen stallions, and you're, you're about there right?

CLAY: We're about there.

SMITH: Yeah.

CLAY: Yeah, we have fourteen boxes. We don't have fourteen active stallions but we're, I, I, I think that, uh, I, I'm pretty set on that and I think Case is pretty set on that, that we're not going to get bigger than fourteen.

SMITH: Okay. I, I'll check back in a few years.

CLAY: Check back in a few years. (Smith laughs)

SMITH: But now how, how did you, why did you allow yourself to grow to that. What, what pushed you in that direction?

CLAY: Well, that's a good question because we started out as a boutique and s-, we built the barn for six. It couldn't be expanded and we got the six and the seventh horse came along, it was a, it was an, an existing customer. Um, how could we say no to this horse, it was on our doorstep, just because we didn't have a stall to put it in? So we allowed ourselves to expand and if you, this is, you know, like a boarding school, everybody wants the best room, the second barn couldn't be any less attractive than the first but it was smaller. We 00:55:00made it four so we ended up with ten. Um, same thing happened again really. The eleventh horse came along, but then you've also got to remember that horses, uh, retire and become infertile and still need a home and our philosophy is to try to keep those horses for the rest of their lives in the same kind of environment that they have been. So we ended up with a few retired horses and, uh, we, we didn't have enough room for the retired horses and our active stallions, uh, so we saw an opportunity to create a little campus--(coughs)--of buildings. We had a log receiving barn and we replicated that with two more two stall barns so we created this campus and so now we got a six, a four, and two twos for a total of fourteen. (Smith laughs)

SMITH: And were, in addition to there being, um, individuals that you'd 00:56:00worked with that had horses, was there an economic push to getting these additional horses or were there just opportunities that you couldn't turn down?

CLAY: Well, I, I think that, um, it's, you, you're always looking for the, the horse that, that is going to be popular commercially and the horse that is gonna, that you think may make a successful stallion. You know, you're drilling these wells: how many wells do you drill? Um, it's hard to, to uh, to attract because it's very competitive, it's hard to attract fourteen stallions, you know, keep 'em, keep 'em viable. Um, we just watch for the right opportunity. We go one, we go some years where we don't take any stallions because the opportunity wasn't there or the price was too high. Um, and then in this, this year we're taking two new stallions. Um, but we've got two stallions 00:57:00that are going to be twenty-four years old that are active stallions. So it's, you know it's, it's just like a NBA franchise, you've got players that can't play anymore--

SMITH: Yeah.

CLAY: --and you've got to have some rookies coming in to take their place. There's no magic number. I mean there, there are farms that have more stallions and the-, they are drilling more oil wells and they're probably gonna get more, they're gonna hit, hit more. They're gonna, they're also gonna have more dry holes. So I don't know. We feel comfortable with this number and, uh, I, I, I think it's where we're gonna be for quite some time.

SMITH: Okay. Okay. Like I said, I'll come back and check on that. Um, there are three stallions that I want to talk about, um: Seattle Slew, Smarty Jones, and Big Brown.

CLAY: Right.

SMITH: And there's probably some other stallions you might want to talk about, but those I want to ask you about. Now you got Seattle Slew, he, he was an amazing sire and he was here for seventeen years, helped 00:58:00this farm in many ways, is what your telling me. Now why did he leave?

CLAY: Why did he leave?

SMITH: Why did he leave?

CLAY: Um, I'm gonna answer that question, but I want to back up one stallion--

SMITH: Okay. Okay.

CLAY: --um, before I do. Seattle Slew was important to this farm from a, for lots of reasons, but the most important cash cow for this farm was Rahy.

SMITH: Okay.

CLAY: We bought half of him from Sheikh Maktoum, um, and, and the revenue that we've-- because we own half the horse and because he's been so successful--the rev-, he's been our number one producer, um, by far--

SMITH: Okay.

CLAY: --because we own so much of him and because he, he started out as a fifteen thousand dollar stallion and he became an eighty thousand dollar stallion. So, uh, he's, he's been the real cash cow. He's built more barns on this place than any, anybody else. I want to make 00:59:00sure he gets his fair, fair tribute.

SMITH: Okay. Okay.

CLAY: Why Seattle Slew left, uh, is, is sort of a sour note, um, and, and, and it's just sort of unfortunate. Um, he left thirty days before he died.

SMITH: Um-hm.

CLAY: And he became sick the last two years of his life. He had, uh, ataxia, he had nerve issues in his spinal column and we had, we, we, performed surgery on him twice and, uh, Karen and Mickey were so, so invested in Seattle Slew that when he became sick, they basically came to his bedside and lived here for two years, put a little trailer back, back here. They didn't sleep at night in the trailer, but they bought a house in Versailles. And, um, so the, the, the management of the 01:00:00farm was conflicting with, you know, the parent of the student, you know, in the headmasters office every day, and it became intolerable, um, and, um, you know, I had to, I had to stand up for my management team, and, uh, I asked Mickey if he would move his trailer, you know, and not spend as many waking hours back here in our breeding shed. And he took offense at that and, uh, said, "You know, it's, it's either me or the horse," and, um, so he found somebody that would take the horse. And, um, horses of that age don't adapt to change very easily. It didn't surprise me he didn't live thirty days. But, you know, he lived 01:01:00a very long and useful life. I'm always, I'm, I am forever grateful to the Hills and the Taylors, um, for the opportunity. I'm, I am sorry he's not buried here. I think he should be.

SMITH: Yeah, yeah I, I actually had run into some visitors wanting to find his, his grave and had to explain to them that he--

CLAY: Yeah.

SMITH: --wasn't here.

CLAY: We have to explain it every day pretty much. But it was a, it was a pa-, it was sort of a parting shot, I think, um.

SMITH: Now Sandy described to me the difficulty in trying to breed him at this point. Now were they hoping to still breed him?

CLAY: Yeah, you know, um, when I say invested I mean really invested. They didn't have children, um, this was part of their identity and, uh, they, they, they were very concerned about the horse's welfare, but they were also, you know, concerned about prolonging his productivity 01:02:00and, uh, you know, there, there, there is a natural conflict that takes place there and, uh, uh, they, they had the last say and, uh, the last say was, we're gonna, we're gonna move the horse to another place. Now he didn't, he never bred a mare at the other place. They had a hard time finding another place, frankly.

SMITH: Um-hm. Well I can understand--

CLAY: --you can understand that--

SMITH: It's, it's still a small community and I'm sure the fact that they were living here was, pretty much, was well-known.

CLAY: Well, you know, and I think out of respect to us, a lot of our, our friends and competitors said, uh, that wouldn't be the right thing to do.

SMITH: Um-hm. Well, you know, as I was doing the research and just read the, what the line is that we moved him to get away from the breeding shed--I thought no, that does not sound, Three Chimneys would take care of this horse. So more to the story. But, uh, but they were very 01:03:00important clients that helped--

CLAY: Extremely. I mean, you know, looking back, we wouldn't had Slew o' Gold without them. We wouldn't had Seattle Slew without them, so um, I'm, I'm, I'm very grateful for my relationship with them. Uh, I have an ongoing relationship with Sally and Jim. Um, Karen and Mickey rarely come back to Kentucky. I don't have an ongoing relationship with them, um, but I'm, I'm, it, it, it was, you know, that was just a, to me, a hiccup in the much grander opportunity of being able to manage that horse.

SMITH: Sure, sure. All right, Smarty Jones, uh, tell me about getting Smarty Jones?

CLAY: Smarty Jones, the recruitment of Smarty Jones was, was a long and arduous. Um, opportunistically, uh, I took the opportunity to 01:04:00introduce myself to Roy Chapman, who was not mobile, uh, you, you know, he, he was not able to go to the paddock at the Derby, uh, and, uh, the owners boxes emptied and there was one man over there sitting over there by himself and it was Roy Chapman. And so rather than go to the paddock, I went over and sat with him and I'd seen Smarty Jones out here at Keeneland and I was so impressed by him, um, as an individual and, and his feats, what he had done, uh, so I sat with Roy while everybody else went to the paddock. It was sort of, I introduced myself to him, I told him who I was, um, and, uh, good luck in the Derby. Well, he wins the Derby uh, and, um, yo-, you know, that was 01:05:00qu-, quite the celebration. Um, then he goes to uh, the Preakness and, you know, I followed him to the Preakness and made sure that I said hi to the Chapmans at the Preakness and followed them to the Belmont, uh, where I, you know, I've never seen anything quite like it. It was like a heavy weight fight where I wished them good luck and, uh, told them that we would certainly like to talk to them about standing him some day. Um, they, um, after the Belmont, I'm trying to remember the sequence of this, they, they hired a, uh, um, a great guy named George Isaacs who had broken Smarty Jones and managed, um, a farm in Florida to represent them in uh, deciding where this horse would stand. The process was--and I've never been through one quite like this-- is 01:06:00that, uh, the Chapmans rented a hotel room and, uh, conference room in Philadelphia and ten of us flew in, in a period of two days and made our presentations to the Chapmans and their sons and their accountant. (coughs) So I took Case, Mark, Dan and I flew up and, and we asked to go first. And, um, it was, it was, it was a good thing that we did because they, they'd never stood a horse before and there was, there was a lot of the teaching of the--

SMITH: Um-hm.

CLAY: --you know, what's, what's gonna happen, what's out there, what, all that. Um, and we felt good about our presentation. Um, they sat there for two days and had listened to ten of 'em and then, then they were, their plan was to take it down to three or four, fly to Kentucky and visit the three or four and then make a decision. Well, they are so kind and they are so nice that they felt badly that they weren't 01:07:00visiting, they were only going to visit three or four, so they visited all ten. So they were here a week and, uh, it was, you know, it was a nerve-wracking time because we knew they were over there today, and they were over there today, and, uh, so they, they went through that process and, and, um, didn't make a decision at that time. Um, then they, they came down for the trophy presentation. You know, the Derby has a, Churchill Downs gives a special presentation of the Derby Trophy to the winners like a month later. They came down for that, of course everybody was down there hustling 'em and, uh, they, they called us and said, uh, "We've narrowed it down to two. Will you come back to Philadelphia?" And, uh, we flew back up to Philadelphia and I think, 01:08:00uh, Pat would, would tell you that, um, she probably made the decision, she made the decision where the horse was gonna stand the first day she met us. Uh, Roy made the decision how much the horse was gonna be sold for but she made the decision where the horse was gonna be and, uh, I think that the first day, the first presentation was, was when, I, I think that's she'll tell you, that's sorta when she, that's when she made, she didn't make up her mind that day, but she had an inclination. And, uh, it's been a great relationship. Of course we lost Roy, but Pat comes, she comes and stays with us. She'll be here next week and, um, you know, we treat her like one of the family and she appreciates that and we follow these Smarty Jones runners, uh, on a daily basis 01:09:00with her by email, so she's, she's totally, um, involved in, in the, you know, in the continuation of the horse's career.

SMITH: Hmm. Which seems to be off to a good start?

CLAY: Yeah, it's off to a good start. It, you know, we're, we're, we're still, we're watching new ones come up every day but we're, we're pretty optimistic.

SMITH: Um-hm. Now, see if I have this right, it was a $39 million syndication for Smarty?

CLAY: Yeah, it was a $39 million dollar deal. We paid, uh, eight, um, what was it, half of that to, uh, them. They kept half of the horse and, uh, we syndicated the rest. We took, uh, we syndicated him in a sixty share syndicate and, and, and our stallion fund took six, so we took 10 percent of the horse and, uh, then we syndicated 40 percent of the horse, sold shares.

SMITH: Have any trouble with that?

CLAY: Um, we got, we got that done and we got it done to some very important players. It was not, it was not an overnight, snap-your- fingers kind of syndication because syndications aren't that way anymore. People don't feel like they have to make a capital investment in the horse to have access because they feel like they can, you can get any horse you want to because people are willing to breed to unlimited numbers of book sizes and as you, as I think you know we, we limit our books to a 110 in hopes that if we get a popular enough stallion we've actually created more demand than supply.

SMITH: Um-hm. So that's what's, that's the, part of the reason that syndications have fallen out of favor is the fact that there's this, what is there over-production of horses?

CLAY: There's, well there's, there's, there is over-production of horses but what, what happened in the old days when we syndicated horses into 01:11:00forty shares and there were only forty-six mares bred, if you didn't have a share, you didn't get access to the horse so you--

SMITH: Okay.

CLAY: --had to put up equity in order to get access. When book sizes started to go to a hundred and a 125 and 150 and 175, access was no longer a problem. You can breed to anything you want to--

SMITH: Okay.

CLAY: --uh, and so you don't have to make this equity investment to have access. The only reason that you'd make an equity investment today is in hopes that the value of that equity goes up if this was a successful--

SMITH: Okay.

CLAY: --stallion. And, um, people aren't making that bet quite as much as they used to. They're making a bet, that bet in bigger chunks. You know, Sheikh Mohammed and Coolmore are both buying all of the horse, uh, but they're not syndicating 'em. They're not taking partners. Um, so that, that, uh, has become more difficult. We're not, we're not selling equity to a large group of investors like we were.

SMITH: Um-hm. Okay what about Big Brown, why Big Brown?

CLAY: Well Big Brown as, as long as the Smarty Jones, um, saga, almost all summer for them to make that decision. Um, you know, you didn't sleep much that summer. As long as that was drawn out, the Big Brown deal was done in forty-eight hours. It was, it was as quick as anything I've ever been involved with. On the Thursday after the Derby, I was in Pittsburgh at a board meeting, um, and I called, uh, Wednesday night I was, I was, I was in Pittsburgh. On Wednesday night I called and asked if I could see them on Thursday afternoon at 2:30 and, uh, I flew to New York Thursday afternoon. Um, I made them an offer Friday 01:13:00midday. Um, they essentially, uh, accepted my offer by midday on Saturday and by Saturday evening we'd shaken hands on the phone.

SMITH: That's pretty quick.

CLAY: And I headed to Machu Picchu on Sunday morning, um, which I normally wouldn't have done, but we had a long planned vacation with two other couples and Michael said to me, "Uh, go ahead. We'll work out the details with Case." And, um, the deal actually fell apart in the middle of the week while I was in Machu Picchu and I've got some good pictures of me on my cell phone at the top of Machu Picchu, um, but it was reconstructed and, um, we, we flew home from Machu Picchu. Um, we arrived in Miami on Saturday morning about eight o'clock. We 01:14:00came home, the deal was signed at noon and we got to the Preakness at four o'clock and he won the Preakness at 5:30.

SMITH: That's a pretty incredible day.

CLAY: That was an incredible day. Um, so that, that deal went down, uh, so quickly and, um, you, you have to ask why? The, the, the major competitors, uh, wanted control. They either wanted l00 percent of the horse or 51 percent of the horse and, uh, I was willing to take a, a minority, a significant minority interest in horse, a low, a low percentage of interest. Um, and that was, that was the difference in the deal. They, they had come this far. They didn't want to give up control. They wanted management, they wanted, which you know was fine with me, that's what they've done well and once the horse gets here, I'll do what I do. So I really attained the stallion rights, 01:15:00um, by buying a small percentage of the horse, whereas most of the competitors, the two big competitors didn't want to do that.

SMITH: Can you say who they were? Who the other competitors were?

CLAY: Um, I, I don't think I will because--

SMITH: Okay. Okay.

CLAY: --I don't want to be--

SMITH: --that's fine. The figure fifty million has been bandied about.

CLAY: It, it has been, been bandied about, but we have a confidentiality agreement in the--

SMITH: Okay.

CLAY: --in the, in our agreement with them that the price will not be disclosed.

SMITH: Now when you say they're gonna retain some control, is that control once the horse is here?

CLAY: They have, of course, they have mang-, racing management. They, they, they have all the decisions in the, in his racing career. Uh, they are to deliver the horse here by the first of December contractually. Um, once the horse is here, I become the syndicate 01:16:00manager and I manage his syn-, his, his breeding career, uh, but they will have, um, majority ownership of the horse.

SMITH: Okay.

CLAY: Unless they decide to sell down and we syndicate it further. But, um, they have several investors in the horse so it's, it's not like one person owns, uh, you know, a huge chunk. It's several people that own smaller chunks.

SMITH: A little more complicated than Smarty Jones.

CLAY: Yeah, yeah, but, um, it, you know, one of the fun parts about this game is, is that each one of these deals are a little different and each of these horses is owned by a different, a different family, different groups of people coming from different places and different walks of life and you get to meet a whole new group of people every time you do one of these deals.

SMITH: Well now there's been a lot of, uh, comment directed your way, um, partially because of what we read in the papers about the people 01:17:00associated with Big Brown, his trainer, um, so you've had some, you've had to deal with some, some hard questions. Uh, what's your response to some of those concerns?

CLAY: Well I, I, I don't deal with, with the trainer, but they do, so I really don't have a relationship with the trainer and, um, I, I, there's really no need for me to comment on that. I, I, I don't think the trainer's public comments have enhanced the value of the horse, but you know, beyond that, um, I don't think I'll say much more. Um, as far as the owners are concerned, I think they are, um, misaligned if that's the right word, um, I, I think they're misunderstood. Everything that I've, that they've done with me has been completely straightforward. They've done everything they said they would do and 01:18:00more. Um, so I am impressed by the, the ownership group. I know that, that they, um, they sort of misrepresented, uh, themselves in their brochure. Uh, I, I think that that, they are sorry they did that. They made a mistake. They've apologized for it, but it's a broad ownership group and the more of them I meet, the more impressed I am by them so I, I'm, I'm uh, I'm, uh, positive on the ownership of Big Brown and I think they, they sort of got a bit of a raw deal. But it's like, um, you know, if you, if you lie on your college application you pay, you someday pay the price and I think that was this kind of mistake and I think they regret it and, and--but I'm not holding that against them because they've done everything they said they would do with me.

SMITH: Um, focusing on the horse himself, why did you want Big Brown? Now Anne Peters and I talked a little about it. I mean, why is it 01:19:00you're willing to take the risk?

CLAY: Well, Anne Peters, who's our pedigree person, provides me with an on-going list of stallion opportunities and she editorializes, uh, and I, and highlights the ones she, you know, has a preference for. Big Brown was one of those. I, I mean, I focus on those and not the ones she doesn't have a preference for, so I take, I take guidance from her. Um, you know, I mean it's just, it's, it's, it was just too obvious. I mean, he was so brilliant, uh, in his first race, he was so brilliant in the Florida Derby. He'd done, he sort of did something no, no horse has ever done before. He was so brilliant in the Kentucky Derby. Um, he, Anne reassures me and reassured me, that, uh, he has pedigree ingredients that are legitimate and, um, can, can make him a 01:20:00successful stallion. He is a magnificent horse to look at so, he has all the characteristics that we look for, you know, race performance, pedigree, and, uh, conformation. Um, so I think he's the best of his generation by far and that's the kind of horse we want in the barn.

SMITH: Okay.

CLAY: If we can make the, the deal work then, you know, we go for it and this deal works.

SMITH: Okay, okay. Well, uh, I know just in talking to Sandy, it's pretty exciting to have Smarty Jones and Big Brown on the way. Um--

CLAY: It is, it is, we've got some rookies that, you know, that can keep the fire burning--

SMITH: Um-hm. Um-hm.

CLAY: --several more years, we hope.

SMITH: I've still got a whole lot of questions and we've already talked 01:21:00almost an hour and a half and we haven't even gotten to what I think is a, a big part of your history and that's your leadership within the industry. Uh, so how much longer do you want to get going or do you want to try to deal with your leadership within the industry in thirty minutes?

CLAY: Well I, I've got thirty minutes, but it's up to you. If you want to come back again, we can do it then or, uh, we can--

SMITH: Oh, well let's see where thirty minutes takes us--

CLAY: Okay.

SMITH: --and we'll go from there because there's still a few more questions about the farm and, um, one of those is, uh, in a lot of the articles I've read and, and what I've learned about the industry international marketing and I think you have, uh, talked about how so many of your clients are international clients and that's been a core support for you, for Three Chimneys and for the industry. Explain that a little more. How does that work, why is it so important?

CLAY: Well, I think it's, it's actually in some ways, parts of the 01:22:00world it, it has been more important. Uh, it was more important in the eighties and nineties than it is today, sadly, but, um, when we were, you know, building the business we, we focused a lot on, um, on Europe, European trainers, Arab, the Arab families, um, because we were exporting 50 or 60 per-, 50 or 60 percent of our yearlings to Europe.

SMITH: Okay.

CLAY: Um, that changed in the nineties when the Europeans stopped, um, buying American stallions to, to race in Europe, uh, and started breeding their own stallions because the American stallions weren't doing as well over there as they thought they were gonna do. Um, so we are now more focused on the, the, uh, the American customer. Having said that, we're, we still have a heavy reliance on European customers and the Europeans will make this sale next week because the, the 01:23:00strength of the Euro and the pound.

SMITH: Now when you saying Europeans, who specifically are you referring too?

CLAY: Well, I'm, I'm talking about the, the English, Irish and French for the most part, but, you know, the Russians are coming into the game. There's some Italian money, um, but for the most part English, Irish, uh, French, at least that's where the horses will run. Some German, um, so we, we have, we, we, we certainly pay attention to that. We pay a special attention to Japan. We have an office in Tokyo, um, we, because of the time difference and the language difference, we feel like we have to have a communicator over there. Uh, that's paid off for us in many ways. I mean we have a good, we sell a lot of horses to Japan, um, and we always have a Japanese intern here, um, so we, we try to keep that, that relationship going. Australia and New Zealand, 01:24:00um, n-, a, a, a, not as much, um, although, you know, we're down there. Case spent time there. I, we, we go there. We try to still keep a relationship with them, but as far as actual trade, it's just shuttling stallions or not.

SMITH: Um-hm.

CLAY: Um, South America, more and more business coming from South America, Brazil, Argentina, Chile. We have a stallion, we've shuttled a stallion to Brazil and one to Chile this year. Um, more and more business coming, coming to and from, um, South America. So, you know, it's an international market place and, uh, although our, our core market is, is, is more American now than it was twenty years ago, um, we still pay a lot of attention to the, to the, to the foreign markets.

SMITH: Now that involves a lot of traveling--

CLAY: --a lot of traveling--

SMITH: --on your part?

CLAY: And of course, I didn't even mention Dubai. That goes without saying. Uh a lot of traveling. I mean, I'm, I'm a, I'm a, I'm a million mile flier for a reason--(Smith laughs)--and, um, I don't do as much traveling as I used to um, and I'm hoping Case picks up the ball there but we, we do a lot of traveling. We go to Japan, at least, at least one of us every other year. We'll go to Australia every three or four years. We'll go to Europe, I mean I go, I can, I've gone to Europe as many as five times a year. Um, I'm not doing that as much as I used to but--

SMITH: And that's all business-related?

CLAY: Um-hm.

SMITH: It is, okay. Um, well, talk about England. I, I, I see the picture over there, Queen Elizabeth. How, what is your relationship with Three Chimneys and Queen Elizabeth?

CLAY: Well, she's been here twice, or maybe three times, she's been 01:26:00here three times, she's been here three times. Um, when she comes to Kentucky she loves to look at horses. She stays with the Farishes and we're usually on their, on her schedule. She was here last year when she came to the Derby. She came by on Sunday after the Derby to look at the stallions. Um, she, she's a lovely person to be with and she just wants to talk about horses, you know, so I've, you know, I've, I've spent some time with her. I drove from one farm down to our yearling farm a few years ago and I told her my mother never taught me what to say to a queen but I have, I've also been, uh, been very fortunate to be invited to have lunch with her at Windsor Castle and drive in the carriages to Royal Ascot and sit in the Royal Box and, uh, when the Farishes were, um, it happened to be when the Farishes were the ambassadors over there--

SMITH: Oh, okay.

CLAY: Will was the ambassador and um--(coughs)--so, I, I've been around 01:27:00her a little bit. She's delightful; she's very knowledgeable about horses.

SMITH: Um-hm. Have you ever boarded any of her horses?

CLAY: No. We've bred; we've bred some of her mares here.

SMITH: Okay, all right. Hmm, yeah, everyone who has been associated with her that I've talked with, Ted Bassett and Alice, uh, Chandler--

CLAY: Yeah, she's, she's fabulous.

SMITH: Yeah, I think it would be an, be an experience. Um, on your farm, okay, you've got from seventy, was it '74 you got your first started, '72?

CLAY: Seventy-three.

SMITH: Okay, picked the wrong year.

CLAY: Yeah.

SMITH: Uh, up to the present, looking over all those years, what do you think have been your biggest challenges?

CLAY: Biggest challenges?

SMITH: Um-hm.

CLAY: Capital.

SMITH: Okay.

CLAY: Keeping, um, you know, keeping, uh, the capital formation in line 01:28:00with, with the growth, not, not growing faster than you can afford to grow. Uh, I would like to have had access to more capital to, I think more opportunities could have been created but the biggest challenge has been capital.

SMITH: Okay.

CLAY: And, you know, I've had a good bank, I've grown, we've grown the business from the internal cash flow and bank debt. And, uh, now a couple private equity funds, uh, that we've created, but, um, that's the biggest challenge.

SMITH: Okay, um, a few years ago MLRS, Mare Reproductive Loss Syndrome, did that hit Three Chimneys?

CLAY: Big time. We, uh, we had major losses here.

SMITH: Okay.

CLAY: Um, it was a, it was a, it was a real rough time for us and for our customers and, um, you know it's, it's--we're in the agricultural 01:29:00business and every now and then you have a bad crop and that's what that was, you know, we sorta lost our crop that year.

SMITH: You don't--remember how many you lost?

CLAY: We, we lost, uh, we lost close to, uh, 35 percent of our foal crop.

SMITH: Hmm. That is significant.

CLAY: That's a big number.

SMITH: Now through those years had you ever had anything similar to that or anything--

CLAY: --never, we'd never had--

SMITH: --no natural disaster?

CLAY: Never had anything like that.

SMITH: Okay.

CLAY: That was, that was hopefully one, one, one-every-hundred-years phenomenon.

SMITH: Did you lose clients after that?

CLAY: You know, we didn't lose any clients. The clients were understanding and again we communicated with them. Um, it was, it happened across the board. Um, I am convinced that cherry trees had a lot to do with it because we had fields where we had cherry trees and we lost a lot, and we had fields where we didn't have cherry trees and we didn't lose any. So it's circumstantial evidence at least that 01:30:00indicates to me that, that the fruit trees had a lot to do with it. But I've never seen anything like it. I, we didn't, we didn't lose any customers over it. We had some customers that, that really had bigger losses than the 35 percent, some lost 60 percent. You know, if you had ten mares you lost uh, six of 'em you were, it was tough. But, um, we got through it. We, we continue, continually manage to it, you know, we, we, we, if you see a tent caterp-, a tent, you know it, you won't see a tent around here. If you do, it won't last long. We've got tent spotters, and we spray and, um, we've cut all our cherry trees down.

SMITH: Ah, hmm, well let's hope that that--

CLAY: Yeah.

SMITH: --that was it and it doesn't happen again. Um, so that was a challenge--

CLAY: That was a challenge.

SMITH: --for Three Chimneys.

CLAY: I mean there's--listen, there have been, there, there are always challenges, um, but I think the, the underlying, you know, the main underlying challenge of course is to, is capital and then keeping the right, uh, people on the bus. It, that's, that that hasn't been as big a challenge to us as maybe it is to some but, um, we just have to keep that right out in front of us, you know. Keep the right people on the bus.

SMITH: Um-hm. Well and if you're employing a hundred and fifty people, that's a lot of people and has that been a challenge in terms of being able to find quality farm workers. I know that um--

CLAY: Yeah, that is a challenge. Um, that's, that's a big challenge for us, is, is work force because, uh, we, you know, people. We can't find enough uh, people who want to do this work and it's very, it's very labor intensive so um, that that's a big challenge for us.

SMITH: Okay.

CLAY: I think that, um, you know, a larger challenge that, that, sort of transcends Three Chimneys is, um, is, is, is getting this industry together, um, because we are a sport that is in trouble and, um, if you take public polls today, you know, after the Eight Belles incident, um, there are a lot of people that don't want to watch this sport anymore. And, um, so how do we market ourselves? Um, we are, we are, we are not prepared, we're ill-prepared to market ourselves because of the, our disparate, um, organization--

SMITH: Well.

CLAY: --and desperate organization. (both laugh)

SMITH: It, uh, I'll walk through that door with, with my next question. 01:33:00And, uh, you know, I've gone back and you have a wonderful Web site that has all these wonderful articles, as well as just going through the internet myself and other places. But, 1985, there's an article in which you say the organizations are fragmented in purpose and direction; there's a leadership void. In 1995, industry's lack of focus, lack of direction, lack of consensus is very frustrating. You've received the Galbreath Award in 1995. Similar comments made there about problems with the industry and here we are, still talking about that. Now you've been active in the industry all this time. Um, let's start with how you became involved in leadership roles within 01:34:00horse organizations. What were your earliest involvements and why did you chose to be involved?

CLAY: Well I, I, I think I, you know, I just sort of naturally, um, I don't know, I sort of naturally, I'm, I'm either attracted to it or it's attracted to me. Um, I think my first sort of early on leadership role was as the president of, uh, I was the president of the Thoroughbred Club and I was, then I was the president of TOBA. I don't remember what year that was but I, I, you know, we started some things with TOBA. We, we, increased the membership from three hundred to three thousand. We, we started the new owners' clinics. Um, we got some things started with TOBA, um.

SMITH: Was that, was that your goal? You wanted to increase membership? 01:35:00And what, what were the issues you felt TOBA needed to be addressing?

CLAY: TOBA was, was almost, was almost a non-entity. It, it, it had, it was a small group of three hundred which, you know, was insignificant, um, in terms of the representing owners in the country. And so we felt like in order to make it viable, we had to increase our membership and we did that by, by uh, giving everybody a free, um, subscription to The Blood-Horse, which we owned.

SMITH: Okay.

CLAY: We owned the magazine, um, and we said, "You know, if you'll join TOBA, we'll give you a free issue." Well, that, that took the membership up instantly, so now we were talking to three thousand people instead of three hundred. Um, I'm not sure that TOBA has today has a, has an impact on the, on the industry as significant as it should. Uh, it does own the, uh, The Blood-Horse and owns the Graded 01:36:00Stakes Committee--that's, that's where it has the biggest influence- -but, you know, it's sort of discouraging that my comments in '85 and '95 and 2008 are unchanged and it is very frustrating 'cause I have spent a lot of time, a lot of time at this. We formed the NTA and then we formed the NTRA, uh, those things didn't happen just snapping your finger. There was, um, there was a lot of consensus-building, bringing a lot of people in the room, you know. Um, the, the fundamental, one of the fundamental problems we have; we've got thirty-three state jurisdictions that really govern our sport, that make the rules, enforce the rules. And then we've got fifty-three racetracks, you know, theatres and we've got thirty-five thousand actors, horses, so bringing, bringing all this into one place is a very, very difficult 01:37:00thing to do. Um, I felt like we, we got as close, just, I just thought we were there really when the NTRA was finally formed and, and merged with the Breeders' Cup and gained strength and power, had money, had all, you know, had the influence, the right influencers on the board. Um, we were on a roll and, um, we've, we've allowed that to im-, implode and a couple of reasons for that, um, our, our, uh, commissioner decided to leave, um, left a little dirty laundry and uh--

SMITH: When, when was this?

CLAY: Oh, three years ago.

SMITH: Who was the commissioner?

CLAY: Tim Smith.

SMITH: Okay.

CLAY: And, and, and that dirty laundry--maybe, maybe that's not a fair 01:38:00word for it--but, um, those ghosts in the closet I'll call them, um, led the Breeders' Cup to divorce itself from the NTRA, which in my opinion is a huge mistake. Uh, so now all of a sudden everybody's gone their separate ways and the industry stands with no centralized forum for politicians, um, sponsors, networks to talk to. And the NTRA still exists but it has become a, more of a almost a lobbying arm. The Breeders' Cup is a championship event, but there's nobody in charge of the store. And, uh, it's very discouraging not only that, you know, all the time and effort that you put into it and watch it implode. But that, more importantly, that there's to, in my mind there's not 01:39:00a, there's not light at the end of this tunnel. Tracks aren't making money and they're going their way. Owners aren't making money; they're going their way. The fans are disenchanted; they're going their way. The networks aren't willing to pay to put us on the, on television. We're not willing to pay to get ourselves on television. I'm as discouraged about the general, um, state of the industry today as I maybe ever have been.

SMITH: Hmm. So in '85, when you were speaking of the fragmentation is that, is that the reason that you've become, is that kind of the core problem that all your efforts are trying to address, fragmentation?

CLAY: --fragmentation--

SMITH: Um-hm. Trying to get, build consensus?

CLAY: Yeah, I, I, I think that's, yes, that's the answer to that. But 01:40:00my real frustration is, is not being able to come up with a solution to solve the fragmentation problem and I think it is because it is such a, um, a frag-, fragmented industry in, and people's interest-, interests are, are different but they, but they really aren't, you know, we haven't, we haven't created this corporate culture, uh, that attracts people to us as a sport. And, uh, because everybody's looking out for their own interests, they're not, they're not investing enough into this, into the corporate culture of the sport. I, I, I, I can understand it in many ways because, you know, every--people are trying to survive. Racetracks, there's not many bright lights around. The Breeders' Cup is really the only bright light, but that's, that is just the championship event. Um, so I'm, I'm frustrated that, that we haven't been able, we weren't able to pull it together. We weren't able 01:41:00to hold it together which is very frustrating for me, um, and I'm just I'm discouraged that I don't see, uh, many positives. The one positive I do see and I think it's maybe Eight Belles' greatest contribution to the sport. Um, after that accident, the regulators have come together to change the rules that they should have changed twenty years ago. But it takes a crisis sometimes for people to actually move, and so they are, they're, they're making real moves that they were not willing to make prior to this crisis. So it took a crisis to make it, create the change. So, that's, that is a positive, a positive thing, that's going on. But, um, you know, I read the surveys and I, I know what they, fans think and it's not positive. And, you know, leadership is 01:42:00willing to, to lead um, until the, the followers, until they, they get so tired of the, the sort of a, uh, well I, I, I think John Ed Anthony said it best, said, "This is a difficult industry to lead because there are no followers." And I think that that's right. We're made up of a group of people that are used to being successful and have led their own ventures and they're very, there's not a lot of willingness to come together. But I'm now convinced that you can't do this through consensus-building. You've got to do it through, um, you've got to do it to, to where people have a, a financial stake in its success.

SMITH: Okay.

CLAY: (coughs) Um, you know, I've got a huge financial stake in its success.

SMITH: Yes.

CLAY: The average guy out there that owns three horses doesn't have 01:43:00a very big financial stake in its success; very small. Uh, the, the racetracks--now that there's consolidation--they, there are certain ones that now have a financial stake in its success. Um, they'd rather run the whole sport, but they do have a financial stake, if the sport goes sour they're, they're dead.

SMITH: Right.

CLAY: Um, the regulators--there is not a racing commissioner in this country that has a financial stake in its success. There is not a governor that has a financial stake in its success. The, um-- (coughs)--the people that are making the rules and, and setting the direction for our sport don't have a financial stake in its success, as opposed to the owners in the NFL teams, as opposed to the owners of the NBA teams, uh, as opposed to the, the, the, the PGA, the um, 01:44:00the professional tour, they have a stake in the success of golf. And if, if, if somebody's gonna do something that's gonna hurt it, they're gonna, they're gonna change that. But that's the fundamental reason we can't move the needle here, is because the people that are making the decisions have no financial stake.

SMITH: Well other than you and farms like you, who does have a financial stake or is that it?

CLAY: Well the racetracks.

SMITH: The racetracks.

CLAY: The racetracks have a financial stake and, um, and, and we, the breeders, certainly have a financial stake. But, um, the, the, the regulators don't. The politicians don't.

SMITH: No.

CLAY: So, you know, that's the sea change that has to take place.

SMITH: Do you see the federal government, um, stepping in to, or are they, the recent congressional hearings more of a get-your-act-together?

CLAY: I think that the, I think that it's more the latter. I do think 01:45:00they'll introduce legislation. They'll keep trying to, to sorta force the change through the threat of intervention. I, I see a rather major resistance on the part of the industry to the federal government coming in. Um, I think really, I'm not sure this happens in my lifetime, but until the states are willing to acquiesce the, the uh, authority to govern the sport, to a central body uh, that we don't really ever, we, we never come to centralization. Now if they, if they were willing to, uh, acquiesce or subcontract all these things like testing, and rule- making and enforcement and, if they were able, if they were willing to subcontract that to a central authority, uh, then I think we, that's, that's the solution. But the problem they have is that, um, they, they 01:46:00have an obligation in, in their in their regulations, maybe in their constitution to protect their citizens in what they think is, um, um, a gambling lia-, liability and they are not willing to, to give that up because they are sworn protectors of their citizenry. I'm, I'm getting very--

SMITH: No, I know what you're saying.

CLAY: --highfalutin here.

SMITH: No, but no I--

CLAY: --I, I, I worry--

SMITH: --it's government--

CLAY: Yeah, I think in lo-, the government has to get out of the way for us to be able to manage this sport effectively and the government is not going to be willing to get out of the way because they, they feel this obligation to protect the bettor.

SMITH: Well, and there's also--

CLAY: --and they've done, done--

SMITH: --making money off of it--

CLAY: And they've done a very poor job of protecting the bettor, extremely poor.

SMITH: Um, Kentucky?

CLAY: Kentucky's done as bad a job as anybody.

SMITH: (laughs) Okay.

CLAY: Yeah, I mean it, it, listen it's, it's political football and um, you know, it's, it's not running, uh, it's not running a business. It's just--most racing commissions now I'm not talking about the current one, I'm just talking about historically most racing commissions are political appointees that have no idea, uh, about the sport at all. They're there for a temporary point of time. Another governor's appointed and they put somebody else on there. It's a political plum for some unknown reason and, and they've been irresponsible.

SMITH: Now I've heard that kind of criticism leveled at the previous Kentucky Racing Authority, but I'm hearing the opposite or I'm hearing 01:48:00hopeful comments about the current. What, what's your take on it?

CLAY: I, I would agree with hopefulness, I think that they've, that this, they've put the right, they put the right people in place now to make, to make the change. But they, they still have the burden, and they're doing some good stuff, but they still have the burden of ultimately going back to the state legislature to approve the rules that they've set, that they make. And that state legislator is, legislator is vulnerable to the political whims of somebody that wants the rule not to take effect. Now it's gonna, they're gonna have a hard time voting against it this time because of Eight Belles and motherhood and apple pie, but at the same toke-, by the same token, uh, they, they have this, this governmental burden which they shouldn't have to have. We should ask every state government to give to the NTRA the authority 01:49:00to govern the sport and assure these states that the sport will be run clean and if it's not, pay, make them pay a heavy fine. Now what, what is the catalyst to make that happen? Is it the federal government? I'm not so sure. Is it going to state by state and asking them to do it, you know? None of us have the time to do that.

SMITH: Um, the NTRA. Um, time is brief here. I don't want to keep you, but the historian in me wants to know two thing, your involvement in its founding 'cause you are one of the founding members and I'm sure, as you've alluded to, it took a lot to make it happen and I know at the time there was a lot of hope for that organization--

CLAY: Yeah.

SMITH: --and what you're saying now, what do you see realistically for the future of the NTRA? Can you address both those?

CLAY: Yeah, I, the, the, the NTRA took a huge amount of time and effort and I think everybody was rather optimistic about it and I think it 01:50:00imploded for the reasons I already alluded to.

SMITH: Who were some of the people you worked with to make it happen?

CLAY: Um, Dinny Phipps, Nick Nicholson, uh, Bob Lewis, um, um, one of the key guys is no longer with us, what was his name? The uh, was the head of the TOC in California; he was a very instrumental guy. Um, Paul Oreffice. Um, it was Tom Meeker, um, it, it was, it was, uh, we got it, you know, we sorta got it done and, uh--

SMITH: What was, what was your expectation for it initially? What was its mission?

CLAY: Its mission was basically to, to, you know, sort of manage the, 01:51:00the, the sport from a marketing point of view, and television point of view, sponsorship point of view, um, crisis management point of view, money point of view, everything. It was g-, to be the central office, the league office for our sport. We had a commissioner that I thought did a good job but he, he was a transitional character and he, you know, he didn't hold jobs for twenty years.

SMITH: Who was that?

CLAY: Tim Smith.

SMITH: Okay.

CLAY: That's what we needed and, uh, he moved on and he'd made a couple of deals that people felt like were not what they should have been and, uh, the, the Breeders' Cup felt some of the breed-, new-, newcomers--that's another problem, we get newcomers that don't have the historical prospective--some of the newcomers came along and thought that the Breeders' Cup was subsidizing the NTRA, which it was to a certain extent, and that's, that's not where they wanted to spend their money, so they were divorced, pulled their resources back. Um, 01:52:00so and the board is now, you know, the bo-, the, the idea there was to, the NTRA was the board was gonna be 50 percent racetracks and 50 percent major owners and everybody was in the room. Uh, the board is now representatives of major owners' organizations and not major owners and, um, the racetracks are still there. A, a lot of the owners, uh, Breeders' Cup, uh, board members felt like that the racetracks were running the NTRA. It wasn't the case, but perception's everything. So, you know, I'm, I'm frustrated by, you get a little tired after, after so many years of beating your head against that wall and I have to admit to myself that I'm probably, um, I, uh, building consensus is, is, is a, is a tiring job. I think, uh, changing the, changing the 01:53:00entire structure to make those that have vested interest, uh, be put in control by these disparate states is such a major undertaking that I'm not sure it ever happens, but that's the only solution I can think of.

SMITH: Hmm. I could see your frustration. Um, recently, now you were on, I, it's a little more complicated than I could read from the report, but you were on the Breeders' Cup Board and you are no longer. What's happening there?

CLAY: Um--(laughs)--I, I think I'll say no more than there was a palace coup.

SMITH: Okay, okay. I hear stories of old guard versus new guard.

CLAY: Yeah.

SMITH: Is that part of--

CLAY: Yeah.

SMITH: Okay.

CLAY: I think that there's part of that, that was part of it. And, and, you know, maybe that's a, a wise judgment. You know, maybe it's time for, for a new, for a new guard. Um, I'm, you, one of the things about 01:54:00this game is new players come in all the time and, um, I used to think new blood was, was healthy. I think new blood is healthy, but I think the historical prospective of this particular problem is unique and, uh, try-, trying to solve it isn't, isn't--new blood doesn't solve it by itself.

SMITH: No, they tend to go back to try solutions that have already proven not to work but, uh--

CLAY: I, I, I think that the, there's another part of this that, uh, there, there is an old guard that is perceived as, as sort of having control. I think that's a misperception, but, um, and I, and I think that there there's a new guard that, that wants control and I think that there, you know, there's sort of slates being drawn up to get that control of the Breeders' Cup.

SMITH: Okay, okay, well I won't ask for too much detail there.

CLAY: Well it's a, it's a bit of a sore subject with me so I'm not gonna.

SMITH: I would think so. Now, um, I got, don't have enough to really come back, but I still got a couple things. I was reading, uh, an article which you were referred to as the Felix Unger of the industry, you've not seen that?

CLAY: No.

SMITH: (laughs) You're the Mr. Clean. So what do you think of that characterization and how would you characterize your leadership within the industry?

CLAY: Was that to do with leadership or was that to do with the business?

SMITH: That was to do with Big Brown.

CLAY: Um.

SMITH: I'll share it with you. I have it here.

CLAY: Well, I hadn't read that. Um.

SMITH: It was in the Paulick Report.

CLAY: Oh, maybe I did read that. I, I think, um, you know, we're, we're 01:56:00proud of the fact that, that, uh, you know, we wear our hearts on our sleeves and there aren't any ghosts in the closet. You get what you see and pay for. So, um, I, I, I, I accept that Three Chimneys is, is, is a, is, is a clean place to do business.

SMITH: Um-hm. Now how would you describe in all these years dealing with all these issues, uh, your leadership? How would you describe, characterize your leadership?

CLAY: My leadership?

SMITH: Um-hm, within the industry?

CLAY: You know I, I feel like, uh, I've been, you know, I've been ready to serve the, the industry whenever they ask me to and, uh, I've given a huge amount of time and money and air flights and on and on and on. Um, so I've been there when they've, when they've asked me to be and 01:57:00this Breeders' Cup case, you know, they basically asked, a, a, a small group of people--pull this coup off. And it's, they have said, you know, we, we, we're asking you not to be there, which is fine too. You know, you want, you want somebody's service, fine. If you don't, fine. Um, but I guess I would describe; it's hard for me to describe my own leadership. I don't know. I'm, I'm there, I think I'm there when I'm called, you know. I would describe my dad the same way. He was, he was always there when, when, uh, he was always there when he was needed.

SMITH: You've been referred to also as, as quite the compromiser, in terms of how you--

CLAY: Well I'm a, a, I'm a, I like to get both parties to the table and make a deal. You know, I think that's the only way to do it is to get people in the room and come out with, with a consensus solution. Um, 01:58:00and I think we've done that many, many times, but we come out with a consensus solution with no authority. And until we have the authority, we're not going to make change. So all this time spent on consensus solution and all these meetings, um, that's all well and good, but when you walk out without any authority, you, you're dead in the water.

SMITH: Um-hm. Well, rather than ask you to describe your own leadership, who do you feel during your time in the industry up to the present have been the major leaders, who are the major players in the industry, from a leadership perspective?

CLAY: Um, well, I'll describe a leader as when people talk, when, when they say something, you know, people listen. Uh, I think Bob Lewis was a guy that when, when, uh, when people said something, when he said something, people listened. Uh, I think Ted Bassett, um, people 01:59:00listened to Ted Bassett when he, when he, when he spoke. Um, you've interviewed him, I presume. Um, I think Dinny Phipps is, is a mal-, misaligned, in that people think that, you know, uh, whatever he decides to do in the morning is the way the industry goes. I, I think he's, I think, um, he's been a behind-the-scenes, uh, leader and, and misunderstood. Um, I think there's a, there's a chip on a lot of peoples' shoulder that the industry's controlled by a, a select few, and I don't think that's really the case. I think it's a, it's a, it's a may-, you know it's a good governance issue, um.

SMITH: Who do you see as the emerging leadership?

CLAY: (pause) Well, I think that Bill Farish is an emerging leader. Um, it's sort of a sad, short list.

SMITH: Okay.

CLAY: Um--(pause)--yeah, I'll think about it.

SMITH: Okay, okay, um, see if you can address this quickly 'cause there's a lot of things on this list, as well, your community involvement, uh, co-founder of Blue Grass Tomorrow, co-founder of The Bluegrass Conservancy or one of their founding members. Uh, you are involved in, in several, um, community organizations. Uh, do you want to comment on why you became so involved in any of these? What's, what's the drive?

CLAY: Well I'm currently involved in the Henry Clay Center for Statesmanship and the Shakertown Round Table. Um, you know, I've got a, people have life patterns and, uh, you never really examine your own life pattern too much, but my--I think about it sometimes--my life pattern is pretty, pretty, it's pretty much a straight line. But I, I get a kick out of starting things, if I'm honest with myself, that I think can make a permanent difference and I get in and I get it started and then I, I don't necessarily want to straight line it forever. I want somebody else to take it over and I'm fairly good at that, actually. Um, we started Blue Grass Tomorrow, it's been a very important organization and it's got a life of its own. It, the, the Conservancy was a tool that fell out of that and we started that. Um, we've, I've revived the Shakertown Round Table because I think 02:02:00it's important. I think it's something this state needs and I think we'll make it last for another twenty-five years. And the Henry Clay Center for Statesmanship is gonna be one, it's a huge big idea, not my idea, but I was asked to come in and get it going. So I, I, I sorta get a kick out of starting things up that, um, that might have a, that might make a difference in the long run, but I don't necessarily get a kick out of staying there forever. You know, let's hire, put good management in and let it go. And, you know, I've, I've chaired the, you know, The Lexington School Board, you know, hired headmasters. I think putting, putting good management in place is fun for me. I like doing that and, you know, that I love doing that here. It just sort of comes naturally. I don't know why I do it. (both laugh)

SMITH: Um, I could follow that a little longer but I'll, I know that we 02:03:00need to end this. Uh, you have major change here at Three Chimneys, your son Case is now the president and manager. Um, how do you feel about that?

CLAY: I'm, I'm thrilled by that. I, I mean I can't really believe it's happened. It's another thing that's sorta fallen in my lap. He went away for eight years, came back, decided to get in the business, which was a godsend. He's picked the ball up. He's extremely capable, a people-person. Customers like him. He's, I think he's, um, visionary. I think, um, um, he joins the culture of this company so naturally that it's scary. Um, takes a, you know, really takes some detail stuff off of me so, you know, I just I think it's a great, um, a great transition. We, we went to, I think I told you, went to that Families 02:04:00in Business course and got some real fundamental, uh, eye-openers and created our family council and opened communications. And so I think that, that, that health and the transition of and succession of the management of this company is in good, good hands.

SMITH: Um-hm. Yeah, this is a, a business where a family, a tradition of families, following each other is normal, but I know that's always a complicated, complicated issue but, uh.

CLAY: Well, you know 80 percent of the world's business, 80 percent of the world's economy is driven by family business. Twenty percent makes it to the second generation. So the odds are really against you if you're in a family business, that you're gonna make it to the second, just the second generation, not the third and the forth, but just to the second generation. It's a big challenge, does the, do, you know, do the stars align? And it, it's a, can the father work with 02:05:00the son or the daughter? Um, can he let go? Um, can the s-, can, can the son accept that he's not starting a business and just become a better manager than his father? Could be son, could be daughter. All of those, all those issues are, are, uh, are complicated by the fact that it's family and that there are spouses and in-laws and mothers and fathers. So, um, keeping all that on the table with no surprises and everybody having a clear idea of where everybody wants to go is, is an important part of transition of a family business.

SMITH: Dan Rosenberg commented that, um, that he was so pleased that Case came on board because he saw Three Chimneys continuing and didn't know if it would otherwise. Is that--

CLAY: I think, I, I agree with him. I think that, um, if Case wouldn't- -if I had no son or daughter, you know, what, what, what am I gonna do here? Am I gonna hand it over to somebody that, that doesn't have an equity interest? Not the same. Um, you know, I, can I sell it to somebody? Who knows? But I think it does mean that Three Chimneys will continue. I think there's another twenty-five years of trying to keep- -(laughs)--trying to keep up capital, to keep the business going, I, I, I, I think that's sorta where it's headed.

SMITH: Okay, last question. It's, it's kind of one I always end with, is when you look back over your career--and you're still smack in the middle of your career--but nevertheless, what is your proudest accomplishment so far, when you look back?

CLAY: Uh, business-wise?

SMITH: Could be.

CLAY: I mean my proudest accomplishment is my family and children. I 02:07:00mean that's, that, that goes without saying. I've got two, I got two great kids and I've got a great wife, just celebrated our fortieth anniversary actually, last week. Um, you know, I think my proudest accomplishment is probably that, um, I've, I've, I've got I won't say a hundred and fifty people because I don't, I don't know 'em all now, but I've got a core group of twenty-five or thirty people that have been here, you know, some, some not that long, but some a long time who's, basically lives we've affected. You know we, we've, they've, they've, uh, they've made a living here. They've enjoyed coming to work here. They, they feel a part of, sort of, uh, success of the thing, so I 02:08:00think, you know, holding that cadre of people together is probably, the, gives me some, gives me some pride.

SMITH: Um-hm. Well, and you do have a sterling reputation.

CLAY: Have a what?

SMITH: A wonderful reputation

CLAY: Well.

SMITH: That, uh, I think you can take great pride in.

CLAY: That's, that's, yeah, I guess I take pride in that, but they, the, um, in, in this business or in any business, if you don't have your name, you've got nothing. So, you know, you spend your whole life trying to protect it. I sorta feel sorry for people that somehow shoot people down for, you know, something silly and try to ruin their name, when in fact they really didn't do anything wrong. Happens sometimes.

SMITH: It does, yes it does. Well, I really appreciate you taking all this time.

CLAY: Sure.

SMITH: I didn't want to keep you this long.

CLAY: Time flies when you--I talk so much.

[End of interview.]