Can a multilevel-marketing tycoon blend in with the equestrian set?
It's race day at Belmont Park in New York and the grandstands are packed. Despite the cold June rain, celebrities like Steven Spielberg and Michael Bloomberg are braving the weather to watch a three-year-old gelding named Funny Cide run in the Belmont Stakes, the final leg in horse racing's Triple Crown. Funny Cide has already won the Kentucky Derby and the Preakness Stakes. A victory here would be history-making. Few horses win the Triple Crown; a gelding has never done it.
Sitting among the roaring fans is another creature defying the odds: a multilevel-marketer named Kenny A. Troutt. Troutt is the co-owner of WinStar Farm in Versailles, Ky., a Thoroughbred breeder that claims Funny Cide as one of its foals. With its towering sycamores and rolling Kentucky bluegrass, WinStar smacks of wealth and aristocratic tradition. It also serves as the finishing touch to Troutt's unlikely climb to success.
Indeed. Troutt has come a long way from the Illinois housing projects where he spent his childhood. Since purchasing WinStar four years ago, Troutt has embedded himself among the cultured gentry of the horse business, the people he became so enamored with as a teenager toiling as a groom at a two-bit track in Illinois.
That was a long time ago. Today the 55-year-old ranks among the nation's many billionaires who struck it rich during the 1990s tech boom. Like many of his nouveau riche brethren, Troutt found the Thoroughbred life irresistible, from the white-pillared mansions and grand cupola-topped barns to the lush Kentucky estates that have been lorded over for generations by blue-blooded families.
But Kenny Troutt's blood is anything but blue. The son of a bartender, Troutt got a partial scholarship to Southern Illinois University. He wanted a more ivy-colored existence. "I grew up very poor," he recalls. "Getting rich, that was my whole focus in life."
His big chance came in the late 1980s, when he started buying and then selling long-distance phone time. For six months he trolled parking lots and street corners, signing up customers. Eventually Troutt gathered enough information to validate his business plan, which employed an Amway-like marketing network, thus jump-starting Excel Communications.
His timing couldn't have been better. The telecom industry was in the throes of deregulation, creating a heyday for born salesmen like Troutt. By 1996, the year Troutt took Excel public, the company was pulling in $1.4 billion in sales. In 1998 he sold Excel to Montreal-based Teleglobe for $3.5 billion (including debt). Troutt, who owned 50% of the company, walked away with $1.5 billion in cash and stock and later headed for Kentucky.
For all his successes and newly minted millions, Troutt is still awestruck by the sport's ruling elite. He's outwardly thrilled to be hobnobbing with them: "I have gotten to meet the Phippses," he blurted to this reporter, in awkward disbelief.
Apart from his multilevel-marketing credentials, Troutt represents a new breed of Thoroughbred owner. Armed with business plans, quarterly budget projections and sophisticated machinery, they are changing a sport that used to be nothing more than an expensive pastime for gentlemen.
"There was a time when people got involved in this simply because they loved the game," recalls Bobby M.Spalding, manager of Paris, Ky.-based Stonerside Stable. Spalding's family has been in the horse business for more than 50 years. "It was really about the love for the horses and the pleasure of beating someone else. It was not something you traded on to make money."
Making money is exactly what Troutt intends to do with WinStar. Troutt spent months drawing up WinStar's business plan. He runs it much as he did Excel. He holds monthly meetings with his trainer, farm managers and bloodstock agent. Mating, yearling sales and acquisitions are all discussed; managers are expected to come up with suggestions to lower costs and improve efficiencies. A database calculates the returns of every horse by tracking such information as the money spent on medication and the number of hours spent on training. The farm has also acquired a hyperbaric chamber, normally used to treat divers suffering from decompression sickness. The pure oxygen pumped into the chamber is believed to speed the recovery time for a racehorse that has worked up a sweat.
In the past four years Troutt and his partner, William Casner, have spent $70 million on horses, land and improvements. Troutt kicked in an additional $35 million just on horses. To generate revenue, Troutt sets aside three dozen mares whose offspring are automatically sold. One sale was Funny Cide, whose recent track success has been a boon for WinStar. WinStar owns Funny Cide's sire, a stallion named Distorted Humor.
The Belmont race was almost a Seabiscuit moment for Funny Cide, which came in third over the 11/2-mile distance, five lengths back. Still, the flirtation with the Triple Crown will likely more than double Distorted Humor's 2004 stud fee, which was $20,000 this past breeding season.
"I'm convinced you can make a lot of money doing this," says Troutt. The odds are against him. Most Thoroughbred farms are lucky to return 5% to 10% annually, and that's after a ten-year startup period. Troutt believes that he can achieve a profit in as little as five years. Troutt claims WinStar turned cash flow positive in its second year of operation. "I try as much as Ican to take the emotional part out of the equation," says Troutt, a tanned and athletic man who looks younger than he is. "If you get hung up on emotions and you don't have a business plan, you will lose. And once you start losing money, it just takes the fun out of it."
Maybe a financial success would win him more legitimacy with the silver-spoon set. "I am not expecting these people to be my friends," he shrugs. "Imay never be a part of that group. But I am honored when I meet them."
Last year Troutt bought a mansion in a tony neighborhood along North Broadway in Saratoga Springs, N.Y., next door to William S. Farish, the U.S. ambassador to the U.K. He's also building a Georgian-style house in native limestone at the 1,450-acre WinStar Farm , where he plans to spend much of the spring and fall to coincide with the racing seasons there. He has won a spot on the board of trustees of the prestigious Thoroughbred Owners & Breeders Association. He appeared in a commercial that has aired for the Greatest Game, an industry program that promotes Thoroughbred ownership.
Says Troutt, "Sometimes I just have to pinch myself.