Running Down a Dream

When a crew of streetwise PHLX traders decided to chip in on a thoroughbred with Kentucky Derby potential, all they needed was a few thousand bucks -- and a taste for volatility. Come take a ride with a racehorse syndicate in the market of diehards and dreamers.

On a cold, pale Sunday morn-ing in the middle of March, the Aqueduct Racetrack in Ozone Park, Queens, can be a foreboding place. The Jamaica Bay winds whip down Rockaway Boulevard as steady waves of hardcore degenerates and grizzled old-timers line up outside the front gates.

Three escalators up, the Equestris Restaurant's spacious dining room is quiet and empty. It's a clean, well-lit sanctuary from the gritty environs below, offering a panoramic view of the vast course, the infield and the endless gray sky over John F. Kennedy International airport in the distance.

By noon, one hour from the first race, a few tables begin filling up. At one of them sits John Dunfee, a 42-year-old equity/ equity options trader who plies his trades on the floor of the Philadelphia Stock Exchange.

A few other investors are perched alongside him, sipping Bloody Marys and handicapping the field in the eighth. They look, collectively, as hopped up as one might expect for a fledgling racehorse syndicate whose prized thoroughbred is slated to run. Which is to say, very hopped up.

Dontfearthereaper is the name of their dark brown 3-year-old -- a lean, wild-eyed gelding with a look well-suited to the Blue Öyster Cult ode for which he's named. Reaper, running today in only his second race, is the rare horse to break his maiden first time out; he made his debut in a six-furlong sprint with a gaudy Beyer speed rating (of 93) while pissing all over some high-pedigree competition. And now Dunfee and the boys -- and a few other folks in racing circles -- are beginning to utter the two words every owner yearns to hear: Kentucky Derby.

"If he wins today, there's a real chance he could run in a prep race," says Dunfee, splitting a plate of chicken fingers with another PHLX trader, Stephen Floirendo, a.k.a. "Flounder." Formerly weighing in at a quarter-ton, Flounder, in just the past six months, has trimmed down to a spry 375. He shares the honey-mustard dipping sauce and the Triple Crown dream -- which typically comes with a $5 million bonus for any horse that sweeps the Derby, the Preakness and the Belmont Stakes.

"We might be looking at the Wood," Flounder concurs. "Hey, did you see that Blood-Horse magazine mentioned Reaper as a Derby hopeful?" "Derby, baby!" Dunfee chirps. "We're going!"

A few hours later, with post time for the eighth just minutes away, the traders anxiously make their way downstairs to wish Reaper well. He's a 2-to-1 favorite to win, partly because of his tremendous speed rating, but more so because of his trainer, Richard Dutrow Jr., the hot hand on the New York racing scene, who's notched 31 wins since December, third-highest among all Aqueduct trainers. Down in the paddock where the jockeys are saddling up -- and where the pungent aroma of steamed manure fills the air -- Dunfee, Flounder and the others confer with Dennis Barbierri, the gregarious owner of Red Bank, New Jersey–based Winged Foot Stables, organizers of the Reaper syndicate. Barbierri is trying his best to shush all the Kentucky Derby talk. Not because it's outlandish; he just doesn't want to jinx anything. But some of the other limited partners in this $140,000 investment, including a few other Philly traders, are gathered outside on the clubhouse apron, each abuzz with that frothy sensation of holding a stake in a fast-rising commodity.

As the horses are finally ushered into the gates, scattered chants of "Reaper! Reaper!" rise from the sparse crowd. Then, in an instant, they're off. Reaper, flashing a few seconds of his startling speed, explodes out of the gate before easing into the four spot in an eight-horse field, right where he wants to be.

"Come on, Reaper!" Dunfee bellows at the top of his lungs, well-suited to the task from years of yelling on the floor. But then, as the horses come tearing through the backstretch, something appears to go terribly wrong. Reaper doesn't just fade; he completely stalls out. The jockey, Jose Santos, the same man who rode Funny Cide to victory in the Derby a few years ago, appears to have pulled him up. By the time the race has ended, Reaper meekly trots in second to last.

Immediately, Barbierri is on his cellphone calling down to the trainers. Fueled by Stoli and Red Bull all afternoon, the 39-year-old suddenly looks anemic, as though he's just seen a ghost.

"Santos felt something buckle," Barbierri says, nervously, to the small pack of owners clustered around him. Dunfee's face is a study in grim consternation.

"Is Reap gonna be OK?"

Barbierri mumbles his answer: He doesn't know yet, not until he talks to Santos personally.

"Urgghh..." Dunfee sighs, and crumples his $1,500 win ticket. "The agony of defeat."

In the world of horse-racing fractionals, $10,000 and a healthy sense of optimism can buy a lot of thrills and a shot at thundering glory. One big gainer can offset a lifetime's worth of losers, and the upside is never farther away than the next straightaway. It's the kind of market custom-made for men who like a little risk with their rewards. Custom-made, in other words, for your average trader.

As Dunfee puts it: "When I invested in this horse, I wasn't thinking, 'Oh, I'll make some money off this.' I'm in it for the action." Then again, one could argue that Dunfee's in everything for the action.

John Dunfee was 6 years old the first time he remembers hanging around Philadelphia Park with his father, Tom Dunfee, a man who raised eight kids in Southwest Philly on the tips he made tending bar at the Welcome Inn -- and the ones he got at the track. "I got lost at the track," Dunfee recalls. "I remember them calling for my dad over the loudspeaker. I was bawling."

It wasn't the last time John Dunfee would wander off. A talented shortstop in high school, he was recruited to play at West Chester University, west of Philly, on a partial scholarship -- but instead of showing up that summer for freshman orientation, he bolted for the Jersey Shore.

Kicking around Wildwood in the summer and Philly the rest of the year, Dunfee worked in a restaurant until a family friend helped him land a job as a runner on the floor of the PHLX making $100 a week. Soon enough, he was a clerk for Spear, Leeds & Kellogg, before helping run Muriel Siebert's shop and then heading up his own string of entrepreneurial execution firms; currently, Dunfee, who owns one seat on the PHLX, is CEO of JFD Securities, an equity and equity-options brokerage trading on behalf of large hedge funds and other buy-side entities.

"I know my business is close to being extinct because of electronic markets," Dunfee laments. "Sometimes, I feel like a cowboy with one bullet left in the chamber."

Like any good cowboy, Dunfee has also always had a thing for horses. About a year ago, a well-known Wall Street figure, Michael "Mickey" Gooch, the CEO of GFI Group, suggested to Dunfee that he ought to go in on a Winged Foot horse now named Johnny Utah, in which Gooch owned 40 percent. Dunfee had closely followed the story of the five Philadelphia friends who chipped in $75,000 to buy Triple Crown threat Afleet Alex. He engaged in some fundamental analysis and agreed to invest $25,000 for a 10 percent stake of Johnny Utah. He laid some of that off on some fellow Philly traders, including Flounder, Gene O'Brien (the owner of Husky Trading), Andy Silverman from Qtrade, Eric Massimi of Citigroup and Al Carter and Brian Skinner from Carter Financial.

It was then, not long after buying into Utah, that Dunfee was offered a stake in a second Winged Foot horse: Dontfearthereaper. "When (Barbierri) called me and said he had this really promising horse that I just had to get in on, I was like, 'What the hell -- if I'm going to own one horse, I might as well own two,'" Dunfee recalls. "You have to take your shot." He decided, again, to bring his Philly crew in on the syndication.

That night, Dunfee told his 15-year-old son, Shane, that he had bought a horse named Dontfearthereaper. Never a rock n' roll buff ("I liked some disco growing up"), Dunfee had only vaguely heard of Blue Öyster Cult. But in the family bloodline, the classic-rock gene skips a generation.

"My kid goes, 'Dad, that's my favorite song,'" Dunfee says. "I took it as a good sign."

The horse-racing world is filled, of course, with tales of omens, harbingers and hunch bets. Just three years ago, Winged Foot owner Barbierri, a former seventh-grade math teacher who at one point had been turned down for work at Blockbuster, was running a flailing golf-equipment store in Red Bank, New Jersey, along with his wife.

After winning $5,000 at Monmouth one afternoon, Barbierri decided to parlay it. Something told him it was his destiny to own racehorses. Seven years earlier, he had purchased a third of a Monmouth horse named Mystic Diplomacy. He wound up visiting the horse every day but was forced to sell his stake to cover a $700 stable fee tab. Now, with his golf shop listing badly, Barbierri let everything he had to his name -- around $15,000 -- ride. He bought three racehorses with cash.

By 2003, he had bought a few other horses. In September of that year, one of those horses, Ocean Ranger, broke down at Philadelphia Park and had to be destroyed.

Recalls Barbierri: "I just found out my horse had to be put down. I'm crying in my cellphone at a Mail Boxes Etc., and some guy goes to me, 'Hey, I couldn't help overhearing you're a horse owner; I've always wanted to do that.' So we exchanged information, and this guy ended up becoming my first investor."

Eventually, Barbierri -- along with lifelong friend TJ Lundberg -- bought three high-quality horses with $165,000 of pooled capital, on margin (each was $55,000). By early 2004, Winged Foot had added a dozen investors, and later that year their horses began to win. It was literally off to the races.

Hooking up with world-class trainer Richard Dutrow and horse-farm manager Don Buckley, the fledgling operation began gearing up to compete with the biggest owners in the sport. The stakes-race realm is a crowded field with steep odds. Some 35,000 baby racehorses are born in the U.S. each year; fewer than 4 percent will ever compete in a stakes race. Finding those rare breeds is part fundamental research, part quant, with a crapshoot overlay, especially on Winged Foot's startup budget. "You look at the pedigree; you study his form," Buckley says. "You want a horse that looks athletic. After all, I'm looking for athletes."

In April 2005, Buckley attended the Ocala Breeders' Sales Company auction, held not far from his own horse farm north of Orlando, Florida. Buckley, a 66-year-old former trainer who has spent his whole life around horses, called Barbierri to tell him he had his eye on an average-sized 2-year-old colt sired by Stormin Fever -- himself a handsome Kentucky colt who had enjoyed a respectable racing career. Some pin hooker (that is, a flipper of 2-year-olds) was looking for a fast buck, and Buckley felt he could land the horse fairly cheap. Sure enough, Buckley snared him for Winged Foot with a winning bid of $15,000.

Later that spring, at Buckley's farm, the new colt on the block was testy and rambunctious. "For about a week we couldn't put a jockey on him," Buckley recalls. Adds Barbierri, "He had this menacing stare; he looked like the Grim Reaper. Plus, I love that song, which I'd just heard on the radio. That's how I came up with the name."

Every owner wants a beast with some fire in the belly, but Reaper was a little too feisty; his testicles were clipped that summer. "Ideally you don't want to have to geld him, because you lose him as a stud," Lundberg explains. "But then again, with that much talent, you want to be able to race him."

Because, after all, it's the excitement from the racing circuit -- and not resale appreciation -- that mainly draws partners in. Winged Foot's horses won 13 times in 47 starts in 2004 and 2005, an astonishing ratio that bested the vast majority of other stables. Through the first quarter of 2006, the fleet had notched four wins in 10 starts. And by early April, just two weeks after he'd pulled up lame at Aqueduct, the Reaper had been cleared to race again. Although Santos remained insistent that he'd felt something wrong with the horse, Reaper had checked out fine with the trainers. Regardless, it was an incident whose timing had derailed his chances for the Kentucky Derby, although a spot in the $1 million Travers Stakes —- the most prestigious 3-year-old race outside the Triple Crown -- and the splendor of Saratoga in August still beckoned. Presuming, that is, that their blue-chip stock could still fly.

It's the morning of Reaper's third race, Thursday, April 6, and there's a palpable buzz on the floor of the PHLX. At the Husky Trading booth is taped a sign: home of... dontfearthereaper. Several of the traders there are planning on betting him today. Around noon, Flounder sends a clerk over to an OTB down the street from the exchange to place some bets; a screen is set up so the traders can watch a live simulcast of the race. Post time is 1:56 p.m.

Meanwhile, at Aqueduct, up at the Equestris, Dunfee and some members of the Winged Foot crew have commandeered two tables. Dunfee bets $50 on the first race of the day, a Dutrow horse, Thundering Success, and he wins. It's a nice start. Dunfee can afford to take today off. The night prior, he made a nice score -- off the floor. A hedge-fund client from Chicago had called him during dinner looking for his help unloading a half-million shares of some stock Jim Cramer had hyped on Mad Money. A few phone calls later, Dunfee was able to sell the shares in the electronic aftermarket. Dunfee, with his client's blessing, took a nickel a share for his trouble.

Reaper is running in the third race today and, despite his hiccup a few weeks ago, is again the favorite. Top-rated jockey John Velazquez (Angel Cordero's protégé) will be riding him. That Velazquez is on Reaper is testimony to both Dutrow's clout and Reaper's talent. The money from the backstretch -- pro gamblers, trainers, horse people -- loads up on Reaper, who had opened 7–2 on the morning line.

Down in the paddock, on a day teeming with sunshine, Dunfee is in heaven. "I love this part," he says as Reaper prances around. "That's my horse." A few minutes later, the horses are off.

The race is another six-furlong sprint, and Velazquez settles Reaper into third place in a field of six. The Dunfee gang is huddled outside on the rail, but their eyes are all glued to the infield's big screen, next to the main tote board. Up there, Reaper, on the backstretch, is making his move, passing the lead horses like a supercar with a reserve tank of nitrous. Dunfee, Barbierri and a few other partners begin bobbing up and down like kids, their cries of encouragement growing louder down the stretch. Reaper is pulling away.

Just when it appears victory is certain, though, the No. 2 horse, Polished Arrow, regroups himself and makes a drive. In a chest-pummeling instant, Arrow and Reaper are neck and neck. The partners hold their breath. Polished Arrow is flying on a trajectory straight for the center of their collective heart. So close.

Then, miraculously, Reaper sustains. He refuses to fold. "Come on, Reap!" the Philly traders chant as the horses come to the line in tandem.

And at the finish, it's... well, it sure looks like Reaper by a neck.

The boys go nuts. Dunfee pumps his fists and begins high-fiving everyone in sight. Barbierri and Lundberg embrace like Don Larsen and Yogi Berra. Meanwhile, back at the PHLX, some 20 traders and clerks gathered around the screen at Husky Trading cheer wildly as instant messages pour in from clients all around the country -- clients who, in many instances, have bet on Reaper as well. Chants of "Reaper! Reaper! Reaper!" echo across the Philly trading floor. Back at Aqueduct, in the midst of the mayhem, comes a most unwelcome announcement. "Ladies and gentlemen, hold all tickets... We have a photo finish."

The boys are incredulous. But Barbierri is confident. "By a neck, easy. Don't worry -- we got this, we got this," he repeats. He's right. After an agonizing few minutes, it's official: Reaper by a neck. His owners are instantly ushered into that most holy of sporting sites: the winner's circle.

"He wouldn't give up that lead!" an ecstatic Dunfee tells John Sullivan, one of his partners.

A smiling Velazquez chimes in from atop the proud beast. "He's still green," the jockey says. "Felt like this was his first race." In other words, Reaper can only get better.

Once a Derby hopeful, briefly a question mark, Reaper is back in the saddle. Two wins in three races, impressive speed: This horse -- purchased for $15,000, syndicated for $140,000 -- could now possibly fetch $400,000 on the open market. But no one even thinks about selling; there's still too much fun to be had. In fact, by later this afternoon there are tentative plans for Reaper to run in one of the undercards at the Preakness in May, and from there perhaps a trip to Saratoga and a shot at the Travers.

Driving back to Manhattan from Aqueduct in the back seat of a hired Town Car, Dunfee firms up plans to meet some clients later that night at Del Frisco's steakhouse in Midtown. He's still riding the high. He laid some lumber on Reaper. Add to that his share of the $45,000 purse (the Reaper partners will split $23,000; Dunfee and his crew are in for 15 percent of that), and all told it's a $6,450 day for the college dropout from South Philly.

As the Manhattan skyline appears across a cloudless horizon, he makes one more call on his cell: "Hey, Pops, did you see that race?"

Yes, Pops had, and he bet it too -- 50 bucks at 3-to-1. Total winnings today for the Dunfee family: now $6,600. Beats a 500,000-share aftermarket order any day.


Trader Monthly Magazine June / July 2006 pg 92

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