From The Age newspaper...
WHEN retail mogul Gerry Harvey looks out over the crowd at his Magic Millions thoroughbred auctions on the Gold Coast on Wednesday, one familiar face is likely to be missing.
Bill Vlahos, who for the past few years has spent up big with Magic Millions and competitor Inglis, has gone to ground following the spectacular collapse of his punting club, ''The Edge'', and his racing empire, BC3 Thoroughbreds.
But it is not just at the Magic Millions and at Inglis sales in March that the Vlahos effect will be felt. His credit-fuelled buying binge also raises questions about the tactics adopted by some breeders to pump up the price of highly fancied yearlings and the red-hot market created in the frenzied atmosphere of the auction ring.
While almost every other aspect of racing, from betting to racehorse syndication to the races themselves, is tightly regulated and policed, the auction yards remain an unfettered free market. There is talk in racing circles of secret commissions paid to underbidders, and of pre-sale arrangements to ''run up'' the price of favoured yearlings well above their valuations.
The Vlahos imbroglio has the potential to scare off would-be horse owners - the large offshore buyers, who in recent years have underpinned the industry's main auctions, and the smaller individual investors considering taking a stake in a thoroughbred.
Uncertainty still surrounds the ownership of ''Jimmy'', the colt Vlahos bought for a record $5 million at last year's Inglis Easter yearling sales in Sydney.
It is not even clear who will get the insurance money, due to be paid by an overseas syndicate, following the death of the horse last Sunday.
There had never been anything like this in the hundred years Inglis had held its Easter sales at Randwick. The auctions have survived wars, an outbreak of botulism and even an occasion when Bart Cummings was unable to pay his bills.
But on April 9, with Black Caviar just days away from winning an incredible 25th race in a row, all eyes were on lot 131: her half-brother, ''Jimmy'', a brown yearling by champion sire Redoute's Choice.
The pressure was immense. More than 2000 people turned out to watch the bidding, and many thousands watched on TV.
What the thousands watching did not know was that vets who had inspected Jimmy had already raised questions about the horse's soundness to race, which Fairfax Media understands put several international investors off bidding. Whatever the internationals thought, Adam Sangster, the son of world racing legend and pools magnate Robert, was first to put his hand up, bidding $2m.
Vlahos, standing under a fig tree long associated with big bids, entered the fray when the price hit $4m.
With his first bid, he had already exceeded the credit limit set for him by Inglis by $1m. With cameras already firmly focused on him, he was allowed to continue. Sangster and his Swettenham Stud matched Vlahos bid-for-bid as the price climbed in $100,000 increments.
But as the auctioneer called a bid of $5m by Sangster, his nerve - or perhaps his budget - failed.
TV cameras captured him furiously gesticulating to auctioneer Peter Heagney, indicating his bid was $4.9m. Vlahos, who later said he planned to dip out at $4.5m, picked up the horse for $5m.
Seller Rick Jamieson, who owns events and catering outfit Harry The Hirer, banked his share of the sale proceeds within weeks. He retained a 10 per cent stake in the horse, making his share $4.5m, minus Inglis' commission.
For Vlahos, it was yet another horse bought on the never-never. While it was his biggest buy, it was only the latest in a string of big-money transactions with Inglis and Magic Millions.
The previous year he paid $2.6m for another of Black Caviar's relatives, a half-sister now known as Belle Couture. In the first three months of last year, he ran up bills of $5.9m with Inglis and $1.36m with Magic Millions. As late as November, Inglis believed that Vlahos was on the verge of paying, and told Fairfax Media his account was in order.
However, even as Vlahos made that winning bid in April, he knew his punting club was edging towards collapse. In a series of emails dating to January, he had warned his thousands of investors that the club was having cash-flow problems and should be wound up.
Just a few weeks after lashing out on Jimmy, Vlahos was begging for patience from punting club members who wanted their money back.
''The bottom line is, I need everyone to contact me about what is realistic for them to hold out for and what needs to be paid straight away,'' he said in an email to members. ''I am not asking anyone to do anything other than what they are comfortable doing.''
Now, The Edge appears to have blown up, taking with it the $500m in paper profits its members once thought existed.
The collapse of the Vlahos operation also threatens the balance sheets of Inglis and Magic Millions.
Financial accounts for Magic Millions are not available, but those filed by Inglis show the amount of credit it advanced to buyers, including Vlahos, has ballooned dramatically over the past three years.
At the end of June 2011, buyers owed Inglis about $50m. The figure was $59m the following year, and jumped to $66m last year.
The credit Inglis advances to buyers is supported by its borrowings, which have risen from about $30m to about $39m over the same period.
Those borrowings include a $5m loan from the Australian Turf Club, due to be repaid or refinanced by July 1.
The death of Jimmy threatens Inglis' bottom line. If it cannot recover the $5m insurance policy, that amount will have to be written off. This would eclipse the profit Inglis declared last year of $3.8m.
However, determining who receives the insurance is a puzzle administrators of BC3 have yet to solve. In addition to Inglis, those with a claim to a share of the money include investors who bought a stake in the horse from BC3 and other secured creditors such as Magic Millions.
At this year's sales, buyers are all but certain to put yearling valuations under scrutiny like never before. Authorities - racing and law enforcement - are also likely to be keen observers.