The classic image isn"t wrong; there have been important Thoroughbred breeders in Robert Clay"s family dating back to at least 1830. But the farm"s looks are deceiving. Three Chimneys was actually founded in 1972 and has climbed to prominence in a thoroughly modern way: by finding a niche market in Thoroughbred breeding and developing a business model to fill it.

In many ways, the $39 million deal that brought Smarty Jones to Three Chimneys is the perfect symbol of what Clay says the farm has always been about: devoted customer service aimed at building long-term relationships, a small but select stallion roster, and a willingness to think progressively and to remain a leader in the market. And Three Chimneys has been progressive. It was the first farm to put up

a website, in 1995, and the site now offers its clients a password-protected area where they can log in to get updated status reports, day or night, on their horses. It is one of the few farms that exercises stallions under saddle, on the logic that it keeps them healthier and happier. And it was the first farm known to syndicate a stallion in 60 shares, as it did in 2004 with Smarty Jones, now one of eight stallions at the Midway nursery. Smarty Jones"s $100,000 stud fee for 2005 is the farm"s highest, followed by Rahy at $80,000.

"Right from the beginning, when it was just me and Robert, we have engaged in formal strategic planning," said Three Chimneys president Dan Rosenberg, 51, who has been with the operation since 1978. "We ask, 'Who are we? Where are we? Where do we want to be? What"s going on in the business? And how do we grow and position ourselves to take advantage of opportunities?" We now do this formally on a regular basis with the management team, and I think it"s been effective.

"The goal, in the initial interview I had with Robert back when the farm was 100 acres, was to develop Three Chimneys Farm into a worldclass boarding and breeding operation," he added. "And we"ve done it. "

The key, Clay said, was identifying and filling an under-served niche.

"In 1984, when we stood our first stallion, Gainesway had 48 stallions, Claiborne had 22, and Spendthrift had 45," Clay said. "And there wasn"t anybody else. They were the big three: GM, Chrysler, Ford. We said we wouldn"t stand a stallion until we could do it to fill a niche, the hands-on boutique strategy. We had to differentiate ourselves.

"In the late 1970"s, over a four-year period, I went to three consecutive three-week sessions at the Harvard Business School in a course called the Small Company Management Program. The fundamental of differentiation was something I took away from that: You have to differentiate to compete. So I got the boutique idea, and it caught on."

Three Chimneys began when Clay bought 100 acres and a dilapidated house on an old cattle farm. It didn"t take long before he determined that he could make a go of it in the commercial Thoroughbred breeding business.

It was a logical aim, given Clay"s own pedigree. He is a descendant of the great Kentucky statesman and horse breeder Henry Clay, who began breeding Thoroughbreds in 1830. Robert Clay"s father, Albert, bred 20 stakes winners, including Grade 1 winner Albert the Great and 1990 Kentucky Oaks winner Seaside Attraction. Robert Clay started small.

"We had 10 stalls in a tobacco barn," he said. "I called Joe Taylor, who was the manager of Gainesway then, and told him I had these stalls if he had any clients. He said, 'I"ve got one who likes fresh land and doesn"t believe in virus abortion shots, so I"ll put those mares over there. You charge me six dollars a day, and I"ll charge him seven." That client was Peter Burrell, who had married Connie Mellon, and so those were the Mellon horses that came seasonally. He became our first client, and we went on and sold some yearlings for him at Saratoga."

The first yearling Clay sold was one he and his father owned in partnership. "Blythe [Clay"s wife] and I had just bought a little house on Hart Road that I remember cost $39,000," he said. "That yearling sold for $37,000, and the stud fee was $1,500."

That was a good start, but Clay also saw another side of the game.

"I don"t want to disparage anyone, but back in those days, there was a lot of trading going on," he said. "They were deal-making, but I was naïve enough to think you didn"t have to do it that way. I told Dan we were going to be the high-integrity alternative.

Clay kept his hand in other industries. For a time, he worked in the fertilizer business, and that, too, turned out to be good for his Thoroughbred farm. Clay, then about 30 years old, went to Cincinnati to bid on a pair of plants owned by a fertilizer company that had gone bankrupt, thinking, he said, "that I was going to steal it from the receivers." When he arrived, he found a rival bidder. Clay introduced himself and found that his competition was a banker named Tracy Farmer, who has since become one of Three Chimneys Farm"s most prominent partners and clients, most recently as a shareholder in Smarty Jones.

By 1984, Clay was ready to take on the big stud farms, and he started with a splash by pursuing Slew o" Gold, then one of the hottest horses running. He wrote a letter to owners Jim Hill and Mickey Taylor, saying, "I"d like to build a stallion barn that you can"t expand past six. I"d like to take care of the owner, the horse, and stay small."

"It was a naïve letter, in a way," Clay said. But it was convincing. Clay was vacationing in Spain when he got a call from Slew o" Gold"s owners at 3 a.m. They wanted $14 million for the horse, and they wanted to keep eight of the 40 shares. Clay flew back to the States immediately and hammered out the deal for his first stallion, a champion by Seattle Slew.

"I gave them, and I think they still have it, a $20 bill as a down payment," Clay recalled. "I syndicated the horse in about 72 hours."

In 1985, the same syndicate bought half of champion juvenile Chief"s Crown for "about $10 million," Clay said. And that August, as Spendthrift Farm plummeted into financial disarray, Hill and Taylor stopped Clay in the box section at Saratoga and asked him if he"d be interested in standing Seattle Slew. Ten days later, Slew left Spendthrift for Three Chimneys, where he stood for 17 years.

"Jim and Mickey took a real chance on us," Clay said. "It said to the outside world we could manage a big horse."

Seattle Slew"s arrival took Three Chimneys to a new level of prominence and attention, from breeders and fans alike. The farm became more than a working stud farm; it became a tourist destination. That is why 20 years later, when owners Roy and Pat Chapman started looking for a farm to stand their beloved Smarty Jones, the Three Chimneys pitch had a ring of authority.

"They had 10 people come up to Philadelphia and make presentations, and we asked to go first," Clay said. "You get a feel whether you have the same set of values or not . . . and when we walked out of that meeting, we felt good, because the values and philosophies lined up almost perfectly."

The Chapmans wanted a fan-friendly farm, and Three Chimneys had been open to tours for two decades. The farm had not only handled Seattle Slew"s public attention, but it had also managed the intense media and fan vigil that attended the birth of 1980 Kentucky Derby winner Genuine Risk"s first successful foaling in 1993. The Chapmans also insisted that Smarty Jones not be shuttled and not have an excessively large book of mares.

Clay emphasized that point in describing the difference between Three Chimneys and many of its rival farms in their appeal to the Chapmans. "We can make just as good a horse breeding 110 mares as we can breeding 170 ­ I firmly believe that," Clay said. "You put yourself at a disadvantage in terms of the revenue stream, but on the other hand, you maybe hold the price up higher for the 110, a supply-anddemand thing. That was a message they loved. They didn"t want to overbreed the horse, which I think is another way of saying they didn"t want to oversupply the market.

"They were not necessarily looking only for the high dollar," Clay said. "As a matter of fact, they didn"t take the high dollar. They were looking for the combination of a fair deal and a marriage partner. When people ask me, 'What was the key to getting Smarty Jones?" I think it was the combination of our values, which are core, and our philosophy.

"You don"t sleep," he said of striking the $39 million deal. "You wake up in the middle of the night and wonder what they"re thinking. Churchill Downs has a trophy presentation two or three weeks after the Derby, and the Chapmans came for that, and all of us were wanting to know who they were talking to, what they were saying. It was very tense."

Said Rosenberg, "They were very public about their parameters, and I think all the other farms went to them and said, 'We can do that, we can be that." We went to them and said, 'We"ve been doing this forever. This is who we are." We don"t shuttle, we are open to visitors, we do limit our stallions" books. I think that"s what won the day."

Coming about a year after Seattle Slew"s death, the Smarty Jones deal marked a changing of the guard at Three Chimneys. It has also required a few obvious changes at the farm. Three Chimneys has hired Molly Rosen, a fulltime tour guide and self-proclaimed "personal assistant to Smarty Jones." And she stays busy, leading 175 fans, on average, through a 45- minute tour most Tuesdays through Saturdays. The demand to see the Derby and Preakness winner remains strong enough that Three Chimneys is expanding its parking lot to accommodate the increased traffic and tour buses.

It has all been worth the effort, as anyone at Three Chimneys will tell you.

"It"s a lot of trouble in some ways, but there"s a great intangible value to the visitors coming," Clay said. "They see the other horses, there"s publicity value, and we found that out from 17 years of Slew. You can"t put a value on that, but it"s there. Having the superstar is good for us."