As Competition Grows, Kentucky Seeks Solutions

Dr. Richard Vetter, an economist at Ohio State University, believes it's all about the "margin." Five cents on the dollar, he said, can make a big difference.

People may actually leave a state and go to another state with lower taxes to beat the margin, he said. And the same goes for horse owners and breeders seeking to make the numbers work in a business that's often unkind to the bottom line.

"A nickel on the dollar is enough to make the difference between living successfully or living less successfully," said Vetter, the first speaker during the University of Louisville's "State of the Industry" seminar Nov. 2. This year's seminar focused on breed development, and how states are competing for horses.

Kentucky-based speakers made the point that even though the horse industry is considered "signature," it's under siege.

Dan Kenny, a breeder and owner of a small Thoroughbred farm, said low return on investment and the lingering effects of mare reproductive loss syndrome have made it difficult for himself and others like him to make a profit. He said he is an advocate for breed incentives because "the middle class fills the racing programs."

Bill Casner, co-owner of WinStar Farm, said Kentucky needs a strong breed development program and a means to finance it. The engine would be alternative gaming at racetracks but only via a constitutional amendment to ensure the industry's protection.

Casner, who's quite active in the Kentucky Equine Education Project, presented numbers from one small farm that showed its tax contributions and its losses. He noted WinStar is a much larger operation, but not without its challenges.

"If this all goes away tomorrow, we'll go someplace else," Casner said. "We've already begun making adjustments."

Mark McDermott, executive secretary of the Pennsylvania Horse Breeders Association, said his state is preparing for growth given the approval of racetrack slot machines. A few years after the first devices go online, purses at Philadelphia Park could average $325,000-$350,000 a day (up from the current $125,000) for 200 days, and at Penn National Race Course, $225,000 a day (up from the current $65,000) for 200 days a year.

The Pennsylvania breed development program already is quite lucrative with owner, breeder, and stallion awards that pay more than $9 million a year. McDermott indicated the state is prepared to go after horses: With slots, the program could be worth $25 million a year.

"Beware," McDermott said. "People are in competition in this business. Be ready to respond, and respond before you even have to."

J. Shannon Neibergs of the university's Department of Equine Business presented statistics that showed how Kentucky is competing for stallions in the $3,000-$5,000 stud fee range. He said it's important those stallions stay in Kentucky because they contribute to the state's racing program.

"I want to see these horses stay in Kentucky," Neibergs said. "You want to address and maintain programs across the full range."

Because of the large number of foals in Kentucky, owner awards through the Kentucky Thoroughbred Development Fund--the state's only state-bred financial incentive--averages $1,146 per foal. Of the states with breed development or restricted programs, West Virginia leads the way at $38,067 per foal, followed by New York at $21,021 and California at $9,169.

Neibergs said Kentucky isn't losing its dominant market share, but the number of Thoroughbred stallions in the state has dropped from 467 in 1992 to 380 in 2003. Keeping lower-priced stallions is important because they attract mares to Kentucky, he said.

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