KY Breed Incentive Changes Being Considered

Changes have been recommended for the Kentucky Breeders' Incentive Fund.

A Kentucky Horse Racing Commission committee is considering changes to the state’s Breeders’ Incentive Fund, money for which comes from a 6% sales tax on stud fees.

The committee met Oct. 21 to toss around ideas and devise a plan to better market the fund, which paid about $15 million in awards to Thoroughbreds, Standardbreds, and other breeds of horses in 2008. The money is split 80% to Thoroughbreds, 13% to Standardbreds, and 7% to other breeds under legislation passed in the mid-2000s.

In 2006, the first year of payments, breeders earned $12 million. The total improved to about $15 million in 2007-08, but this year’s payments are projected at $13.4 million because of declines in the breeding industry.

Roughly 98% of the fund comes from the tax on Thoroughbred stud fees.

Republican Sen. Damon Thayer, who introduced the incentive fund legislation, told the committee he believes it’s time for changes to the program as far as Thoroughbred racing is concerned. The committee can only make recommendations to the KHRC.

Thayer said the most “glaring omission” is that no payments are made to the breeders of winners of listed stakes. He also suggested paying awards to breeders of Kentucky-bred runners that win maiden and allowance events in Ontario, Canada; to horses that win group I races on the Dubai World Cup program; a minimum purse qualifier for maiden and allowance races; a reduction in the amount paid to the winning breeder of the Kentucky Derby and Oaks (both gr. I) from the current $100,000 level; and the elimination of payments to the top claiming horses at each meet.

“I don’t think (paying claiming horses) does anything to incentivize breeding in Kentucky,” Thayer said. “That money could be better used elsewhere.”

Such a plan could prove unpopular given the current state of Kentucky’s horse industry; purses are declining with no relief in sight, and smaller breeders and owners are being squeezed out of the business or chased out of state.

Thayer also said because 70% of Kentucky-bred horses are exported, payments of 10% for out-of-state success should be increased, and the 25% for Kentucky-breds that win awards in Kentucky decreased. Roughly 40%-45% of the total paid from the fund each year goes to horses that win in Kentucky.

In follow-up comments, Thayer said his recommendations are tied to rewarding quality through the incentive program, not creating a charity. He also said given the nature of the Kentucky breeding business and horse auctions, far more Kentucky-breds are shipped out of state to race.

"Most breeders don't control where their horses run," Thayer said.

Thayer suggested the horse industry lobby the General Assembly for using the about $8 million paid in taxes on farm fencing and equipment to bolster the Breeders’ Incentive Fund. Legislation to repeal the tax has gone nowhere in recent legislative sessions.

The senator also told the committee the horse industry might have a chance of getting the tax money shifted if it backed away from lobbying for alternative gaming, which has been repeatedly blocked by leading Republicans. “It’s a less controversial issue,” Thayer said.

Given comments from industry officials, it seems doubtful the horse industry, which continues to lose ground to neighboring states, will run away from political controversy given a situation that is threatening the survival of two racetracks that account for seven months of racing a year.

As for marketing of the incentive fund, committee member Headley Bell said it’s important to let people know the purpose of the fund and why they should participate. Officials said about 8,000 mares are nominated to the program, roughly half the number of mares bred in Kentucky.

“People need to be educated,” Bell said. “We need to sell Kentucky with these programs.”

KHRC officials said the return on investment is substantial. The standard nomination fee is $60, while the average award is $3,525.

KHRC executive director Lisa Underwood said it’s imperative the committee collect detailed information on how much money is available and how much is spent before adding races to the program and making related changes. “We’re going to need data and run the numbers,” she said.