Another Financial Hit Looms for KY Breeders

The Kentucky Thoroughbred breeding industry could take another hit.

The Kentucky Breeders Incentive Fund could be reduced by 30% because of declining revenue, while horse farms “can’t withstand another year like 2009,” Kentucky lawmakers were told Nov. 10 during a meeting of the Joint Subcommittee on Horse Farming.

The meeting, the first held by the subcommittee all year, dovetailed with the start of the November auction season in Kentucky. It did nothing to improve the outlook for the state’s horse breeding industry.

Jamie Eads, director of incentives and development for the Kentucky Horse Racing Commission, said the Kentucky Thoroughbred Breeders Incentive Fund paid $15.2 million in awards in 2008, but for 2009, the amount could fall to $9.1 million based on revenue projections. Revenue for the KBIF, legislatively approved in 2005, comes from the 6% tax on stud fees.

Eads said reductions in stallion fees and the number of mares bred will impact the program, which in 2006—its first year—paid $12.6 million to Thoroughbred breeders.

A percentage of the KBIF also goes to breeders of Standardbreds, Quarter Horses, and non-racing breeds. The Standardbred program could go from almost $3 million to $1.4 million, Eads said, forcing purse reductions for the lucrative Kentucky Sires Stakes program.

“We feel strongly the funds are mirroring the state of the industry,” Eads said.

Matt Koch, president of the Kentucky Thoroughbred Farm Managers’ Club and a partner in Shawhan Place farm near Paris, Ky., said the operation bred about 70 mares, half of which were shipped to other states to foal. Koch said he and his partners, including his brother, Charles, are now breaking yearlings to save money.

“I’m not a gloom-and-doom type of guy,” Koch said. “I’m young, positive, and determined to be a success, but without a solution, I’m not sure how long the industry can survive (in Kentucky). The story is the same at every farm.

“One of my biggest clients told me to dump his broodmares to stop the bleeding. I advise clients every day to cut their stock and take advantage of other state-bred programs. Most of us are struggling to pay stud fees, and we’re cutting back on our work force.

“If we can increase purses, we’ll put the dollars back, but many farms can’t withstand another year like 2009.”

Expanded gambling comes up again

The subcommittee agenda didn’t mention expanded gambling, but it came up at the meeting. Republicans and Democrats in the General Assembly are at odds on how—or whether—to approve racetrack video lottery terminals.

Democratic Rep. Susan Westrom, who co-chairs the subcommittee with Republican Sen. Damon Thayer, asked Koch what would happen if the legislature fails to assist the Kentucky horse industry.

“This needed to be turned around yesterday,” said Koch, who suggested higher purses and sale results are closely linked. “I don’t see anything else that can save my auction results next year. We need something in place by July or September of next year. If we can’t turn the prices at auctions around soon, we’ll see places close.”

Tim Capps, executive-in-residence at the University of Louisville, said history shows auction sector declines when the amount spent at sales is close to that of purses paid. He said the most threatened are the low to mid-level breeders that “make up the bulk of the program” in Kentucky.

Thayer said he and other legislators hope to “double or triple breeders’ incentives” through various programs, though it remains to be seen which route the General Assembly will take. Thayer has pre-filed legislation for 2010 for a constitutional amendment on racetrack VLTs, while Democratic Gov. Steve Beshear and others believe only legislative approval is needed.

Thayer, lead legislator on the KBIF in 2005, called for changes to the program given declining revenue. He questioned, for instance, why the KHRC paid for billboards and other advertising for this year’s Kentucky Super Night harness races at The Red Mile in Lexington.

“The responsibility for marketing that event should lie with The Red Mile,” Thayer said. “It’s the job of the host racetrack to pay those funds, because they’re the ones that benefit from (the races).”

Thayer said he’d like to see some money provided for Kentucky-bred racehorses that win international events in places such as Canada and Hong Kong, and questioned why Thoroughbred breeders’ awards are paid for horses that win small-purse maiden special weight events at tracks like Ohio's River Downs, a popular spot for Kentucky horsemen with lesser stock.

Thayer suggested reducing the amount that might be paid to the breeders of the winners of Kentucky Derby and Oaks, both grade I events, from $100,000 to $50,000, and tinkering with Kentucky claiming horse awards.

“There are limited dollars, but we have horses running all over the world,” Thayer said. “We have maidens running for small purses, and I wonder if that’s incentivizing anyone to breed a horse in Kentucky.”

A touch of politics?

Thayer also said the KHRC should look at revising rules that allow members of syndicates and foal-share participants to collect breeders’ awards even though they don’t necessarily pay the tax that supports the program. He included in legislators’ packets a document that showed William S. Farish, or Farish and his partners, earned more than $528,000 in breeders’ awards in 2007-08.

Westrom asked Thayer why the information was given to legislators. She noted Farish and his partners were the only breeders on the list even though “many, many others receive checks.”

Farish’s son, Bill, is general manager of Lane’s End Farm near Versailles, Ky., and a Republican who recently has taken public issue with the way his party has handled the racetrack gaming matter. Farish has said legislative action is needed immediately for the industry to move forward.

In response to Westrom, Thayer said he used Farish as an example of how prevalent partnerships are and to “illustrate” the way the Thoroughbred breeding business works. He said he asked the Legislative Research Commission, not the KHRC, to compile the data.

After the subcommittee meeting, Kentucky Thoroughbred Association executive director David Switzer said the KTA, as well as the KTFMC, had input in how the breeders’ incentives program would be shaped, and he hopes that remains the case in regard to any changes.