Action Taken to Erase Deficit in KTDF Balance

The Kentucky Horse Racing Authority has approved an agreement that erases a deficit in the Kentucky Thoroughbred Development Fund and establishes tighter accounting procedures to preclude a similar deficit buildup in the future.

During its Dec. 18 meeting, the KHRA approved the agreement reached with the state's four major Thoroughbred tracks that will reconcile the $523,000 deficit. Under the agreement, each track – Churchill Downs, Keeneland, Ellis Park, and Turfway Park – will effectively pay $130,000 each to erase the deficit. The $523,000 figure came about after the KHRA paid $150,000 into the fund as reimbursement for a fee paid to the former Kentucky Racing Commission. The KTDF is also not being charged for a comprehensive audit of the fund, which is still underway.

KTDF supplements are paid to owners of Kentucky-sired and Kentucky-foaled horses racing at the state's tracks. By statute, the fund monies are applicable to stakes, handicap, allowance, and non-claiming maiden events in Kentucky. KTDF is funded by three-fourths of 1% of money wagered at state Thoroughbred tracks and 2% of money wagered on incoming simulcast wagering and intrastate simulcasting at those tracks. The KTDF paid out $6,811,613 in 2005.

The agreement came about after the KHRA discovered that more money had been paid to owners than had accrued to the fund. An audit being conducted by the regulatory body has failed to determine at what point the deficit began or how it was able to grow to its present level.

"It was one fund and money went out without regard to what went in," said said KHRA chairman William Street. "In the course of our review it quickly became apparent there was a lack of financial information related to the fund. Our staff has spent the past several months working with the racing associations and horseman's groups to reconcile the fund and begin the process of moving forward."

Under the agreement, the KHRA will reimburse each race track for invoices submitted as of Oct. 2, 2006, minus $130,000 from each track. Invoices submitted after that date will be paid in full, except for Keeneland, which did not have any invoices submitted as of Oct. 2, 2006 and whose next invoice will be reduced by $130,000.

Street said owners received all funds to which they were entitled as the KTDF deficit grew and that the agreement will have little or no impact on future purses. Under the agreement, the tracks could recoup their $130,000 payments by paying smaller supplements or if the fund grows by increased handle, up until Dec. 31, 2008.

"It may result...in some slightly reduced purses over a period of time," Street said.

Like all purses at a meet, the amount of KTDF supplements for races are included in the tracks' condition books, based on estimates of how much will be accrued from the percentage of simulcasting that finances the fund. If simulcast handle – and the amount going to KTDF – falls under those estimates, the difference must be made up by adjusting the purses either during that meet or a subsequent meet.

Dr. David Richardson, who chairs the KTDF advisory committee that recommended the agreement to the authority, said it was apparent that "the accounting was not (properly) kept on an ongoing basis. It had occurred over a number of years."

"Our research indicated an attempt was made in 1999 to reconcile the fund but that effort was unsuccessful," said Lisa Underwood, executive director of the KHRA. "This agreement not only reconciles the account but provides guidance for future payment procedures to avoid funding issues in the coming years, which is critical since the fund is so important to purse structures in the state."

In an effort to tighten up the accountability of the fund, the authority and racetracks agreed to a set of procedures that provide for more timely reporting of KTDF fund balances to the authority.

Also during the meeting, chief Kentucky steward John Veitch reported Kentucky would begin setting deadlines for the authority to hear appeals of regulatory actions taken against jockeys and trainers.

Presently, appeals must be filed within 10 days of regulatory actions. The appeals hearing, which is usually heard by an authority member or hearing officer, generally does not take place on a timely basis, sometimes until the licensee requests the hearing or drops the appeal.

"What has happened in the past is that we have slowed the process down (and don't hold the hearings) until we have three or four people on the books," Veitch said. "We just don't want to do that any more."

In some cases, if a licensee files an appeal and leaves the state and never returns to apply for a license, the fines levied against the individual go uncollected.

Veitch said the authority will soon begin scheduling the appeal and obtaining all the records needed for the hearing shortly after the 10-day appeal deadline has passed.

In other action, the KHRA voted not to issue a license to owner-trainer Jack Poole, who is in violation of the rules pertaining to financial responsibility. Under the authority's action, Poole is permitted to reapply for licensing once he has satisfied his financial responsibilities.