Kentucky Businesses: Healthy Equine Industry the Key

Representatives of Kentucky businesses that derive substantial revenue from the horse industry told state legislators Sept. 10 the health of the Thoroughbred breeding industry and their bottom lines are closely linked.

Representatives of six businesses spoke during the third meeting of the Interim Joint Committee on Agriculture and Natural Resources Subcommittee on Horse Farming, which is designed to educate lawmakers on the state's horse industry in advance of the 2004 legislative session. Among the issues that might be tackled next year are alternative gaming, taxes on stallion fees, and taxes on feed and equipment.

Appropriately, the meeting at the state capitol in Frankfort was held at the same time Thoroughbreds were being sold on the third day of the Keeneland September yearling sale. The bloodstock market ended up being a key theme of the subcommittee meeting.

"The stallion industry is what it's all about," said William "Buddy" Bishop, an attorney with Stoll, Keenon & Park in Lexington. "If we don't have the stallions, the horse business goes away."

Bishop, who estimated Kentucky law firms that specialize in equine law generate $20 million to $30 million a year in gross revenue, focused on tax policy. He suggested the 6% state tax on stallion fees in Kentucky puts the state at a competitive disadvantage with New York, which has no such tax and is bolstering its breeding program.

"New York has a fabulous breeding program," Bishop said. "They're making headway, and the breeding industry is entirely mobile. We've got it now because the stallions are here."

Bishop, whose firm counts Keeneland among its equine clients, noted the first two days of the September yearling sale--339 horses sold for $131.25 million--were "unbelievably good." But he told legislators the numbers don't provide the whole story, which will play out in the non-select sessions of the sale.

"The players at the top end of the market are very few," Bishop said. "You're talking about five to seven people. The economy could very well be not as rosy at the end of the sale."

Charlie Stivers, a certified public accountant with Crowe Chizek, called the equine industry the "springboard" for the company's Lexington practice. The company, with about 80 clients in the equine-related businesses, held a recent strategic planning session and determined it would suffer should the horse industry suffer.

Lee Hall, vice president of Hallway Feeds of Lexington, said 25,000 to 30,000 horses around the world eat Hallway-produced feed every day. He said 80% of the company's business is equine-related even though only about 20% of its raw product is grown in Kentucky.

Hall said he was in Ireland the week of Sept. 1 to expand Hallway Feeds' client base. He said a big reason he was able to go to Ireland is Kentucky's reputation in the horse industry.

"We were there because we're from Kentucky," Hall said. "It's important to maintain a business environment that maintains the stallions in Kentucky."

Repeal of the tax on stud fees would produce about $14 million, and repeal of the tax on feed and equipment about $6 million. Hall told the legislators $20 million might not seem like much, but it "would be a major investment to at least say, 'We're glad you're here' (doing business)."

Ray Paulick, editor-in-chief of Blood-Horse Publications of Lexington, said the company derives about 80% of its revenue from the Thoroughbred industry. The demand for bloodstock, he said, reflects how much people spend in advertising dollars.

"Our future prospects are really only as bright as the industry we cover," Paulick said.

Arnold Kirkpatrick, who heads Kirkpatrick & Co., a Lexington real estate agency that specializes in horse farms, said sales may total about $37.5 million a year. He said sales of the "mega-operations" may grab the most attention, but there were plenty of 75- to 100-acre properties in the $1.2-million average sale price per farm in Central Kentucky in 2001.

Ted Berge, vice president of equine lending for Fifth/Third Bank in Lexington, said the bank has a $100-million equine portfolio that includes commercial breeders, veterinarians, and even racetracks. He said mare reproduction loss syndrome, which struck Central Kentucky in the spring of 2001, is just now impacting breeders and their bank accounts because this is the year many of those foals would have been sold.

"It may take another 12 months to see what happens, but I'd be surprised if some of our clients don't have problems in the near future."

The subcommittee, which will hold its next meeting in western Kentucky on a yet-to-be-announced October date, is co-chaired by Sen. Damon Thayer and Rep. Susan Westrom. They both said the hearings are serving their purpose.

Thayer, who touted his bills to eliminate stallion fees and taxes on some feed and equipment, said the trucking industry was driven out of Kentucky by high taxes. He said the legislature later cut the industry a $3-million tax break to try to regain business.

"Do we want the horse industry to leave, and then have to offer incentives to get it back?" Thayer said.

Westrom said when the legislative session begins next year, she'd like to hear from more than industry lobbyists.

"Until we get the masses of people affected by the industry to come (to the state capitol), I'm not sure legislators will know what's going on. A face, a name--someone directly affected--means more to us than anything."