KY-Breds: Quality High Amid Revenue Decline

KY-Breds: Quality High Amid Revenue Decline
Photo: Anne M. Eberhardt
A report on Kentucky’s Thoroughbred breeding industry and related state programs that support it financially shows continued strength in quality despite decreases in funding and competition from other states, particularly those that use gaming revenue to support racing and breeding.
 
The report, prepared by the state Legislative Research Commission and unveiled Nov. 10 during a meeting of the General Assembly Program Review and Investigations Committee, figures to lay some groundwork for horse industry lobbying during the 2012 legislative session in Kentucky. Everything from tax breaks to advance deposit wagering assessments to racetrack gaming has been discussed.
 
Much of the report is based on survey responses from 150 Thoroughbred farms in the state. There are more than 600, so roughly 25% were spoken for in the survey, said Perry Nutt of the LRC.
 
Using a multiplier, LRC staff determined that spending within the Thoroughbred industry in 2010 was about $912 million. With indirect spending of $672 million in related industries or non-horse industries that benefit, total spending was about $1.58 billion, the report states.
 
The average expenditure per Thoroughbred in Kentucky is $21,690 per year, with more than 17,600 direct and indirect jobs in the industry, the report states.
 
With the North American Thoroughbred foal crop on the decline, Kentucky’s numbers have dropped but the state has increased market share. For instance, in 2010, Kentucky accounted for 42.9% of mares bred, while nine other major breeding states accounted for 43.7% combined, the report states.
 
“The market is getting smaller; it’s contracting,” Nutt said. “Mares are being taken out of production. The market is shrinking but Kentucky is capturing a larger share of that smaller market.”
 
Clearly, Kentucky’s breeding industry heavily depends on the state being the stallion capital of North America, as well as quality farms and farmland. On the revenue side, however, the industry has gradually lost ground since at least 2006, according to financial statistics.
 
When the Kentucky Thoroughbred Breeders’ Incentive Fund, which comes from the sales tax on stud fees, made its first payments in 2006, $12.9 million was available. In 2011, there will be $9.3 million available for various awards.
 
The Kentucky Thoroughbred Development Fund, which is generated through a pari-mutuel tax on live in-state betting, has taken a similar hit. The fund, which pays supplements to Kentucky-bred racehorses in specific races, totaled $8.67 million in 2006 but only $5.83 million in 2010, according to statistics in the report.
 
The LRC report looked at six states—Florida, Indiana, Louisiana, New York, Pennsylvania, and West Virginia—that have racing and breeding programs supported by gaming revenue. The report made no conclusions or recommendations in that regard but did show stiff competition for Kentucky in terms of racing and breeding incentives.
 
Kentucky Thoroughbred Association executive director David Switzer suggested legislators look closely at the state-by-state information. Switzer noted the continuing revenue shortfall but said that otherwise, the Kentucky Thoroughbred breeding industry has succeeded in maintaining quality.
 
“There’s no doubt we’re having a reduction in the number of mares being bred, and now we have more demand than we have supply,” Switzer said. “But I see our industry as being strong; the buzz word is quality. Good horses bring good money—that’s where this industry is headed.”
 
When asked if the LRC report will be used by the industry to make its case during the 2012 General Assembly session, Switzer said: “It will come up.”
 
In the wake of the easy re-election of Democratic Gov. Steve Beshear Nov. 8, Kentucky Equine Education Project executive director Patrick Neely said Nov. 9 the issue of expanded gambling will be addressed during the next legislative session.
 
"Our position is we're for leveling the competitive playing field and plan to work with the House and Senate," Neely said. "It seems clear there is support in both houses (for action on expanded gambling)."
 
Neely said Republican Senate President David Williams, who lost to Beshear by 20 points, stated said on the campaign trail there are enough votes in the Senate to pass a constitutional amendment on expanded gambling. What the referendum language would look like remains to be seen.
 
Horse industry officials cite numerous polls that show public support for racetrack gaming; the question is how to get there: A constitutional amendment or legislative approval?
 
The survey results showed that of the about 150 responses from farms, 50% are broodmare operations, 22.7% commercial boarding operations, and 27.3% diversified operations with stallions and sales prep services.
 
Also, the average Thoroughbred farm size is 369 acres, and of 93 farms that responded, 46% had $100,000 or less in sales income each year versus 15% with sales income of more than $1 million per year.
 

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