Kentucky Conundrum

Timing is everything, and the spin required to convince the Kentucky legislature that the Thoroughbred industry needs alternative gaming to survive just got a lot trickier.

A recent statewide equine survey did reaffirm the economic clout the Kentucky horse industry wields with an estimated 40,665 direct and indirect jobs and a $3 billion economic impact. Total equine-related expenditures in 2011 amount to around $1.2 billion, which includes breeding fees, health care, training fees, equipment maintenance, shipping, etc. These numbers include all breeds of horses with a total value of $6.3 billion, but Thoroughbreds make up the biggest segment, valued at $5.5 billion.

On the heels of this survey came the blockbuster Keeneland September yearling sale. The 12-day sale grossed $280,491,300 for 2,744 yearlings, which was 27.6% higher than 2012’s gross for 2,516 yearlings. The cumulative average was $102,220, up 17% from last year, marking the first time the average has hit six figures since 2007. The cumulative median reached $50,000 for the first time and was up 11.1% from last year’s $45,000, which matched the record set in 2006.

Add to this that Kentucky registered foals continue to account for about 30% of the total North American foal crop and it would be easy to understand how state legislators can see more reasons to wait than to act.

Yet there are indicators that action should come sooner than later.

Prior to the 2012 equine survey, the best numbers on Kentucky’s economic health had come from a 2005 American Horse Council study done by Deloitte Consulting. That study pegged the economic impact of the state’s horse industry at $4 billion and estimated direct and indirect jobs at around 97,000, according to Patrick Neely, executive director of the Kentucky Equine Education Project (KEEP).

As far as Neely is concerned, the 2012 study showed definitive contraction—a loss of $1 billion in economic impact and around 50,000 jobs gone. Now, the world economy has been through significant turmoil since 2005 and some of the lost jobs were certainly casualties of the Great Recession. But many of those jobs have likely been affected by the growth of breeding programs in other states with alternative gaming.

And while Kentucky has held its own in terms of its market share of the North American foal crop, anecdotal evidence among Central Kentucky farm owners is that the boarding business has decreased substantially, particularly as New York’s breeding program has grown. A more objective indication of this shift can be found in a Kentucky report generated by The Jockey Club that shows in which states Kentucky-sired foals are actually taking their first steps. In 2011, 454 Kentucky-sired foals were born in New York. The number rose to 679 in 2012, a gain of 225 foals. Meanwhile, the number of Kentucky-sired foals born in Kentucky dropped from 7,088 to 6,811, a drop of 277 during the same crop years.
As New York’s own sales and its breeding incentive program grow, this shift is likely to become more pronounced.

Still some leaders in the Kentucky Thoroughbred industry have said they don’t see any need to panic. Kentucky still has the highest concentration of quality stallions and mares, is among the world leaders by breeding and veterinary facilities, and has the most well-trained workforce; and even through the Great Recession, it essentially maintained its place as North America’s leading producer of top-class Thoroughbreds.

In this context and with leaders within the industry in disagreement regarding urgency of action, any substantial efforts to level the playing field with other racing states appear unlikely.

Things will have to get worse, much worse, before they get better. As one person put it, the legislature will actually have to see bleeding. With the New York racing and breeding program now growing at a brisk pace, Ohio on the verge of opening up more racinos, and Maryland ramping up its own gaming-fueled breeding incentive programs, it most assuredly will. 

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