KEEP Equine Industry Conference: Dialogue among breeds critically important to betterment of signature industry
“Our second Equine Industry Conference highlighted many of the most important issues Kentucky’s horse industry faces,” said Joe Clabes, KEEP’s Executive Director. “Bringing industry leaders and policymakers together to discuss how we capitalize on recent gains and address ongoing challenges is critically important to the betterment of the Commonwealth’s signature industry.
Kentucky Commissioner of Agriculture Ryan Quarles stressed that the Kentucky horse industry “is about family farms,” using as an example KEEP board member Fred Sarver’s saddlebred farm in Carlisle.
“It’s no different than on the production-ag side,” Quarles said. “There are 76,000 farms in our state; 95 percent of them are owned by families. We have a very small corporate presence in Kentucky. Our overall agriculture impact is $45 billion. And in the horse industry, it often rivals the total production of production agriculture. There are 35,000 horse farms in Kentucky, almost all owned and operated by people like Fred, family operations that contribute to the local economy.”
Quarles noted that while he grew up on a tobacco and cattle farm, his mother spent summers working at Turfway Park and his grandfather was a horse trainer.
“And every time he sold a load of hay off our farm, that was an economic impact,” he said. “People forget Kentucky is the eighth-largest producer of hay and a $300 million industry for us. It’s important to start connecting the dots. One of the jobs I do is to educate not just the public but the rest of the farm community about the $4 billion impact that the horse industry has. It’s about equipment sales. It’s about health and veterinary supplies, feed, hay, bedding, farm equipment, fuels, truck and trailer rentals.
“One thing we have to do in the horse industry is to remind people and correct misperceptions. Every single week we try to remind people that the horse industry is a reflection of dozens of breeds…. Also remind our policymakers in Frankfort that the horse industry is about family farms. Yes, we do have some beautiful properties out there. But that is atypical. As the General Assembly continues to look at the future of what tax structure Kentucky should have to fund itself, it’s important that we have advocates there who understand the economic impact of the equine industry. And yes, we do advocate for sales-tax exemption and parity for the horse industry not only for farm inputs but also for veterinary supplies.”
Craig Bandoroff, who with wife Holly started and operates Denali Stud in Paris and whose 25-year-old son Conrad is about to join them, is an example of the industry reality that Quarles described.
“Especially in the Thoroughbred industry, when so much of the perception is we all are the Arab sheikhs or some of the other titans of industry who come in here,” Bandoroff said. “But so many of us are family-run operations that provide a huge economic engine to this economy. I looked at my financials last week. We spent $15,000 this year on seed. We have a mowing contract that’s tens of thousands of dollars. Hay, straw, not to mention veterinarians and blacksmiths. That’s the thing to really keep in mind and not lose sight of: The economic engine that this industry, every single farm, provides is very significant.
The bill passed by the Kentucky legislature and signed by Gov. Matt Bevin last spring classifying equines as livestock stops short of providing horses the same 6-percent state sales-tax exemption on feed, supplies and equipment in place for cattle, pigs, chickens, sheep, alpaca etc. Jay Ingle, an attorney with Jackson Kelly law firm, said in his legislative update said he found 18 different sections in Kentucky’s statutes that were impacted by the change.
Ingle said provisions and clarifications that impact horses include water resources, highways and transportation (including vehicle licensing and exemption for maximum weight) and pesticides, along with easements and economic grants for agri-business through the Kentucky Economic Development Finance Authority.
“Others see it as the possible next step to sales-tax equity,” he said.
Frank Penn, a KEEP board member and owner of Lexington’s Pennbrook Farm, called the legislation “a good first step” toward just that.
“Equine has been known as a companion animal in the state of Kentucky for a long time. I have a yet to meet anybody who took their horse in the back of their car and went by McDonald’s for a burger, let alone took them in the house with them,” Penn said. “We’ve been fighting this for fifteen years. It’s very important what Senators Robin Webb and Damon Thayer did (getting the bill passed) that let’s us classify equine as animal production, as production agriculture. Why should we be called production agriculture? Because we sell forage through our horses, just like cattle and sheep do.
“… Fifteen years ago, if I told (someone who raises horses) that he was a farmer, he’d say, ‘No, I’m a horseman.’ It took the disease that came with caterpillars (Mare Reproductive Loss Syndrome in 2001) to realize that those of us who produce horses are no different. We’re subject to the weather, subject to all the other assets and liabilities of being a farmer. My hope is that when we get the tax-reform issue before the legislature that it levels the playing field for equine. The other thing is that on a national level we’ll be considered agriculture and will be eligible for disaster loans when it comes to weather.”
Penn had a message for his fellow Thoroughbred farmers: “We are part of a group called equines, and it takes the walking-horse people, all the other breeds. We have to go to Frankfort with a unified voice and we have to talk about what’s best for equine. And what’s best for equine is also best for Thoroughbreds.”
Thayer, the Kentucky Senate Majority Floor Leader, told the conference that he expects tax reform to be addressed in the 2018 regular legislative session.
Referring to walking-horse enthusiast Linda Starnes’ plea to keep the Kentucky Breeders’ Incentive Fund in tact because of “how important it is in trickle-down effect” for non-racing breeds, Thayer vowed: “I will lay my body down on the track to make sure that the Breeders’ Incentive Funds do not go back into the General Fund. The good news is that, unlike when I joined the General Assembly 15 years ago, there are a lot of advocates like Chairman Adam Koenig (chair of the House’s powerful Licensing, Occupation and Administrative Regulations Committee and who attended the conference), Speaker Pro Tem David Osborne, Senator John Schickel, Senator Steve West and others I believe will work with me to ensure those dollars continue to be reinvested” in the various breed funds to expand the overall horse industry.
As far as tax equity for equines, Thayer said. “Meetings already are taking place with the administration…. All things are possible; I don’t want to predict what’s probable.”
Penn closed with noting that the inequity between charging sales tax on feed and equipment used for equines and not for other livestock puts feed and equipment companies near Kentucky’s borders at a huge disadvantage with their competitors just across the state line.
“Most tractors nowadays cost between $60,000 and $100,000,” he said. “Would you pay 6 percent on $60,000, $80,000, $100,000 if you can drive your truck and gooseneck across state lines, save that money and bring it back to your farm? Of course you wouldn’t. So that’s lost. The other thing is large consumers of feed that are close to mills, not necessarily in central Kentucky but southcentral and western Kentucky, are being pressured to put horse feed in cattle bags in order to save that 6-percent sales tax. You know what happens if the guy at the mill puts real cattle feed in horse bags (delivered) to a horse farm? You’ll kill the horses. We don’t need to make crooks out of honest people just because of the 6-percent tax incentive to do this. Those are two just pragmatic reasons you want to think about this.”
Denali Stud owner Craig Bandoroff said about six or seven years ago he contemplated opening a New York satellite breeding operation because Kentucky was suffering from an exodus of broodmares from the state. Today he said his Paris farm is at capacity and can’t take anymore horses unless Denali acquires more land.
“We are in so much better shape today because of historical horse racing and what that’s done for primarily our racing circuit,” Bandoroff said. “Racing is the locomotive that pulls the whole train. If you don’t have a strong racing circuit, you’re going to suffer. And Kentucky suffered very badly. We were really worried about our economic well-being.”
While the Kentucky Breeders’ Incentive Fund is largely funded by the 6-percent sales tax on stud fees, Bandoroff pointed that historical horse racing also contributes and is a reason for an 8-percent increase in the fund. The Kentucky Breeders’ Incentive Fund provides financial incentives to breeders whose horses go on to win the better races in Kentucky and in important stakes throughout the U.S. and world. It also funds the Kentucky Sire Stakes in standardbred racing and the Kentucky Horse Breeders’ Incentive Fund that provides money to non-racing breeds, providing revenue for shows, trails and facilities improvement.
“Our industry is like every business: It’s all about the economic incentives,” Bandoroff said. “If you give people reason to move to New York and breed their horses there, or West Virginia, you name the state, that’s where they’ll go…. This program rewards people for horses that win everywhere, not just this state. We are here as an export product. We want horses to go everywhere around the world and the country and perform. We’re coming off a very strong September (yearling) sale and all North American sales. And participation from Europe was stronger than I had seen in the last 15 years. American horses are going over there and running at the best race meets and are competing and winning.”
An example he provided: the top four finishers in England’s Group 1 Dewhurst for 2-year-olds were bred in Kentucky.
Bandoroff said that historical horse racing has been a game-changer for Kentucky, with Ellis Park exhibit No. 1. With its own HHR operation still evolving, Ellis Park is coming off two transcendental meets thanks to a transfer of $3 million in purses and Kentucky-bred purse supplements from Kentucky Downs, done in collaboration with the Kentucky Horsemen’s Benevolent & Protective Association that represents owners and trainers at the Commonwealth’s five Thoroughbred tracks.
“You had a track that struggled for a long, long time, the fact that that track now has purses that are able to keep horses in the state and provide a year-round circuit is critical,” Bandoroff said. “… The breeding industry has been a huge beneficiary of a stronger Kentucky racing circuit.”
Corey Johnsen, Kentucky Downs president and KEEP chairman, said major advancements in parimutuel wagering generally have a 10- to 15-year span from inception to really taking off. He says that’s where historical horse racing is now.
“Why do I think it’s such a great development? Well, here’s the difference between historical horse racing and casino gambling: The fact is that it’s our product. It’s parimutuel wagering on historical horse races. It’s not something you can take away or offer some other place. You’ve got to offer it at racetracks. So we have greater control over what happens with the revenues, and we can invest those back into the industry, like we do with other parimutuel wagering.
“The other thing is that it’s had minimal or no effect on the regular parimutuel wagering. An example: September at Kentucky Downs, we had five live racing days and during the month of September, our historical horse racing handle was $57.8 million — an all-time record. Also, our (five-day) live meet handled $30 million all-sources, an all-time record. So those two complemented each other. I think you see that more with historical horse racing than a track that might have a casino or slots-machine operation as well as live racing.”
Johnsen cited Jockey Club statistics that Thoroughbred purses in Kentucky totaled $67.79 million in 2009, $65.34 million in 2012, $78.46 million in 2016 and “I think in 2017 it will be greater than $80 million.”
Katherine Paisley, General Counsel and Vice President of Compliance for the historical horse racing games-provider Exacta Systems, agreed that statistics show that historical horse racing is a new revenue source, rather than cannibalizing from the existing revenue streams. Paisley said annual betting on live racing in the United States has held steady at between $10.55 billion and $10.88 billion since 2011, but that historical horse racing handle has gone from $171 million in 2011 to $1.1 billion in 2016. That’s while being meaningfully conducted only in Kentucky, Wyoming and Oregon, with Arkansas now having very few HHR terminals, she said.
“That’s 10 percent of the handle in the country being wagered from three states — and three states that aren’t offering the wager at every facility,” she said of combined wagering on live and historical horse races.
“If more venues offered historical horse racing, we would continue to see a significant increase in the parimutuel handle in the country,” said Paisley, whose company provides the games to Kentucky Downs and Ellis Park in Kentucky. “As Craig (Bandoroff) said, breeding in Kentucky is an export product. The health of our industry grows with the health of the parimutuel handle everywhere…. I think we can expect in 2017 to see a $1 billion in handle on historical horse racing just in Kentucky alone…. It’s interjecting a brand-new revenue stream. We’re not just moving ADW dollars around. It’s brand new money coming into the sport, driving the economy, driving the industry and continuing to keep Kentucky at the front of the field.”
With a large assist from historical horse racing, money going into the Kentucky Thoroughbred Development Fund has almost doubled since 2010, from slightly more than $4.5 million to approaching $9 million. KTDF, funded by a percentage of betting, provides purse supplements to the owners of registered Kentuckybreds competing in maiden-special weight and allowance races at the commonwealth’s tracks, which have the option of using that money to also enhance stakes purses, as Kentucky Downs has done to great effect.
Jamie Eads, Executive Deputy Director of the Kentucky Horse Racing Commission, also said in her KEEP conference presentation that nearly $130 million has been distributed since 2006 through the Kentucky Thoroughbred Breeders’ Incentive Fund to the breeders of registered Kentucky-breds that win certain types of races in the state and designated races throughout the country and world. That fund comes from the 6-percent sales tax on stud fees when a mare is bred to a stallion.
Eads said that in a recent Commission Kentucky Thoroughbred Development Fund advisory committee meeting that the state’s racing secretaries are seeing “how much larger the 2-year-old population in the state is this year and how our horse population has stuck and around and stayed through with us.”
Eleven non-racing breeds in Kentucky have received almost $10 million since 2006 through the Horse Breeders’ Incentive Fund. The vast majority of that comes from the HBIF receiving 7 percent of the total assessed from the 6- percent state sales tax on stud fees, almost all of it from breeding mares to Thoroughbred stallions.
“I don’t know if there’s another state that shares the Thoroughbred money with the other breeds, but I think it’s something that makes us a much-stronger industry,” said Corey Johnsen, the Kentucky Downs president and KEEP chairman.
“There are pockets of Quarter-Horse programs in Texas and Paint programs somewhere else,” Eads said. “But we are the only state that recognizes 11 nonracing programs…. The state recognizes the opportunities to have the horses in our state and to breed in Kentucky. If you were to be a horse, this is it. This is the place to be.”
Conference moderator Alan Balch, who has almost 50 years in the horse business and ranks among the most-respected executives in both racing and the show-horse world, pointed to the 1984 Olympics in Los Angeles as a textbook case of breeds helping each other.
“The all-time biggest year we had at Santa Anita was the year of the Olympics,” said Balch, who was senior vice president at the track as well as the Los Angeles Games’ competition director for the Olympic equestrian sports staged at Santa Anita. “And I have no doubt that it was because of the synergy among all types and pursuits of horses.
“… The horses are innocent of our prejudices, you might say, our likes and dislikes of types of horses. And if we can all together — which is one reason I love this organization — and see racing benefiting the non-racing equestrian sports and see them benefiting racing in return, that’s really what we need to market the sport properly.”
Balch used his impassioned pitch for breeds working together as the prelude to the late Tim Capps being honored with the KEEP Vision Award for outstanding contribution to the overall horse industry. Capps served with distinction as a turf journalist and publisher, breeding and track executive before joining the University of Louisville’s Equine Industry Program in the College of Business, for which he became the director in 2011.
“He had a great many assets,” Balch said of his contemporary. “Not only did he teach at the University of Louisville and was extremely productive, proficient, popular, educational. But teaching was the last stop in his life. Because he had done so many things in racing, as a journalist, association administrator all over the country.”
KEEP and the University of Louisville’s interim program director Terri Burch, announced the launching of the Tim Capps mentoring internship where the winning U of L equine student will have monthly meetings with KEEP board members and hands-on experiences to get insight and connections with all facets of the equine industry.
The 36-year-old non-profit Central Kentucky Riding for Hope, located at the Kentucky Horse Park, was honored with the Vision Award for an organization. Executive Director Pat Kline observed that CKRH has been the recipient of KEEP grassroots grants for its array of programs making life better for children and adults with special physical, cognitive, emotional and social needs while using horses as the conduit.
Eric Hamelback, Chief Executive Officer of the National Horsemen’s Benevolent & Protective Association, asked Bryan Brendle, the Washington D.C.-based American Horse Council’s Director of Policy and Legislative Affairs, about getting racetrack stablehands classified as agriculture employees, which would have a significant impact on visas for guest-worker labor. Currently backside employees are in the same category as landscapers, roofers, etc.
Brendle said his understanding is that the Agricultural Guest Workers Act “intends to make the regulatory and statutory definition of agriculture and agricultural operations as expansive as possible. The only certain thing at this point is that definitely covers the breeding farms. But we’ll be glad to repeat our request to staff on the House Judiciary Committee that we’d like that definition to be expanded further.”
Developing a domestic workforce prepared for all capacities of the industry is increasingly important with the uncertainty over federal immigration policy.
“There is a crisis in our industry,” said Remi Bellocq, Executive Director of Equine Programs and the North American Racing Academy (NARA), which is operated through the Bluegrass Community and Technical College. “We need to have a healthy workforce.”
A KEEP conference panel featured four entities working to alleviate the problem: NARA, U of L, the University of Kentucky and Locust Trace, a magnet school in Fayette County that opened in 2011 and offers six agricultural pathways, including equine studies and a veterinarian tech program.
Bellocq said one of the things that NARA enforces with students “who come to us to become a rider or assistant trainer or work their way up in a racing stable or to run a farm is how to learn to drive a tractor. Which a lot of them have no idea how to do. Or to pull a trailer. Locust Trace has the kids do all that, which is fantastic.”
“… It’s kind of like it takes a village, we’re all working together to bring resources to future workforce for the equine industries,” he said. “…. Some of the observations and comments I have are ‘How do we take 139 students and evaluate whether they have what it takes to succeed?’ Whether it’s with a racing stable, breeding farm or any other discipline, we can find those kids, but do they have the work ethic? The desire and passion to work in racing or any of the disciplines where it’s seven days a week, rain or shine, travel a lot. That’s going to be the big challenge for the industry. Because with the loss of guest-worker visas, we have to find a way to make these industries something that the kids at the high-school level really want to do again.”
Bellocq said NARA has evolved from being a rider-oriented program to emphasizing overall horsemanship. He said that when the program places a student into a barn, that leads “90, 95 percent of time into a full-time job. How long that lasts is up to them.”
Bellocq, who like his father Pierre (known as PEB) is a talented cartoonist, drew a caricature of a millennial at the barn holding coffee and his phone, saying, “Yeah, so like I hear you. You need American workers. Whatever. So when do I get my BMW? And I need wifi.”
“This is going to be a problem we have,” Bellocq. “We have a lot of kids coming in here. But they have no idea about the demands of the sport, that you’ve got to wait your turn when you start working for farms, trainers, things like that. So a lot is not just what we teach them about horsemanship. But it’s also about those social skills, about learning and how to work in this environment.”
Mick Peterson Ph.D., the new Director of Equine Programs in the University of Kentucky’s Ag Equine Program, said the industry must “rethink how we manage the horses… Thinking about how we can increase efficiencies to support the equine industry to reduce labor force. Every other agricultural industry has addressed a number of these issues. The equine industry hasn’t. That’s not on the equine industry. That’s on us. Because we have not stepped back and thought, ‘Where can we increase the efficiencies on the farm?’
“You walk into a barn in 1920, you want into a barn right now. I don’t think you notice any difference. We need to think about that. But we need to think about it in the context of what is the demand side. The demand side is equine safety and welfare. Everything we need to do needs to be clearly focused on the safety of the animal and the safety of the rider. We need to step back and think about how this all fits together. Because this is our market, this is our future. And that’s what creates this multi-billion industry in the United States and Kentucky.”
Kristen Branscum, commissioner of the Kentucky Department of Tourism, challenged the equine industry to come up with new ways to broaden its reach into attracting out-of-staters and foreign visitors to the Commonwealth to grow an overall tourism industry that in 2016 produced $14.5 billion in revenue.
“I am driven to get what I call OPM,” Branscum said. “As a Kentuckian, I want other people’s money outside of this state, and I believe tourism is the way to do it… We want to make the world aware of what Kentucky has to offer, and on the function side, get OPM. If you’re talking about needing budget money, I think that’s how we do it.”
Conference moderator Alan Balch, an executive in both racing and the showhorse world, pushed for renewed commitment to marketing in its various forms.
“I’ve seen a shift come back in racing everywhere, including Kentucky, frankly, to an accounting mentality,” Balch said. “…. Accountants love to count those beans and put them in the bank. We marketers do not look at marketing as an expense but as an investment. But marketing is an investment you cannot depreciate.
“What we need in racing is a very strong renewed commitment to marketing, which takes investment in advertising, sales, promotion, communications, all the tools in the toolkit now for marketers to try to translate this interest in historical horse racing into on-track betting, on-track attendance and greater expansion of the gaming market for racing. We are in a struggle with every other form of gaming… It takes marketing, marketing, marketing and all the tools to get it done. And that’s attitudinal. And I don’t think we have it in racing.”