Reaching for Roses: The Beginning of the Journey

December 27, 2010

My English Paper…A Proposal for Changes in KY Racing

I wanted to share my final paper in my English class with the blog’s readers. It is a proposal for changes in the Kentucky Thoroughbred industry. Please be aware that the paper was limited to 5 pages and so I was unable to go in-depth on many issues and had to leave a lot of stuff out. Trying to write a detailed report on what needs to change in the Kentucky Thoroughbred industry in less than five pages is pretty much impossible, so I did the best I could. Also note that I was writing for an audience that was not familiar with Thoroughbred racing. Another problem is that I could not get the graphs and charts to show up, so please disregard the parts when I mention them. Anyway, the paper is below. I appreciate any comments. Thanks and hope everyone had a great Christmas.

Necessary Changes in the Kentucky Thoroughbred Industry

The state of Kentucky is rightfully known throughout the world for bourbon, basketball, and Thoroughbreds. The Kentucky Distillers’ Association estimates that 95% of the world’s bourbon is made in Kentucky and the University of Kentucky men’s basketball team is the winningest program in college basketball history. Two of the three trademark industries of Kentucky appear to be continuing their success and have bright futures. Unfortunately, the same cannot be said about the state’s Thoroughbred industry. Money wagered on races, track attendance, television ratings, and foal crop numbers have all been declining rapidly over the past couple of years. The Thoroughbred industry is far too important to Kentucky for leaders to allow it to disappear, but that is what will happen if action is not taken.

According to the Kentucky Horse Council, the Thoroughbred industry provides 40,000 jobs in the state and has an overall economic impact of close to two billion dollars. The economic impact of the Kentucky Derby alone accounts for nearly one-quarter of a billion dollars. Changes in Kentucky’s Thoroughbred industry are necessary and vital to its survival. The Kentucky Thoroughbred industry will remain one of the state’s most important and successful industries and experience improvements in handle (money wagered), attendance, and television ratings if the following proposed changes are implemented in the racing and breeding sectors of the industry. The leaders of Kentucky racing, specifically Keeneland and Churchill Downs, must increase new client recruitment and development, improve client retention, and increase lobbying for expanded gaming legislation. The breeding industry leaders, this being major stallion farms, members of the Kentucky Thoroughbred Development Fund, and the members of the Kentucky Breeders’ Incentive Fund, must work in collaboration to lower stud fees and improve the state’s breeder rewards program to be competitive with other states.

New Client Recruitment and Development

Kentucky’s Thoroughbred racing industry is desperate for new clients; i.e. fans and owners. The state’s two most important racetracks, Keeneland and Churchill Downs, must lead the way on implementing programs to recruit more fans and owners. The first task is to get people to the track and allow them to experience the joy and excitement of Thoroughbred racing in Kentucky. One of the easiest ways to get people to the track is with promotional days; such as Keeneland’s College Scholarship Day and Churchill Downs’ Night Racing. Keeneland’s College Scholarship Day occurs once per racing meet and offers free admission, free food, and live music to college students. The most recent College Scholarship Day attracted almost 3,400 students. Most of the students in attendance were students at Kentucky colleges and universities; however, the event also attracted students studying outside of Kentucky. Many of Kentucky’s Thoroughbred industry issues are causing fans and owners to leave the state; however, this event brought fans into the state. Churchill Downs’ Night Racing program features “prime-time racing” under the newly-installed lighting system. Churchill Downs held its final night racing program of the year last month and close to 16,000 people were in attendance. This number triples the attendance for an afternoon program on the same day in 2009.

Obviously, these promotional days have been accomplishing their task of bringing new faces to the racetrack. Keeneland and Churchill Downs have done a herculean job of getting potential fans to the track; however, improvements must be made to keep the potential fan entertained during their visit. First impressions are everything and if a potential fan has a bad first experience at a racetrack, he/she is extremely unlikely to return.

A good place to start on changes is pricing. Keeneland and Churchill Downs must cut their prices for parking, food, beverages, and souvenirs. A person going to Churchill Downs or Keeneland may pay $10 to park, $5 for admission, $7 for a sandwich, $3 for a drink, and $25 for a souvenir t-shirt. This person has already spent $50 and has not even placed a bet yet. Parking should be free, souvenirs should be cheap, and food and beverage prices should be more reasonable. In an effort to attract fans, many harness tracks, including Lexington’s The Red Mile, offer free admission and parking along with inexpensive food and beverages. The state’s Thoroughbred tracks should follow The Red Mile’s lead. Lower prices will encourage potential fans to make a few wagers throughout the afternoon; however, high prices will keep them away from the betting windows. No one should ever walkout of the racetrack and say, “I’m not coming back; it was too expensive.” Thoroughbred racing must be a cost leader in the live-sports entertainment industry.

Another area for improvement is customer appreciation. This will help recruit and develop new fans and also improve current client retention. Horse racing is known as the “Sport of Kings” and fans should be treated as kings while at the racetrack. Unfortunately, fans are treated as anything but kings while at racetracks. Frank Mitchell, author of several books on horse racing and owner of The Croft Thoroughbred farm, noted that Kentucky racetracks “don’t seem to recognize that their job is to make sure fans have a great time.” Customer appreciation can be improved with more comfortable seating, knowledgeable and courteous employees, cleaner facilities, and complimentary items to all guests. It is important to note that not all people attending the races will become fans, but enough will to keep the industry successful. Also, all owners were once “only” fans and then decided to take their love of the game to another level. The industry is in need of new owners and maybe a few people will leave a track after their first visit with the desire to own a racehorse.

Client Retention

The Thoroughbred racing industry needs more fans and therefore cannot afford to lose any current fans. Fortunately, racetrack leaders can “kill two birds with one stone” when it comes to client recruitment and client retention. Several of the improvements that racetracks must make in order to attract new fans will also retain the current fans. Making the customer feel appreciated is extremely important and feeling appreciated matters to all fans.

There are a couple of improvements that can be made to retain current fans of racing; including frequent player rewards programs and decreased takeout. A frequent player reward program would reward fans for regularly betting on the live racing. There would need to be different player levels based on amount wagered by a person during a given period of time. Frequent players betting small amounts of money may be rewarded with free admission, free food, and free drinks. The “high-rollers” may be rewarded with Kentucky Derby tickets or a free VIP suite for the afternoon. Also, a decrease in takeout would be appreciated by current racing fans and bettors. The takeout is a portion of all wagering pools that is taken by the track to cover a variety of expenses and provide profits for the racetrack. The current takeout in Kentucky is 16% for straight wagers and 19% for exotic wagers. These takeout percentages are some of the lowest in the country; however, they must decrease even further. According to the Horse Players Association of America’s president, Jeff Platt, “takeout percentages must be lowered to a level that is competitive with casinos. Most casinos only take out 2% of money wagered on table games and 9% for money wagered with slot machines. Lowering the takeout by a couple of percentage points would encourage fans to wager more money, make the takeout rate more competitive with casinos, and would display the racetracks’ knowledge that the bettor is the most important aspect of this industry.

Expanded Gaming

Current legislation in the state of Kentucky does not allow for expanded gaming (slot machines and casinos). Keeneland and Churchill Downs must lead the charge on lobbying for the legalization of expanded gaming in Kentucky. It is vital to the survival of our state’s beloved industry and would greatly improve the economic impact of the industry as well. Expanded gaming licenses have vastly improved the economic impact of the Thoroughbred industry in other states, especially Pennsylvania. In 2001, before expanded gaming was legalized, the economic impact of the Thoroughbred industry in Pennsylvania was $345 million, the industry employed about 6,500 people, and racing provided close to $7 million in taxes. In 2008, after a couple of years with expanded gaming, the economic impact of the Thoroughbred industry in Pennsylvania had risen to $1.6 billion, the industry employed over 23,000 people, and racing provided nearly $80 million in taxes (Pennsylvania Equine Coalition).

The other states in the region that allow expanded gaming are Indiana and West Virginia. Similar situations are seen in these states, with massive increases in economic impact and people employed since legalizing expanding gaming. The revenue that is obtained through slot machines is going into the purses of the races in these states. The purses continue to grow and eventually Keeneland and Churchill Downs will not be able to compete with the purses at tracks in Indiana and West Virginia. This is already the case with Turfway Park and Ellis Park. Jennie Rees, journalist for the Courier-Journal in Louisville, noted that “Indiana, Pennsylvania, and West Virginia will continue to siphon off horses from Kentucky until expanded gaming is legalized.” Rees is spot-on with her analysis and the numbers are there to prove it. Figure 1 displays the number of Thoroughbred foals produced in the state of Kentucky for the past three years. Unfortunately, as the purses in Indiana, Pennsylvania, and West Virginia rise, the foal crops in Kentucky fall. More and more owners and breeders are moving their horses to states with expanded gaming to benefit from the larger purses. It is the responsibility of all people involved in the industry to help keep the industry alive in Kentucky, and that includes supporting lobbying efforts for expanded gaming legislation. The leaders of these lobbying efforts must be the most powerful and influential people in the industry; including, but not limited to, Keeneland’s president Nick Nicholson, Churchill Downs Incorporated president Robert Evans, Fasig-Tipton’s CEO and president Boyd T. Browning, Jr., Taylor Made Sales Agency’s president Duncan Taylor, Keeneland’s Director of Sales Geoffrey Russell, and Lane’s End president William Farish. The previously mentioned men are some of the most respected people in the industry and carry a great deal of power, as they operate some of the most successful companies in the Thoroughbred industry. Although they must lead the charge on lobbying for expanded gaming legislation it is every fan, owners, and breeder’s responsibility to help the cause.

Lower Stud Fees

The bettor is the most important aspect of the Thoroughbred industry; however, the breeder is not far behind. The Thoroughbred breeding industry must also make changes and improvements; including, lowering stud fees and improving the state’s breeder incentive program. Both of these changes would improve the overall health of the industry and Kentucky and help prevent more owners and breeders from leaving Kentucky for nearby states that can offer big purses and fantastic breeder rewards programs with the revenue obtained with expanded gaming.

Rob Whiteley, owner of Liberation Farm, wrote that “stallion owners are making less money, consignors are making less money, veterinarians are making less money, and breeders (the foundation for the other three) are experiencing heavy losses.” Many of these heavy losses are experienced due to incredibly high stud fees in Kentucky that do not reflect the current poor state of the Kentucky Thoroughbred industry. The average stud fee for stallions that will stand their first year at stud next year is about $9,000. This represents a 40% increase from the average stud fee for stallions standing their first season in 2010 (Blood-Horse). While all significant numbers in our industry our decreasing, stallion fees continue to rise. This is not right and must change.

The biggest Thoroughbred yearling sale in the world is the Keeneland September Yearling Sale. Each year breeders bring their horses to sell and find out what their years of hard work and money is worth in the current market. The cost of getting a horse to the September Sale is significant and Whiteley estimates the cost at “between $60,000 and $70,000 to get a horse through the ring at Keeneland.” Whiteley took the $60,000 as a “break-even” price and analyzed the percentage of yearlings that sold at, or above, their break-even price. Figure 2 displays the results of Whiteley’s study throughout the 15 sessions of the sale.

As is clear from the graph of Figure 2, breeders are taking a beating whether they are selling horses at the front of the sale or the back of the sale. Only about one-third of the “select” horses, horses chosen for outstanding pedigrees and conformation, sold above their break-even price. That is an awful percentage, but nowhere near as awful as the percentage for horses that sold in the later sessions of the sale. Only about 1 out of every 50 horses selling towards the end of the sale were able to bring their break-even price. The easiest way to decrease the break-even price and give breeders a better chance at turning a profit is to lower stud fees. Stud fees are one of the most expensive parts of yearling production and a reduction would greatly help Kentucky breeders. In the study conducted by Rob Whiteley, his figures included a $20,000 stud fee, seeing this as a “ballpark average.” Being that the stud fee is a fixed cost in yearling production, a lower stud fee lowers the “break-even” point by the same amount. Therefore, an average reduction of stud fees in Kentucky would give Kentucky breeders more of a fighting chance at breaking even in the tough climate of the Kentucky Thoroughbred market. For many breeders, breaking even is the goal; however, currently many breeders are experiencing big losses and it is only a matter of time before these breeders either move their operations to another state or get out of the industry entirely.

Breeder Incentive Program

It is time that the Kentucky Thoroughbred Development Fund’s members and the members of the Kentucky Breeders’ Incentive Fund come together to increase the breeder rewards program in Kentucky. The breeder rewards programs are so great in other states that one breeder of Thoroughbreds, who chose to remain anonymous, said, “I would be crazy to let a mare foal in Kentucky. There is nothing for me there.” The industry cannot survive without breeders because without breeders there are no horses. Money to increase the breeder rewards programs must be obtained, if not through expanded gaming, then through money from the state’s major sales companies and racetracks (Keeneland, Fasig-Tipton, and Churchill Downs). An extremely small percentage of money wagered at Kentucky racetracks goes into the breeder fund and this number should increase substantially, especially if expanded gaming is not legalized soon. Too many owners are leaving Kentucky to foal elsewhere. Figure 3 shows the percentage change in the percent of the United States foal crop from 1998 to 2008.

Conclusion

The Kentucky Thoroughbred industry needs a lot of changes and improvements to return to greatness. Horses used to be the number one cash crop in Kentucky; however, last year they were overtaken by poultry. Unless industry leaders would like to live in a state known for bourbon, basketball, and chickens then these changes must be implemented as soon as possible. Enough time has already been wasted and this industry no longer has any time to waste. The task at hand is not an easy one; however, it can be accomplished through client recruitment and retention, expanded gaming legislation, decreased stud fees, and improvement of the state’s breeder rewards program. Winston Churchill once said, “There something about the outside of a horse that is good for the inside of a man.” The Thoroughbred industry means too much to too many people to let it disappear. Failure is not an option.

 

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December 20, 2010

Just an 1/8th of a Mile to Go!

Filed under: Working in the Industry — traversman @ 3:00 pm
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I just finished looking at all of my grades for the past semester. Many of my classmates consider the semester to be over when they complete their last final exam; however, I never consider the semester to be over until all of my grades are official. Well all of my grades are now official so the semester is over for me. Seven semesters down and just one more semester to go. I’m only an eighth of a mile away from college’s finish line. I know it will go by fast so I will use the time wisely. I plan on enjoying my last semester as an undergrad, but I will also be using the time to explore career opportunities and apply to a couple of graduate programs.

I can see the finish line, but nothing beyond it. The horizon is foggy and I’m really unsure about what will happen once I cross the wire. Hopefully the view of my life post-undergrad will become more clear in the upcoming months. I’ll be sure to keep all of this blog’s readers posted.

Lastly, I am currently on Christmas break and will be home in Louisville for the next couple of weeks. This means I will have the time to post on this blog more regularly, so be sure to check the blog frequently for updates. 

As always, thanks for stopping by the Reaching for Roses blog! Have a great afternoon.

December 6, 2010

New Pictures of Sky and Skype

Filed under: Sky,Skype — traversman @ 12:57 am
Tags: , , , , , , ,

Winston Churchill once said, “There is something about the outside of a horse that is good for the inside of a man.” This has always been one of my favorite quotes and I really believe in it.

The fall semester of my senior year is coming to an end and it is a very stressful time. Final papers are due and it seems like I have an exam every day. To say that I have been a little stressed these last couple of weeks would be an understatement. In fact, this last Friday I had a term paper due and was forced to pull an “all-nighter” on Thursday in order to complete the assignment.

I turned in my paper to my professor on Friday and was back home around noon. I contemplated taking a nap because I was completely exhausted, but instead I headed out to Frank Mitchell’s farm, The Croft, to see my girls Sky and Skype. It was a great decision on my part because it completely rejuvenated me. For an hour, I forgot about my upcoming exams and thought about nothing other than how lucky I am to own Sky and Skype. It’s amazing what those two horses do for my morale.

I took some pictures while out at the farm and wanted to share them with the blog’s readers. Sky looks great and Skype is getting bigger each day and is really starting to look like her Mom. Enjoy the photos and have a great week!

Skype and Frank

Skype just gets bigger every day!

Skype and I

Sky grazing in the field

So happy to see Sky. It’s amazing how much Skype looks like her.

 

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