02/18/2010 12:00AM

Bluegrass losing some of its ground

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There's no doubt about it: Fewer stallions are breeding fewer mares in Kentucky these days.

In 2009, the self-described horse capital of the world saw a 3.5-percent decline in its active Thoroughbred stallion population, and the number of mares those sires covered collectively fell by 10.6 percent. The drop was not as severe as in some other states like Florida. But the decline, paired with a 51 percent decrease in the number of first-year sires standing in Kentucky for 2010, has alarmed many in the Bluegrass. Because the state's breeding fund depends on stud fee taxes, they fear the loss of breeding stock will only start a vicious cycle that will cripple Kentucky breeding and benefit other states.

Like Kentucky, most other states in the nation have seen significant downturns in breeding activity. But two areas, Pennsylvania and Ontario, saw little decline in their breeding activity, measured by number of mares bred. Ontario held nearly level, losing only 0.9 percent of its active mare pool in 2009, and even more remarkably, Pennsylvania actually gained 29.6 percent in mare population. The pool was still relatively small in each area, with 1,260 mares in Ontario and 1,603 in Pennsylvania compared with Kentucky's mare base of 19,059.

But many Kentucky breeders and stallion owners say the trend is unmistakable: Areas that offer generous statebred awards are leaching mares from Kentucky. And they place the blame on two main factors: in the short term, the dramatic decline in market values for horses and, in the longer term, competition from other states that offer more lucrative statebred awards programs. The solution, they say, is to pump up the purses and Kentucky-bred incentives with alternative gaming, a prospect that dimmed when the Kentucky legislature failed to pass any of three gaming-related bills in January.

"Those legislative defeats over the last several years have sent a message to people that have choices about where to send their horses, that they will be better off somewhere else and not to look for us to do anything different," said John Sikura, who stands 13 stallions this year at Hill 'n' Dale Farms in Lexington. Sikura is heeding that message himself. This year, he said he will send half of his broodmare band, 32 mares, from Kentucky to Canada, where gaming revenue boosts breeding incentives. And "virtually all" of the horses he races are in Canada, he added.

"Though Kentucky is clearly still number one, a lot of other states are starting to capture a percentage of our industry, and the bottom line is that fewer mares in the state means fewer stallions in demand, so we're seeing a slow and steady contraction of the Kentucky breeding industry," Sikura said. "The customer in any business is looking for the best value they can get for their dollar. They're looking at states such as Pennsylvania, Louisiana, the province of Ontario, and soon New York, as having much higher rewards, in particular at levels where, if you have an unproven or middle-market mare, you can get a real advantage. In Kentucky, the cost versus the rewards are disproportionate."

Texas farm owner Mike Grossman has halved his Kentucky broodmare band over the last several years, but the lack of slot-machine revenue isn't the only reason he thinks breeders like him are pulling mares from the state. The bloodstock market downturn made it harder to sell yearlings from his mid-level mares, making racing those yearlings his better option. But if he races in Kentucky, his horses will face tougher competition - and higher expenses.

"As the out-of-state programs have gotten better, I have moved more mares to programs where I'm going to race," said Grossman, who has sent more mares to Texas and Oklahoma. "Because right now, the best way to make money is through racing. The expenses in Kentucky are exorbitant. The board in Kentucky is considerably higher, anywhere from $20 or $22 a day to $50 a day. In other markets, you can get $15 or $18 a day.

"Kentucky cuts off award payments at the 4-year-old year, which just makes me livid," Grossman said. "They're forcing you to run a horse earlier, and I don't believe in it, so my 5-year-old winners don't get paid. And Kentucky doesn't pay for anything other than a win, where other state programs pay for placings."

The Kentucky Breeders Incentive Fund developed in 2007 is financed through the state's 6-percent sales tax on stud fees. It pays breeders of Kentucky-breds a 25-percent award (up to $10,000) for wins in maiden special weight, allowance, and stakes races in Kentucky, and it pays a 10-percent award (up to $10,000) for wins in other states' maiden and allowance races for 2-, 3-, or 4-year-olds. In addition, the incentive fund offers a a $100,000 award to the breeder of a Kentucky-bred winner of the Kentucky Derby and Kentucky Oaks, a $25,000 award for any other Grade 1 win in Kentucky, and $2,500 for each Grade 1 win in another state. (Breeders' Cup championship races are excluded).

The incentive fund also offers awards for Kentucky-bred claimers. Capped at a $200,000 total, those awards go to the breeders of the horses with the highest cumulative claiming earnings each year at each of four Kentucky tracks - Churchill, Turfway, Ellis, and Keeneland - as well as a Kentucky claiming title. The latter award goes to the breeders of the top three claiming earners at all Kentucky tracks in a year.

In Pennsylvania, by contrast, breeders of statebreds can receive awards for top-three finishes in any parimutuel race in the state. The award is 30 percent of purse share earned for Pennsylvania-sired runners and 20 percent for statebreds by sires outside Pennsylvania. Owners of statebred horses also earn bonuses for top-three finishes in designated overnight races at Philadelphia Park and Penn National, and stallion owners get a 10 percent bonus for top-three finishes in any Pennsylvania parimutuel race.

But not everyone finds the Kentucky incentives poor. With or without slots, said Suzi Shoemaker, owner of Lantern Hill Farm in Midway, Ky., "You are talking to someone who remains committed to the Kentucky program.

"The breeders' awards we've been getting the last couple of years have been really excellent, far greater than anything else I've tried," Shoemaker said. "I can say that in the past I've thrown a lot of money at regional programs and realized very little return. Whereas in Kentucky, we've gotten between $10,000 and $12,000 in the last two years, and we are in line to get much more than that with Woodford Girl's allowance win at Keeneland and Capt. Candyman Can, who won the King's Bishop and various other graded races. To me, the tragedy is that our leaders choose to focus on developing slots without pointing out what a great program we already have.

"I realize that our revenues for the KBIF will decline with decreasing stud fees, but no one is pointing out how good it can be to breed in Kentucky. I'm sure if I owned a farm in Pennsylvania instead of Kentucky my song might be different, but this is where I choose to live, and in 30 years of breeding horses, I'm getting big checks out of Kentucky."

But breeder Mike Grossman believes Kentucky's breeding incentive program should be wider to include older horses and pay out to more than just winners in more races.

"The way their plan is structured now, it doesn't provide enough incentive for me to leave many mares there," he said.

But even as he cuts his broodmare band back in Kentucky, Grossman acknowledges that for now there is still good reason to keep some mares there.

"It's the stallions," he said. "And if you do make the big horse, you're fine. I'm still keeping some mares there now for the stallions. . . . I think it's only the stallions that keep Kentucky going. Certainly there are some fine people and great expertise there, but they tend to overvalue their whole program. If you don't overcome the things like the expenses there with an economic advantage to the breeders, what's the point of being there?"

That's a view that Hill 'n' Dale's Sikura finds understandable but chilling. Because as mares leave, stallions will follow, and that will further shrink award funds.

"I'm sure people would rather be here than a lot of other places, but it's not easy," Sikura said. "Kentucky's incentive program is directly dependent on stallion revenues, and we've had stud fee reductions 30 to 40 percent. If you get another 10 percent of the stallions or more that were in Kentucky now relocating, then it's hard to be innovative with a fund that's shrinking every year."