11/25/2005 12:00AM

Breeders' incentives a boon for Kentucky

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LEXINGTON, Ky. - The Kentucky Horse Racing Authority gathered unanimous approval for its compromise plan to distribute funding for the Kentucky-bred breeders' incentive program, and considering the fact of unanimity itself, the group created a political success of significance.

Bringing together the various industry groups for comment on the program resulted in a "tremendous amount of give and take that brought us the best incentive plan of all," said KHRA member Kerry Cauthen. "Now, we have a plan that has the potential to make a serious impact on the state industry in terms of jobs and income."

From an initial pool of about $12 million, the incentive program will pay bonuses to breeders of horses that win stakes, allowances, and maiden special weight races. The program is structured to offer a greater return to horses winning in Kentucky, but with rewards for those who win out of state, as well.

Funding for the program will be routed from taxes on stud fees that breeders pay to the state government, and the principal benefits for horse farmers will be twofold: in the added earnings available from the good horses they raise, and in the expected increase of broodmares kept in Kentucky all year to qualify their offspring for these bonuses.

The purpose of the bonus payment system is to counter the lure of other states' bonus programs and to provide incentives for breeders to keep their mares in the state full time.

One of the benefits of the program is to provide added income to horse farmers, which is especially important to those whose stock was penalized by market inefficiencies.

Most Kentucky Thoroughbred breeders are principally farmers whose crop is the racehorse. Such wealth as they manage to amass from years of work is largely tied up in land and livestock, and when they go to the sales with their yearlings, breeders need to sell to generate cash revenue. The result is a truly free market, with the horses bringing what the market will bear on that day.

In addition to the fluidity and freedom of the yearling market, the sales companies have arranged their auction dates and deadlines to largely eliminate the chance to send a yearling through the ring a second time. So what a yearling brings on the day of sale is what it brings.

This may be a solid profit, or it can be a terrific loss, which is especially difficult for smaller breeders to bear if overall prices slump, as they did in 2001, or if the yearling has a nick or bruise that puts off potential purchasers who are operating in a buyers' market.

The breeders' incentive program offers some compensation for those yearlings who sell poorly yet go on to become successful racehorses, especially if they do their racing in Kentucky.

Benefits from the program are expected to begin in 2006 for the breeders of racehorses already in training. The horses eligible are likely to be those bred and foaled in Kentucky, with the mare residency requirement taken for granted.

Another significant benefit to Kentucky farm owners is that a residency requirement was included in the incentive plan to encourage breeders to keep their mares in the state all year.

"We have information suggesting there are an estimated 18,000 to 19,000 mares bred in Kentucky to Kentucky stallions each year," said Doug Hendrickson, a member of the KHRA and chairman of the breeders' incentive subcommittee. "And of those, we feel that somewhere between 13,000 and 14,000 go through full gestation and have foals. But in a typical year, only about 9,500 foals are considered Kentucky-bred, meaning they are conceived and foaled in the state. So, immediately, you can see there are 3,000 to 4,000 foaled out of state that we would like to retain as Kentucky-bred."

In addition to those foaled out of state, many other foals are produced from mares who are shipped out of state after they are confirmed in foal, then returned to Kentucky to foal. Those foals would not meet the residency requirement for the incentive program.

"We are also looking to attract more mares to Kentucky," Hendrickson said. "So, those mares are logical targets for us."

The rationale behind year-round broodmares is economic.

"For the overall equine economy, the mare is the economic engine," Cauthen said, "and keeping even 1,000 more mares in state would yield at least $10,000 apiece annually in terms of added income, for a total of $10 million of direct added benefit to the state and its breeders."

In addition to the direct income from mares remaining year-round in Kentucky, a considerable portion of that money will be spent with peripheral businesses that benefit from the horse business, and the churn of the increased annual money from additional resident mares would amplify through the local and state economy.