LEXINGTON, Ky. - The Breeders' Cup is operating at a "substantial deficit," according to its top official, and it is becoming increasingly likely that purses for its top events and supplemental stakes program will need to be cut to return the organization to financial stability, according to several of its directors.\nThe question of how to address the deficit is the backdrop to an election Thursday to fill six of the board's 13 seats. Ten candidates are vying for the seats, including four members whose terms expire that day.\nThe Breeders' Cup weathered a near revolt among its nominators late last year when it attempted to suspend a $6 million supplemental purse program, but the sustained recession leaves purse cuts as one of the few options to control expenses without further dipping into its depressed reserves, board members said. The Breeders' Cup expects to distribute $30.5 million in purses this year. In 2005, purse distribution was $21.8 million.\n"There's no way we can continue operating our company with the deficits we've had," said Terry Finley, the owner of West Point Thoroughbreds and a director of the company. "There's obviously going to be some changes to the business and tweaks to the model. We're all of the same opinion that everything is on the table. We wouldn't be doing our jobs if that wasn't the case."\nAccording to the organization's financial statements for 2008, the Breeders' Cup had negative cash flow last year of $7.5 million, reducing its cash balance to $1.2 million by year end. In large part, that reduction was caused by a fall-off in the value of its investments, a change that reduced net assets to $28.2 million, down from $40.9 million at the end of 2007. In response, the Breeders' Cup tapped a $10 million line of credit for $5.9 million to operate this year.\nGreg Avioli, the chief executive officer of the Breeders' Cup, declined to answer direct questions last week but said in a statement that the group was operating at a "substantial deficit." Previously, in a letter to nominators that accompanied the group's annual financial documents, Avioli projected a $5.6 million budget deficit this year. In the statement last week, Avioli said that Breeders' Cup officials "expect that our 2009 results will be consistent with the budget."\n"We will be in a better position to comment on long-term financial matters after we have completed 2009 foal nominations, which we believe will be the most direct indicator of the effect the recession will have on finances in future years," Avioli said in the statement.\nApproximately 40 percent of Breeders' Cup revenues are derived from fees paid by owners of foals and stallions. According to officials, revenues from those sources are expected to drop by at least 20 percent, largely because stallion nominations are tied to stud fees and book size, which have fallen significantly.\nSatish Sanan, a board member whose term expires next year, said that the $6 million line of credit was not an indication that the Breeders' Cup position had become precarious. Instead, Sanan said, tapping the line of credit is a prudent strategy to cover expenses at a time of little revenue - between the year-end championship event and the collection of nomination fees in late summer.\nSanan, the owner of Padua Stables, has been an outspoken critic of the way the group has managed its investment funds. He said he was preparing a strategic plan that would allow the Breeders' Cup to realize additional revenues from sponsorships and the year-end event. He also said that purses appear to be destined for cuts.\n"The logical place to start is the purses," Sanan said. "You don't have to have a $5 or $6 million Classic; horses will still come if it's worth $3 million or $4 million. But that is only short-term."\nSanan would not comment further on his strategic plan, which is to be presented to the board on Thursday.\nThe recession has had a crippling effect on sponsorship revenue in other sports, and some Breeders' Cup directors said that revenues from the year-end event will likely be less than last year, partly because of a compensation requirement to Santa Anita Park. The requirement is part of a two-year agreement to hold the year-end event at the track, which guarantees Santa Anita specific returns. The Breeders' Cup did not hit those returns last year and will need to compensate the track this year accordingly, one director said. In 2008, revenue from the year-end event was $21.2 million, down 9 percent compared with 2007. Since then, wagering on domestic horse races has declined just over 10 percent, including a 17 percent drop in June. The bulk of the event revenues are collected from wagering.\nE. Duncan Taylor, a co-owner of Taylor Made Farms who is a candidate for one of the open seats, said that it was possible to increase revenues from the year-end event and possibly avoid purse cuts. He said it would take "foresight and brainstorming," and he also said that it would be nearly impossible to extract more revenue from nominators. The nominators provided $21.5 million in fees in 2008 compared with $29.5 million in purse expenses and awards. Fees are expected to be only approximately $16 million in 2009 compared with the $30.5 million purse distribution.\n"You can't ask the nominators to put up more money," Taylor said. "They've already primed the pump. And they are going through tough times."\nRobert T. Manfuso, a director who is up for re-election, said that he does not anticipate that the bloodstock market will rebound anytime soon, citing the persistence of the economic doldrums affecting markets worldwide. As a result, he said, the Breeders' Cup has little to no chance to grow its revenue, and purse cuts have to be considered, no matter how much resistance nominators may offer.\n"There are constituents out there whose concerns we will have to address," Manfuso said. "How we address those, and how we maintain our focus on our mission, is the big question. But sometimes people forget that the mission of the Breeders' Cup is to raise awareness of Thoroughbred racing. It's not just purses. That's our job, and when we do our job right, everyone benefits."