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ONE-ON-ONE - September 2004
by Ed G. Lane
'Incentives Can Have a Tremendous Impact'
The executive director of the Kentucky Thoroughbred Association talks about the role the equine industry plays in Kentucky's economy
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David L. Switzer
As executive director of the Kentucky Thoroughbred Association and the Kentucky Thoroughbred Owners and Breeders, David Switzer is involved in promoting the Kentucky Thoroughbred industry on a statewide level as well as nationally and internationally, and overseeing the registry of Kentucky-bred horses.
A graduate of the University of Kentucky with a degree in animal science, Switzer also serves as president of the Kentucky Livestock Improvement Association and as a director of the Gluck Equine Research Foundation and the Thoroughbred Club of America. He is also actively involved with the Kentucky Agricultural Research and Development Authority, the National Thoroughbred Racing Association’s Industry Council, the American Horse Council Racing Advisory Committee, the Kentucky Horse Council and the Kentucky World Trade Center Advisory Board. |
Ed Lane: You recently traveled to Chile in an effort to expand the market for Kentucky Thoroughbreds in South America. How successful was your effort?
David Switzer: It was a very successful trip. Our delegation met with about 150 Thoroughbred breeders from Chile. We were there just to build relationships. Kentucky Thoroughbred Association (KTA) is hoping that many of the breeders or their representatives will come to Kentucky in November for the breeding stock sales.
EL: Did the breeders all live in Chile or did they come from other South American countries?
DS: Most of them were from Argentina, Uruguay and Chile.
EL: Had any of these breeders previously bought horses in Kentucky, or is South America a totally new market?
DS: A number of the South American breeders have bought Kentucky-bred horses; it’s the KTA’s desire to expand that market. The KTA’s director of market development, Chauncey Morris, is targeting various countries for new business. Chauncey is on his way to Korea, Japan, China, Azerbaijan, over the next two weeks to build relationships and open markets there as well.
EL: What are the top countries for Kentucky equine exports?
DS: The United Kingdom, Ireland, France, Japan, Canada.
EL: How about the Middle East?
DS: Well, Dubai, of course, through the Mocktoon family.
EL: What is the annual value of Kentucky’s equine exports to foreign countries?
DS: Purchases in 2003 by foreign buyers at Kentucky Thoroughbred auctions were $127 million. Some of the foreign buyers have buyer representation in the United Kingdom and Ireland; they also have farms that sign tickets in Kentucky (the foreign buyers own and operate farms here). The total number of exports last year was probably around $156 million, when horses purchased and later exported by U.S. agents for U.S. farms are included.
EL: How do horses rank with all Kentucky export agricultural products?
DS: Kentucky horses are the No. 1 agricultural export; No. 4 for all exports including manufacturing.
EL: Has Mare Reproductive Loss Syndrome (MRLS) had a continuing impact on the Kentucky equine industry?
DS: No, MRLS is not having an impact this year and it had no impact last year as well. The industry has management programs in place for the eventual elimination of MRLS. We’re also continuing to fund research that is being conducted at the University of Kentucky to determine what the causal agent was for MRLS.
EL: Do researchers still think caterpillars are to blame?
DS: Researchers believe that caterpillars are the vectors for MRLS (similar to mosquito bites which do not cause malaria).
EL: Even though the MRLS outbreak was three years ago, how is it affecting the industry today?
DS: Well, MRLS definitely had an impact on our breeders because they had fewer crops to sell. In September, at Keeneland, a record number of yearlings are being offered and this is the first crop, post MRLS, to reach our markets.
EL: The equine industry is a major component of Kentucky’s economy. Other states are now offering various incentives to breeders, trainers and owners to move their equine operations from Kentucky. How effective have incentives been?
DS: It will be 2005 before financial data will be able to assess the impact of incentives. However, KTA has been notified by breeders that they are losing mares to other states that offer breeder incentive programs. Those states are primarily New York, Pennsylvania, Louisiana and Florida.
Boarding horses is an integral part of Kentucky’s equine industry. It’s like staying in a motel – you spend so much a night to board a horse at a farm. Owners who do not live in Kentucky and do not have a farm in Kentucky board their mares in Kentucky. That generates income for farms and sales taxes for the Commonwealth of Kentucky. Anytime horses are not boarded in Kentucky, we’re all losing revenue.
EL: Has MRLS had an effect on determining the impact of incentives because some owners may have moved their foals or mares out of Kentucky when there was a concern for the syndrome?
DS: That is partly right. MRLS did have some effect on where owners got their mares in foal. After 45 days of being in foal, they may have moved them from Kentucky for fear that MRLS was still a possibility. That’s why it will be 2005 before we’re able to get a handle on whether breeding incentive programs or MRLS was leading people to move their mares out of the state.
EL: Are you concerned about the immediate and long-term impact that incentives may have on Kentucky’s Thoroughbred industry?
DS: Over the next three or five years, incentives can have a tremendous impact. The equine industry is a business. If the breeders can help their bottom line by participating in breeder incentive programs in other states, they will. Even though Kentucky has top-quality bloodstock and the infrastructure, if breeders are able to make more money by having their mares foal in another state, they’re going to do it.
EL: For our readers – please explain how the incentives work and the financial benefit to move to another state.
DS: Take the state of New York, for example. If a mare drops her foal in New York then it becomes what is called a “New York bred.” New York has two incentive programs. If the horse races in New York in restricted races (only against other New York bred foals), then not only does the owner of that racing animal benefit from the purses, but the breeder who produced that offspring also receives a monetary reward.
EL: Are there other incentives?
DS: There are other incentives for the breeder if his horse races in what we call, “open company,” for example. And there’s also an incentive if the offspring is sired by a stallion that stands in the state of New York. It’s what they call “stallion awards.”
EL: When you talk with horsemen in Kentucky, what are their major concerns?
DS: The overall economy of the United States plays a significant role in our industry. As the stock market goes, so go equine sales. An awful lot of the revenue that is used to purchase our horses is discretionary income and if the economy is down, then horse sales are going to be down.
EL: In order to offset incentives from other states, what can Kentucky do?
DS: It’s all about money. Kentucky has the Kentucky Thoroughbred Development Fund. It is a $10 million supplement fund for which Kentucky-bred horses that race in Kentucky can qualify. New York State today has $35 million in breeder and racing awards. Kentucky needs to increase its $10 million so it’s competitive with the $35 million in New York. How do we do that? It could be by shifting tax dollars that our industry pays into the state’s general fund. Of course, New York, Pennsylvania and Louisiana are profiting with alternative gaming (slot machines).
EL: How is the KTA’s relationship with Commissioner of Agriculture Richie Farmer and how is he responding to the needs of horsemen?
DS: Commissioner Farmer is very cognizant of the importance of the equine industry. We refer back to Commissioner Billy Ray Smith, who saw the importance of the equine industry and helped us with trade missions. The equine industry can also be used to draw other economic development to the Commonwealth. Investors and entrepreneurs worldwide participate in the equine industry and many have businesses that they own or manage. Horsemen may also be interested in relocating their non-equine businesses to Kentucky.
KTA’s close working relationship with agriculture started with Commissioner Smith. Although KTA has not met with Commissioner Farmer on a regular basis, the times that we have met with him, he was very interested in continuing that relationship.
EL: Do you believe the General Assembly and Governor Ernie Fletcher perceive the competitive threat to Kentucky’s horsemen to be serious?
DS: There’s no doubt that Governor Fletcher is concerned about this industry and recognizes its significance. The legislature also understands the importance of the industry, however the message that we hear from legislators is their constituents are not aware of how the revenue that’s generated by the equine industry benefits citizens in all 120 counties.
There is a new effort by the Kentucky Equine Education Project (KEEP) to educate the people of Kentucky about our industry. The industry includes all breeds – Thoroughbreds, Quarter Horses, Standard Breds, Paso Finos, Morgans, etc. KTA is very supportive of KEEP and hopes that in the long-run the legislature will either approve a tax modernization plan that aids our industry or new legislation that will permit alternative gaming revenue.
EL: Former Governor Brereton Jones has been the starting catalyst for KEEP. Can you address his involvement?
DS: The horse industry is using the expertise of Governor Jones to structure an educational process – kind of based on a political campaign. KEEP will select representatives in each of Kentucky’s 120 counties to be spokesmen for the equine industry and to tell the story to the Kiwanis Clubs, Rotary Clubs, and any group of people that will listen.
EL: Have they already employed any staff at KEEP?
DS: Claria Horn Shadwick is KEEP’s new executive director and she’s putting a team together.
 EL: Are organizations like Churchill Downs, Keeneland and Fasig-Tipton being impacted by incentive programs of other states?
DS: No, Keeneland’s September auction has an overall increase in the number of yearlings offered for sale. That increase also includes out-of-state-bred horses – not just Kentucky-bred ones. Keeneland and Central Kentucky are the Mecca – the horse capital of the world, the largest sales company in the world – and so no matter where your horse is foaled, it’s still going to participate in the sales in Kentucky.
Churchill Downs and Keeneland provide some of the highest purse levels in the United States and people are going to continue to race at Churchill Downs and Keeneland whether they’re Kentucky-bred or bred in another state.
EL: What about Fasig-Tipton?
DS: This past July they had a tremendous sale. Fasig-Tipton fills an important need in the horse industry.
EL: John Nicholson, executive director of the Kentucky Horse Park, was recently appointed by Governor Fletcher as the interim executive director of the new Kentucky Horse Racing Authority. A local paper called the appointment a “conflict of interest.”
DS: A new executive director has since been appointed, but I saw John’s appointment as no conflict of interest. That editorial in the newspaper was just trying to slap at Governor Fletcher.
Asking John to help was nothing more than a sound management decision that someone needed to be in charge of the KHRA office to make sure everyone came to work.
The editorial didn’t mention that the decision saved the taxpayers money because John was not being paid extra to serve as the interim director. Governor Fletcher could have brought in another interim manager and paid him a salary. John, however, could walk over from his office at the Horse Park to the KHRA office (also at the Horse Park).
EL: Nick Nicholson, John’s brother, has been at Keeneland for five or six years. Nick had a hard act to follow because of the excellent leadership at Keeneland that preceded him. How would you assess his performance at Keeneland?
DS: Nick is doing a wonderful job. He is continuing in the tradition of Keeneland, but more importantly, I see him adopting a marketing strategy for Keeneland that meets the needs in our industry.
EL: The failure of the General Assembly to finalize a new budget during the last legislature also made it difficult to get any legislation passed. Are you concerned that this will be an ongoing dilemma and that important legislation for the horse industry could be delayed for years?
DS: The big issue, before failing to get a budget, was the fact that there was a $700 million budget deficit. When legislators spend so much time on the budget, they do not look at other legislation.
EL: The National Thoroughbred Racing Association (NTRA) is based in Kentucky and recently announced a change in leadership. Can you address that?
DS: Commissioner Tim Smith has resigned from the NTRA and he is moving to New York to be the CEO of the New York Racing Association. DG Van Clief, Jr. who has been the president of the Breeder’s Cup since its inception, is filling the commissioner’s position in the interim until a final decision is made on a permanent replacement for Tim Smith. Commissioner Smith has built a strong organization and is leaving NTRA in good hands.
EL: Are there any new developments in the equine industry that may have either a positive or negative impact on the industry?
DS: The Kentucky Horse Racing Authority (KHRA), which has taken the place, by name, of the Kentucky Racing Commission (KRC) is a positive. Governor Fletcher and Secretary of Commerce Jim Host are adding a new agenda – marketing and promoting the horse industry. Where before KRC was nothing but a regulatory body, KHRA is now also going to promote the industry.
Ed G. Lane is chief executive of Lane Consultants Inc. and publisher
of The Lane Report.
edlane@lanereport.com
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