The 1st meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, September 14, 2001, at 1:00 PM, in Room 129 of the Capitol Annex. Representative Denver Butler, Chair, called the meeting to order, and the secretary called the roll.
Present were: Senator Brett Guthrie, Co-Chair; Representative Denver Butler, Co-Chair; Senators Charlie Borders, David Boswell, Tom Buford, Bob Jackson, Marshall Long, Virgil Moore, Richard Roeding, Jack Westwood, and Ed Worley; Representatives Carolyn Belcher, Tom Burch, Ron Crimm, Jon Draud, Dennis Horlander, Joni Jenkins, Paul Marcotte, Reginald Meeks, Charles Miller, Ruth Ann Palumbo, Jon David Reinhardt, and Jim Stewart.
Members: Senator Brett Guthrie, Co-Chair; Representative Denver Butler, Co-Chair; Senators Charlie Borders, David Boswell, Tom Buford, Bob Jackson, Marshall Long, Virgil Moore, Richard Roeding, Jack Westwood, and Ed Worley; Representatives Carolyn Belcher, Tom Burch, Larry Clark, Ron Crimm, Jon Draud, Dennis Horlander, Joni Jenkins, Paul Marcotte, Reginald Meeks, Charles Miller, Ruth Ann Palumbo, Jon David Reinhardt, and Jim Stewart.
Guests: Joan Beiting, Mike Sadler, Racetrack Employees Union; Randy Smith, Kentucky Racing Commission; Bob Benson, Don Sturgill, Marty Maline, Kentucky Horseman’s Benevolent and Protective Association; Rogers Beasely, Judy Taylor, Keeneland; Amy Gregory, John Asher, Terry McBrayer, John McCarty, Churchill Downs; Joel Turner, Players Bluegrass Downs/Harrahs Entertainment; Bill Napier, Kentucky Harness Horsemen’s Association; Joe Costa, Red Mile; Lyle Cobb, Cobb and Associates; Jonathan Pruitt, Governor’s Office of Policy Management; Linda Gay; Laural Bishop; and Jess Quigley.
LRC Staff: Vida Murray, Ann Seppenfield, Jack Jones, Cyndi Galvin, and Susan Cunningham.
Chairman Denver Butler asked for a moment of silence for the survivors and people who lost their lives in the tragic situation that occurred in Manhattan and Washington D.C. on September 11, 2001.
Chairman Butler introduced new staff, and then made a motion with a second to approve the minutes of the October 15, 1999 meeting. The motion passed by voice vote.
Frank Jones, Jr. gave opening remarks for the Kentucky Racing Commission. He said that the Racing Commission had sponsored several hearings throughout the state regarding the horse industry in an effort to address problems it is facing.
Bob Elliston from Turfway Park gave a PowerPoint presentation to highlight issues at his racetrack. Turfway Park supports 40 percent of the racing dates in Kentucky with 118 days, 96 of which are winter dates. He said the track’s payroll is approximately $5.4 million dollars. Taxes and fees paid in 2000 amounted to $3.6 million dollars. The projected 2001 handle (money wagered) is $90 million dollars at Turfway with total purses (money paid to the horsemen) estimated to be $21.5 million dollars.
Mr. Elliston discussed changes affecting the racing industry. In 1994, the legislature put Kentucky in the forefront of simulcasting with the passage of whole card legislation. In 1996, riverboats came into the region, and in 2000, Ohio began simulcasting whole cards. This caused a decline in Turfway’s on-track handle of about 43 percent. At the same time, the out-of-state simulcast markets grew due to TVG (on line wagering) and wagering outside the United States. We get approximately 3.5 percent on a dollar wagered outside Kentucky versus between 18 and 20 percent on track. As with any business, operating expenses continue to grow. Kentucky Thoroughbred Development Fund money is available for horses bred in Kentucky.
Mr. Elliston explained that whole card simulcasting has cut into the Kentucky market by one half. He said riverboat wagering, from six riverboats around Kentucky in 2000 was $13 billion, which is almost equal to wagering for the entire US horseracing industry. Pari-mutuels have stayed flat in the last five years because the new money gambled has gone to riverboats. Mr. Elliston stated that Hoosier Park has been able to increase its purses by $25 million dollars a year because one dollar of each admission price to a river boat goes back to the race track. Ohio, New Jersey, Illinois, and other states are providing their horseracing industry with tax relief, alternative gaming, and appropriations from the general fund. He stated that Mountaineer Park in West Virginia is the most direct competitor because its purses have been increased 513 percent.
Mr. Elliston said that Turfway Park has tried to stay competitive by investing $750 thousand dollars into a marketing budget and by implementing a FasTrack rewards program to entice bettors. Facility wise, $2 million dollars have been spent on improvements such as a new roof for the grandstand, a new dormitory on the backside, landscape and apron improvements, and barn stall linings. Despite all this, Turfway Park is losing money. The replacement of on-track revenues with simulcast revenues has reduced profitability per dollar wagered by a factor of seven. Competition from riverboats and the high purses in West Virginia and elsewhere is only going to get worse. Turfway Park’s facilities are 40 years old and have become outdated and need significant capital improvements. Unfortunately, current business does not support additional investment. The 197 acres on which Turfway Park is located continues to escalate in value leaving the question of whether it is feasible that the property continue as a race track or be turned into a development property.
Senator Boswell asked if moneys generated from other forms of gaming were being used to support thoroughbred racing. He also asked if there was a solution on the horizon for our industry to help “marry” the various forms of gaming.
Mr. Elliston stated that there was no question that there has to be a solution. He said that the racing industry has purposely at this point not addressed a solution. The industry wants to wait until it feels that everyone had been heard from before a solution is proposed. He said that alternative gaming was one solution; however, there had been tax incentives in Ohio and pricing differentials in New York. He said that the solution should be a whole listing, unified approach. He said that the racing industry would come back before the 2002 General Assembly with a solution.
Representative Draud asked if the racing industry is going to go out of business if the playing field is not leveled with casinos, particularly regarding Turfway Park’s close proximity to casinos.
Mr. Elliston said that there is a concern that eventually the competitive situation “in market” and from other places make the property that Turfway Park occupies suspect for continued horse racing in 20 years. He further said that they could break even or make a little money but he did not feel that was what Kentucky racing was about. He said that in five years, $7.5 billion dollars were spent in the casino market place, not only because of growth in population but also because people were spending money in other areas. This has dramatically affected Turfway Park.
Representative Draud agreed if policy makers want the horse racing tradition to continue they will have to realize there is an issue with the casinos.
Representative Marcotte asked if installing a betting parlor in Campbell County would be of any value to Turfway Park. Mr. Elliston responded that purchasing some of the property considered in Newport where there is a lot of development is not economically sound.
Senator Long commented that he had been to Mountaineer Park when it was Waterford Park and that the quality of horses was poor. Presuming it had been upgraded it was still not Keeneland, Churchill Downs, or Turfway Park. He also said that at the time of his visit there were a considerable number of Kentucky horse people there and would assume that there were even more now. Mr. Elliston said that it was more of a resort now where people go to spend weekends. He said in a short time money has become available. Last winter one Kentucky horseman sent 40 horses to Mountaineer to race.
Alex Waldrop, President and General Manager of Churchill Downs gave a PowerPoint presentation where he reiterated that Indiana riverboats, aging facilities, and declining purse money were causing a decline in attendance at race tracks in Kentucky.
Mr. Waldrop identified excessive tax burden as another possible problem. He said that when one bets at Churchill Downs only 18 cents of every dollar bet goes to the track and that the remaining 82 cents goes back to the crowd. He said that Kentucky takes almost 20 percent of the pari-mutual revenue in taxes. He says this is a burden that has become unbearable in the current competitive environment. After the purse is deducted, the racetrack is left with 36 percent of the pari-mutual revenue. He said reducing the tax burden is critical. Mr. Waldrop said this summer at Delware Park the track offered incentive money just to enter a race, whether the race was won or not. Money from slot machines made the incentive possible.
David Switzer spoke next regarding the Mare Reproductive Loss Syndrome (MRLS). He said that the equine industry, this year, was the number one cash crop for all agriculture. Regarding the MRLS, he said that of the mares bred in 2000 to have foals in 2001 about 500 of those mares lost their foals before birth or within three to four days after birth. The Gluck Research Foundation at the University of Kentucky will issue a press release with the findings of an epidemiological study showing the risk factors that may be the cause of the Reproductive Loss Syndrome. However, an unusual new strain of streptococcus has been found in the fetuses that have been necropsied.
The direct economic impact is about $400 million dollars including the foals that were lost this year and the foals that would have been born in 2002. Mr. Switzer said the equine industry is a heavily capitalized industry with $320 million dollars in loans from three banks in Kentucky. He said that veterinarians and farriers will feel the impact as well as feed suppliers. He said this resulted in less revenue to the General Assembly from sales tax. Mr. Switzer estimates there will a reduction of $165 million in the yearling sales in 2003.
Mr. Switzer said a big concern for the industry is building confidence in breeders and boarders who send their mares from other states here to be sired by Kentucky stallions. He said the Gluck Research Foundation continues to work on reproducing this in their lab so that coping with the syndrome, if it should recur, would be more manageable. Congress may make the equine industry eligible for agricultural relief loans. He said that the University of Louisville is performing a study on the economic impact of MRLS for the Governor.
Representative Reinhardt asked Mr. Switzer what criteria was used to estimate the loss for 2002, and if there were late term pregnancies affected. Mr. Switzer said there had been two surveys conducted where farmers were asked how many mares had aborted in 2001. The estimates from that were 25 percent of the foal crop, which is a significant amount since Kentucky produces 30 percent of the entire thoroughbred foal crop in the United States. He also said that most of the mares affected by MRLS were bred in February and March and had been through the unusual weather in April. Mares bred after April are not showing any abnormalities.
Rogers Beasly, Director of Racing at Keeneland, spoke to the committee regarding the loss of sales this year and indicated that the ripple effect will probably be hundreds of millions of dollars. The impact will be more pronounced next year since there will be fewer foals and yearlings to sell. He concurred with Mr. Elliston’s and Mr. Waldrop’s comments regarding owners and trainers leaving Kentucky to race in other states where there were larger purses.
Bill Napier from the Kentucky Harness Horsemen’s Association spoke next saying that in 1988, the Red Mile had 288 days of live racing and only 70 in 2001, with competition from other states being a primary factor. He also said that the Red Mile could be compared to Turfway Park in that it was worth more money as real estate than as a race track. Regarding the competition, Mr. Napier said that horses could be purchased for less money in other states, raced outside Kentucky, and win higher purses. He said that in 2001, Hoosier Park had a on-track handle of $75,000 per day. In 2000, the Red Mile had a better handle than that; however, the purses at the Red Mile are $20,000 a day compared to the $95,000 purses at Hoosier Park. This is because Hoosier Park purses are supplemented by the riverboat earnings.
Marty Maline, Executive Director of the Horsemen’s Benevolent and Protective Association, echoed the same sentiments as previously spoken by other presenters regarding the smaller purses. He said that horsemen are being enticed to other states with promises of attractive purses and less competition and that Kentucky racetracks can ill afford to reduce purse money.
Mike Sadler with the Racetrack Employees Union testified that union members are feeling the effects of the downward spiral the racetracks are having. He said that the union would like to have input on any legislation impacting Kentucky racing.
In conclusion, Frank Jones recognized Bernie Hettle, Executive Director of the Kentucky Racing Commission. He said that the Commission will present its solutions in a different format than that of the hearings.
Audience member Jesse Quiqley traveled from Seymour, Indiana to express his concern about the decline in Kentucky racing.
Chairman Denver Butler, in closing the meeting, said that the committee would like to see the people in the racing industry come up with suggestions that they could work with. He said that tax cuts or a credit here or there are not going to work. He said that the people of Kentucky will not take a back seat to anybody in horse racing.
Senator Guthrie thanked the members for attending the meeting and told the members of the racing community that he looked forward to working with them.
Senator Moore commented that tax relief may be needed, followed by Representative Belcher who said that she hopes that as the results from the University of Louisville and the University Kentucky studies come forward they would be added to the agenda.
Representative Meeks asked whether the proposed federal legislation Mr. Switzer referred to would impact the entire industry. David Switzer said that the legislation would help about one half a percent of the people who have been affected by the Mare Reproductive Loss Syndrome because eligibility requirements are very strict. He indicated that this legislation will provide relief for all equine entities, including those that were affected by MRLS.
There being no further business the meeting was adjourned.