Equine Industry Perspectives:
What Is the Industry and How Big Is It?

Alex Waldrop, NTRA President & CEO, Address to
2017 University of Kentucky Ag Equine Programs Summit

April 26, 2017
Spindletop Hall, Lexington, KY

I commend the UK Ag Equine Programs for your leadership in making this first-ever Summit a reality.  As a graduate of the University of Kentucky College of Law and a 25-year participant in the horseracing and breeding industry in Kentucky and nationally at the NTRA, I am honored to address this esteemed group of attendees.

My analysis this morning will be introductory and broad in scope. Knowledgeable speakers and panelists will provide more detail over the course of today’s summit. There is much ground to cover so let us get started.

I want to begin with a quick story about the Rev. Thomas Settle, a native of England who came to Lexington in the post-World War I era to start an Episcopal Church. His dream was of a beautiful stone church.

He realized that dream in a most unlikely way.  In 1923, there was much tension throughout the Bluegrass over a bill introduced in the Kentucky Legislature to abolish pari-mutuel betting.

Few realize that the federal prohibition on alcohol sales also negatively affected betting on horseracing. Many, in fact, most, racetracks in America were shuttered for some period of time during prohibition.  But not Kentucky. And here is why.

At a mass meeting to debate the merits of the bill banning pari-mutuel wagering in Kentucky,

Rev. Settle spoke staunchly against the ban, arguing that pari-mutuel betting was a fairer way of gambling than the bookmaking that would surely follow. He reasoned that enactment of the ban would drive the horse breeding industry out of Kentucky.

Mr. Settle was asked to repeat his eloquent and logical speech before the Kentucky Legislature. He did so and the measure was defeated by one vote.  Over the next five years, horsemen raised nearly $200,000 to build a church in demonstration of their gratitude to Mr. Settle.  Contributions came from owners and breeders located all over the country.  Those contributions built what is now The Church of the Good Shepherd located on Main Street just south of downtown Lexington. If you go to Good Shepherd, where I happen to attend, you will find a plaque in the narthex of the Church relating this story.

I tell this story not because of any religious significance (though I do find the story an interesting look into the dynamics of Kentucky politics, which was then and is now heavily influenced by religious factors). I tell the story because it is true and because I think it frames the issues I will discuss this morning very well.

It demonstrates something that has been true of horse racing and breeding from its inception – that Thoroughbred racing’s agricultural roots, roots that sink deeply into the Bluegrass farms of Kentucky- have helped pari-mutuel horseracing and breeding spread across the country and the world over the past century or more. I will explore these roots and the spread of this amazing agricultural, sports entertainment, and yes, sports gambling business, this morning.  I will also explore some the challenges that face this business in the modern era and most importantly, ways that UK’s Ag Equine Program can help the horse industry face these challenges.

My topic today is Equine Industry Perspectives: What is the Industry and How Big is it?  Let me say up front that most of my remarks will be focused on Thoroughbreds because that is what I know and frankly, that is the breed about which most of the detailed financial information is available. In addition, I want to take up the issue of the size of the business first before I talk about the Equine Industry in general.

I will start with a quick look at Lexington and the Bluegrass Region, move quickly to the United States and then give a brief overview of horse racing and breeding internationally.  So let us begin.

As you surely are aware, Fayette Country is the largest producer of horses in the United States.  In fact, according to a 2013 study by the UK Community and Economic Development Initiative of Kentucky – a great resource by the way – business establishments located in Fayette County accounted for $410 million of equine sales in 2007. To put in perspective just how dominant Fayette County is in horse sales, consider that the next highest-ranking counties were  Woodford, Ky. ($213 million), Marion, Fl. ($128 million), Bourbon, Ky. ($121 million), Jessamine, Ky. ($96 million), and Scott, Ky. ($46 million).

The unfortunate news is that this study is a bit dated and no doubt overstates the size of the business in 2017 for reasons I will explain later. However, the good news for Kentuckians and for UK equine program graduates in particular, is that except for Marion County, Florida, the top counties in equine sales are all adjacent to each other in the Bluegrass Region of Kentucky. Moreover, following these six counties, you have to total the next 161 ranked counties in the U.S. to equal Fayette County’s equine sales.

There can be no doubt that Fayette County is the Thoroughbred breeding capital of the world.

Keeneland and the Red Mile add to this impact dramatically.

This same 2013 study indicates that the presence of a horse racetrack in a county leads to the creation of an estimated 15 establishments in the recreation industry and adds annual payroll in the hospitality, recreation, and retail industries totaling $88 million, with retail trade leading the way. In fact, the study indicates that Keeneland and the Red Mile lead to a 45% increase in recreation industry sales, which in Fayette County translates into $74 million per year of additional sales.

All of this local data proves once again that a racetrack is but the tip of a vast economic iceberg that in most communities – that is, communities other than Lexington where horse farms are celebrated and even protected by very progressive land use planning – the broad economic impact of horse racing and breeding is often ignored because it is virtually invisible.

Looking now at the state of Kentucky, the economic Impact of the equine industry is well documented.  Several studies have come to similar conclusions.  Annual direct economic output is almost $1.8 billion with a statewide direct employment effect of 32,000 jobs. Considering the indirect effects on ancillary businesses, the impact of the Equine Industry swells to $3 billion in annual economic output and more than 40,000 jobs statewide.  Cleary, horses have a major economic impact on Kentucky economy as a whole.

At the national level, the American Horse Council in 2005 issued the definitive study of the U.S. horse industry, which concluded that the horse industry contributes almost $40 billion in direct economic impacts to the US on an annual basis. The AHC noted that three segments of the horse industry – racing, showing and recreation – each generated between 10 and $12 billion in annual direct impacts. That number swells to more than $100 billion when considering total direct and indirect economic impacts nationwide.  In 2005, there were almost 2 million horse owners in the U.S. with another 2 million tied indirectly to the horse as volunteers or through family ties. Jobs in the horse industry nationally then totaled 1.4 million FTEs annually, with almost 500,000 coming from direct spending within the industry. The number of horses in the US at that time was a little more than 9 million with about 4 million involved in recreation and another 3 million participating in horse shows.

As an aside, I am happy to report that the AHC, of which I have been a member of the board of trustees since 2007, has recently commissioned an update of this important national study. We hope to produce the 2017 version by the end of this year.  Needless to say, with the intervention of the Great Recession of 2008-2009 and the declines that have been felt nationwide, an update is clearly needed. I believe that a separate study will also be performed specific to Kentucky.

Continuing to look at the data, now let us focus on the international information we have available. The International Federation of Horse Racing Authorities collected most of the data I was able to locate from its member organizations. Let us begin with the horse breeding industry globally.

The total number of Thoroughbred horses involved in breeding worldwide including mares, stallions and foals from 2005 through 2015, have been trending downward since 2007 with the most significant declines occurring after 2009, which corresponds with the Great Recession that begin in 2008 and extended for several years.  The data shows that the USA’s share of total global production dropped from almost 30% in 2006 to just over 23% in 2015.

Focusing specifically on the total number of Thoroughbred foals worldwide, the data points to significant declines in the global foal crop from a high of 121,828 foals in 2006 to only 92,000 foals worldwide in 2015 – a 25% decline in ten years. During this same ten-year period, the USA foal crop dropped by almost 40%.  The declining foal crop – or perhaps more pointedly, the decline in owners willing and able to purchase bloodstock – is clearly a challenge for racing in the US and beyond.

If you couple a steep decline in foals available to race with a flat or slightly declining number of races, this will eventually lead to fewer runners per race or, as we say in racing, it leads to “short fields.” And bettors dislike short fields, so that means there will be smaller wagering pools resulting in declines in handle and eventually, less in prize money for owners.  And less prize money perpetuates the decline in owners buying horses and so starts a vicious downward cycle that racing must do all it can to avoid.   Clearly, stabilizing and growing field size is critical to the future of US racing, especially as it relates to betting.

The good news is that recent trends indicate that tracks and horsemen are working together to tailor many race meetings to the horse population available and where necessary to reduce the number of races and even race days, which has the desirable effect of increasing runners per race to the delight of horseplayers.  I note that tomorrow, Santa Anita park has taken the extraordinary step of canceling a day’s card of races due to lack of entries.  This is but a symptom of the larger problem of a foal crop now hovering in the 20,600 per year range, down for almost 40,000 foals annually in the early part of the 21 century.

So, let us turn our attention to betting.

Global betting volume has been above 80 Billion Euros since 2003. In addition, while it has fluctuated from year to year, it grew to the 100 Billion Euro range in 2015.  Much of the growth in handle has occurred in Asia. The US is far behind others regions in the amount bet.  In 2015, Asia led all betting at almost 60%, the Europe/Mediterranean region was second at about 30%. The US was at less than 10% of total betting globally in 2015.

During the period from 2003 to 2015, the U.S. has experienced a sharp decline in wagering, mainly since the Great Recession in 2008.  In 2003, U.S. handle peaked at $15 Billion dollars U.S. and declined to about $10.5 Billion dollars U.S. in 2015 – an almost 30% decline.

One interesting point related to prize money. This is one that distinguishes the US from almost every other country in the world. Here in the U.S., racetrack casinos also known as “racinos” account for a significant percentage of prize money. Recently, the Thoroughbred Racing Associations estimated that slot machines and other casinos games at racinos now generate as much as 35% – 40% of total prize money in the U.S. So in the U.S., we no longer view prize money as solely related to wagering.

The inescapable conclusion of this global overview is the strength of Asia relative to the other two global regions.  While there are certainly very strong countries within each region, on the whole, Asia is gaining momentum while other regions are not.  In addition, one dynamic that cannot be ignored in this analysis is the impact on horse racing from other forms of gambling.  Competition, especially from casino and sports gambling, is continuing its negative impact on horseracing.

Understand that gaming policy in the U.S.A.  – Like horseracing policy – is highly decentralized. In most cases, laws differ greatly from state to state, and sometimes from community to community. This state-by-state provincialism is at the heart of many of the challenges we face in the U.S.

However, decentralization has not slowed the growth of casinos in the U.S. The meteoric rise of casino gaming nationwide not only at commercial casinos but also at racinos and even on tribal lands.  The total rise in casino gaming since 2003 is almost 100%, with the largest percentage growth – 1173% – at 49 racetrack-based casinos.

In addition, do not forget that in the U.S., we are in the midst of an explosion of sports gambling as well – the vast majority of which – estimated to be $400 billion – is illegal and unregulated.

One other major challenge for the horse industry, one that is far beyond the scope of my remarks today is the impact of an explosion of interest in animal welfare in the U.S.  Whether it is Sea World’s killer whales or Ringling Brothers’ circus elephants, industries that rely on animals as their primary performers and participants – which clearly includes the horse industry – must be prepared to navigate some very treacherous waters. Moreover, this is not just a PR crisis. This is a crisis of confidence on the part of the public.

To navigate these waters will require that industries like ours deploy strategies that are credible and effective in assuring the safety of our athletes and performers.  How we as an industry answer all of these challenges in the coming years is the key to the future of the horse industry. Indeed, the challenge for horse racing and breeding, and for all equine pursuits in the 21st century, is not just local, it is not regional and not even national.  Our challenge is to think globally about how Kentucky’s rich tradition in equine agribusiness will compete in a very challenging sports gaming and entertainment environment in the coming years.  That is what students graduating today from the UK Equine Program need most of all – a broad range of skills and attitudes that will help them participate in rapidly changing international environment for horses and horse-related activities.

Do not think that because Fayette County is a dominant player in today’s market, that UK is immune to these challenges. Nothing can be taken for granted anymore.  Just look at the changes happening at Keeneland. With its global brand, Keeneland now attracts a diverse international clientele including buyers from nearly every state and 50 countries, encompassing Europe, the Middle East, Central and South America, Australia, Asia, South Africa, Russia and India. This is the vision that now supports Keeneland’s signature September Yearling and November Breeding Stock Sales, and the January Horses of All Ages auction. Like Keeneland, other equine businesses and activities must learn to cooperate and collaborate across borders and between interested stakeholder groups.

In addition, Keeneland is a leader in the NTRA’s Safety & Integrity Alliance certification process because they put their money where their heart is – in protecting the safety and well-being of every human and equine athlete competing on a daily basis. Nothing short of this sort of all-out commitment to the safety and welfare of equine participants will suffice in the years ahead.

With these challenges and opportunities as our backdrop, let us take a closer look at the horse industry from the perspective of jobs and other economic opportunities.  Let us look at the industry from the perspective of a graduate from the UK Equine Program.

The first question as posed by the title of my remarks is “What is the equine industry?” One list of employment opportunities might include breeding farm operations, riding/training/showing, non-profit associations, veterinary services, publicity, sales, lifestyle, and even event management like the World Equestrian Games/Olympics, the Triple Crown races, Breeders Cup, international events like the Royal Ascot. The list could go on and on.

We have talked previously about the significant economic impacts of the horse industry locally, nationally and even internationally. The scope of the industry is undeniable. And today it is challenged but relatively stable, even if somewhat smaller than it may have been pre- Great Recession.

The real question is this – What is the future of the industry and how can UK’s graduates best participate in that future. Today, I think it is fair to say by looking at your curriculum that much of your emphasis is on jobs directly related to the production of horses. That makes some sense given the stature of Kentucky’s horse production industry.

Yet, when I look at the pie chart in your materials showing the alumni jobs within the equine industry as of April, 2017, I am struck by the fact that relatively few of your graduates are actually getting jobs in farm management and breeding – a mere 11%.  Admittedly, another 12% are finding jobs in the equine medical field and most of those jobs are undoubtedly right here in the Bluegrass.  However, that is still only about a quarter of your graduates.  The rest are branching out in to a variety of fields not directly supported by your curriculum. Please do not take this as a criticism.  It is only an observation.

More importantly, it reflects the new reality of the industry in central Kentucky where a declining foal crop has caused major declines and even the closing of farms and sales operations.

The question you have to be asking yourself is this – where do we place all of these graduates in the future?  How do we break out of the emphasis on jobs in production of the horse (what economists might call the input side of the equation) where there is already a ready supply in the workforce, to  focus on the output side of industry where graduates participate in the effort to create value in and demand for the horse.  This is unquestionably a greater challenge for your department because there are relatively few specific workforce development offerings available in areas such as economics, analytics, marketing, information technology, social media and even legal training.

Look at the NTRA.  We are categorically on the side of creating value for horse owners and breeders and making sure there is demand for horses in the future. Because without that demand, there really is no future. Our Board of Directors represents an array of jobs.  Of course, we have board members who represent the output side of the equation – breeders, breed registries, and horsemen’s associations. However, we also have major representation on the demand side including owners, sales companies, racetracks, ADW’s, technology providers, marketing organizations, farm equipment and supply providers, auto manufacturers, technology providers, media companies and an array of industry sponsors who look to grow their market share by growing our business. In addition, marketers, communications professionals, social media experts, accountants, lawyers, and others populate our staff with specific skill sets unique to the job of growing racing and breeding.

It seems to me that UK’s Equine Program would do well to consider ways in which it can help its graduates seek careers across the spectrum, from horse farm personnel to marketers, economists, analysts, social media experts and technology providers.  Those are the graduates the horse industry needs in today’s environment.  And those are the skills we need to navigate the very competitive landscape in which the horse industry now finds itself.

Do you want to make sure there is always a market for these incredible animals produced in such rich supply here in Central Kentucky?  Then start focusing on ways to not only supply the industry with graduates to care for the animals but think about ways to use the UK educational environment to supply graduates prepared to help create demand for these amazing creatures. Collaborate with the Gatton business school to create a joint degree program in business or finance.  Find ways to combine a love of horses with a skill in technology – nothing is more important for our future.

Who would have believed 10 years ago that online wagering would dominate the pari-mutuel wagering landscape.  Nobody gives horseracing credit for diversifying into technology to reach new betters, yet today, almost 50% of money wagered comes from online sources and that number will only grow.

Work with UK law to build graduates interested in tackling the field of equine law.  I can assure you the jobs are out there.

But here is the catch.  Not all of these graduates will be able to stay in Central Kentucky if they take on the challenge of focusing on the demand side of our business.  The jobs are national and even international.  The equine industry programs that understand this phenomenon are placing graduates nationwide because that is the way the industry is spread.

Perhaps this is a downside for some of your graduates who never want to leave home but if I take another look at that pie chart I referred above, many of your graduates are leaving the industry, if not the area, already.  Keep them in the industry, place them broadly, teach them the need to create demand for our Central Kentucky product, and they will likely take up the challenge.  And who knows, with their newfound skills, who is to say they will not someday come back to central Kentucky with skills they never could have obtained by staying home, and find themselves making real contributions to the horse industry.

Take the example of Steve Koch, who you will hear from today. Had Steve, a die-hard central Kentucky native and UK Ag economics graduate, not spent several years running the racing department at Woodbine Race Course, Canada’s premier racetrack, he never could have returned to Central Kentucky last year to join the NTRA as head of our nationally recognized Safety & Integrity Alliance.  Steve is now a real leader in the horse industry nationally, setting standards for safety and integrity, so key to the future of our industry.

This is how UK can create a program that has national appeal and impact. This is your challenge and your opportunity.

In conclusion, I ask that you consider the potential for the UK Equine Program to be a national leader. You have made a very positive step by hiring Mick Peterson to run your program. Mick has the perspective, the contacts and the academic credentials to make this great program even better. I urge you to use Mick’s insights and abilities to guide you.

The future is not only about supply but also demand.  Do not assume the breeding industry will always be here. Think coal or tobacco. Work to graduate students who are ready, willing and able to take on the challenges facing the horse industry in the competitive new world in which we find ourselves. In this regard, just think about how the tradition-bound Kentucky bourbon industry has reinvigorated itself by focusing more on demand – global marketing and promotion – and less on supply.  Bourbon production is now sky high as a result.

I urge the faculty, staff and students of the UK Equine Program to think globally about ways to stimulate demand for Thoroughbreds.  Otherwise, there may be no reason to produce locally.