KBIF to Examine Revenue From Stud Fees

The advisory committee for the Kentucky Thoroughbred Breeders' Incentive Fund said Oct. 10 it plans to examine the structure of the program as it relates to the percentage of fund participants that contribute revenue by paying stud fees in the state.

The KBIF was launched in 2006 via legislation that shifted the 6% state tax on stud fees from the general fund to support breeding through awards and bonuses. The bulk of the fund, which totaled more than $10.49 million for 2013, is generated by Thoroughbred stallion fees.

The fund grew from $12.65 million in its first year to more than $15 million in both 2007 and 2008. From 2010 to 1013 it hovered around $10 million.

The KBIF committee for several years has heard concerns about fund beneficiaries that don't pay the stallion fee tax, such as larger farms that breed mares to their own stallions and syndicate participants. Also, newer incentive programs that eliminate or greatly reduce stud fees have impacted the fund's bottom line.

Frank Jones Jr., a member of the Kentucky Horse Racing Commission and KBIF Advisory Committee, said he brought up the issue about three years ago.

"It was an unlevel playing field then, and it's an unlevel playing field now," Jones said. "You're either in or you're out. There have been a lot of legislators the last couple of years who also have brought it up and asked questions. It needs to be looked at from an equity and fairness standpoint."

Craig Brogden, of Machmer Hall Farm in Kentucky, acknowledged concerns about breeders that pay stud fees subsidizing those that don't pay. Awards are based on the performance of eligible horses in races in Kentucky and around the world.

Brogden said that based on the number of mares bred in Kentucky, the total KBIF money should be at least 50% more than it is now. On the other hand, should major stallion farms be made to pay the 6% stud fee, they may be led to send mares to stallions in other jurisdictions, he said.

"The flip side is you may be pushing horses outside of Kentucky," Brogden said.

Committee member Headley Bell of Mill Ridge Farm said the discussion should include the value of major breeding farms to Kentucky and the contributions they make to the state through jobs and support of the equine industry, for instance.

"There are other factors to take into consideration," Bell said. "But I think there is an appetite to be educated on this so we can make an educated decision."

The KBIF, which falls under the KHRC, plans to contact the state Department of Revenue to see whether it can obtain at least a percentage of the number of KBIF beneficiaries that don't pay the 6% stud fee. Of the 16,795 Thoroughbred mares bred in Kentucky last year, 8,674 were registered with the KBIF.

Since 2006 the number of mares registered with the program has been steady at 52% to 54% of the total number bred in Kentucky each year. Jamie Eads, director of incentives and development for the KHRC, said efforts continue to try to get more mares in the program.

The KBIF has identified roughly 500 mares and 200 breeders that keep broodmares in the state on a regular basis that don't participate in the program.

"That's a pretty good group to go after," Eads said.

Beginning in 2012, the KBIF rules changed to award bonuses to horses that win certain races outside of Kentucky, such as graded stakes in other states and countries. According to KBIF statistics, the amount awarded for races in Kentucky went from $6.13 million in 2006 to $1.59 million in 2013.

The total awarded to races outside the state was $8.9 million in 2013.

"The money is being spread out farther," Eads said, "and people supporting Kentucky racing took the most significant hit. We've received feedback that the Kentucky circuit has been affected."

The committee isn't likely to change the rules, which were implemented because Kentucky sees itself as a producer of horses that compete on the world stage.

"About 80% of the horses we produce are shipped outside the state," said committee member Matt Koch of Shawhan Place Farm in Kentucky. "The program was set up for breeders, not racing. Some people are taking a hit, but how many more breeders are getting money (from the KBIF)?"

Bell said it should be emphasized that Kentucky horses race all over the world, and because of that, "it's fitting to have the program set up like this."