Kentucky is associated with the horse like no other state. Before the United States was a separate country, on May 24, 1775, the British colonists in the land known as Kentucky held a convention to begin to organize a primitive government. There was no place to meet, so the frontiersmen assembled under an oak tree, where they had built a platform for speakers and placed logs in front of it for delegates to sit. The great Kentuckian, Daniel Boone, introduced “a bill for improving the breed of horses.” Colonel Boone would have been pleased, no doubt, if he could have known that Kentucky would become the heart and soul of a thriving breeding industry.

The renowned Henry Clay and other horsemen met at Postlethwait’s Tavern in Lexington in 1797 to form the original Kentucky Jockey Club for the purpose of establishing rules for Kentucky race meets. In 1828, Dr. Elisha Warfield, known as the “Father of the Kentucky Turf”–who was a breeder of Thoroughbreds, most notably the stallion Lexington–opened the Kentucky Association racetrack in Lexington, which survived until 1933. One of its presidents was John C. Breckinridge, still the youngest person ever to serve as vice president of the United States.

In 1935, prominent Central Kentucky horsemen Hal Price Headley, Jack Young, A. B. Gay, Brownell Combs, W. H. Courtney, and others purchased 147 ½ acres of Fayette County land six miles outside Lexington, from J. O. “Jack” Keene, upon which they built the elegant and stately Keeneland racetrack. Keeneland was meant to take the place of the defunct Kentucky Association racetrack and thereby preserve the racing tradition in the Bluegrass.

Less than 75 miles away from Keeneland is Churchill Downs, home of the Kentucky Derby. At the turn of the 20th century, Churchill Downs and the Kentucky Derby had been around for 25 years but the racetrack was in danger of closing owing to financial issues. In 1902, a group of leading businesspeople took over the operation to attempt to save it. They included the sitting mayor of Louisville, Charles Grainger, who became track president, and the businessman and tailor, Matt J. Winn, who was installed as vice president. The Louisville Courier-Journal wrote on October 2, 1902: “…it will be Mayor Grainger’s ambition to get local society intensely interested in the move, and to that end additional stock will be issued to persons of social standing, and the money thus acquired will be spent in various improvements…” Colonel Winn would live until 1949 and he elevated the Kentucky Derby into the most famous race in the United States.

In 1969, Churchill Downs once again was in peril. A company called National Industries intended to acquire the racetrack in a hostile acquisition. The “Derby Protection Group,” spearheaded by owners and breeders John Galbreath, Warner L. Jones Jr., and Arthur “Bull” Hancock, saved the day by outbidding the unwanted suitor for control.

This brief history paints an unmistakable picture of a cultural imperative that evolved in Kentucky, embodying the cultivation and vigorous preservation of the horse industry by a long line of notables: the pioneer Daniel Boone, the U. S. Senator and U. S. Secretary of State Henry Clay, the Vice President of the United States John C. Breckinridge, Louisville Mayor Charles Grainger, and prominent individuals from within and outside the horse industry.

What has happened in recent years to fracture Kentucky’s unofficial public-private compact that for over 225 years put the well-being of the Commonwealth’s signature calling card, its flagship industry, and its main tourist attraction, above partisan politics? Heretofore, a long and until now uninterrupted string of elected Kentucky Democrats and Republicans (and Whigs like Clay) have united with one another and with leaders from the private sector to sustain the horse enterprise through thick and thin. They apparently looked upon it as a public trust to be passed on from generation to generation. 

The confounding question is why any Kentucky governor, or legislator, or businessperson, or citizen would actively work to overturn the compact, the historical lineage, and, in so doing, eviscerate such a crown jewel? Why would a contemporary Brutus want to slay such a close friend of the Commonwealth?

Even Kentuckians with no connection whatsoever to horses are proud of the Commonwealth’s equine heritage. On Derby Day, every Kentuckian is an expert on picking winners just as everyone is Irish on St. Patrick’s Day. 

The most recent Louisville Courier-Journal/WHAS Bluegrass poll found that adult Kentuckians favor legalizing slots at the racetracks by a huge margin. Fifty-nine percent are in favor and 37 percent oppose. An astounding 85 percent want to put the issue to a statewide vote. The legislature has turned its back on the unambiguous preference of its own constituents by refusing to put an up-or-down vote on the legalization of slots on the ballot. Such hubris and the failure to carry out the wishes of the people have caused simmering anti-incumbent sentiment throughout the United States to boil over. No wonder people have such a low regard for their elected representatives, as demonstrated in poll after poll and by the resounding message sent by the outcomes of recent major elections in Massachusetts, New Jersey, and Virginia.

Next Week: What’s the Matter in Kentucky: Part II

Copyright © 2010 Horse Racing Business

February 13: What’s the Matter In Kentucky?  Part II

February 20:  Racing’s Popularity and Short Attention Spans

February 27: The Ultimate Insurer Rule

March 6:  Hard-Rock Mining for Corporate Sponsors

March 13:  Doing Well by Doing Good

Racetracks and movie theaters have at least two commonalities: They are both multi-billion-dollar entertainment businesses and customer attendance at their physical facilities is increasingly threatened by information and communications technologies. Racetracks have seen customers migrate to off-track locations and to remote wagering over the telephone or Internet. Customers of movie theaters have a variety of alternatives, such as renting and buying from a physical store or kiosk, purchasing from a cable television company, and placing and receiving orders over the Internet or by mail. Home entertainment centers have become so sophisticated that they approach or sometimes exceed movie theaters in audio and video quality.

Following is how horse-racing handle in the United States compares to movie-theater box-office revenues over the past decade, an era when the Internet has become ever-more sophisticated and popular as a means to deliver intangibles like wagers and movies.

                  Racing Handle        Theater Gross                    

                                         (billions of $)
  
2009           12.3                                 10.6  
2008          13.6                                    9.6
2007          14.7                                   9.6
2006           14.8                                  9.2
2005           14.6                                  8.8
2004           15.1                                  9.3
2003           15.2                                  9.2
2002           15.1                                  8.4
2001           14.6                                  7.6
2000          14.3                                  7.4

             Percentage Change from Previous Year       

                  Racing Handle           Theater Gross                                                    

2009           -9.9                                    +10.0
2008          -7.3                                     -   0.3
2007          -0.4                                    +  4.9
2006          +1.5                                    +  4.2
2005           -3.6                                      – 5.8
2004           -0.5                                     + 1.5
2003           +0.8                                   + 0.9
2002           +3.2                                   + 8.8
2001           +1.9                                    + 9.8
2000          +4.4                                   +  2.9

Whereas racing handle continues to be considerably larger than movie theater gross, the theater business has been more resilient. In the past three years, handle has decreased and box-office gross has gone up in two of these same three years. In 2009, handle declined by nearly 10 percent while theater gross increased by 10 percent, so the gap between the two is closing.

In the face of tremendous competiton from the likes of Netflix, movie-rental stores, cable television video-on-demand, HBO, home entertainment centers, and pirated movies on the Internet, the retail movie-theater business has been able not only to hang on, but also to manage to grow. Although racetracks are not located nearby to virtually every American, as with movie theaters, those that evidently provide an entertainment experience customers enjoy, such as Del Mar, Keeneland, and Saratoga, can and do attract people from considerable distances. 

The racing industry will have to reverse the stagnation in handle, or undergo a huge downsizing. The crutch of supporting purses from alternative gaming revenues will not last because the businesspeople who run racinos and casinos and the elected officials in racing states will sooner or later stop the practice. The movie-theater example shows that an old-line entertainment business is not necessarily condemned to permanent decline in an age of proliferating communications technologies. Moreover, racetracks have an overwhelming advantage over movie theaters with regard to such technologies. While movie delivery via the Internet and cable television are direct substitutes for going to a retail theater, these are user-friendly technologies for horse racing. A wagering  transaction can be conveniently consummated with people near and far to an actual racetrack.

Copyright © 2010 Horse Racing Business