Kentucky’s $6.5 billion Thoroughbred industry is riding high on strong revenue from all three of profit centers: breeding, racing and sales. Sales of Kentucky horses hit $824 million in 2021, up from $764 million a year earlier. Purses at the state’s tracks jumped to an all-time high of $134 million. Kentucky stallions, although fewer in number, contracted with an all-time high 55% of Thoroughbred mares.
“We have seen larger operations investing in additional land and undertaking significant improvement projects,” said Zach Davis, president and principal broker at Kirkpatrick & Co., a leading horse farm sales broker based in Lexington. “Thoroughbred players understand the value of Bluegrass dirt and recognize it as a limited resource, especially as demand for sport horse farms continues to grow.”
The outlook is also positive at the National Thoroughbred Racing Association, which is headquartered in Lexington.
“The current state of the U.S. Thoroughbred breeding and racing industry is strong. The resilience of our sport and industry was on full display as we weathered what we all hope was the worst of the coronavirus pandemic,” said Tom Rooney, president/CEO of NTRA. “Leading industry economic indicators for Thoroughbred racing and breeding currently are the highest in more than a decade. This includes prize money, the amount wagered by our customers, sales results, and other important metrics. All of this goes to support a $36 billion industry that accounts for nearly 500,000 jobs across the country.”
Kentucky leads the way—both nationally and internationally—in terms of the health and vitality of the Thoroughbred breeding and sales sector, Rooney said. Keeneland and Fasig-Tipton, both based in Lexington, accounted for three quarters of the $1.1 billion North American Thoroughbred sales market in 2021.
“And thanks to capital investments in racing facilities and innovations like historical racing, Kentucky has quickly emerged as one of the nation’s leading racing circuits,” Rooney said.
The state’s largest financial player in the Thoroughbred sector, Churchill Downs Inc., is laying down big bets on the future, investing massively in multiple locations in Kentucky. That investment has been spurred in part by the success of historical racing machines (HRM).
“Over the past three years, Churchill Downs Inc. has made significant investments in our historical racing operations in Kentucky, and the success of these properties allows for us to contribute in a vital way to Kentucky’s signature horse industry through higher purses and the attraction of a more competitive racing circuit throughout the commonwealth,” said Jason Sauer, senior vice president of corporate development for Churchill Downs Inc.
“What the steady HRM expansion in Kentucky has proven is that when the economic terms are viable, there is no other company willing to invest more in this industry,” Sauer said. “Beyond Kentucky, Churchill Downs will soon operate historical horse racing in Louisiana and Virginia (pending acquisition of Peninsula Pacific Entertaining and its affiliated Rosie’s Gaming Emporium HRM facilities).”
Churchill Down invests heavily
There is no shortage of reinvestment happening at CHI properties in Kentucky, he said, which is a strategy the company hopes to emulate through HRM operations in jurisdictions where it makes sense to do so.
A $76 million expansion of CHI’s Derby City Gaming site just east of the Louisville International Airport is adding 450 HRMs, a 123-room hotel, a stage for entertainment and an upscale restaurant. It anticipates opening the gaming floor expansion by the end of the year and the hotel in the second quarter of 2023.
“We also announced last year the development of a new HRM entertainment venue in downtown Louisville (at Fourth and Market streets) that will initially include 500 HRMs and is positioned to be an ideal attraction for tourists,” Sauer said.
CDI’s $145 million Turfway Park Racing & Gaming project in Florence, Ky., will open this September with 850 HRMs and the ability to expand to 1,200 machines, a “VIP gaming area,” simulcast room and clubhouse.
“We are also planning an incremental $26 million project to build new modular barns, a new detention barn and a new backside dormitory there,” Sauer said. “In 2021, we expanded Newport Racing & Gaming, an extension of the racing license associated with Turfway Park, by 14,000 s.f. simply to enhance that guest experience.”
At CHI’s signature property, multiyear capital projects are underway and planned at 137-year-old Churchill Downs Racetrack over the course of the next three years to provide new experiences for racing fans.
“The first is the $45 million Homestretch Club to debut this year for the Kentucky Derby that will feature trackside lounges, covered outdoor dining, hospitality lounges and stadium club seats, ultimately providing for 3,250 premium seats.
“The $90 million Turn 1 Experience is scheduled for completion in time for Derby in 2023 and will add a significant amount of premium covered seating as well as indoor dining space,” Sauer said. “Finally, in time for the 150th running of the Kentucky Derby in May 2024, will be the transformative Paddock Project that will enhance the experience for nearly every guest who enters the racetrack.”
The CHI projects reflect a positive outlook moving forward.
Significantly, the Kentucky General Assembly in 2021 passed and Gov. Andy Beshear signed a bill to give historical racing permanent legal protection after a decade of existence.
“The passage of Senate Bill 120 is truly transformational to not only the Thoroughbred industry, but to all horses, and the industry is very appreciative to the General Assembly for this,” said Chauncey Morris, executive director of the Kentucky Thoroughbred Association and Kentucky Thoroughbred Owners and Breeders. “The infrastructure that grew from the Thoroughbred industry attracts other breeds to the pinnacle of the horse industry globally, and economic roots are grown in other businesses and philanthropy that has positive outcomes for all of Kentucky.”
Industry is currently “very strong”
The current health of the industry is “very strong,” Morris said.
“We all know business models change over the course of time, and historical racing enables us to build upon success that keeps 60,000 Kentuckians employed throughout the commonwealth,” he said.
“There are three profit centers to our industry: breeding, racing and sales. We are the principal producer of Thoroughbred foals in the United States, responsible for 38.5% of the national foal crop. Our stallions cover over 50% of the broodmares across North America, meaning breeders from around the country and Canada ship their mares to our stud farms during breeding season.
“Kentucky racing is second only to New York in total purses (without Breeders’ Cup races) and leads the nation in average field size and average purses, 8.4 horses and $77,126 respectively. Field size is a vital economic indicator demonstrating the amount of owners wanting to run in races, and conversely makes the pari-mutuel betting product more attractive,” Morris said.
While spring and fall racing are traditionally popular times for out-of-state horsemen to be in Kentucky, he said, the racing stats tell the story that more horsemen from out-of-state are spending more time in Kentucky year-round, based on numbers from winter racing at Turfway Park in Florence.
Fasig-Tipton, a Thoroughbred auction house with operations in Lexington, New York, Florida, Texas and Maryland, notes that the national foal crop has been dwindling, which is a concern. But the commonwealth’s share remains strong.
“From a national perspective, the racing and breeding industry in Kentucky is in a relative position of strength,” said Bayne Welker, executive vice president at Fasig-Tipton. “Purses are currently at all-time highs and the breeding industry is benefiting from a post-COVID-19 uptick.”
Kentucky is fortunate that its 60,000 jobs in an industry with 500,000 jobs nationally includes some of the top veterinary clinics and services, which continue to see steady demand.
“The service sector should remain relatively steady, although it faces many of the issues that mirror the U.S. economy as a whole: tight labor, increasing fuel costs, supply chain issues, etc. All present a challenge to how we operate and are able to conduct business and price the services being performed,” Welker said.
He does, however, note a decline in small breeder, trainer and veterinary operations.
Horses remain an authentic experience
Thoroughbreds, and horses in general, have an enduring attraction for many and are a tourism and hospitality-sector revenue generator for Kentucky.
Horse Country Inc., the organization created to help visitors and locals have authentic experiences with the commonwealth’s charismatic equine athletes, said its hospitality slice of the Thoroughbred industry is steady and does not seem to correlate to sales and purse figures.
“Our phones are consistently ringing,” said Hallie Hardy, executive director of Horse Country. “There’s something about being up close and personal with a horse that is powerful.”
The organization facilitates the desire to have that experience primarily via information and links on its website, VisitHorseCountry.com. Users plan farm visits themselves or can book local tour operators to take them.
The visitor demographic generally tends to be heavy with out-of-state visitors, Hardy said, but has skewed more local since the COVID-19 pandemic. The pandemic decreased some forms of travel, but stimulated outdoor activities, including day trips.
Farms that have famous stallions, broodmares or performers from the racetrack have built-in fan bases. And while the farms’ primary business is raising horses, they do so as often for clients comprised of small-and large-dollar syndicates as they do for wealthy individuals who may be the face of the industry at Kentucky Derby festivities.
The farms and their clients understand that the entertainment side of the industry “is crucial for everyone,” Hardy said.
All elements of the signature industry play a role in bringing new members in and sustaining it.
“One trend we’re noticing is how many millennials are taking the reins as key decision-makers,” said Davis, the Kirkpatrick & Co. president. The farm broker “has been serving their grandparents and parents with land acquisition, and it’s our pleasure to work for millennial horsemen and women now, too. It certainly has informed our approach, but it really points to the continued success of the industry.
“Younger people are still choosing to enter the Thoroughbred world, and really invigorating it in new ways. I’m a millennial myself and our approach to technology is pretty revolutionary considering the traditional style of farm brokerage,” Davis said. “We’ve found success in honoring our past and guiding principles, while evolving where it makes sense. That’s what seems to be happening in the Thoroughbred industry as well.”