For many years I have suggested that Minnesota breeders need to take action if they want to make our breeding environment "competitive" with other racing states. Curiosity and questions finally got the better of me so I recently completed an in depth 26 page comparative analysis of available Jockey Club state data. This work simply verified my view.
Breeders need to realize that their economic needs are not always fully represented by organizations that are dominated by owners. Breeder needs and motivations are different than horse owner needs. Thoroughbred racing owners are attracted to racing activity by the lifestyle. While economics matter to owners, the elite lifestyle nature of racing ownership is the greatest appeal. Successful owner marketing efforts focus on the “owner lifestyle” associated with racing. Breeders on the other hand see their activity in racing as an agricultural activity. This agricultural activity is far from an elite lifestyle but much more akin to a classic “crop” farming lifestyle. Economics are consequently more important to the Thoroughbred breeding segment of the general racing industry than they are to owners, many of which could never see themselves cleaning stalls, dealing with equine sickness or birthing foals.
Based upon my study of variation, certain jurisdictions design economics, marketing, breeding incentive programs and even breeder representation, to recognize the unique needs of the breeder segment of the racing industry. Jurisdictions that create economic environments that not only appeal to the occasional breeder but to commercial breeders, effectively drive crop production. The horse crop is, in economic business terms, the core raw material of racing and exactly why breeder optimism is vitally important.
The seven summary findings of my analysis were:
Fact 1: Over the last decade, inflation adjusted nationwide "paid" purses have declined by 16%, and Minnesota’s inflation adjusted "paid" purses have increased 15%. Minnesota has closed the gap on a nationwide basis however the gap was large to begin with. Some people presumed that the 2012 Mystic Lake racing subsidy arrangement created a “substantially” favorable breeding environment. A large competitive gap only became smaller.
Fact 2: Minnesota post Mystic Lake paid purses have gone up 118% since 2011, but “state bred horse” total Minnesota paid purses have only gone up 36%. Minnesota “state bred horse” earnings are not competitive, and in fact they are the lowest in the Upper Midwest. The desire to attract non-Minnesota bred horses to Minnesota racing resulted in near 5 times more “additional” Mystic Lake purse funding being directed toward non-Minnesota bred horses than Minnesota bred horses. The Minnesota paid purse distribution methodology had the expected effect of increasing non-Minnesota bred starters, by paying the lion’s share of additional purse monies to non-Minnesota bred horses. In 2015, the lowest percentage of total state purse dollars paid, in all Upper Midwest racing states, was directed to Minnesota state bred horses (31%). For example, Illinois, Indiana, Iowa and Oklahoma all paid more than 47% of their state purses to their state bred horses.
Fact 3: The short term benefit of attracting non-Minnesota bred horses to Minnesota was clearly beneficial to the Minnesota racing! It was a smart short term move that generated immediate Minnesota racing revenue and a higher quality racing product with non-Minnesota bred horses filling out racing programs. Non-Minnesota bred horse starters shipped in to race in Minnesota, and the non-Minnesota bred starter volume increased 76% from 2011 through 2014. Meanwhile, Minnesota state bred starters declined 23% over the same time period.
Fact 4: Interestingly in 2015, non-Minnesota bred horse starters declined by 8% from the prior year, and Minnesota bred horse starters increased for the first time in 7 years! This may indicate a tipping point related to the need to rely “more” heavily on Minnesota bred horses to create a competitive future racing product. (Full fields and full racing programs.)
Fact 5: Low Minnesota state bred earnings have driven low realized value in state breds, whether they are sold as yearlings or kept and raced as home breds. Comparatively, Minnesota state breds ranked last in auction price per yearling and state bred earnings among all Upper Midwest racing states. Even though Minnesota has the lowest state bred earnings in the Upper Midwest region, Minnesota was amazingly the only Upper Midwest state with average yearling sale prices under the average earnings per state bred starter!
Fact 6: Over 90% of all Minnesota state bred horse earnings are earned in Minnesota, which exhibits the captive nature of this population. The Minnesota state bred horse population should be nurtured, as it is in many other states to a much greater degree. A current sensitivity analysis suggests that for every $1,000,000 of additional Minnesota state bred earnings, 50 more state bred foals will be born annually, with each crop running between 3 and 4 years on average.
Fact 7: Minnesota breeders breed in the “highest volume in the Upper Midwest”, once breeding volume is properly indexed against state bred earnings. Surprising but true!
Based upon clear comparative evidence, the Minnesota breeding environment could be much more competitive. Redesign of existing "non-competitive" state programs and methodology is the key.
I was asked by an old friend, from my Humana days in Louisville, about breeding. He is retiring and wants to start a Thoroughbred breeding operation. He's considering either southern Indiana or Kentucky as locations, and asked me which state I thought would offer him the greatest benefit. After looking at his economic plan, broad based state by state data, and state breeder fund programs, I suggested Indiana may offer him some advantages. With this said however, Kentucky is the unquestionable home of the highest quality breeding operations in the world.
After completing my analysis, it struck me that some of my Minnesota comments were so surprising to him that I may take for granted that other Minnesota breeders and owners know what I know. Upon reflection, they may not, so I'm publishing one of the slides and observations for Minnesota breeding friends.
This scatter diagram reflects the 2015 average "state bred" yearling sale prices and "state bred" Earnings Per Starter (EPS), for the major breeding and selling states in the country. The observations related to Minnesota folks include:
1. An obvious and a direct correlation between Earnings Per Starter (EPS) and price. In other words, as EPS goes up or down, yearling prices will follow.
2. Minnesota is 1 of just 3 states on this chart where yearling prices do not exceed earnings. (MN yearling prices were 23% under EPS.)
3. Minnesota is the only Upper Midwest Racing/Breeding state where prices do not exceed earnings.
4. Minnesota is in the bottom quartile of all states in EPS, and dead last in EPS in the Upper Midwest Racing/Breeding states.
5. There will likely be little change in Minnesota's competitive position when 2016 numbers become available. The "2016 Minnesota yearling auction sale price average" did go up to $10,558 but as indicated in the chart, the "2015 Minnesota bred average yearling sale price nationwide" was $10,448.
For Minnesota state bred breeding to "really become competitive" in both volume and quality, the direction of purse funding might need to be addressed. I say this because of some related facts.
As a result of the 2012 Mystic Lake arrangement, Minnesota "total paid purses" went up 118% by 7.95 million dollars from 2011 through 2015. People may have been so enamored by this development that they missed this surprising fact. Minnesota bred horse earnings only went up 36.5% by 1.4 million dollars. We might want to review the nearly 6 to 1 ratio in additive purse dollars which favored non-Minnesota bred horses. This is particularly true considering the competitively low Minnesota state bred earnings and prices.
As I said, I have known that our Minnesota EPS was competitively low, our yearling prices were extremely low, and the majority share of additive purse dollars were used to attract non-Minnesota horses and stables to Minnesota. I assumed everybody knew this and conscious decisions to keep state bred earnings and prices the lowest in the Upper Midwest were being made. Maybe not!
Frankly, I believe the distributions should be addressed for the long term health of both racing and breeding in Minnesota. The loyal, and in many ways captive, state bred racing populations are significant in all states. They become more significant as inflation eats away at purses. Focusing more diligently on state resident breeder and owner economic benefits may be beneficial to Minnesota racing and breeding results long term.
Dave Astar is a race horse owner, stallion owner, breeder, 40 year business executive, and 50 year handicapper.