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Tuesday, August 23, 2016

A Novel Solution to the Declining Foal Problem

In an article for the DRF, Bob Marks discusses the problem with the declining foal crops facing standardbred racing (it is also a problem for thoroughbreds but we'll let them solve their own problem).  With all apologies to Marks, allow me to simplify what I deduce from his reporting (though I encourage you to read his article):

  • Buyers want stakes-caliber horses
  • Few of the foals turn out to be stakes horses so the future progeny of sires who don't produce stakes horses in one year get sold cheaply

  • Many horses turn out to be nice raceway stock
  • Breeders produce lots of nice raceway stock
  • People don't go to yearling sales looking for nice raceway stock
  • These raceway stock foals get sold cheaply, often below the cost of production
  • When costs of most foals exceed the prices foals receive, breeders go out of business
  • Fewer breeders mean less foals 
  • Less foals means less race horses (aka horse shortage)
  • Horse shortage means less races, racing dates, and eventually less racetracks
A solution would be to divert money from stakes and claiming races to conditioned overnights in order to make it easier for owners to recoup costs from those foals which don't turn out to be stakes horses thus promoting prices for these raceway foals.  Unfortunately, as Marks states, there has been only modest changes to purse structures at too few tracks.  Clearly this is not working fast enough.  Changes need to be made.

First of all, while breeders supposedly are seeking to the 'next great horse', the fact is not every breeder can produce champions; many breeders are at best are fortunate if they can improve their breeding relative to their prior breeding attempts.  

Secondly, the industry needs raceway stock, more so than it needs stakes-caliber horses.  After all, with the exception of sires stakes races, how many stakes races are conducted at tracks like Pocono Downs and Yonkers Raceway when compared to their overnight events?

Hence, I would argue there is nothing wrong with being a breeder of raceway stock.  If the costs of raising horses is so prohibitive and the horsemen are unwilling to adjust purses to give bidders a chance to recoup the costs involved in getting a horse to the track which punishes breeders and puts the whole industry at risk, something needs to change.  The answer is 'subsidies'.

Yes, subsidies.  While some money goes to breeders for awards, breeders need subsidies.    Subsidies not too great to reduce the incentive to improve the breed, but enough to give them a fair chance to come out ahead.  Where would this money come from, racino revenue.  Divert some of the money going to purses to breeders.  

You may be asking what makes me think breeders would be able to secure more racino funds when they can't get horsemen to agree to a shift in how purses are allocated?  Breeders have more political clout at the statehouse than they do at the racetrack.  They can make an argument breeder subsidies remain in state while purses are more likely to be spent out of state.

Let's have stakes companies report to the state where a breeder comes from the sales prices of each foal sold along with the name of the breeder.  For each foal crop, the state would determine the cost for raising a horse.  The only horses which would qualify for a subsidy are ones raised in the state.  Based on the total loss for a breeder of eligible horses, the breeder will get a proportional share of the breeders subsidy.  

Depending how much is dedicated to the breeder's pool, a breeder may end up with a profit at best or at least have part of their loss absorbed with slot revenue, enough to keep the breeders in the game.  To make sure this subsidy doesn't become welfare, breeders would be penalized if the average sales price of their yearlings doesn't improve by having their share of the slot revenue decrease.  Hence the expectation is breeders will improve their stock.

With the use of subsidies breeders will have more incentive to remain in the business and possibly increase the number of foals the will raise, thus supplying the horses needed for race tracks.

It's worth considering.

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