Open Letter to New IHRC Chairman Tom Weatherwax

In mid-2012, Bill Diener was appointed as Chairman of the Indiana Horse Racing Commission (IHRC) to replace the allegedly retiring Sarah McNaught to finish out her term which was to expire on September 1, 2014. On October 1, 2014, instead of reappointing Mr. Diener to a full term of his own, Governor Mike Pence choose to go in a different direction by appointing Susie Lightle to serve a four-year term through September 1, 2018. At the same time, current IHRC Commissioner Tom Weatherwax was tapped to become the next Chairman of the IHRC. (We are still waiting for the IHRC's press release on these changes.) While not being reappointed may have come as a surprise to Mr. Diener, his comments at the June 26, 2014 IHRC meeting regarding the thoroughbred breed development program were a cause for concern for many. With that backdrop, the following is our open letter to new IHRC Chairman Tom Weatherwax.

Chairman Weatherwax,

At the end of the June 26th IHRC meeting, former Chairman Diener made some remarks about the thoroughbred breed development program. While Mr. Diener considered his remarks as needing to "unwind a little bit personally", his lack of overall knowledge of the thoroughbred racing and breeding program was evident. As neither a horse owner, a horse breeder, or even considering himself being a horse racing fan, while Mr. Diener characterized his remarks as not speaking on behalf of the commission, IBOP's concern is that Mr. Diener's remarks will influence the current composition of the commission, especially considering each commissioner's limited tenure in their position. Frankly, Mr. Diener's views of the thoroughbred program demonstrated to every horseman in the room that his opinions were formed by misinformation, inaccurate information, and delivered with a general lack of a historical perspective on the program. Mr. Diener also suggested that he wasn't speaking for the commission staff either; however, the influence of the attitudes of Executive Director Gorajec were very evident in his comments.

Mr. Diener's comments were correct in that national thoroughbred foal crops having declined over the last few years. According to The Jockey Club, the national foal crops have dropped from 37,835 in 2005 to what is an estimated 21,725 for the 2012 foal crop which are the racing two-year olds of 2014. What Mr. Diener failed to mention is that Indiana foal crops over that timeframe have increased significantly. According to The Jockey Club, the Indiana-bred foal crops of racing age, ages 2 through 5 (foals born in 2009 through 2014), is 2,834 thoroughbreds which comprises 2.6% of the entire North American foal crop. Immediately preceding the slot-era, the four foal crops, ages 2 through 5, was just 1,525 which was 1% of the North American foal crop.

Considering the decline in the North American foal crops and the increase in available Indiana-breds, the impact to the average field size in Indiana thoroughbred races has been somewhat minimal. In 2008, Indiana held 1,028 thoroughbred races with an average field size of 8.9 per race. In 2013, Indiana held 1,088 races with an average field size of 8.6 per race. The national average in 2013 was 8 starters per race. The average field size for a race restricted to Indiana-breds was in excess of 10 per race. Studies have proven that field size is one of the most important factors in wagering volume.

Mr. Diener seemed to express his concerns regarding short fields in 2014 and wagering interest, "So my concerns, and as an old lawyer my glass is always half empty so I have to apologize to you. Are we going to see a bunch of short fields even some cancelled race dates this summer? If we will, that doesn't do much for patron interest in racing or even simulcast patrons going to wager on Indiana races." Yet, the IHRC's '2013 Annual Report' downplays the importance of both patrons and wagering with, "Fifty years ago, track attendance and pari-mutuel handle were the primary metrics followed by the horse racing industry." The report goes on to explain why daily track attendance is not even considered today and suggested that wagering (pari-mutuel handle), and associated revenues from wagering aren't that important by saying:

"Pari-mutuel handle in states with racinos, like Indiana, have ceded its importance to adjusted gross receipts (AGR) of slot play. Most of Indiana track’s revenue and purses are now derived from slot machines. Comparing pari-mutuel handle between states yield little by the way of competitive status or the underlying health of a state’s racing industry."

Wagering on Indiana racing is at an all-time low point and the 2013 Annual Report almost seems apologetic for those poor results.

While some of Mr. Diener's concerns are warranted, he fails to recognize the effect of the so-called 'Quality of Racing Program' that was initiated by Mr. Gorajec and approved by the commissioners in mid-2010. This ill-conceived program forces certain types of races to be carded in the thoroughbred program. In other words, this program is the equivalent of the commission playing racing secretary as opposed to the racing secretary having the freedom to card races based upon the supply and demand of available horses. No other commission in the country hand-cuffs a racing secretary in such a way. As IHRC Chair, this is now your policy, and therefore, you should be familiar with it. Following this link will lead you to the Final version of the program: http://freepdfhosting.com/09bf391e76.pdf.

The effect of forcing the carding of a certain percentage of supposedly higher quality open races actually works to decrease field size and wagering. Other than days like the Indiana Derby, these higher-purse races usually have the shortest fields in Indiana thoroughbred racing with the poorest wagering. Many times the fields on these races are so short, the full compliment of wagers aren't available. This hardly ever happens with an Indiana-bred race. A complete review of the effectiveness, or the lack thereof, of the "Quality of Racing Program" should be a priority for your commission. This is especially true considering that each year the commission has granted exceptions to the funding formula in this program because the program DOES NOT WORK by shackling both the racing secretary and the Thoroughbred Breed Development Advisory Committee. This is something that Mr. Diener did not recognize.

Mr. Diener also didn't recognize improvements in the quality of the thoroughbreds being bred in Indiana. As a novice at best, he has no basis for his statements, "And then my nagging second question is quality of the thoroughbreds racing. We know that Indiana breds represented only about seven percent of horses starting in open races last year. Contrast this with our Standardbred program where about half of the Standardbred starters are Indiana breds. Indiana bred Thoroughbreds are improving quality wise but only slightly, only slightly. Well behind bloodstock for Standardbreds." Given his lack of knowledge on the subject, Mr. Diener failed to consider the significant differences between standardbred breeding and racing and thoroughbred breeding and racing to what was a painful degree for those horsemen in attendance.

Stating that only 7% of Indiana-bred thoroughbreds start in open races is quoting another failed metric proposed by Mr. Gorajec and approved by the commissioners. Solely using this metric to determine quality demonstrates a significant lack of understanding of horse racing. Frist, all standardbred races, other than their stakes program, are Indiana preferred which means upon the taking of entries an Indiana horse can prevent horses bred in other states from making the field. As long as one horse from out-of-state gets into the field, the race is considered to be an open race. In essence, an open race in standardbred racing can consist of nine Indiana horses and one out-of-state horse. This preference system does not exist in thoroughbred racing and it shouldn't. Secondly, Mr. Diener fails to recognize what it means for a thoroughbred to 'run through their conditions' or to 'lose a condition.' A large part of the rate of return POTENTIAL in the thoroughbred program is to run through your Indiana restricted conditions prior to running in open conditions.

The biggest fallacy of basing quality on the percentage of Indiana-breds running in open company in Indiana is that this metric fails to consider Indiana-breds running and winning at tracks outside of Indiana. Through October 7, 2014, Indiana-breds have won at levels that would normally qualify them for a breeder award had they race in Indiana at the following race tracks around the US and in Europe:

Aqueduct, Arapahoe Park, Arlington Park, Belterra, Beulah Park, Calder Race Course, Camarero, Canterbury Park, Churchill Downs, Delaware Park, Ellis Park, Evangeline, Fair Grounds, Fair Meadows, Fairmount Park, Fort Erie, Goodwood (ENG), Gulfstream Park, Hawthorne, Los Alamitos, Louisiana Downs, Lyon (FR), Monmouth, Mountaineer, Parx, Presque Isle, Rillito, Santa Cruz, Tampa Bay Downs, Thirsk (ENG), Thistledown, Turfway Park, and Will Rogers.

At these tracks, Indiana-breds have won a total of 81 overnight races and two stakes! There have also been five other times Indiana-breds have place in stakes races outsider of Indiana. One of the out-of-state stakes winners, an Indiana-sired horse that won a $100,000 stakes race in Colorado, could only muster a third place finish when recently competing in an Indiana-sired stakes losing by five lengths.

A list of these Indiana-breds can be found at the following link: http://freepdfhosting.com/3822906bac.pdf. The total of 83 out-of-state race wins towers over the 70 races Indiana-breds won out-of-state in the entire year of 2013. In 2012, the number of out-of-state winners was in the high 30's. In 2013, according to The Jockey Club, Indiana-breds won only 82.96% of their earnings in Indiana which is down from the mid-90 percent just a few years ago. The idea that Indiana-breds running in open company in Indiana is a measure of quality is actually quite ridicules. But, that type of misinformation has become the norm being provided to the commission and the public by Mr. Gorajec. Here's another example regarding the attempts to sell his so-called 'Quality of Racing Program':

After the Indiana Downs meet in 2010, the quality of the Indiana thoroughbreds was a topic within a July 31st article in 'Thoroughbred Times.' Authors Jeff Lowe and Frank Angst somehow came to a conclusion after interviewing IHRC Executive Director Gorajec that, “The commission decided to raise the bar as revenue from slot machines began to boost purses in 2007.” Interestingly the authors believed, somehow, that slot machines provided increases in purses a full year before the machines were opened in July of 2008. That's misinformation. In the article they went on to say, "....and as analysis showed that increases in the amount of money available through the state’s Thoroughbred Breed Development program had not resulted in a significant improvement in the quality of the Indiana-bred Thoroughbreds.” This thought is propaganda. At that time in 2010, the first crop of the slot-era thoroughbreds were yearlings and not eligible to run any where in the country. No one on the IHRC's staff at that time or since then has the expertise to judge the quality of a crop of thoroughbreds prior to their racing careers beginning. Yet, based upon that type of thinking, significant changes to the thoroughbred program were made. Not a single commissioner at the time could see through this.

Mr. Gorajec's statements to the commission at the January 29, 2010 IHRC meeting should have been questioned as well when he said, "What I am saying is there is a structural flaw in the program whereby horses aren't encouraged to be bred to face horses any better than the ones they will face that were bred in Indiana. So in the Indiana-bred program you're not competing against horses that were foaled or bred in Kentucky or in Pennsylvania or in Ohio or Iowa or Louisiana. You are competing against horses that were bred in the county next door."

Every breed development program is really an economic development program plain and simple. The goal should be to maximize the economic impact of breeding and racing in a state. What Mr. Gorajec should have said was that we need a program that provides the incentives for horses that would have been foaled in Kentucky or would have been foaled in Pennsylvania or would have been foaled in Illinois or Iowa or Louisiana were moved to Indiana.

Just 17 days after Mr. Gorajec's above-mentioned statement was directed at the Indiana thoroughbred breed development program, a colt was born in Indiana that became a Grade 2 winner at age two and became the first Indiana-bred to participate in the Breeders’ Cup World Championship race. The mare of this colt was owned by a Kentucky resident who wanted to participate in the Indiana program based upon the incentives to do so. Mr. Gorajec's statement was also disrespectful to those who choose, and choose is the correct word, to participate in the Indiana program. This is especially true for those Indiana residents that have increased the quality of their breeding stock. Mr. Gorajec's statement was so absent of logic that calling it ‘extremely short-sighted’ is an understatement. However, this statement was a catalyst to set in motion the 'Quality of Racing Program' restrictions and the elimination of what made the Indiana thoroughbred program fairly unique, an owner award.

Mr. Gorajec's influence can be seen in Mr. Diener's statement that, "I still personally feel we need to start directing more and more breed development funds to purse supplements and less to breeder awards, if that's in the best long-term interest of Indiana's Thoroughbred industry. Couple years ago the average purses per race for Thoroughbreds in Indiana was about 12,000. It's doubled, running about a little over 24 and $25,000 a race each time. What's happened to the quality of races? Not much."

We can unequivocally say is that directing more breed development funds away from breeder awards is not in the long-term interest of the Indiana thoroughbred industry. After the passage of the slot legislation, the thoroughbred industry thrived in Indiana. The mission of the Indiana Thoroughbred Breed Development Advisory Committee, which is copied below, was working.

”The mission of the Thoroughbred Development Advisory Committee is to provide incentives and awards to three important elements of the Indiana Thoroughbred industry: the owner, the breeder and the stallion owner. The intent of these incentives and awards is to promote investment of capital into the Indiana economy (via Thoroughbred breeding, racing and related agri-business) and maximize the positive impact to the state’s economy. Winning on the racetrack is rewarded through these incentives.”

With increased revenues and incentives available, breeders from outside of the state brought mares to Indiana in record numbers. Those Indiana residents already participating in the program stepped up as well. One of the best metrics when considering economic activity of the thoroughbred program is registered mares as the manufacturing plant of a foal crop. The foals of 2009, which were bred in 2008, constitutes the first crop in the slot era. According to information provide by IHRC staff at the October 29, 2013 IHRC meeting, 1094 mares were registered in Indiana resulting in a 646 foal crop. Registered mares in the prior year totaled 715 which was increased from 520 in 2007 on the speculation that slot funds to racing would be a reality.

The number of registered mares continued to increase with 1,204 in 2010 to a record 1,239 in 2011. Since that time, the number of registered thoroughbred mares have been in significant decline. As of July 29, 2014, at the conclusion of this year's breeding season, the IHRC is reporting only 611 registered thoroughbred mares. (http://www.in.gov/hrc/files/TB_MARES_2014.pdf. Registered mares have dropped over 50% from the high point in 2011 and to below levels before the slot machines even began producing revenues to horse racing! Also, mares being bred to Indiana-base stallions has fallen dramatically. At the high point in 2010, 1,154 mares were bred to Indiana stallions with the number dropping to 639 in 2013 which is the lowest number since 2006. The program is actually in decline and in decline due to the commission's actions regarding the breed development program at the encouragement of Mr. Gorajec.

Mr. Diener continued, "Now, I have to say a caveat. Indiana horsemen are making money. And they're making good money, particularly racing in restricted races, but there has been little improvement in bloodstock. And I personally, Centaur and Indiana Grand, I hope you are going to consider, if you can, cutting back on race dates yet this year. Otherwise, I suspect the patrons at the track or even the patrons at a simulcast facility are going to be seeing a mediocre racing product as this summer goes along with short fields or cancelled races."

Again, his beliefs regarding the quality of the Indiana-bred thoroughbreds is well off from reality and lacking in any expertise. Chairman Weatherwax, the sheer fact that Mr. Diener assumes that Indiana horsemen "are making good money" was another glaring example of his lack of understanding of horse racing and breeding economics and what is happening to the program. Ask yourself, if the Indiana thoroughbred program is that lucrative, why have registered mares receded to pre-slot era levels? However, his sentiment about cutting back on race dates and a mediocre racing product are spot on, but not for this year or maybe the next two. Given the significant drop off in registered mares, and without a reversal, Indiana's thoroughbred program is in trouble. Today, large crops of Indiana-bred horses have been able to negate the drop off in the North American foal crops. Without changes in the thoroughbred breed development program, Mr. Diener's words will be prophetic.

One aspect of the 'Quality of Racing Program' that has significantly impacted Indiana's thoroughbred development program is the removal of the owner awards, which were paid to a winning owner at an Indiana track outside of the purse structure. This provided a significant incentive to own and to race an Indiana-bred in Indiana by enhancing an owner's rate of return. It was also a unique feature that differentiated Indiana's program from others. What the owner award also did was align a horse owner's interests with that of the breeder; running in Indiana. Indiana-breds winning out-of-state either generate a very small breeder award when compared to a win in Indiana or none at all. Thirty-four of the 81 Indiana-breds winning out-of-state so far this year generated no award to their breeders at all.

With the normal drop off from registered mares to foals, you should expect a foal crop of less than 400, the lowest since 2007, when these foals are ready to race in 2016. There's nothing in the thoroughbred breed development program, which is forced to comply with the 'Quality of Racing Program,' that will reverse this trend. Providing appropriate incentives for more breeding of thoroughbreds in Indiana and a greater incentive for running an Indiana-bred in Indiana is a must. You've inherited a problem, but that can be reversed, assuming you listen to the right people.

As Mr. Diener said to close the June 26th IHRC meeting, "We stand adjourned. Thank you." And, so are we. Thank you.