After nearly a 100-year hiatus of horse racing in the Commonwealth of Virginia, the legalization of pari-mutuel wagering set the stage for a revitalization of Virginia's horse industry. Throughout the past 10 years, new racing facilities in other states could not find a formula for success, but Virginia's horsemen were optimistic that the Old Dominion would be different. Virginia possessed a proud heritage of thoroughbred horse breeding and a two-million-plus population base with high per capita earnings in two geographic locations. It had an established infrastructure of horsemen, veterinarians, and farriers. Established training and other service facilities would compliment the establishment of a new racing complex. Virginia would be the exception. Tragically, a glowing opportunity is quickly being wasted. How could this have happened?

FACTORS CONTRIBUTING TO THE CURRENT STATUS OF RACING

Many Virginia horsemen believe that the Racing Commission seriously erred in granting a license to an Ohio track owner who had contracted with a Maryland track owner to operate Virginia's thoroughbred racing program. This action put a fox in Virginia's hen house as Maryland's horse racing industry considered that its very survival depended upon obtaining the ability to influence when, where, and how Virginia racing would be conducted.

The commission and a faction of Virginia's horsemen accepted Maryland's premise that Virginia could not succeed unless a racing circuit was formed between the two states. Their acceptance was based on a conviction that the current supply of horses was insufficient to satisfy both tracks and that head-to-head competition would be ill-advised.

Each Virginia license applicant was aware that the Racing Commission looked favorably on a circuit agreement with Maryland and that such an agreement would enhance the applicant's appointment as the licensee. However, an agreement offered by the Maryland Jockey Club (MJC) was so onerous that only one applicant accepted its conditions. That applicant subsequently was granted the license. The folly of such acceptance is now evidenced by Colonial Downs' current public statements that it must be relieved of this albatross that is an impediment to its chances of success.

Colonial Downs' chances to succeed were diminished when its license application embraced a remote location that would make it difficult to compete with other tracks located closer to the existing supply of horses and horsemen. Contracting with the MJC to manage its racing program, currently at 30 days, for a fee that could range as high as $3 million also lengthened its odds for success.

This contractual agreement was recently amended to clearly establish the MJC's prerogatives and management control over when and how many annual racing days, up to a maximum of 102 days, will be scheduled. It has been granted, for the next 50 years, the privilege of deciding which Virginia horsemen's group will be recognized by Colonial Downs to represent Virginia's horsemen and final approval of any contractual agreement between the two parties.

The recent amendments to the contractual agreement also provide a modicum of relief in the management fee to be paid to the MJC from wagering generated in southern counties, while raising the fee in some northern counties by 30 percent. Additionally, a performance fee has been added that would equal 40 percent of Colonial Down's gross annual revenues beyond $5.5 million. The bottom line translates into millions of Virginia dollars leaving the commonwealth in payment to an out-of-state competitor to manage, at present, 30 days of racing and four off-track facilities.

A racing circuit with Maryland would make sense with alternate racing days between the tracks, no time-frame constraints on Virginia, and a Northern Virginia track location to facilitate moving horses between each track. However, when the Racing Commission granted a license that placed racing in Virginia at a location distant from the existing supply of horses and only when Maryland closed its tracks, storm warnings began to form within the ranks of Virginia's horsemen.

The initial pari-mutuel statute required one day of racing for each day of off-track wagering. This requirement was initiated to ensure that Virginia would have a viable racing industry and not simply be a vehicle to permit simulcasting. Since the requirement attracted no investors, the statute was amended to require a minimum of 150 days of racing. The statute was further amended to grant the Racing Commission the authority to approve fewer than 150 days during the first five years of racing. Colonial Downs is now proposing a statutory amendment to expunge the current statute's 150-day racing requirement.

The Racing Commission's licensee appointment permitting a Maryland/Virginia racing circuit overlooked an important component. The circuit agreement, as conceived by the Maryland Jockey Club, will not permit compliance with the 150-day-minimum racing days requirement of the Virginia statute. It is unrealistic to believe that the Maryland Racing Commission would authorize and that Maryland horsemen would support a reduction in Maryland racing that would exceed 60 days.

First and foremost, Virginia needs more than the 25 days of thoroughbred racing that Colonial Downs has applied for in 1999. Its contractual requirement with horsemen to provide a $150,000 daily purse structure is not conducive to achieving an expansion of racing days. A lower daily purse structure would spread the available purse money, enabling more days of good racing and providing the vast majority of Virginia horses with more and better opportunities to win races. It would reduce the enticement for ship-ins of superior quality horses from other states, resulting in the retention of more purse money in Virginia. A case in point is the first running of the recent Virginia Derby. Not one Virginia-based horse was in the money, resulting in the race's $250,000 purse leaving the commonwealth to enrich those out-of-state owners who took advantage of an attractive soft spot in which to compete.

While a $150,000 daily purse structure does encourage higher quality racing, it does not necessarily increase wagering. The primary factor that encourages wagering is a full field of horses in a given race. This permits more exotic wagering and better wagering odds. The quality of the horses running and/or the purse level is secondary. Many races programmed for higher quality horses produce lower wagering as they are run with less than full fields due to the paucity of horses they are designed to attract.

The Virginia Horseman's Benevolent and Protective Association (VAHBPA), recognized by Colonial Downs to represent Virginia horsemen, was organized and structured to grant a few individuals negotiating authority on contractual agreements that would not be subject to ratification by the membership at large. These few individuals are currently wed to a creed insisting that Colonial Downs structure a racing program offering a minimum daily purse of $150,000, which, in their opinion, is essential to an incremental increase in wagering.

COLONIAL DOWNS

High profile races such as the Virginia Derby would be appropriate and beneficial when racing in Virginia is well established and wagering has enabled, as a minimum, a daily purse structure of $100,000 over 100 days of thoroughbred racing. Absent such conditions, a purse for a particular race should not exceed $50,000, permitting more distribution to races where most horses compete. Racing cannot survive unless owners have a chance, at least, to break even. This prepossession to enhance quality at the expense of the vast majority of owners undermines the viability of Virginia racing. Colonial Downs should postpone the ego trip of offering big name races that permit sizable purse moneys to leave the commonwealth. While such races do generate increased wagering and attendance on the few days they are run, they are detrimental to Virginia's current overall racing program.

Colonial Downs' losses during the first two years of operation should have been expected and anticipated as in the early years of most new business ventures. Such loses belong to Colonial Downs and should be paid for with an infusion of working capital that would also anticipate losses that may be incurred over the next several years.

Rather than accepting its responsibility, however, track management has threatened bankruptcy unless outside sources of financial relief are forthcoming. Such sources would include tapping into the Virginia horsemen's purse account and reducing the horsemen's percentage of simulcast wagering receipts generated at facilities other than the track location and its six satellite facilities.

VIRGINIA RACING COMMISSION

The Virginia Racing Commission has used kid gloves in addressing Colonial Down's many departures from the commitments presented in its license application and other commission directives. The commission must now assert, in no uncertain terms, that its licensee's privilege to operate will be revoked if financial viability has not been restored by a set date in the near future. The license also should be rescinded absent a practical plan that firmly commits to the sustainment and expansion of live racing.

The commission has been vested with plenary power to prescribe regulations and conditions under which racing and wagering shall be conducted for the sustenance and growth of Virginia's horse industry. Licensees shall be permitted to conduct such activities as a privilege that may be denied by the commission at its discretion in order to effectuate the purposes set forth above. Colonial Downs has not demonstrated a capability or desire to sustain and grow a vital component of Virginia's horse industry. This in itself provides strong justification for a revocation of its license.

With its plenary powers, the Racing Commission has a responsibility to require Colonial Down's compliance with the intent of the statute. Absent such compliance, the commission should rescind the license it has granted and entertain other license applications from whomsoever wishes to apply.

PARI-MUTUEL RACING STATUTE

Virginia's many industries seek to improve their respective causes by lobbying the General Assembly each year, and the horse industry should not be afraid to do likewise. Changing circumstances require changes in a racing statute that currently does not adequately address the interests of those providing a vital product to a racing program: the horses.

Simulcasting is defined as the simultaneous sending or receiving of live racing programs, via electronically transmitted signals, to video monitors at locations distant from the site initiating the signals. Currently a track owner has the statutory authority, subject to commission approval, to simulcast its racing program to six off-track facilities within the commonwealth. The statute should be amended to permit unlimited facilities. It is illogical to permit the choice of pari-mutuel wagering, via local referendum ballot, only to Virginians within six designated areas.

The statute presently permits a Virginia track owner to retain approximately 18 percent of total simulcast wagering, which is to be distributed between the track owner and the horsemen's purse account by contractual agreement between the parties. The statute should be amended to deny any usage of this retainage by the track owner until a contract has been negotiated between the track operator and horsemen.

VIRGINIA HORSEMEN

Those horsemen contracting with Colonial Downs must rethink their position as to daily purse structure in order to permit more racing days and competitive opportunities for Virginia's horsemen to race successfully. The quality of Virginia racing should correspond to the general quality of the state's horse population. If racing can be established successfully, it will be a catalyst to increase the quality of horses and racing, each in unison with the other.

Virginia's thoroughbred horse industry is comprised of two factions: those who breed and raise horses and those who own, train, and care for the final product, the racehorse. The latter group represents a majority whose interests have been and are being subordinated to the interests of the Virginia Thoroughbred Association, an organization historically formed to serve the interests of breeders. This group, in turn, was instrumental in the formation and functional control of the VAHBPA, the entity recognized by the Racing Commission and Colonial Downs to represent Virginia's horsemen in contractual negotiations with track management.

While breeders have a genuine concern that racing be successfully established, their current financial state has resulted in the acceptance of a few crumbs thrown their way instead of resisting the commission's coddling of Colonial Downs and track management's continual diminution of live racing. Breeders certainly would be distressed if live racing is further diminished. However, the statute provides the Virginia Breeders Fund with 1 percent of whatever the mix of simulcasting/live racing may be. Thus, live racing is being preempted by virtue of a survival mode that permits interstate simulcasting to be the principal source of revenue from pari-mutuel wagering.

An industry that cannot exceed a survival existence is doomed to eventual extinction. Virginia horsemen must insist on more than the half loaf that simulcasting alone will provide. An extended live racing program, offering ample racing restricted to Virginia-bred horses, is the vehicle that will permit Virginia's horsemen a chance to transcend mere survival.

EPILOGUE

Despite Virginia horsemen's hopes and the General Assembly's intent that live racing would be a productive part of Virginia's agricultural economy, current trends are not encouraging. Wagering and attendance are far below expectations. It is doubtful that Colonial Downs' present location, management, and inability to access Northern Virginia with off-track wagering sites can engender survival. Access to Northern Virginia is critical, and yet, for the foreseeable future, this can be accomplished only with a track in that location. How this could be implemented is a very important subject that should be seriously considered by the Racing Commission.

Unless all parties are prepared to reevaluate present and past positions and be receptive to alternative proposals, there will be a requiem for a racing industry that never really left the starting gate due, in part, to those jockeys whose collective hands have been in control of its reins once it entered the gate.

C. Fred Kohler is the owner of Kohler Bloodstock Company, which sells and buys thoroughbred horses for clients. He has raced and bred thoroughbred horses for over 25 years. Currently a director of the Virginia Horsemen's Association, he was president of the now defunct Virginians for Horse Racing Inc., which led the effort to legalize pari-mutuel wagering in Virginia. Additionally, he is a past president of the Virginia Thoroughbred Association, which he also served for 20 years as a director, and is a past president and trustee of the Virginia Equine Educational Foundation.