The Home Stretch

The thoroughbred horseracing industry in Virginia is at a crossroads. What will the future hold?

It’s the end of March, and at Eagle Point Farm in Ashland, the rolling pastures are finally greening up, signaling the arrival of spring. A gravel drive leads up a hill to a gray cinder block barn with red doors and blue trim, towered over by a cedar tree that has witnessed thousands of horses step through its shadow, their hooves beating out a clipped rhythm. Open and airy, the barn is full of thoroughbred horses hanging their heads over the Dutch doors into the center aisle. These are not just any horses. This is a barn full of racehorses—and a barn full of dreams.

For Karen Dennehy Godsey, 32, the third generation of her family to run Eagle Point Farm—now primarily a breaking and training center for racehorses—this is the busiest time of year. The young thoroughbreds are being “finished,” meaning they are almost ready to begin careers at the track, and the older horses are in the process of being legged up—conditioned—for the racing season. Toccoa, a 10-year-old mare born at Eagle Point and known affectionately as the Queen of the Farm, is grazing in the field. Now a broodmare and part of Godsey’s breeding operation, she was no stranger to the winner’s circle at Colonial Downs in New Kent County, Virginia’s only racetrack, where she recorded seven wins, seven 2nd place finishes, and seven 3rd place finishes. Toccoa raced for eight years and, like other reliable Eagle Point runners, always brought home a paycheck.

But since the final closure of Colonial Downs last October (and the end of racing there following the summer 2013 season), business for Godsey and other local trainers and breeders has been severely off. The closure is the result of a dispute between Virginia horsemen and the owners of Colonial Downs over the length of the racing season, and there is no resolution in sight; the future is uncertain. The action has thrown Virginia racing into turmoil, and repercussions—like the ripple that soon becomes a riptide—are being felt throughout the Virginia thoroughbred industry and other related agribusinesses.

The Virginia thoroughbred industry is built on a delicate partnership. Every year since Colonial Downs opened in 1997, the Warrenton-based Virginia Horsemen’s Benevolent and Protective Association (VHBPA), which represents the interests of thoroughbred owners and trainers, has negotiated a contract with the racetrack over the specifics of the upcoming race year, most notably the number of race days (the meet) and the purse amounts.  

In 2014, a breakdown in these negotiations led to the suspension of racing; 2014, in fact, saw no flat racing at all at Colonial Downs. The last thoroughbred crossed the finish line there July 13, 2013.

Money is at the heart of the conflict. The track wants a short race meet (six days) with high end purses, and the horsemen want a longer race meet (eight weeks) with more modest purses. Thus the strife.

After a year of failed negotiations between the horsemen and Colonial Downs over the duration of the race meet, the track, owned by Jeffrey Jacobs, chairman and CEO of Colorado-based Jacobs Entertainment, Inc., surrendered its license, thereby shutting down all racing activities immediately and indefinitely. It was a dramatic move that drew attention nationwide.

Now, the track that had seen an attendance of more than 13,000 spectators on opening day stands empty of both horses and fans.

The failure of the negotiations directly affects not just trainers and owners. About 300 employees were laid off when the track surrendered its license, leaving just a handle of staffers to operate the facility. It also impacted collateral businesses around the state, which include farriers, vets, equipment sales, hay, feed, seed and fertilizer suppliers, insurance providers and more.

The most recent study of the horse industry in Virginia, conducted in 2011 by the University of Virginia’s Weldon Cooper Center for Public Service, measured the state’s thoroughbred horse population at 30,900, and the total economic impact of the entire industry—including non-racing horse businesses like agriculture and horse shows—at more than $1.2 billion annually. The impact of racing specifically, excluding the substantial farm and training costs of owners, accounted for more than $103 million annually. Clearly, the stakes for all involved are high.

Colonial Downs, built in New Kent County at a cost of $80 million (its location a result of political compromise and a plan to draw attendees from both the Richmond and Hampton Roads areas while relying heavily on off track betting sites–OTBs—for revenue), is known for its world-class turf course and its signature event, the Virginia Derby. Run in early July, the Virginia Derby has awarded as much as a $1 million purse and drawn top 3-year-old colts from around the country.

“For 17 years, the best 3-year-old grass colts have come to run in the Virginia Derby,” says Ferris Allen, 63, the winningest trainer in Colonial’s history. “It’s one of the first high-end grass races of the season, and we get some that are chasing the Derby trail.”

Until negotiations for the 2014 season stalled, a typical thoroughbred meet at Colonial comprised eight weeks, with 45 days of racing from mid-May through July, and up to nine races a day. During a meet, the track operates the “frontside,” or public spaces, and the “backside,” which includes the stables, dorms and other day-to-day facilities for the horses, trainers, jockeys, exercise riders, grooms and hotwalkers. With roughly 15 barns at Colonial and 1,000 stalls, as many as 900 racehorses can live onsite 24/7 as well as about 400 workers during those two months of live racing.

As early as 2009, Colonial Downs requested a shorter meet, pushing for 25 race days instead of 45. That year, the horsemen and the track agreed upon 40 days of racing, a number that has been steadily declining (at the behest of the track) in the years since. In 2013, the last year the track was open, the race meet was 25 days long, with an average of about 2,000 attendees per day.

Colonial has been losing money, says Stan Guidroz, vice president of Southern operations for Jacobs Entertainment and the recently appointed interim president of Colonial Downs, from his office in Lafayette, Louisiana. In 2011, the last year the company’s financial information was made public, it reported a loss of about $2 million on its Virginia operations (the company reported earnings of $875,000 before interest, taxes, amortization and depreciation of assets) on revenues of just over $31 million. The majority of the company’s proceeds come from its casinos and video poker truck stops around the country. In 2011, Colonial Downs and its Virginia OTBs represented approximately 8 percent of its total revenues.

Jacobs, who is seen by many Virginia horsemen as an aloof outsider, operating from afar through company executives, wants to implement a new model of racing: a shorter meet consisting of six days of high end racing without opening the backside. In such a model, Colonial hopes to make the actual days of live racing more profitable, drawing top horses from places like New York, Kentucky and Florida, their owners willing to ship them in for a shot at winning a $1 million purse. Shipping in, however, is not only hard on the horses; it’s expensive. It is more cost effective for the horsemen, both those from Virginia and out of state, to ship to longer meets in which their horses have the chance to run multiple times—a horse can only run once at a six-day meet.

“It’s clear that our system is broken in Virginia,” says Guidroz. And, in his view, it’s not just about the length of the meet. He says the states that compete with Virginia for horse racing have casinos attached to the racetracks that drive revenues and increase purses.

“Our best alternative,” he says, “is to follow the model that has proven successful in other states.” The model he refers to—wherein a casino or slot machines are added to bring in more money—has been adopted at tracks in West Virginia, Pennsylvania and Florida. But an expansion of legalized gambling like this in Virginia would need to be approved by the General Assembly as well as by a local vote, and is unlikely to happen in the near future. (It’s important to note that gambling, not ticket sales, is the main revenue source driving the sport and the reason why the state legislature is involved in granting a racing license.)

Terance Rephann, an economist at the Weldon Cooper Center for Public Policy and the author of its 2011 report, confirms that the casinos at tracks in neighboring states have been successful in drawing visitors and increasing purse sizes: “A state with just a racetrack can’t compete with the products of the other states that have created ‘racinos,’” he explains. Rephann stresses, however, that he sees these racinos as a short term fix for racing. “The casino begins to cannibalize the business of the track, and it ends up becoming just a casino, with a racetrack attached on the periphery.”

Other forms of gambling, are, of course, illegal in Virginia, but the Commonwealth makes an exception for horse racing, which in 2013 generated $86 million from live racing and Colonial’s eight OTBs around the state, and $73 million from online wagering. Total annual wagering has landed between $150 million and $200 million since 2005, peaking in 2007.

For every dollar bet on Virginia races, or on races in other states that are made from Virginia OTBs (the “handle”), 80 percent goes back to the bettor in the form of winnings, and the remaining 20 percent (the “takeout”) is collected as revenue. This 20 percent is split among different elements of the industry: 5 percent goes to the Virginia horsemen in the form of purses, 1 percent goes to the Virginia Breeder’s Fund (which encourages in-state breeding operations), 2 percent covers taxes and 12 percent goes to Colonial Downs. Annually, this has resulted in a purse account for the horsemen of $5-6 million.

According to longtime racing executive D.G. Van Clief Jr., vice-chairman of the Virginia Racing Commission (VRC) and former president of the Breeder’s Cup (1996-2004) and commissioner of the National Thoroughbred Racing Association (NTRA), the tension between tracks and horsemen’s organizations is normal in many states, although Virginia’s inability to reach some compromise and subsequent track closure is not. (The job of the VRC is to promote, sustain, grow, and control a native horse racing industry with wagering in Virginia—in this case, mediating between Virginia horsemen and Colonial Downs, and approving any agreement between the two.)

Tracks with high end racing attract higher quality horses, creating a product that is more attractive to fans, which translates to more money from bettors. As a racing commissioner charged with fostering racing and growing the native industry in Virginia, Van Clief knows that though everyone would like to own, train and breed the fastest horses, the reality is that the majority of horses will be average. These are the horses that sustain the economics for the industry in Virginia—and the horses that will not have many opportunities to run in a shorter high-end meet.

“We need money for ‘everyday’ racing, too,” says Debbie Easter, a bloodstock agent and the executive director of the Virginia Thoroughbred Association (VTA). The VTA works to promote the thoroughbred industry in Virginia and to advocate for its contributions to the state’s agribusiness economy, as well as to the racing and breeding industry.

While six days of exclusively high end, big money racing is exciting for fans and lowers operating costs for Colonial Downs, it is not enough to support the Virginia horse industry, say many trainers and owners.

Running so few races essentially cuts Virginia horses out of the running; if Colonial offers only high end racing over a few days, top horses will come from all over the country, and take any winnings out of state, offering no benefit to the Commonwealth horsemen (although they would still receive their allotted 5 percent of gambling revenues). With only a few higher level races awarding up to $1 million in purses, there is significantly less to go around to support “everyday” racing and fewer opportunities for local trainers and owners to win.

Jacobs is blunt about his position: “The 800-pound gorilla in the room is the fact that Virginia’s thoroughbred horses cannot compete against most horses from other states,” he said in an April 7 press release published on Colonial Downs’ website. “To me this explains why the VHBPA was so strongly opposed to our efforts to hold high end races with nationally competitive horses at Colonial Downs. They can’t compete at that level.” He went on to say that proposals for longer Virginia race meets would be akin to “subsidizing” lower level horses, calling it “poor public policy” that “does nothing to grow the native industry.”

Karen Godsey built her career on racing at Colonial Downs, and without the racing provided by the track, things are complicated. But, she says, “We’re hanging on.”  

When business was booming, Eagle Point averaged 60-100 horses in the barn. (When she was a child, before Colonial Downs was built, Dodsey remembers the barn being only half full and constantly questioning whether or not the farm would make it.) Once Colonial was built, all of a sudden, their business expanded. A full-service facility, they stood three stallions and offered everything from breeding and foaling to breaking, layups and training. “I love racing,” says Dodsey, “and I loved it at Colonial Downs. When I started, I was a young woman, and I made a lot of connections. People noticed how my horses looked. I earned respect and a name for myself.”

Last May, Eagle Point shipped out 20 horses. Godsey lost a third of her personal income. This year, with no racing on the books at Colonial (at press time), Godsey will have to continue to travel to meets in West Virginia, Delaware, New Jersey and Maryland or send horses out to other trainers. In short, her costs are up and her revenues are going down.

Like Godsey, trainer Ferris Allen has also felt the impact of the conflict on his business. Although Allen keeps the hub of his operation in Laurel, Maryland, he has deep Virginia racing roots: He is a Richmond native, and his father Bert Allen ran the Varina races—part of Virginia’s storied “Triple Crown of Country Racing” in the ’50s, ’60s and ’70s. (Along with the Goochland Races and the Camptown Races in Ashland, some locals called this the “Hambone” triple crown.)

“As a trainer,” says Allen, “I have won more races than anyone at Colonial, over 200. In my career, I’ve won over 2,000. For 17 years, it’s been my pleasure to recruit the best horses I could find from Florida, New York, New Jersey, Delaware and Pennsylvania to come live with us for those eight weeks.” Since the track’s closure in October, Allen’s business is off by 30 percent.

“The model at Colonial wasn’t broken,” he says. From his perspective, Colonial already had a program skewed to high end racing. With 25- to 30-day meets, 25 percent of the purse monies went to stakes races. In most states, he says, that percentage hovers between 17 and 18 percent, and in Maryland, it’s 17 percent by statute. For him, the old race schedule was successful. “Up until now, it’s worked at Colonial with the blessing of the horsemen, and it’s been attractive to fans, too.”

Under current Virginia law, there must be a VRC-approved contract in place between a representative Virginia horsemen’s group (in the past, the VHBPA) and the racing licensee (Colonial Downs) in order for racing and wagering to take place. When Colonial turned in its license to operate the track, live racing and wagering (including betting on televised races at tracks all around the country) at its four remaining OTBs across the state (four were closed in 2014) ceased—wiping out almost all of Colonial’s revenues. (The track was, however, allowed to continue operating its online wagering system, EZ Horseplay.)

Late last October, in the wake of the shutdown, industry groups formed the non-profit Virginia Equine Alliance (VEA), which includes the VHBPA, VTA, the Virginia Harness Horse Association (which represents the owners and trainers of Standardbred horses) and the Gold Cup Association. The VEA is now the main representative for trainers and breeders in negotiations with the VRC and Colonial Downs.

Wayne and Susie Chatfield-Taylor, who have been breeding and selling horses at Morgan’s Ford Farm in Front Royal since 1979, are optimistic that reducing the influence of Jacobs Entertainment in Virginia may prove beneficial for the industry.

“The monopoly is over, the future of Virginia racing is finally in the horseman’s hands. That in and of itself lends to a positive future,” says Wayne Chatfield-Taylor. At an April 8 meeting of the VRC in Richmond, he went even further: “We’ve got to get out of this ‘it’s my pyramid and I’m not going to let anyone else in’ [mode]—that doesn’t work anymore.”

“Our job is to not take sides,” says J. Sargeant Reynolds Jr., who lives in Richmond and is chairman of the VRC. “I feel for the horsemen and the people who lost their jobs. This conflict has impacted a lot of people who didn’t have anything to do with it.”

In January 2015, the issue went to the General Assembly, and in February, compromise legislation was approved by both the House and Senate. The legislation reallocated online wagering monies bet on Virginia races through the three national companies that offer online wagering (XpressBet, TVG and TwinSpires) to a non-profit industry stakeholders’ organization, likely the newly formed VEA, to promote and sustain thoroughbred (and harness) racing in Virginia. Colonial would keep the money from its online wagering company, EZ Horseplay, as well as money generated at its OTBs. The horsemen would continue to receive 5 percent of the money for their purse accounts from the three national online wagering companies and from the reopened OTBs owned by Colonial.

This legislation was designed to grant Colonial Downs and the Virginia horsemen a “divorce.” The VEA would be allowed to run its own 14-day race meet—although it must make its own arrangements for the location and administration of the races, bankrolled by the reallocated online wagering monies. (Possible locations include Great Meadow in The Plains, Oak Ridge Farm in Nelson County and Montpelier.)

Complications arose, however, after Gov. Terry McAuliffe, at the behest of the VEA, amended the legislation to allow for a nonprofit industry stakeholder group (the VEA) to operate its own OTB facilities—and keep the sizable revenues derived from them—if Colonial Downs does not reapply for its racing license before Aug. 1, 2015 (and, presumably, come back to the negotiating table). In its annual reconvened session held April 15, the General Assembly approved the governor’s amendment to the bill.

Guidroz says that the new amendment to the bill undermines Colonial’s business operations in Virginia, as it encourages the VEA to pursue its own wagering operations in competition with Colonial, as opposed to cooperating with the track.

On April 8, Colonial Downs shut down EZ Horseplay, ending all its online wagering business, and laid off the last few remaining employees at the New Kent track. The movement was seen as a response to Gov. McAuliffe’s amendment.

“We need a new horseman’s group that will share our vision,” says Guidroz, describing Colonial as in “an indefinite holding pattern.” In late 2014, as the VEA was being formed, Colonial attempted to organize a horsemen’s group on its own (one that, presumably, would agree with Colonial on a six-day race meet), named the Old Dominion Thoroughbred Horsemen’s Association. This group was heavily criticized by established Virginia horsemen’s organizations—they claimed it was put together by Colonial to further the track’s ends, and was not a true representation of Virginia breeders and trainers. Frank Petramalo Jr., executive director of the VHBPA, told USA Today it was a “sham” group. Colonial eventually abandoned the effort when it appeared clear that the VRC would not vote to authorize the new group as a representative nonprofit industry stakeholder.

Additionally, Virginia horsemen say that Colonial Downs owes the VHBPA nearly $420,000 from money derived from its online wagering system, EZ Horseplay, during the period between November 2014 and March 2015. (The online wagering companies paid the money they owed VHBPA.) Colonial contends that with no racing agreement in place during that period, the VHBPA should not be considered the “nonprofit industry stakeholder” of the type that the law requires to pay out 5 percent of online gaming proceeds. The matter of this $420,000 may eventually be settled in court.

Following the April 8 VRC meeting, when asked about potential racing at Colonial Downs in 2015, Guidroz said, “I don’t see that in the cards right now.” Jacobs Entertainment has ceased operations in Virginia; the OTBs are shuttered, and the track is silent and empty.

It is unclear what further negotiations between Colonial and the horsemen might bring. Before the new amendment to the compromise legislation, Colonial hinted that it would like to see the horsemen lease the track as the site of future races, as well as pay for the use of its OTBs and online wagering platform. Whether this is still a viable option or not remains to be seen.

“Maybe the face of Virginia racing will look a lot different from other states,” says Van Clief, owing to its successful tradition of country racing (steeplechase meets like those at Montpelier, Foxfield and the Gold Cup), and a strong culture and tradition associated with the horse. “We may have country meets combined with traditional track racing.”

The VEA is trying to adapt and already has a temporary agreement for racing at the Gold Cup in The Plains. For the first time, on May 2, 2015, it will host three flat races and a simulcast of the Kentucky Derby. The 25-35 horses that will run in these three competitions almost certainly would have raced at Colonial in the past, but represent only a fraction of the roughly 1,200 horses that ran there in 2013 (which itself was down from a peak of about 1,900 in the early 2000s). The VEA also says it has a tentative agreement to run harness racing at Oak Ridge Farm in Nelson County, a private farm with a track that was once used for racing more than a decade ago, and has already begun work to restore it to a suitable condition for thoroughbred racing.

“Horsemen are a resilient breed,” says Van Clief. “The challenges should not be underestimated, but I believe the re-emergence of racing in Virginia will be an interesting evolution, and I’m guardedly optimistic.”

Back at Eagle Point Farm, Toccoa has just given birth. Though it may be uncertain where, or if, her foal will ever race in Virginia, a birth like this from a favorite horse inspires dreams and the thrill of possibilities.

While Godsey admits that breaking and training is fun, it doesn’t compare to being at Colonial Downs with her name on the card as the trainer. As a local, when her horses won, it was like a homecoming. “Our winner’s circle pictures were full of family and friends,” she says.

As for the future of racing in Virginia?

“I’m hopeful.”

VRC.Virginia.gov, VirginiaEquineAlliance.com,

ColonialDowns.com, VHBPA.org

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