NEW YORK STATE THOROUGHBRED BREEDING AND DEVELOPMENT FUND CORPORATION SARATOGA SPA STATE PARK 19 ROOSEVELT DRIVE-SUITE 250 SARATOGA SPRINGS, NY 12866 Since 1973 PHONE (518) 580-0100 FAX (518) 580-0500 WEB SITE http://www.nybredfund.com DIRECTORS EXECUTIVE DIRECTOR John D. Sabini, Chairman Tracy Egan and Chairman of the NYS Racing & Wagering Board Darrel Aubertine, Acting Commissioner NYS Dept. of Agriculture and Markets COMPTROLLER John A. Tesiero, Jr., Chairman Michael DeMarco NYS Racing Commission Harry D. Snyder, Commissioner NYS Racing Commission Joseph G. McMahon, Member REGISTRAR John A. Graziano, Jr., Member Barbara C. Devine William B. Wilmot, DVM, Member Howard C. Nolan, Jr., Member Edward F. Kelly, Member Jeffrey Cannizzo, Member January 31, 2011 To: The Honorable Andrew Cuomo Members of the New York State Legislature On behalf of the New York State Thoroughbred Breeding and Development Fund Board of Directors, I am pleased to present this annual report for 2010. This submission contains a thorough analysis of Breeding Fund activities in what was a challenging year for the breeders, racehorse owners and stallion owners served by the Fund. At the same time, it was a year when stakeholders experienced very positive developments. The underpinnings of New York's thoroughbred industry were stabilized when state leaders embraced Genting New York as the operator of what will be one of the state's biggest Racinos. When that facility opens at Aqueduct in 2011, NYRA will realize a reliable revenue stream. It will also boost the Breeding Fund's incentive program. By making these incentives more generous, we will be in better position to attract new people to this exciting sport and form of recreation. Horse racing and agriculture-related industries play a vital role in the overall state economy and helps to preserve green space and bolster tourism in our state. The work by the Fund helps assure that New York remains a preeminent racing jurisdiction. The Fund's chief challenge in 2010 was tied to the demise of New York City OTB, which historically provided roughly one-third of all Fund revenues. The corporation declared bankruptcy in December 2009 and later stopped statutory payments owed to the Fund. However, the Racing and Wagering Board secured a directive requiring 0113 to set aside revenue for the Fund in segregated accounts. As a result, most of that set-aside money was paid to the Fund by mid-December 2010. Today, the future of New York racing appears far brighter than it did just one year ago. The Fund is strong and weathered the storm. We look forward to another year of rising to the challenges that come our way. Sincerely, John D. Sabini, Chairman Executive Summary To put a fresh twist on the slogan of the New York Thoroughbred Breeding and Development Fund programs, New York-breds in 2010 still started with an advantage. Chief among those advantages: approximately $7.8 million* in awards earned by breeders, stallion owners, and race horse owners in 2010. These awards help program participants pay feed bills, property taxes, and employees. Thus, the Fund continues to serve as a catalyst for the preservation of the State’s thoroughbred industry and the retention of an estimated 40,000 agri-business jobs in all parts of the state’s agricultural sector. The 2010 report details highlights of NY-bred accomplishments at home and abroad, and provides a detailed accounting of receipts and disbursements of the Breeding Fund’s three major incentive areas – breeder awards, stallion awards, and open-company owner awards. Additionally, it contains the performance results of New York-breds at the racetrack and an analysis of the success of the New York State Thoroughbred Breeding Program regarding farm count, foal production, and New York-based stallions and their progeny. Among the highlights of 2010 were the accomplishments of New York-bred A Shin Forward, who won the Grade 1 Mile Championship at Kyoto race track in Japan in late November. Horses born on New York soil racked up international earnings totaling $69,289,272 in 2010. Bred by Edition Farm in Waccabuc, A Shin Forward’s earnings now top $3.3 million, making him the second-highest NY-bred earner behind famed Kentucky Derby winner Funny Cide. Speaking of A Shin Forward, we would be remiss if we did not mention that the entire equine community mourns the death of Henry “Harry” Malloy this past fall. Harry and his wife Vivien enjoyed running Edition Farm together, and have campaigned horses on the New York circuit for nearly three decades. The couple has passed on their love of horses to their five children and eleven grandchildren and step- grandchildren. Mrs. Malloy told friends she believes Harry had his arms around the horse when A Shin Forward crossed the finish line in stakes-record time. The Malloys serve as a shining example of the kind of love and dedication to horses that drives so many of our breeders to carry on during tough times. Add to that a devotion to their farm land that would rival that of Gone With the Wind’s Gerald O’Hara (“Land’s the only thing in the world worth working for, fighting for, worth dying for, because it’s the only thing that lasts”) and the reader will understand why the state’s breeders stick with the program as they tighten their belts and look for signs of stability and upswing in the equine economy. For many, stewardship of their land is something they look upon as a duty, which fits perfectly with the Breeding Fund’s mission: to preserve, protect, and promote the green-belt sector of NYS in order to foster the growth and expansion of NY’s thoroughbred breeding industry. We can look back on the Fund’s more than three-and-a-half decades of impact on the thoroughbred and agri-business economies and see that the programs administered by the Fund are at the very heart of what helps sustain the breeding of thoroughbreds here in the Empire State. Over 37 years, the Breeding Fund has returned nearly $350 Million to our agricultural and equine economy. Significantly, New York-breds have the opportunity to compete for good purse money in restricted company on what is arguably the best circuit in the nation at Aqueduct, Belmont Park, and Saratoga Race Track operated by the New York Racing Association. During last summer’s spa meet, NY-breds competed for an average purse of $44,849. And New York-breds also have the “advantage” of the opportunity to earn good money by running at Finger Lakes Gaming and Racetrack in the central part of our state. New York-sired horses win approximately 60% of all races run at the racino, and about one- third of all stakes races. In addition, a 2007 study found that with 115 trainers and 475 full-time employees, the racino has a $120 million economic impact annually on the surrounding region. Because the New York Breeding Program has become the envy of other states, several locales have pumped up their programs in an attempt to dethrone the acknowledged leader. The state of Indiana bankrolled some $200,000 worth of advertising to lure breeders to the Hoosier State. New Jersey cut back on racing dates, boosted purses, and generated an increase in total pari-mutuel handle of $123 million. Those higher purses forced NYRA to compete for horses to fill the starting gate by raising purse money for open-company races and cutting back on purses for NY-breds. Another challenge to breeders and commercial boarding operations in NYS comes from our neighboring state of Pennsylvania, where $20 million annually is now disbursed through the PA program. Most readers are aware that the 2009 bankruptcy of NYC OTB, its subsequent failure to make full statutory payments to the Fund in 2010, followed by the failure of legislators to approve a settlement worked out over many months by major stakeholders had a negative impact on the industry in NYS. Add to that backdrop the fact that the Fund’s revenue is based solely on handle, which has been falling steadily for several years,** and it becomes apparent why the Fund had to make adjustments so that it could maintain its commitment to its core mission of preserving green space. Those adjustments included staff reductions, an extension of 2009 changes to the awards structure, and additional duties for the field inspectors who help maintain the integrity of the Breeding Fund Registry. Looking forward, it’s clear that NY-breds will be starting with a NEW advantage that comes with the delivery in mid-2011 of the long-promised VLTs at Aqueduct. Expected to be operational by July, the handle from the VLTs will fuel purse increases at the NYRA tracks and generate additional revenue for the Fund. For budgetary planning purposes, the Fund is estimating that each machine will generate an average of $275 per day, a figure that NYRA believes to be conservative. As you’ll see in the pages ahead, the roster of stallions standing in the state is a smaller but arguably stronger group of studs than has been here in the past. Two major Kentucky farms have launched satellite stallion operations by teaming up with farms that had already earned good reputations among the state’s breeders. The leading breeder in the nation, Adena Springs, teamed up in late 2010 with McMahon Thoroughbreds in Saratoga Springs. The Vinery operation out of Kentucky is providing NY-breeders with access to the Giant’s Causeway, Distorted Humor, and AP Indy sire lines as they add to the strong roster of stallions at the old Empire Stud in Hudson.