THOROUGHBRED RACING, WAGERING AND SALES: THE KEENELAND TRIFECTA
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1 THOROUGHBRED RACING, WAGERING AND SALES: THE KEENELAND TRIFECTA CLE Credit: 1.0 Thursday, June 14, :00-1:00 p.m. Bluegrass Ballroom II Lexington Convention Center Lexington, Kentucky
2 A NOTE CONCERNING THE PROGRAM MATERIALS The materials included in this Kentucky Bar Association Continuing Legal Education handbook are intended to provide current and accurate information about the subject matter covered. No representation or warranty is made concerning the application of the legal or other principles discussed by the instructors to any specific fact situation, nor is any prediction made concerning how any particular judge or jury will interpret or apply such principles. The proper interpretation or application of the principles discussed is a matter for the considered judgment of the individual legal practitioner. The faculty and staff of this Kentucky Bar Association CLE program disclaim liability therefore. Attorneys using these materials, or information otherwise conveyed during the program, in dealing with a specific legal matter have a duty to research original and current sources of authority. Printed by: Evolution Creative Solutions 7107 Shona Drive Cincinnati, Ohio Kentucky Bar Association
3 TABLE OF CONTENTS The Presenter... i Thoroughbred Racing, Wagering and Sales: The Keeneland Trifecta... 1 Redmond v. The Jockey Club, 224 Fed. Appx. 663 (6 th Cir. 2007)... 11
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5 THE PRESENTER William M. Lear, Jr. Stoll Keenon Ogden, PLLC 300 West Vine Street, Suite 2100 Lexington, Kentucky WILLIAM M. LEAR, JR. is the chairman emeritus of Stoll Keenon Ogden, PLLC, the Kentucky-based law firm that counts among its clients Keeneland, The Breeders' Cup, the Jockey Club, Thoroughbred Owners and Breeders Association, the Kentucky Thoroughbred Association and a number of Thoroughbred breeding and racing operations. Mr. Lear received his B.A. from Davidson College and J.D. from the University of Kentucky College of Law, where he served as editor-in-chief of the Kentucky Law Journal. His legal career has included stints as a part-time prosecutor and Commissioner of Law for the Lexington-Fayette Urban County Government, as well as the last 36 years at Stoll Keenon Ogden, for more than 20 of which he held the positions of managing partner or chairman. Mr. Lear's practice over the past 40 years has focused on litigation, real estate development, government relations and equine law. His involvement in the Thoroughbred industry dates back to the early 1980s and has included litigation, negotiation of horsemen's contracts with racetracks, state and federal legislation and medication regulation. Mr. Lear currently serves the industry as Trustee of Keeneland and a member of the Board of Stewards and vice-chair of The Jockey Club. He is one of the principal drafters of the Thoroughbred Horseracing Integrity Act sponsored by Congressman Andy Barr and Paul Tonko, which would standardize racing medication regulation throughout the United States. Mr. Lear served as a member of the Kentucky House of Representatives for five terms from 1985 through He has maintained an active role in Kentucky civic, business and political affairs. He is the immediate past chair of the Board of the Kentucky Chamber of Commerce. He has been inducted into the UK College of Law Alumni Hall of Fame, the Kentucky Economic Development Hall of Fame and the Bluegrass Business Leaders Hall of Fame. i
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7 THOROUGHBRED RACING, WAGERING AND SALES: THE KEENELAND TRIFECTA William M. Lear, Jr. I. THOROUGHBRED FUNDAMENTALS A. The Thoroughbred breed of horses traces its roots back to the Darley Arabian, the Godolphin Arabian, and the Byerly Turk. B. To qualify as a Thoroughbred, a horse must have both a sire and dam that are Thoroughbreds and must have been produced by a natural cover. The Jockey Club, which is the breed registry for the United States and Canada, maintains The American Stud Book, verifies the pedigree and parentage of horses submitted for registration by DNA testing and approves the names of Thoroughbreds according to an established set of rules. KRS defines a Thoroughbred race as "a form of horse racing in which each horse participating in the race is a Thoroughbred (i.e., meeting the requirements of and registered with The Jockey Club of New York) and is mounted by a jockey..." Similar provisions are found in the statutes or administrative regulations of every state that allows Thoroughbred racing. C. Rule 6 of "The Principal Rules and Requirements" of The American Stud Book contains the rules for naming of Thoroughbred horses. Horse owners have enormous discretion in determining the names of their horses, provided that the requested names do not run afoul of certain restrictions including: 1. They cannot consist of more than eighteen characters (spaces and punctuation marks count the same as letters). 2. Names ending in filly, colt, stud, mare, or similar horserelated terms are prohibited. 3. Names that are suggestive or have a vulgar or obscene meaning, names considered in poor taste, names that may be offensive to religious, political, or ethnic groups are prohibited. 4. Names that appear designed to harass, humiliate, or disparage a specific individual, group of individuals, or entity are prohibited. 1
8 5. Names of past outstanding racehorses cannot be used again. A noteworthy case concerning Thoroughbred names grew out of The Jockey Club's rejection of the proposed name Sally Hemings for a foal sired by Jefferson's Secret. The Jockey Club's rejection of that name was challenged in court in a case originating in the Eastern District of Kentucky and ultimately decided by the Sixth Circuit Court of Appeals, in which the court held that an owner has no property rights in the proposed name of a Thoroughbred and upheld the rejection of the name. Redmond v. The Jockey Club, 224 Fed. Appx. 663 (6th Cir. 2007). II. KEENELAND ORIGINS AND STRUCTURE A. In 1935, Hal Price led a group of Kentucky horsemen and business leaders to establish Keeneland. This followed the demise of America's first racetrack, the Kentucky Association, in downtown Lexington which had operated from 1826 to Formed in the depths of the Great Depression, Keeneland's mission was ambitious: to "create a model race track to perpetuate and improve the sport and to provide a course that is intended to serve as a symbol of the fine traditions in Thoroughbred racing." To raise money to purchase property located on Versailles Road in Fayette County from horseman John Keene, and to complete the construction of a racetrack plus a clubhouse, the founders issued shares of preferred stock at $500 per share. In order to generate widespread local support for the venture, Keeneland issued 3000 shares of common stock at $1.00 per share with the unique provision that no dividends could ever be paid on the common stock. The prospectus was submitted to and approved by the Securities Exchange Commission. The founders also established a voting trust, held by three Trustees authorized to exercise full voting control over the shares of common stock. The three initial Trustees were Hal Price Headley, Arthur B. Hancock, and Fred Rankin. B. With the funds generated by the stock issues, Keeneland purchased the land and the track, completed the track, the clubhouse, and the initial grandstand. It did not, however, buy the mansion known as Keene Place. That property was not acquired by Keeneland until the early years of the 21st century. The first race was held at the track on October 15, Within a few years of the initial race meet, Keeneland paid off and redeemed all of the shares of preferred stock. In the early 1950's, the Trustees reacquired all but a handful of the shares of common stock and now hold those shares in trust. 2
9 C. From the earliest days of Keeneland, and continuing today, all proceeds from Keeneland operations are used to maintain the facility, to fund the operations of the organization, to benefit the Thoroughbred industry, and for donations to central Kentucky charities. Contrary to popular belief, Keeneland is a for-profit entity but with a nonprofit mission. If the track were ever to be sold, all proceeds would go to charity. III. STOLL KEENON OGDEN AND KEENELAND A. Stoll Keenon Ogden (then "Stoll, Muir, Townsend & Park") did all of the legal work to establish Keeneland and have served as its principal legal counsel ever since. One of the firm's attorneys, Richard Stoll, was on the initial Board of Directors; he and Wallace Muir were among the first shareholders. At least one member of the firm has been on the Board of Keeneland at all times since its inception. Two of the firm's attorneys have served as Keeneland Trustees. B. Gayle Mohney was one of the attorneys primarily responsible for the initial legal work with Keeneland. He and Mr. Headley were particularly close and together forged most of the unique legal underpinnings that have sustained Keeneland over the past eighty years. Another of the firm's attorneys, W.T. Bishop III, who served as both a Keeneland Board member and Trustee, was raised on the grounds of Keeneland while his father, also nicknamed Buddy Bishop, served as the first manager of the racetrack. C. The longevity of SKO's relationship with Keeneland is consistent with many relationships formed early and long maintained by Keeneland. The architect for the track's buildings, the landscape company that helped to produce and maintain the beautiful Keeneland grounds and the food provider, Turf Catering, all served Keeneland for decades and helped ensure consistent high quality. IV. INTERESTING FACTOIDS ABOUT KEENELAND A. It is a National Historic Landmark (1986) B. Its Main Gates Never Close C. It owns and maintains in its library all of the historic copies of the Daily Racing Form. D. General Lafayette stayed at Keene Place during his 1825 "victory lap" around the United States. 3
10 E. From 1943 to 1945, Keeneland was designated as a "suburban track" which was closed for racing in support of the war effort. Consequently, Keeneland leased the facility at Churchill Downs and ran its Spring Meet at Churchill during those three years. F. The list of celebrities that have attended race meets at Keeneland includes: Queen Elizabeth II, Princess Anne, John Elway, Dick Enberg, George Hamilton, George C. Scott, Elizabeth Taylor, Charlize Theron, George W. Bush, Arnold Palmer, Joe Pesci, Gary Player, Jeff Bridges, MC Hammer, Bobby Flay, Cheryl Ladd, Diane Lane, Tobey Maguire, John Malkovich, Ronald Reagan, Mickey Rooney, Priscilla Presley, and Ashley Judd. G. Movies that were filmed at Keeneland racetrack include Seabiscuit, Secretariat, and Dreamer: Inspired by a True Story. H. The grandstand at Keeneland is one of the few in American racing that faces west into the setting sun. I. Man o' War is NOT buried under the giant sycamore tree in the Keeneland paddock, notwithstanding what certain tour guides apparently think. V. RACING A. Keeneland holds two race meets per year, in April and October, for a total of thirty-one± racing days. In industry circles, these are sometimes referred to as "boutique" or "festival" meets because they are short, feature high-quality racing, and have large purses. They tend to attract the best horses, trainers and jockeys, and the leading owners. The only other tracks and race meets consistently placed in the same category are the late summer meets at Saratoga and Del Mar. B. The highlights of the Spring Meet are the Toyota Blue Grass Stakes, a major Kentucky Derby prep race, and the Central Bank Ashland Stakes. Although in recent years the Blue Grass has played a less significant role in the road to the Derby, its status over time as a stepping stone to "America's Greatest Race" is unmatched: 1. Twenty-three horses that ran in the Blue Grass Stakes went on to win the Kentucky Derby; 2. Thirteen horses won the Preakness; 4
11 3. Fourteen horses won the Belmont; 4. Nine horses won two legs of the Triple Crown; 5. One Blue Grass Stakes winner, Whirlaway, won the Triple Crown. C. The highlight of the Fall Meet is "Fall Stars" Weekend and the following weekend, which together feature several graded stakes that are "Win and You're In" races for the Breeders' Cup. They include: the Claiborne Breeders Futurity, the Lanes End Queen Elizabeth II, SKO Phoenix (the oldest stakes race in America). D. The highest caliber races in America are Graded Stakes, only a small percentage of all races are Graded Stakes. The grades, which run from Grade I, the highest, to Grade III are established by the American Grade Stakes Committee, an arm of the Thoroughbred Owners and Breeders Association, based upon a number of factors, including the caliber of horses that run, the race conditions, and the purse. Keeneland runs ten Grade I's (Darley Alacibides, Ashland, Breeders Futurity, First Lady, Jenny Wiley, Madison, Makers 46, QE II, Shadwell Turf, Spinster), eight Grade II's (Bluegrass, Elkhorn Fayette, Phoenix, Ravens Run, Shakertown, Thoroughbred Club of America, Woodford), and fourteen Grade III's (Appalachian, Beaumont, Ben Ali, Bewitch, Bourbon, Commonwealth, Double Dog Dare, Dowager, Transylvania, Valley View, Sycamore, Buffalo Trace, Jessamine, Lexington). E. Keeneland's purse structure is among the highest in the country: Spring Meet - total purses of $11,700,000; approximately $730,000 per day Fall Meet - total purses of $11,857,692; approximately $700,000 per day F. Outstanding Thoroughbreds that have run at Keeneland include: Bull Lea, Alsab, Tim Town, Chateaugay, Proud Clarion, Riva Ridge, John Henry, Risen Star, Holy Bull, Azeri, American Pharaoh, Inside Information, Optimistic Gal, Silverbulletday, Xtra Heat, Johnstown, Bewitch, Tommy Lee, Northern Dancer, Forward Pass, Forego, Alysheba, Unbridled, Thunder Gulch, Wise Dan, Bayakoa (ARG), Lure, Princess Rooney, Susan's Girl, Whirlaway, Round Table, Lamb Chop, Moccasin, Arts and Letters, Honest Pleasure, Alydar, 5
12 Sea Hero, Charismatic, Palace Malice, Go For Wand, Manila, Rachel Alexandra, and Spectacular Bid. G. Jockeys who have ridden at Keeneland include: Eddie Arcaro, Don Brumfield, Braulio Baeza, Bill Hartack, Shane Sellers, John Valezquez, Calvin Borel, Kent Desormeaux, Mike Smith, Bill Shoemaker, Randy Romero, Javier Castellano, Edgar Prado, Pat Day, Julian Leparoux, Jerry Bailey, Craig Perret, and Gary Stevens. H. Trainers who have saddled winners at Keeneland include: Steve Asmussen, Shug McGaughey, Bob Baffert, Graham Motion, Chad Brown, Bill Mott, Mark Casse, Dale Romans, Christophe Clement, Bud Delp, Neil Howard, Neil Drysdale, Todd Pletcher, Leroy Jolley, Nick Zito, Ben Jones, Wayne Lukas, and Woody Stephens. I. In 2015, Keeneland hosted the Breeders' Cup. On October 31, 2015 American Pharoah won the Breeders' Cup Classic to become the only horse ever to win American racing's "Grand Slam" -- The Triple Crown and the Breeders' Cup Classic. VI. THOROUGHBRED SALES A. Keeneland is the world's largest Thoroughbred auction company. In 2017, Keeneland sold 5940 Thoroughbreds for a total of approximately $540 million. The average was approximately $91,000 per horse. Thirty-two horses were sold for more than $1 million. Some highlights of Keeneland's sales history include: 1. the largest amount of gross sales in any one year was approximately $800 million in 2008; 2. the world record for a yearling was $13 million for Seattle Dancer, a half-brother to 1977 Triple Crown winner Seattle Slew, which sold at the July 1985 sale; 3. the North American record for a weanling is $3.2 million for a half-sister to Will Take Charge and Take Charge Indy at the 2015 November breeding stock sale; 4. the highest price paid for a broodmare at Keeneland was $10.5 million for Playful Act at the November 2007 breeding stock sale; 5. the highest price paid for a filly coming off the racetrack was $9 million in the 2005 November breeding stock sale. 6
13 B. Horses sold at auction at Keeneland have gone on to achieve enormous success at the racetrack and in the breeding shed. Twenty-one future Kentucky Derby winners, twenty-two Preakness winners, nineteen Belmont Stakes winners, and more than 100 Breeders' Cup race winners (including eleven winners of the Breeders' Cup Classic), were sold at Keeneland auctions. In 2016, all three winners of the Triple Crown races, Nyquist, Creator, and Exaggerator, had been sold at Keeneland auctions. C. Keeneland's involvement in Thoroughbred auction sales was largely an accident of history. Though some horses had been sold at Keeneland in the late 1930's, prior to World War II, Central Kentucky yearlings were typically shipped by rail to Saratoga to be sold at auction. During the war, however, use of the rails to transport cargo unrelated to the war effort was restricted. Therefore, horses could not be shipped to Saratoga and a sales company was established at Keeneland to conduct Thoroughbred auctions. From that inauspicious beginning, the Keeneland Thoroughbred auctions have evolved to where they are today. VII. WAGERING A. Wagering on Thoroughbred horse races is strictly controlled by statute and by regulations promulgated by the Kentucky Racing Commission. Those statutes and regulations establish the maximum take-out allowed for various types of wagers. For example, under Kentucky law, the maximum take-out for win, place and show bets for Keeneland is 17.5 percent; the maximum take out for so-called exotic wagers such as perfectas, trifectas and superfectas is 22 percent. Overall, the blended take-out rate for wagers made on track at Keeneland is approximately 20 percent, and is consistent with the take-out at most tracks around the country. B. The total handle at Keeneland's two meets in 2017 was $273,315,751. The handle is primarily generated from three sources: on track wagering; inter track or "simulcast" wagering; and advance deposit wagering ("ADW"). The recent trend in wagering is a shift away from on track and simulcast wagering and into ADW. Keeneland typically has some of the highest on track wagering in the United States due to the quality of racing and the size of Keeneland's crowds. C. There is a well-established correlation between the number of horses in a race (known as the field size) and the amount wagered on the race. This is due to the fact that with larger fields there are 7
14 more potential wagering options. For example, an increase in field size from six to eight horses will typically increase the amount wagered on the race by approximately 20 percent. As fields get larger (in the range of twelve to fourteen horses), the impact of an additional horse on the total amount wagered declines but is still significant. D. The amount of the take-out which tracks are required to put into purses is typically governed by agreements negotiated by horsemen's groups and the tracks in accordance with provisions of the Interstate Horseracing Act of The typical horsemen's contract requires approximately 50 percent of the take-out to be funneled back into purses at the track. Keeneland typically pays purses equal to a much larger percentage of its take-out. The excess comes from revenues generated from its auction sales. This allows Keeneland to pay purses among the highest in the country and at a level competitive with (though somewhat lower than) those of tracks like Saratoga and Belmont, where purses are supplemented by casino gambling revenues. VIII. KEENELAND TRADITIONS AND INNOVATIONS Keeneland is steeped in tradition, but at the same time has been a leader in the American racing industry in implementing innovations in a wide array of areas. A. Some of Keeneland's better-known traditions are: 1. Directors Room celebrations for winning connections after graded stakes races; 2. the Milestone Trophy Program; 3. the jockey statues next to the paddock; 4. the Clubhouse dress code; 5. the absence of a track announcer to call the races until B. Industry leading innovations at Keeneland have included: 1. the state-of-the-art safety rail; 2. the digital signal/high definition video (the first in American horse racing); 8
15 3. Trakus; 4. Polytrack and the new dirt track; 5. life safety advancements, including the creation of the Jockey Health Information System which maintains medical histories for jockeys; establishment of the jockeys concussion management and return to competition protocol; stateof-the-art medical treatment and emergency station. 9
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17 REDMOND v. THE JOCKEY CLUB 244 Fed.Appx. 663 (6 th Cir. 2007) The Kentucky Horse Racing Authority (KHRA) is an independent state body established by statute to regulate horse racing and pari-mutuel wagering and related activities in the Commonwealth. 1 Under KHRA regulations, no horse may be entered or raced in Kentucky unless it is registered and named in the registry office of the Jockey Club in New York. 2 The Jockey Club is the only organization that registers and maintains records for Thoroughbred horses in the U.S., Canada, and Puerto Rico. It maintains The American Stud Book Principal Rules and Requirements, which outlines the rules and requirements for naming Thoroughbred horses. Rule 6(F) outlines the classes of names that are ineligible for use, including 1) names of persons unless written permission for use of the name is on file with the Jockey Club; 3 2) names of famous people no longer living unless written permission is on file; 4 3) names of notorious people; 5 and 4) names that are "suggestive or have a vulgar or obscene meaning; names considered in poor taste; or names that may be offensive to religious, political or ethnic groups." 6 The Jockey Club has the absolute right to approve all name requests per Rule 6(G). In 2004, Garrett Redmond submitted the name "Sally Hemings" for his yearling filly, a descendant from Thoroughbreds "Jefferson's Secret" and "A Colonial Affair." The Jockey Club denied his request, finding the name was "'in poor taste and may be offensive to religious, political or ethnic groups.'" 7 Redmond appealed the decision to the Jockey Club Board of Stewards, who affirmed. The board concluded [T]he use of the name "may be offensive to persons of African descent and other ethnic groups, may be offensive to descendants of the specific people involved, may have negative historical implications, may have negative moral implications and may be 1 KRS (1) KAR 1:012, 1. 3 Rule 6(F)(6). 4 Rule 6(F)(7). 5 Rule 6(F)(8). 6 Rule 6(F)(13). 7 Redmond v. Jockey Club, 244 Fed.Appx. 663, 665 (6 th Cir. 2007). 11
18 degrading to ethnic groups and descendants of the people involved." 8 The board also rejected use of the name under Rule 6(F)(7), which prohibits using the name of a famous person no longer living. Redmond then filed a complaint in federal district court seeking injunctive relief. He alleged the Jockey Club and KHRA violated his First Amendment right to free speech, the Fifth Amendment Takings Clause, and the Fourteenth Amendment Equal Protection and Due Process Clauses by refusing his request to register the horse as "Sally Hemings." The complaint also included state law claims alleging violation of the Kentucky constitution. The district court granted defendants' motions to dismiss, holding Kentucky had not made an unconstitutional delegation of authority for the Jockey Club to engage in registering Thoroughbreds. The court dismissed the remaining claims on the basis the Jockey Club is not a state actor. Redmond appealed to the Sixth Circuit, which affirmed the dismissal on different grounds. It did not reach the question of whether Kentucky delegated legislative authority to the Jockey Club or whether the Jockey Club's name requirements equaled state action. Rather, the Sixth Circuit held that Redmond failed to allege facts demonstrating a violation of any interest or right protected under the U.S. Constitution. It first found that the Jockey Club's naming registry constituted a limited public forum, in which restrictions on speech are allowed as long as they do not discriminate on the basis of viewpoint and are reasonable in light of the forum's purpose. 9 The Sixth Circuit held the restriction against using the name "Sally Hemings" was reasonable and did not discriminate on the basis of viewpoint. Redmond also failed to allege facts sufficient to state a claim under the Takings Clause. "[H]e has not alleged and cannot allege that the defendants have deprived him of his horse or the use of his horse." 10 The Sixth Circuit also rejected Redmond's Equal Protection and Due Process Claims. Redmond failed to allege facts showing the Jockey Club's regulations are not rationally related to a legitimate state interest. The Sixth Circuit refused to recognize a fundamental constitutional right to name a horse whatever the owner chooses. In conclusion, the Sixth Circuit stated: 8 Id. at 665. If he really wants to race or breed this horse in Kentucky, Mr. Redmond will have to come up with a name that complies with the Jockey Club's rules. A quick look at the Jockey Club's registry confirms that "Horse With No Name" is no longer available Id. at Id. at Id. at
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