Kentucky's Incentive Model Creates Virtuous Cycle of Racing Dominance

The Kentucky Thoroughbred Development Fund and Breeders Incentive Fund represent a strategic, long-term investment in the racing industry, demonstrating how carefully crafted economic incentives can create a virtuous cycle of growth and competitiveness. This conversation reveals the hidden consequence of such programs: not just immediate financial returns, but the creation of a robust ecosystem that attracts talent, increases wagering, and solidifies a state's dominance in a global sport. Those involved in economic development, sports management, or any industry reliant on complex incentive structures will find value in understanding how Kentucky has leveraged its historical strengths to build a future-proof model, a stark contrast to industries that fail to adapt to evolving wagering and economic landscapes.

The Kentucky Model: A Virtuous Cycle of Investment and Dominance

The success of Kentucky's Thoroughbred racing and breeding industry is not an accident; it's the result of a deliberate, multi-faceted strategy that leverages historical strengths while adapting to modern economic realities. While the immediate payoff of increased purses and awards is evident, the deeper, systemic implications are what truly set the Bluegrass State apart. This isn't just about more money; it's about creating an environment where every stakeholder--from breeders and owners to racetracks and horseplayers--benefits from a self-reinforcing cycle of investment and engagement.

The core of this strategy lies in the Kentucky Thoroughbred Development Fund (KTDF) and the Breeders Incentive Fund (KBIF). These programs, far from being mere subsidies, are designed to foster a competitive ecosystem. As Chauncey Morris, Executive Director of the Kentucky Thoroughbred Breeders Association and Kentucky Thoroughbred Owners and Breeders, explains, the goal was never restricted racing, but rather to "further compensate" Kentucky-bred horses when they win. This nuanced approach, coupled with a commitment to offering substantial awards--a record $20 million in awards for breeders participating in the KBIF program in 2024--has demonstrably paid off. The transcript highlights that the KTDF offered $69 million and paid out $59 million, indicating a significant reinvestment into the industry.

This financial injection has a cascading effect, directly influencing field sizes and, consequently, wagering. Morris notes the direct correlation: "when you have higher purses, you then get bigger field sizes because everybody wants to run in those races. Because of that, you end up having higher wagering and handle because you have bigger fields." This is a critical insight into systems thinking. The immediate action--increasing purses--doesn't just benefit the winning horse; it creates a more attractive product for bettors. Larger fields mean more betting opportunities and potentially more unpredictable outcomes, which can be appealing to the horseplayer. This, in turn, generates more revenue for the tracks, allowing them to further reinvest, creating a positive feedback loop.

"The part that is new, obviously, is how we have used historical horse racing and coupled that with what we believe to be the most competitive racing philosophy that we've never had restricted racing here in Kentucky ever."

-- Chauncey Morris

The introduction of historical horse racing (HHR) terminals has been a significant catalyst. Morris points out a crucial economic distinction: unlike casinos where players bet against the house with larger margins, HHR returns a substantial portion to the bettor. In the past year, over $9 billion was wagered on HHR terminals, with $8.1 billion returned to bettors. The remaining $900 million, after all expenses, directly funds the industry. This generated $75 million for the Commonwealth of Kentucky's general fund and an additional $54 million from sports wagering, which the racetracks manage. This revenue stream is vital, enabling racetracks to "reinvest back into infrastructure," creating a "virtuous cycle." This is where conventional wisdom might suggest focusing solely on the betting public's experience, but Kentucky's model demonstrates that robust infrastructure investment, funded by new wagering streams, ultimately benefits everyone by improving the quality of racing and the overall product.

The strategy extends beyond just financial incentives. The transcript emphasizes the collaborative effort among tracks, racing offices, horsemen, and owners. Furthermore, the KTDF allotment can be used for approved marketing purposes, a strategic decision that helps disseminate information to horseplayers and enhance the attractiveness of the racing product. This proactive marketing, coupled with the substantial purses, has led to a remarkable increase in the horse population in training within Kentucky--from 5,500 thoroughbreds year-round to over 7,000 starters in 2024, a significant jump from 59,900 in 2018. All-sources handle has also seen a dramatic 74% increase, reaching $1.8 billion last year compared to $1.06 billion in 2018.

"So we don't have this huge asset compared to what other states started with. We've just over time made it a bit more competitive and it's generating real dollars for our industry."

-- Chauncey Morris

Looking ahead, Morris acknowledges the need for continued adaptation. He identifies potential disruptions like fixed-odds wagering and betting exchanges, which could significantly alter racing's economic model. The key, he stresses, is to "see, work with our legislature, see if those are good fits for us." This pragmatic approach, grounded in a deep understanding of the "dollars and cents economic issues" that define the industry, is what allows Kentucky to maintain its competitive edge. The KTDF program, for instance, is structured with tiered tax rates, ensuring that revenue generation remains efficient. This disciplined focus on economics, Morris argues, is crucial for remaining competitive.

The success of the Kentucky model offers a stark contrast to industries that fail to evolve. By creating a system where investment in breeding and racing yields tangible, compounding returns, Kentucky has not only maintained its historical dominance but has positioned itself for future success. The delayed payoff of building such a robust ecosystem--requiring patience and strategic foresight--is precisely what creates a durable competitive advantage, one that many other racing jurisdictions have struggled to replicate.

The Long Game: Actionable Takeaways from Kentucky's Success

The insights gleaned from this conversation offer a blueprint for industries seeking sustainable growth through strategic incentive design and ecosystem building. The key is to look beyond immediate gains and understand the long-term consequences of economic decisions.

• Implement a tiered incentive program: Structure rewards to offer escalating benefits for achieving higher levels of success or commitment, mirroring the KTDF's approach. This encourages sustained effort rather than short-term wins.
  • Immediate Action: Review current incentive structures for opportunities to introduce tiered rewards.
  • Payoff Horizon: 6-12 months for observable shifts in participant behavior.
• Foster collaborative ecosystem development: Actively engage all stakeholders--suppliers, partners, regulators, and end-users--to create a shared vision and mutual benefit. Kentucky's success is built on the collective effort of tracks, horsemen, and breeders.
  • Immediate Action: Convene a cross-functional working group to map interdependencies and identify areas for joint investment.
  • Payoff Horizon: 12-18 months for stronger partnerships and more integrated strategies.
• Explore and adapt to new revenue streams: Be proactive in identifying and integrating emerging technologies or wagering formats that can generate new funding for core operations and infrastructure. The adoption of HHR and the consideration of fixed-odds wagering exemplify this.
  • Immediate Action: Dedicate resources to researching and piloting new revenue-generating models relevant to your industry.
  • Payoff Horizon: 18-24 months for integration and measurable financial impact.
• Invest in marketing and education: Clearly communicate the value proposition of your industry and its programs to attract and retain participants and consumers. Kentucky's use of KTDF for marketing and the focus on educating horseplayers are prime examples.
  • Immediate Action: Develop targeted campaigns to highlight the benefits and opportunities within your sector.
  • Payoff Horizon: Ongoing, with noticeable improvements in engagement within 6 months.
• Prioritize infrastructure and long-term investment: Recognize that sustained success requires investment in foundational elements, whether it's physical infrastructure, technology, or human capital development, to ensure future competitiveness.
  • Long-Term Investment: Allocate a percentage of new revenue streams specifically for strategic infrastructure upgrades and R&D.
  • Payoff Horizon: 3-5 years for significant improvements in operational efficiency and market position.
• Embrace data-driven decision-making: Continuously analyze economic metrics, participation numbers, and market trends to inform strategic adjustments and maintain a competitive edge. Kentucky's rigorous focus on "dollars and cents economic issues" is key.
  • Immediate Action: Establish clear KPIs and a regular cadence for reviewing performance data to guide strategic pivots.
  • Payoff Horizon: Continuous improvement, with strategic adjustments yielding benefits within 6-12 months.
• Cultivate a culture of adaptation: Foster an environment where anticipating and responding to industry shifts is the norm, rather than a reaction to crisis. This requires a willingness to challenge existing paradigms and explore unpopular but durable solutions.
  • Immediate Action: Encourage open dialogue about industry evolution and potential disruptions, rewarding foresight.
  • Payoff Horizon: Ongoing cultural shift, with innovative solutions emerging over 1-3 years.