Yet as racing gropes for a new claim on the public's attention, Florida seems to be ahead of the pack. After a decade-long tailspin, horse breeders are beginning to find their way in the free market. Prices for both horses and farms are up. A Florida-bred horse nearly won racing's Triple Crown this year. And breeders say some modest changes in regulations will help Florida tracks compete for the betting man's dollar. There's even an effort to build a facility to showcase Florida's horse industry.
To be sure, it's not the giddyap days of the early 1980s, but in some ways it may be better.
Reform
1986: year one of the great fall. At least that's how Florida's horse breeders see it. Business had been good, and then along came the 1986 Tax Reform Act to spoil the fun.
What threw the industry was a provision that stopped passive investors from deducting racehorse-business losses against other income. Suddenly, only active investors - those who could prove to the IRS that they put many hours of real work into the business - could take those write-offs.
Legions of tax dodgers, many of whom never saw the horses they owned, vanished, and horse farms took a direct hit. "We lost a third of our industry," says Dick Hancock, executive vice president of the Florida Thoroughbred Breeders' and Owners' Association (FTBOA).
"I had to do a lot of repossessions in those days, and it wasn't fun," recalls Hugh Dailey, senior vice president, SunTrust Bank, North Central Florida. Many investors "just quit paying for their horses" when they realized they'd lost their tax advantage and "left the horse farms holding the bag," says Dailey.
Steve Wolfson of Ormond Beach was one casualty. He and brother Gary owned Happy Valley Farm, a successful 497-acre thoroughbred horse breeding and training facility in Marion County - the heartland of Florida's horse country. When investors pulled out, they left the brothers in a cash-flow bind, with devalued horse inventories, debt and refinancing nightmares. It led to the loss of their farm, 200 horses and other assets.
As horse prices tumbled, so did the value of horse farms. "For awhile there, you almost had to pay somebody to take your land," says Eileen Miller, co-owner of Glen Miller Realty, an equine properties agency in Marion County.
Today, a decade later, there are signs of renewal in the rolling horse country around Ocala. A robust domestic economy and a booming stock market are making plenty of people wealthy these days - and some of them are indulging in horses. "People are more into it for pleasure now," says David Heckerman, senior editor for The Blood-Horse magazine. But "there are still a few minor tax benefits." And money can be made.
Good luck?
The Florida horse industry got a public relations boost this past spring when Florida-bred Silver Charm nearly took the Triple Crown. After winning the Kentucky Derby and the Preakness, Silver Charm came up short in the Belmont Stakes. Still, her performance put the spotlight on both racehorses - the backbone of the trade - and the horse farms of Marion County.
Florida horse sales are encouraging. "The market is good right now for upper middle range horses - the $25,000 to $100,000 market," says Tom Ventura of Ocala Breeders' Sales (OBS). Ventura points out that all of OBS's monthly horse sales for the first half of 1997 showed steady price increases. For example, in June 1996, 164 horses grossed $1,347,900 - average sale price: $8,219. This year, 152 two-year-olds sold for $2,245,800 - average sale price: $14,775, a 79.7% increase in one year.
Nationwide, the industry is producing annually only about 70% the number of foals it did in 1986. But in 1996, yearling revenues grossed $277.2 million compared to $180.9 million in 1992 - considerably less than the $383.7 million in pre-tax reform 1984, but an improvement nonetheless. According to Heckerman, growing demand has turned into a "broad-based rally" that's pushed up prices for medium and upper level racing and breeding stock.
Part of that demand originates overseas - especially in Japan, Great Britain, South America and Eastern Europe, where horse racing is more novel or more entrenched in tradition than in the United States. Some breeders even worry the U.S. industry is in danger of losing its top bloodstock to the Japanese, who have paid top dollar for American thoroughbreds.
Encouraging horse sales has spurred renewed interest in horse farms. Glen Miller Realty's Eileen Miller says, "during the last 18 months, business has been great." Land prices are creeping back. Carol Neff, an equine realtor and thoroughbred owner, claims that "raw horse land is going for $6,000 to $8,000 an acre, up from $4,000 10 years ago. And closer to Ocala, farm land goes for as much as $15,000."
In the pre-1986 days, Marion County had many farms like Wolfson's Happy Valley - big operations with hundreds of acres and lots of horses and workers. But now the trend is to carve up large farms. Investors want smaller, more manageable farms with fewer but better horses. "A horse farm in 1988 worth $1 million is still worth less today than it was then, but a 50-acre farm is holding its value or increasing," says Dailey of SunTrust Bank.
There's activity at the high end of the market, too, according to Neff. "We're starting to see a lot more substantial investors coming back into the market. Today's big investors are looking at 200- to 500-acre farms again." Neff's Equus Realty recently handled the sale of Due Process, a 530-acre farm, for $5 million - a deal that, she thinks, may be one of the biggest ever in the U.S.
Economic study
The Florida thoroughbred industry produced $68 million in sales in 1996, ranking it 16th among 248 agriculture commodities recognized by the state. And a new study claims that the thoroughbred business contributes $2.2 billion in goods and services to the state's economy every year. According to the study done by a unit of KPMG Peat Marwick LLP, "The national industry has a $6.5 billion impact on the Florida economy when the multiplier effect of spending by industry suppliers and employees is taken into account."
Some caution may be in order. The study's sponsor was the American Horse Council Foundation - hardly an impartial party. Just how much of a "turnaround" the industry has made isn't clear. Skeptics wonder if it is mostly attributable to a surging economic tide that raises all boats.
According to the FTBOA's Hancock, a reason for the modest comeback is recent gains in the Florida Legislature. Among changes he cites are new rules that let breeders and owners of winning horses receive a bigger share of the purses and prizes from racetracks. The FTBOA estimates that purses in Florida have gone from $39.3 million in 1988 to $54 million in 1995, and it projects $62 million in 1998.
Other factors that have benefited horse owners and racetracks include the arrival of intertrack wagering (the use of parimutuel sites where remote wagers are pooled with those made at the race site) and simulcasting (also betting on televised races, but bets aren't pooled). In addition, the industry got some federal tax breaks in 1996. One, for example, provides that half of a new "on-track" tax reduction goes toward purses. Another reduces the tax on interstate simulcasting from 3.3% to 2.4%.
But what about the slump in racetrack attendance? Attracting young people to the sport is a problem. Horse racing faces tough competition: team sports, theme parks, dog racing, jai alai, cruises, the lottery. The remedy, according to some industry reformers, is to spruce up Florida tracks and make them more family-friendly - like Saratoga, N.Y., for example - and offer free admission.
Ken Dunn, president of Calder Race Course, wants lawmakers to unshackle racetracks from a host of state mandates that control everything from where tracks can be built to where simulcast signals can be sent and when horses can run. For example, live racing must end before 7 p.m., prohibiting most working men and women from weekday track attendance. "The public needs to be protected," he agrees, "but beyond that we should be able to compete and sell and operate like any other business." Dunn says the industry needs a marketing campaign to "create the image that horse racing's the in-thing to do."
One industry image-boosting project is underway in Marion County, where plans are taking shape for the $40 million Florida Agriculture Center and Horse Park. It's a move to lure tourists from nearby I-75 and promote Florida's 40-breed horse industry. Plans include hosting everything from rodeos to polo matches.
Chances are slim that the horse industry will ever see the go-go days of the early 1980s. "The tax reform of '86 blew away a false economy," says Mark White, an accountant with Purvis Gray & Co. in Ocala. "Now, investors have to evaluate a business decision on sound economic principles. They are now in the horse industry to make money, not avoid taxes."
Given the fact that only 15% of racehorses earn enough to make it worthwhile, horse breeding may remain largely an indulgence of the rich. If so, thousands of equine workers in Florida may well hope the well-heeled never stop horsing around.