140 mare cap | Horse Racing Free Tips

Equine Law Expert Bob Heleringer Talks Medina Spirit Ruling On Writers’ Room

This week, 296 days after the race was run, the Kentucky Horse Racing Commission ruled on the case of the 2021 GI Kentucky Derby, officially disqualifying winner Medina Spirit (Protonico) and elevating Mandaloun (Into Mischief) into first place. Additionally, the KHRC suspended trainer Bob Baffert for 90 days and Baffert's legal team quickly promised appeals to an administrative law judge. Bob Heleringer, a lawyer, law professor and the author of “Equine Regulatory Law”, joined the TDN Writers' Room presented by Keeneland Tuesday as the Green Group Guest of the Week to discuss the merits of the KHRC's decision, whether Baffert horses will ultimately be able to run in this year's Derby and more.

Asked if Baffert has any argument for an appeal despite the drug overage being confirmed and against the rules, Heleringer said, “The regulatory side of this is different from the judicial side of it. The regulatory side tries to have [rules] in the starkest colors with no room for prevarication or obfuscation. They don't want these cases bogging down and getting away from the absolute part of the rule. So it's only when it moves to the judicial forum that there's a possible chance of some kind of prevarication as to why the rules should not strictly apply. And they'll base that on due process grounds, whether or not you're violating [Baffert's] rights if you take it to the absolute level that the regulatory people have. That's an argument that both of these Circuit Court judges in Frankfort will at least listen to.”

Baffert also has an interest in overturning the KHRC's suspension so that he can potentially run horses in the Derby, but he also would have to win an appeal against Churchill Downs Inc.'s two-year suspension of him, and he hasn't officially filed anything yet in that case. Heleringer was asked what Baffert's chances of racing in the Derby are.

“Right now, his chances are zero,” he said. “I'm kind of perplexed, like some other people, that he hasn't filed such a challenge yet. Maybe that's forthcoming, but it hasn't happened yet and time is dwindling. It looks like most of his owners have stayed with him, but these horses are winning significant races and not racking up any [Derby qualifying] points. Churchill Downs is resolute. So at some point, he's going to have to seek judicial intervention of some kind. It's going to get very interesting.”

Elsewhere on the show, which is also sponsored by Coolmore, West Point Thoroughbreds, XBTV, the Pennsylvania Horse Breeders Association and Legacy Bloodstock, the writers reacted to The Jockey Club backing off of its 140-mare cap, appreciated a few performances from Saturday's Fair Grounds card and discussed the implementation of Category 1 interference rules in America. Click here to watch the podcast; click here for the audio-only version or find it on Apple Podcasts or Spotify.

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Jockey Club Asks Judge to Dismiss ‘Scattershot’ and ‘Meritless’ Stallion Cap Lawsuit

Alleging that a lawsuit by three Kentucky stud farms over the 140-mare stallion cap is “based on groundless and contradictory fortune telling,” The Jockey Club (TJC) filed a motion in federal court Mar. 29 asking the judge to dismiss the complaint, which seeks to have the breeding limit repealed and to award an unspecified amount of damages that the plaintiffs want paid in triplicate.

According to Monday's filing in United States District Court, Eastern District of Kentucky (Central Division), Spendthrift Farm, Ashford Stud and Three Chimneys Farm are suing TJC and Kentucky Horse Racing Commission (KHRC) officials Jonathan Rabinowitz and Marc Guilfoil “because they want the option to overbreed a hypothetical, wildly popular, future Thoroughbred stallion if they obtain one. And if that stallion covers over 140 mares in a given breeding season, they want this Court to force TJC to register each resulting foal as a Thoroughbred.”

The motion to dismiss continues: “Plaintiffs' Complaint is pure conjecture, alleging speculative and hypothetical theories as facts and conjuring injuries that may never come to be.

“Plaintiffs have not alleged a single actual or certainly impending injury. For example, Plaintiffs have not alleged that they have lost a dime because of TJC's decision.

“So despite throwing a pot with a melange of undercooked pasta varieties at the wall, none sticks.

“Moreover, Plaintiffs' hodgepodge of speculative claims lacks plausibility and suffers from Plaintiffs' fundamental misunderstanding of the facts, law, and relevant statutory regime.”

On May 7, 2020, TJC put into effect a new rule–known as 14C–that mandated for stallions born in 2020 and later, the maximum number of mares covered will now be 140.

TJC cited the significant, decades-long decline in the North American foal crop and concerns “with the narrowing of the diversity of the Thoroughbred gene pool,” in implementing this new policy, which was met with a hazy mixture of consternation and support within America's bloodstock community.

On Feb. 23, 2021, Spendthrift, Ashford and Three Chimneys Farm sued to keep the rule from going forward and to collect alleged damages. The complaint called 14C a “blatant abuse of power” that acts as an “anti-competitive restraint” and threatens to disrupt the free-market nature of the breeding business.

On Monday, TJC disagreed, calling the plaintiffs' allegations “scattershot.”

“Alleging these meritless claims, Plaintiffs seek a multitude of damages…for entirely speculative injuries and a series of injunctions whose scope bears no relation to those alleged injuries and could result in the cessation of Thoroughbred racing in Kentucky.”

In greater detail, the motion to dismiss explains that “First, the KHRC did not delegate power, constitutionally or otherwise, to TJC. The Kentucky General Assembly, not by the KHRC, decided in 1960 to statutorily reference TJC's Thoroughbred registry. And the statutory scheme delegates no power. It is well established that a state does not delegate legislative power by making a statutory reference to a private breed registry.

“Second, TJC's decision was not unconstitutional. Not only have Plaintiffs failed to allege that TJC, a private breed registry, is a state actor as would be required for TJC to deprive Plaintiffs of their constitutional rights, but there is no constitutionally protected 'right to race.'

“Third, TJC's decision by its governing Stewards' vote reflects neither an antitrust conspiracy nor harms competition. A basic tenet of antitrust law is that a single entity's decision, even one that results from its governing body's consensus, does not implicate the antitrust laws…

“Finally, the antitrust laws protect competition, not competitors. An antitrust plaintiff must demonstrate antitrust standing, which ensures that the purported injury is one that the antitrust laws are intended to redress. Plaintiffs cannot make any such showing as their speculative and theoretical injuries at best may reflect the potential for harm to themselves, but not to competition.”

According to The Jockey Club's Report of Mares Bred, 42 stallions bred over 140 mares in 2020. Of that total, 16 of those 42 stood at either Spendthrift, Three Chimneys or Coolmore/Ashford. Those 16 stallions bred a total of 1,088 mares over what will be the phased-in cap of 140: Spendthrift (576), Coolmore (429) and Three Chimneys (83).

“Plaintiffs brought this lawsuit alleging purely speculative economic hypotheses to maintain the option of overbreeding future stallions,” TJC contends in its filing. “Plaintiffs do not allege that they own a single stallion that has been prevented from covering a 141st mare, that they will own a stallion that will be prevented from covering a 141st mare, or that a future stallion could not travel overseas to continue covering mares in the Southern Hemisphere after covering its 140th U.S. mare.

“Nor could they; Rule 14C only applies prospectively in the United States and Canada to preserve the health of the Thoroughbred breed for the long term.”

In a separate filing, the two KHRC defendants filed an answer to the complaint requesting that it “be dismissed, with prejudice [and for the granting of] any and all other relief to which they may appear entitled.”

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Letters to the Editor: On the 140-Mare Cap

There is no simple answer to the question of whether or not it is in the interests of breeders in the United States to limit the number of mares any stallion can cover. However, we can be certain that none of the relevant arguments should be concerned with questions of free markets. Not even the most dogmatic of believers in the efficiency of free markets would, after a moment's reflection, consider the market for stallion seasons to have the appropriate characteristics.

A free market is one in which no one player, on either the supply or demand side, holds a dominant position, and it is also one in which all the relevant information is available freely to both buyers and sellers. In the stallion market, there are of course players who hold a dominant position and these and others have always resisted attempts to create a more open market where everybody is aware of changes in prices and supply. More often than not, when you sign the contract for a stallion season, you are not entirely sure of either how many mares the stallion in question will cover, nor the exact price paid by other breeders using the same horse. This is not a criticism; it is simply the way markets function without regulation. The players in any market will of course try to maximize their rent or return without considering the interests of all the other participants. For a market to be and to remain free there have to be rules.

Once it became technically and physically possible for stallions to cover successfully anything up to and beyond 200 mares during the spring covering season it was inevitable that many stallion owners would chose to do so. Particularly as almost as immediately it become clear that the demand for seasons to successful and popular stallions is inelastic to both price and supply. The market for stallion seasons is not at all similar to those for ordinary agricultural products, where you expect demand to fall when the price rises and for prices to fall if there is an expansion of supply. We have seen many examples in both the United States and Europe showing that when a stallion is commercially hot, demand for seasons is almost limitless, whatever the price and the number of mares due to be covered.

The market for stallion seasons resembles those for luxury goods. To begin to understand the way it works you have to think about top of the range handbags rather than grain or potatoes.

Once a handbag acquires the status of a symbol, the more expensive it is, the most desirable it becomes and the more often it appears on the shoulders of the right people, the more others want to have it on theirs. The peak satisfaction comes at the moment of purchase, the instant when you join the club of those who have it. The thrill lingers on, but in many cases, it will not be quite so exquisite in the future. For every product, there will probably be a price and a supply which is just too much, but in both cases, experience has taught that it is higher and bigger than anyone would have thought possible viewing through the prism of utility or efficiency.

In the early days, many thought that big stallion books would be a passing phase. Commercial breeders would soon realize that it was not in their interests to pay a lot of money for a season only to go to the sales to compete with anything up to 100 other yearlings by the same sire. This again was a misconception as breeders, as much as those who buy yearlings, are searching for a dream. Most breeders sign the contract avidly, aware of the competition ahead, but confident that their mating will produce one of the best by the sire who will shine in the sales ring and on the track afterwards.

Given the nature of the market, does it make sense to restrict the number of seasons offered to any stallion? After all, few would suggest that Hermes should be allowed to make only a certain number of its most sought after handbags, even if the number any customer is allowed to buy is limited. There are probably two sides to any attempt to answer. The proposed limitation will surely open up the market to a wider range of both horses and people who stand them. Some of the mares covered in the past by the most popular sires will instead be covered by others. The business will not be lost, but will be spread over more sires with different owners. The bloodstock market consistently fails to select the best stallions when they first go to stud. From Tapit, Into Mischief or War Front to Dubawi, Galileo and Siyouni in Europe, the best sires are rarely rated at the top of their generation when they start out on their stud career. For this reason alone, any regulation which forces breeders to try a wider selection of new stallions will probably be beneficial for everybody in the medium run. And then by lowering the barriers to entry and the advantages of the established farms, it will also encourage new stallion owners and farms to enter the business.

The second part of the argument concerns the long or medium term effect of concentrating breeding on an ever smaller selection of elite sires. No genetic test is ever going to resolve this conundrum as nobody knows for sure exactly which physical and mental characteristics allow one horse to run faster than another. In some ways breeding has its own built in adjustments as the future will never be a repeat of the recent past. The success of one super-sire will on its own change the type of mare likely to be successful in the future. As the breed itself is continually changing, and so are the type of sire and mare most likely to succeed.

However, anybody who has worked on matings knows there is already a problem of inbreeding with Thoroughbreds, particularly in Europe, and this is a one which is going to get worse as books of 150+ mares have only become common relatively recently. A look at the Thoroughbreds' past suggests that excessive inbreeding will throw up a few superior individuals, but will also create weaknesses and failures of both physical and mental characteristics. Successful breeders are always thinking about future generations and if the market is pushing in one direction nudging breeders towards prudence and variety will probably help everybody in the medium term.

One possible compromise would be to restrict the number of mares any stallion can cover during its first five seasons at stud, while allowing the handful of sires who are still popular and sought after at this point in their careers to cover more. This way, you could push breeders to try a broader selection of sires, while allowing the owners of those who prove to be the best to maximize their return.

No organization is in a position to contemplate imposing similar restrictions in Europe. If The Jockey Club succeeds in doing so, breeders from all over the world will of course, be following the experiment.

–Jocelyn de Moubray

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For Stallion Cap Protectionism Lesson, Read Kentucky’s Tobacco Leaves

Lexington native Frank Penn raised both Thoroughbreds and tobacco for the better part of 50 years at Pennbrook Farm, his 300-acre spread out on Mt. Horeb Pike. Based on that experience, he has some words of caution for the bloodstock industry as it enters a new era of protectionism with The Jockey Club's recent rule change limiting to 140 the number of mares a stallion can cover, starting with foals of 2020.

In short, Penn said, the Thoroughbred industry should read Kentucky's now-withered tobacco leaves to glean a lesson in how deviating away from a free marketplace can harm the very trade that restrictive policies are designed to protect.

Penn, a director emeritus of the Kentucky Thoroughbred Association/Kentucky Thoroughbred Owners & Breeders, Inc., said there are “similar but different” parallels between the United States tobacco production in the 1970s and America's bloodstock business today. Both industries have (or had) an anchor base of about seven or eight major states, and each at some point turned to forms of over-arching protectionism in attempts to solidify their futures.

“The different part is that at the time, we were trying to limit the production of Burley tobacco, which is what we raised in Kentucky,” Penn told TDN via phone on Feb. 24, one day after three Kentucky stud farms sued The Jockey Club in federal court, alleging that the phased-in cap on matings acts as an “anti-competitive restraint” that threatens to disrupt the free-market nature of the bloodstock business.

“Before the filtered cigarette, Burley was extremely important because it provided the flavor and the aroma in a cigarette,” Penn said. “And we–meaning the tobacco industry–tried our best to limit production to keep the price up. But what happened was we just moved the market overseas. They couldn't get the Burley in Kentucky to the price point that they wanted. And so with worldwide marketing, [cigarette manufacturers] were able to get the producers in Brazil and Zimbabwe to raise the kind of tobacco they wanted, and therefore Kentucky gave away their market.”

Penn continued: “If you'd have asked me a year ago what I thought about [the stallion cap rule], I'd have said I supported it. The reason I would have supported was if we were going to the Keeneland sale, there were 60 or 70 yearlings by the same sire, [so] if you didn't have one of the top 10 of those 70, you were kind of in trouble [because] they flooded the market. So from a market standpoint, I would have said [a cap] is a good thing.

“But the more I've thought about it and watched our horse industry over the past year, I've pretty much come around 180 degrees, to the point where I think once you start [capping matings] all you do is give your competition [an advantage]. It puts us at an unfair competition market, and I believe that all this is going to do is give away the top part of our stallions. They're going to go overseas, just like the tobacco industry did.”

Penn summed up: “In other words, the competition, the price to acquire the stallions, it's like pushing a balloon. You push in one side, and it pushes out on the other. And I believe there's some correlation between the tobacco industry and what we're trying to control in [the bloodstock] industry.

Asked if he thought there were other options to address The Jockey Club's concerns about diversity within the gene pool, Penn drilled down the argument to something he said seems to be lacking across many industries these days–common sense.

“When you talk about the genetic pool, we've gone from 52,000 foals at the height of our Thoroughbred production now down to less than 20,000,” Penn said. “At 52,000, there wasn't much way that you were going to take 200 mares to a stallion and [affect] the gene pool. I don't know where that number is [that represents the point at which large batches of same-sire matings do affect the genetic pool]. But at some point, based on common sense, that becomes a valid argument.

“I don't want to be cynical. But I don't believe common sense is as common as it used to be,” Penn said. “My observation in life has become that we don't apply common sense to a lot of things any more. And common sense will tell you that a free market–win, lose or draw–is usually the best solution.”

Penn, 75, said these days he neither raises Thoroughbreds nor tobacco on his farm, which was established in 1968 and over the years housed numerous graded stakes winners, including the 1989 and '90 distaff champion Bayakoa.

“Pennbrook is retired as a boarding operation but we still farm the land,” Penn said. “My mares have been moved over to my brother John's farm, Pennland, over in Bourbon County. I am leasing the barn and 50 acres that I fixed up to people who like to jump over things on horseback–show horse people.

“I'm learning a whole new game while still involved with Thoroughbreds on a small scale,” Penn said.” But I'm not boarding horses anymore. I was fortunate to work with some really good horses for some really good clients. I love raising horses and love the sport. I will always be involved with Thoroughbreds to some extent.”

And the scope of the farming operation now that tobacco has been phased out?

“We're pretty bold,” Penn said with a laugh. “We tried to do the cattle thing, and I remembered 50 years after I first quit cattle why I quit it, so that didn't last long. And then we tried hemp, but we tried it on too big a scale. We found out that anything you use by the medicine dropper but raise by the acre, you get oversupply problems. So we learned that lesson, and now we're raising a little sod and some hay. That's about it.”

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