This Side Up: The Cap of Good Hope

As somebody remarked at the time, on seeing B. Wayne Hughes and M.V. Magnier deep in conversation one morning before the 2019 Breeders' Cup: “I'll give you 140 guesses what they're talking about.”

Both men were at Santa Anita representing farms that have had a transformative influence on the commercial breeding landscape, developing a similar system for launching stallions on an industrial scale. We have, of course, since grieved the loss of Hughes–but among his many legacies can now be counted a supporting role in the defeat of The Jockey Club's contentious proposal to cap books at 140 mares.

True, the litigating farms had not yet managed to net that particular whale when a harpoon from the Kentucky state legislature got the job done virtually overnight. That initiative will maintain the 72nd district representative in the esteem of many in his community, as one of their own; and wherever you stand on this divisive issue, you know that Matt Koch, for one, will absolutely buy into the decorous talk of unity with which The Jockey Club sugared the pill they've had to swallow.

And it really does feel incumbent on all who have prevailed here not just to be magnanimous in victory, but also to take that step back and ask whether at least some of the concerns The Jockey Club had sought to address might merit collective attention.

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All parties profess to have the interests of the breed at heart, albeit sometimes perceiving these in a fashion that blatantly coincides with their own. And certainly it can be argued that The Jockey Club's approach was too arbitrary–in both senses of the word–to deal effectively with a challenge as complex as maintaining genetic diversity. To me, however, we only ended up in this pickle because the real need for correction fell beyond the reach of any enforcement: at ringside, that is, and in the behavior of buyers.

As it was, we ended up with a stand-off that could be conveniently conflated with wider polemics. The conservative establishment, for instance, resisting brash, self-made success; or paternalism versus the free market. Following the intervention in Frankfort, it can even be depicted as a test of the kind of state autonomy we are seeing harnessed, as sacrosanct, against federal menaces to the constitutional right to dope your racehorse.

The trouble with all this emotive symbolism is that if you're not careful you end up taking a train that terminates in no regulation at all. And then how would you preserve the integrity of the breed? If there's enough money in it, for enough people, you'll end up with a cookie-cutter racehorse, between artificial insemination and eventually cloning, the only remaining differentiation being what you inject with your needle.

For now, it's well-worth remarking that actually nobody would be better suited by a more even spread of mares than the stallion farms themselves.

Trying to get your money back on a stallion in barely 18 months is a horrible business model for their accountants. But that is pretty much what the market is often asking them to do, in flitting from one rookie to the next like a honeybee in a hothouse. While operations as skillfully adapted as Spendthrift and Ashford still seem able to keep a stallion in the game at least through years two and three, many young sires are being abandoned overnight by breeders terrified of getting stuck with the second or third crop of a sire cooling off in the ring–albeit even then he still won't have had a chance to demonstrate whether he can actually breed runners. Nothing, in the end, should be more commercial for a mare than a bunch of stakes horses under her name. But, if you're breeding to sell, then you'll probably start off by mating to sell, too.

And really, as I've often acknowledged, you can no more blame commercial breeders for the overall situation than you can the farms. Both are trying to put bread on the table through the notoriously precarious agency of an animal prone to countless game-ending mishaps. So, the only reason hundreds of mares are sent to unproven new stallions, many of whose credentials are decidedly marginal anyway, is because of anticipated market demand.

Now, I've been rebuked in the past that proven stallions are so expensive that you have no choice but to roll the dice on a new one. But I won't buy that while some new sire who will probably end up with one stakes winner in Panama, and standing in Oklahoma, continues to draw three times the mares than, for instance, one who produced winners of the two most prestigious dirt races in America, in Lookin At Lucky.

I do willingly concede two things. One is that the situation is infinitely worse in my homeland Britain, and Ireland. At least commercial breeding in Kentucky remains properly focused on a horse that can run two turns on the first Saturday in May. The other is that there is a self-fulfilling logic to investing in a first crop, in that most stallions will never get a better book than their debut one.

That said, I do think we all need to take our share of responsibility–above all, those who direct investment at ringside. They need to be held account both by their affluent patrons, who want nothing better than a runner; and by the breed itself, which would be far better served by the seeding of commercially unglamorous but demonstrably effective sires. If The Jockey Club's attempt to stem the tide simply wasn't viable, then it's up to all of us to make such contribution to the betterment of the breed that falls within our reach.

So note that while the two big Derby hopes resuming in the GII Risen Star S., Zandon and Smile Happy, each happen to be from only the second crops of their sires, both Upstart and Runhappy stand at farms that keep a voluntary lid on book sizes. This, of course, is partly because they believe they actually look after their clients better that way, by preventing inundation at the sales. And the whole reason I'll be rooting for Zandon is that he was brought into the world by such exemplary people, who scrupulously dovetail their commercial mission with the long-term prosperity of the Thoroughbred itself.

Certainly this, at last, looks like the race to put horses back at the center of the Derby conversation, rather than one particular trainer. True, Smile Happy happens to represent a barn that finds itself with Baffert-like depth, this time round; and his win over the Derby track last fall has now been advertised further still by Classic Causeway (Giant's Causeway). Just like Zandon, however, he comes into a tough field pretty raw. You feel that both horses only need to run well enough to set up a grab for the necessary gate points next time.

If they do make the Derby, mind, they plainly won't have many miles on the clock. Whether such delicate handling, increasingly common among modern trainers, might reflect some perceived or actual dilution in the breed is hard to say. Perhaps a horse like Zandon would have been perfectly equal to an old-school grounding: his sire, after all, was placed at the elite level at two, three and four. But there are plenty of old sages around who will tell you that horses today simply don't have the timber of generations past.

And that's the kind of trend we must keep in mind if tempted to predicate our breeding strategies only on short-term gain. If you didn't like being told what to do by The Jockey Club, that's fair enough. But if, as everyone invariably claims to be the case, your choices are governed primarily by the welfare of the horse, then you shouldn't need telling in the first place.

If there's one thing more sacred than your right to take your own decisions, it's the wellbeing of these noble animals as they pass through our brief stewardship. Rights, remember, are the other side of the exact same coin as duty. If we want to take our own decisions, then we must also accept the accompanying responsibilities.

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Bill Filed in Ky to Sidestep Stallion Cap

In an attempt to get around a controversial rule by The Jockey Club (TJC) that mandates that stallions born from 2020 onward will only be allowed to cover up to 140 mares, the Speaker of Kentucky's House of Representatives on Feb. 14 co-filed a bill that would prohibit “a registrar of Thoroughbreds” from restricting “the number of mares that can be bred to a stallion or otherwise refuse to register any foal based upon the number of mares bred to the stallion.”

In addition, the measure would empower the Kentucky Horse Racing Commission to “select and utilize an entity to serve as the registrar,” meaning that the state's selection might not necessarily end up being the 128-year-old, industry-standard TJC.

Yet if the chosen registrar does end up being TJC and that organization does not “submit to the jurisdiction of Kentucky” and “comply with the laws of this chapter,” the bill's summary states that Kentucky will amend state statutes to instead “allow the Kentucky Thoroughbred Development Fund registrar to stamp a Thoroughbred's certificate with the registrar's seal.”

House Speaker David Osborne (R-Prospect) and Rep. Matthew Koch (R-Paris) are the co-sponsors of House Bill 496 (summary and details here).

When reached late Tuesday afternoon in his New York office, TJC's president and CEO, Jim Gagliano, said his organization would have no comment at this time.

The controversy over the so-called “stallion cap” dates to May 7, 2020, when 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 be 140. TJC indicated it simply would not register any foals that were not the product of matings with the first 140 mares to which that stallion was bred in a given year.

At that time, 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 the new policy, which was met with a hazy mixture of consternation and support within America's bloodstock community.

In 2020, the year the rule went into effect, 42 stallions bred over 140 mares.

On Feb. 23, 2021, Spendthrift, Ashford, and Three Chimneys Farm sued in federal court 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 threatened to disrupt the free-market nature of the breeding business.

On Mar. 29, TJC disagreed, calling the plaintiffs' allegations “scattershot” and “meritless.” TJC moved to dismiss the lawsuit, but the judge has yet to rule on that motion.

Reached just before deadline for this story, Spendthrift declined to comment on the proposed legislation.

If enacted as written, the bill aspires to become reality within about six months.

The bill states that, “On or before Sept. 1, 2022, the racing commission shall promulgate administrative regulations in accordance with [state statues] to implement this section.”

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Stud Farms Sue Over 140-Mare Cap, Allege ‘Blatant Abuse of Power’ by The Jockey Club

Spendthrift Farm, Ashford Stud and Three Chimneys Farm are suing The Jockey Club in federal court over the “stallion cap” rule that went into effect in 2020, alleging that the 140-mare breeding limit now being phased in amounts to a “blatant abuse of power” that acts as an “anti-competitive restraint” and threatens to disrupt the free-market nature of the bloodstock business.

The plaintiffs contend that the stallion cap “serves no legitimate purpose and has no scientific basis” while alleging that the nine stewards of The Jockey Club who voted to adopt the rule change purportedly did so based more on a desire to satisfy their own “conflicting economic interests” rather than their organization's stated purpose of “facilitating the soundness of the Thoroughbred breed.”

Two Kentucky Horse Racing Commission (KHRC) officials are also named as defendants in the complaint, which was filed Tuesday, Feb. 23, in United States District Court, Central Division, in Lexington, Kentucky.

Although KHRC chairman Jonathan Rabinowitz and KHRC executive director Marc Guilfoil were not directly involved in The Jockey Club's decision to impose the cap on matings (known as Rule 14C), the suit contends that in their official KHRC capacities, those two are responsible for overseeing how the state delegates Thoroughbred registration authority to The Jockey Club.

So by extension, the suit alleges, if The Jockey Club in the future refuses to extend registration privileges to foals produced by matings that are considered over the cap limit, the KHRC will be barring those horses from competition, thus “effectively eliminating the economic viability of any such foals.”

The suit contends that in this instance, “The Jockey Club is not fulfilling an administrative function of merely identifying and registering, for the KHRC, those horses that qualify as purebred Thoroughbred horses; instead, The Jockey Club is making its registration decisions, and rejecting actual Thoroughbred horses, based on whether its Stewards approve of the breeding decisions of the horse's owners.”

The suit also states that The Jockey Club Stewards' “have conflicting economic interests-owning and/or representing various competing racing and breeding private entities,” and that their “economic interests will be served by the Stallion Cap.”

At the time the decision was announced in May, 2020, the stewards were Barbara Banke, Michael O'Farrell Jr., Everett Dobson, C. Steven Duncker, Ian Highet, Stuart Janney, William Lear Jr., John Phillips, and Vinnie Viola.

It is not immediately clear based on the complaint why the KHRC officials were singled out for inclusion in the litigation. In fact, the suit makes a point of stating that “the effect of the new Jockey Club Rule 14C is the same outside of Kentucky, as all other racing jurisdictions in the United States condition a horse's eligibility to enter a Thoroughbred race on registration by The Jockey Club.”

The farms are seeking an unspecified amount of compensatory and punitive damages against The Jockey Club (but not the KHRC). The plaintiffs are demanding—without stating exactly why in the suit—that those amounts be tripled. However, the Clayton Antitrust Act empowers private parties injured by violations of the Act to sue for treble damages under Section 4 and injunctive relief under Section 16.

As such, the plaintiffs are asking for “an injunction requiring The Jockey Club to repeal its Rule 14C or, in the alternative, permanently prohibiting The Jockey Club from enforcing its Rule 14C and from denying registration on account of the number of mares covered by any horse's sire.”

The suit also demands “an injunction requiring the KHRC, through its Chairman and Executive Director, to permit Thoroughbreds to race in Kentucky regardless of their inclusion in The Jockey Club registry.”

The suit also wants a court declaration stating that the alleged property rights breaches by the defendants are “arbitrary and capricious and violate their due process and equal protection rights guaranteed by the Kentucky and the U.S. Constitutions…” The suit also argues that the rule violates the Sherman Antitrust Act and suppresses competition.

“As a result, the highest quality Thoroughbred horses will be bred less times than market economics would otherwise dictate,” the complaint contends. “Hundreds of millions of dollars of stud fee revenues will be impacted; all owners of mares will pay higher prices to breed their mares; and less well-connected owners of mares will be precluded entirely from access to high quality stallions.

“In addition, owners of the premiere Thoroughbred stallions and stallion prospects will potentially move or sell their horses out of Kentucky to other countries whose Thoroughbred registries do not impose any Stallion Cap,” which the suit states is “every other country in the world besides the U.S.”

A press release circulated by the group Tuesday morning charges that, “Membership of The Jockey Club is by invitation only, and the decision was made by its Board of Stewards without discussion or a vote at the Club's Annual General Meeting. The Jockey Club Stewards making the decision had clear conflicts of interest given they also represent or own various breeding and racing entities who stand to benefit now that owners of mares are being denied their first-choice stallion.”

Tuesday afternoon, The Jockey Club issued the following statement:

“In May 2020, The Jockey Club board of stewards announced that it had adopted a final rule limiting the annual breeding of individual stallions. The rule reflects The Jockey Club's goal to preserve the health of the Thoroughbred breed for the long term. The rule applies prospectively to stallions foaled in 2020 or later; it does not apply to stallions already out to stud. The Jockey Club publicly proposed a draft rule in September 2019 and received many thoughtful comments, which the stewards carefully considered in formulating a rule that will promote diversity of the Thoroughbred gene pool and protect the long-term health of the breed. Because the rule applies only to stallions born in 2020 or later, any effect on future stud fees or breeding economics is speculative. The Jockey Club stands by the rule and its purpose, which is to preserve the health of the Thoroughbred breed for the long term. The Jockey Club will continue to maintain the Principal Rules and Requirements of The American Studbook in keeping with its mission to ensure the health of the Thoroughbred breed.”

Sherelle Roberts-Pierre, a KHRC spokesperson, wrote in an email that “The KHRC is aware of this lawsuit, and our legal team looks forward to addressing these issues in the litigation process. We have no additional comment at this time, due to the KHRC's policy about not commenting on pending litigation.”

Cap Background

Citing the significant, decades-long decline in the North American foal crop and concerns “with the narrowing of the diversity of the Thoroughbred gene pool,” The Jockey Club announced on Sept. 6, 2019, that its board of stewards was considering a per-stallion breeding limit of 140 mares that would be phased in over a multi-year period.

The proposed cap was met with a hazy mixture of consternation and support within America's bloodstock community. At the time, The Jockey Club President and C.O.O. James Gagliano wrote in response to a TDN query that “We neither expect nor see a basis for a legal challenge.”

When the cap was voted in by The Jockey Club's stewards and announced as effective on May 7, 2020, the new 14C rule drew support for its attempt to broaden the stallion base and to spread the wealth, so to speak. And The Jockey Club's seemingly conciliatory grandfathering-in of existing stallions also appeared to provide a welcome degree of a time buffer by phasing in the changes.

But the cap was still criticized by some industry stakeholders for creating a two-tier system of different rules that will now apply to different stallions based on age.

And some members of the bloodstock community just plain didn't like being told how to manage their matings.

According to the new version of Rule 14C, for stallions born in 2019 and earlier, there remains no limit to the number of mares reported bred in the United States, Canada, and Puerto Rico. For stallions born in 2020 and later, the maximum number of mares covered will now be 140. To enforce compliance, The Jockey Club simply will not register any foals that are not the product of the sire's mating with the first 140 mares to which that stallion was bred in any given year.

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 new cap of 140: Spendthrift (576), Coolmore (429) and Three Chimneys (83).

Nine of the top 10 highest-covering stallions stood at Spendthrift or Coolmore; 13 of the top 15 stood at the three farms bringing the suit.

It's still too early to try to put a hard-dollar prognostication on future financial implications of the stallion cap. But the farms' complaint tries to do so retroactively and makes several ballpark projections.

According to the suit, “If Rule 14C had been applied in 2019, the breedings of 43 stallions would have been restricted and over $85 million in stud fee revenues would have been impacted for that year alone. Similarly, if Rule 14C had been applied in 2020 to stallions born before 2020, the breedings and stud fee revenues would have been similarly restricted.

“Moreover, as a result of the foregoing, new Jockey Club Rule 14C has already diminished the value of the 2020 weanlings acquired by Plaintiffs, whose future productivity as stallions will be artificially limited by that Rule, and it has already diminished the value of Plaintiffs' current crop of stallions as the potential productivity of the foals they produce will be limited by that Rule,” the court filing states.

Institutional Clout vs. Private Property

The farms' suit is not shy about portraying The Jockey Club as an influence-wielding entity that is allegedly rife with factionalism.

In one instance the suit states that the organization “has also leveraged its power over the North American Thoroughbred industry by unlawfully conspiring with other registries throughout the world to expand the geographical reach of its rules.” In another section, it states, “Indeed, at least one Jockey Club Steward has publicly acknowledged that economic protectionism—rather than any interest in curtailing inbreeding among Thoroughbreds—is the real purpose behind the Rule.”

It also contends that, “The Jockey Club has leveraged the commercial power it exercises as the State sponsored registry of Thoroughbred horses into numerous other related profit-making ventures.”

But while enumerating a list of alleged conflicting business interests among The Jockey Club's stewards might make for splashy headlines, the legal meat of the case appears to rest on the contention that “Plaintiffs' interests in their Thoroughbred horses and their right to generate fees from the breeding and sale of such horses are protected property rights under the Fifth Amendment of the U.S.Constitution, as made applicable to the states by the Fourteenth Amendment to the U.S.Constitution.”

As applied in Kentucky, the suit alleges that Rule 14C “does not tend to protect or preserve health or safety; instead, its sole purpose is economic protectionism; it is designed to protect the economic interests of owners of second-tier stallions who will usurp the breedings that would, under free market conditions, have otherwise gone to the first tier stallions but for the imposition of that Rule.”

“Moreover,” the suit states, the rule “violates the dormant commerce clause because it is aimed at economic protectionism and it imposes a burden on interstate commerce that is clearly excessive in relation to the putative benefits that it claims to promote. In addition, Defendants' actions in imposing and abiding by the Stallion Cap constitute an impermissible taking of Plaintiffs' property interests.”

The suit continues: “Plaintiffs had a reasonable expectation that they could continue to conduct their Thoroughbred breeding business in accordance with the recognized standards for production of Thoroughbred foals…. Defendants have offered no compensation for the loss of Plaintiffs' protected interests nor any means of seeking such compensation.”

Commenting on behalf of the plaintiffs in a prepared statement, Spendthrift Farm owner B. Wayne Hughes said: “The introduction of the Stallion Cap by The Jockey Club is a blatant abuse of power that is bad law, bad science and bad business. A handful of individuals from a private club in New York have been allowed to make a decision that will negatively impact the future of Thoroughbred racing and breeding both in Kentucky and the whole country.

“We have filed this complaint to defend the industry from anti-competitive, un-American and arbitrary decision making that is not based on scientific evidence.

“If they can limit the number to 140, what's to stop them from limiting it to 100 or 80 or any other number down the road? What if your mare isn't one of the 140? We are really concerned about the small breeder's ability to survive this.”

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