In the 46 years since the Breeders’ Sales Company – a co-op established by Central Kentucky breeders — was handed over to Keeneland, the Lexington, Ky., auction house/racetrack has gross receipts of more than $13.5 billion through its sales of weanlings, yearlings, 2-year-olds in training and breeding stock. During that time, the Paulick Report estimates Keeneland has earned commissions of approximately $750 million from horses sold and from buybacks (based on 5% commission from 1962-2000, and 4.5% from 2001 to the present).

That estimated three-quarters of a billion dollars in revenue does not include entry fees from the thousands of horses sold each year (UPDATE: see comment section for a clarification on entry fees) or Keeneland’s portion of the takeout on live racing, simulcasting and account wagering.

What does Keeneland do with all that money?

Because it pays no dividends to its shareholders the way most publicly-held companies do, Keeneland distributes its sizable profits in other ways. For starters, it supplements overnight purses during its two race meetings in the spring and fall, making those meetings among the highest in daily average purses among all North American tracks. The 2008 spring meeting offered total purses of $10,016,860, a daily average of $626,054.

Keeneland makes frequent upgrades to its physical plant, for example adding luxury suites in the early 1990s and expanding its sale pavilion in 2004. It recently contracted with HOK Sport, a leading stadium architecture firm, to examine the possibility of expanding Keeneland to accommodate larger crowds and possibly host future Breeders’ Cup championships. It is currently too small to host a Breeders’ Cup.

Finally, Keeneland makes charitable contributions to the local community and to the horse industry. Since 1936, according to its media guide, Keeneland and its Keeneland Foundation have given more than $15 million to various charities.

As detailed in the Paulick Report’s first installment of this history of Keeneland, the track was funded by Kentucky horsemen and local citizens through an offering of preferred, non-voting stock and common stock that gave shareholders voting rights in certain company affairs. At some point, certainly as early as the 1950s, Keeneland general manager W.T. Bishop began approaching stockholders and requesting they return their shares of common stock to Keeneland. That effort went on for years and was largely successful, in part, some sources say, because Bishop and other Keeneland directors or executives persuaded the stockholders that the shares had no real value, since dividends were not permitted under the 1935 articles of incorporation. As an enticement to return the shares to the association, sources have said Keeneland may have offered lifetime membership in the Keeneland Club or coveted clubhouse or grandstand boxes.

At any rate, of the 3,500-plus shares of Keeneland stock originally sold, only a few remain in the hands of individuals. Those individuals are entitled to attend the annual shareholders meeting, which usually is held in October. At that meeting, shareholders are given an opportunity to inspect the financial records of the company, but no financial materials are distributed.

The vast majority of shares given back to Keeneland are controlled by three trustees who make all of the critical decisions for the company. Keeneland’s board of directors is viewed as a “rubber stamp” board, according to several board members who spoke with the Paulick Report. “It’s usually ‘Here is what we’re going to do, and thank you for coming,’” one longtime board member said. Another said financial documents distributed at Keeneland board meetings are skeletal compared with those of other boards.

The current trustees are Will Farish, Louis Lee Haggin III and William M. Lear Jr. An attorney who is not active in the horse business, Lear only recently replaced another attorney, William T. “Buddy” Bishop III, the son of the longtime Keeneland general manager. Buddy Bishop, who died earlier this year, was named a trustee in 2005 following the death of Charles Nuckols Jr. Farish was named a trustee in 2005 as a replacement for James E. “Ted” Bassett III, who had to step down because of age requirements. Bassett has been associated with Keeneland since 1968 and served as its president and board chairman.  Haggin is the longest-running trustee.

There is little known about if, how or when a voting trust was established to represent the shares turned back to Keeneland. It also isn’t known how that trust might have been established, or whether it may have been created by a specific document. It is also unclear if there is a beneficiary to the voting trust, and who or what that beneficiary might be.

Phone messages and a fax to Bassett from the Paulick Report asking specific questions about the voting trust were not answered.

In 2002, a new holding company, called Keeneland Trustees, Inc., was incorporated in Kentucky as a non-profit corporation. The articles of incorporation of Keeneland Trustees Inc. state that the purpose of the corporation is “to operate for any lawful purpose or purposes, including, but not limited to, holding shares of stock of Keeneland Association, Inc. or ownership interest(s) in any other entity(ies) and perpetuating the purposes for which Keeneland was formed, including promoting the sport of horse racing, improving the breed of Thoroughbred horses and conducting annual race meetings. The Corporation is authorized to exercise any powers conferred upon corporations formed under the Kentucky Nonprofit Corporation Acts as may be necessary or convenient in order to accomplish the above-described purposes.” The officers of that company coincide with who serves as Keeneland’s trustees.

In other words, the Keeneland Association is now owned by Keeneland Trustees, Inc.

If Keeneland Trustees, Inc. is viewed as a non-profit company by the Internal Revenue Service, its IRS Form 990 is to be made available for public inspection as required by section 6104. However, Keeneland vice president Harvie Wilkinson and treasurer Jessica Green told the Paulick Report upon a request to view IRS Form 990 that Keeneland Trustees Inc. is not a non-profit company.

The Keeneland Association is a for-profit company and has been since the late 1950s. Its earnings are taxed, but the IRS apparently does not have the benefit of a second level of taxes that it enjoys with public companies whose shareholders pay an individual tax on dividends. Keeneland retains a large portion of its annual earnings after subsidizing purses and contributing to its Foundation. Its cash reserves, sources have told the Paulick Report, are in the hundreds of millions of dollars.

“They don’t know where to spend all that money,” one longtime Keeneland consignor said.

Some have suggested the retained earnings could present a tax problem, and that is one reason Keeneland is looking at an expansion project that could take a huge bite out of those cash reserves. Potential legal issues might also help explain why the last two individuals appointed Keeneland trustees are attorneys.

Breeders who have sold the billions of dollars of horses that have helped Keeneland earn that approximately $750 million since the Breeders’ Sales Company dissolved in 1962 might want to have a say in how some of those earnings are spent. Is it, for example, in the best interest of those breeders for Keeneland to expand its facility at great cost in order to attract the Breeders’ Cup? That’s a big investment for one extra day of racing every few years.

Nick Nicholson, the track’s current president, thinks not just breeders but others should have a say in Keeneland’s direction. In announcing the recent deal with HOK Sport to look at expansion, Nicholson said: “The citizens of our community, the state, and the Thoroughbred industry have a sense of ownership in Keeneland, and we respect and embrace that. Keeneland is an important part of Central Kentucky’s history and landscape, and we feel all should have a voice in its future.”

Keeneland was formed because of the widespread support of horsemen and the local community, and it became an extremely profitable company because of the many Thoroughbred breeders who sell their horses there.

It would be a refreshing change to see more than three people have a say in Keeneland’s future.

Copyright © 2008, The Paulick Report 

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