by | 11.17.2010 | 12:46am

By Ray Paulick

In his wildest dreams, Hal Price Headley could not have imagined what eventually would develop from the 145-acre plot of land and training center on Versailles Road outside of Lexington, Ky., that he was asking his fellow horsemen and Blue Grass residents to buy from John Oliver Keene in 1935. His proposal for “a model race track” was detailed in a 24-page prospectus that outlined why it was important for Lexington to have a new racetrack, how the seed money would be raised, where that money would be spent, what specifically would be acquired, when race meetings would be conducted, and how this new association would be run.

What ensued from Headley's plan was Keeneland, which evolved from a community-owned, non-profit company, one that grew in size and scope, largely through the acquisition just over a quarter century later of a Thoroughbred auction breeders co-op, and is now a tightly controlled for-profit business that may be the largest Kentucky cash repository this side of Fort Knox.

Headley's plans for Keeneland were taken to the Blue Grass community at a mass meeting at the old Lafayette Hotel in downtown Lexington on March 20, 1935, at the height of the Great Depression. More than 200 people attended, and “by a virtually unanimous standing vote,” a new committee of 10 members was appointed to move forward “in an effort to procure the funds to finish the plant and finance the first (race) meeting.”

Keene had already built a track for training, and a 258-foot-long stone building that could serve as a clubhouse was nearly completed. But Headley and his fellow planners felt they needed to raise significant funds to complete the purchase and develop the facility to their satisfaction.

To raise the money, the prospectus said, the so-called Committee of Ten decided to sell 3,500 “non-voting preferred shares of stock in Keeneland in units of $100 each, with interest at 6%…It will be the privilege of the association to retire this stock in whatever proportion it can afford at any dividend date, and it is contemplated that the retirement will be effected as rapidly as possible.”

Another 3,500 shares of “voting, no-dividend, no-par common stock” were also offered. Together, according to articles of incorporation filed April 17, 1935, the Keeneland Association had $700,000 in capital stock.

“It is our desire that lovers of the Thoroughbred throughout the country will recognize in this a serious effort to establish a model racetrack, to perpetuate racing in the proper manner and to provide a course which will stand for many years as a symbol of the fine traditions of the sport,” the prospectus said.

“In order to accomplish these ends we shall first ask the aid of sportsmen in building the track. Later we shall ask them to race their horses and to lend their own presence at the meetings. We shall ask the good will and the active cooperation of many, for this is an enterprise which, if it proves successful, will be an everlasting credit to the sport of racing, not only in Kentucky, but throughout America.”

A partial list of those who purchased common stock at the outset included: Richard C. Stoll (three shares), Hal Price Headley (200), Brownell Combs (200), Carneal Kinkead (3), W.R. Embry (3), W.H. Courtney (3), T.H. Kink (3), Wallace Muir (200), A.B. Gay (200), Victor K. Dodge (200), Thomas Piatt (200), A. B. Hancock Jr. (200), L. B. Shouse (200), Frazer D. LeBus (200), Horatio Mason (3), Jack S. Young (200), Barry Shannon (3), Louis Lee Haggin (3), Fred W. Rankin (3), J.N. Camden (3), C.R. Thompson (3), Louie A. Beard (200), and Silas Mason (200).

Headley was made Keeneland's first president, and the track hosted its first day of racing the following year, Oct. 15, 1936.

A few years later, in February of 1940, new articles of incorporation were filed by a new company known as “Keeneland Race Course,” which would lease property from the Keeneland Association to conduct the two annual race meetings. There were 25 shares of common stock in this new company, with 10 owned by L.A. Beard, and three each by L.L. Haggin II, J. Edward Bassett Jr., Harold Fallon, W. C. Smith, and J.A. Estes.

Additional changes to the articles of incorporation would follow, including a 1950 amendment that dictated Keeneland's assets, in the event of voluntary or involuntary dissolution, could only be distributed to organizations that were not required to pay federal taxes.

Keeneland itself was tax-exempt, both on a federal and state level, from its inception until 1958, when it had to pay state tax on wagering. The following year, the Internal Revenue Service removed Keeneland's non-profit status and required the company to begin paying federal taxes.

“This will kill the goose that lays the golden eggs,” said Louie Lee Haggin II, who was president of Keeneland Race Course from 1940-56 and of the Keeneland Association from 1956-70.

That couldn't be further from the truth, however. In the late 1950s, Keeneland was getting ready to enter an era that would make it the most profitable company in racing, thanks to its takeover of the Breeders' Sales Company, a co-op started by a group of Kentucky breeders in 1943.

The Breeders' Sales Company was created during World War II when racing at Saratoga in upstate New York was canceled in 1943 because of travel limitations. The annual summer yearling sale in Saratoga was canceled as well. At the same time, Kentucky horsemen learned they would be unable to ship their yearlings by rail to anywhere in the East and they quickly put together a sale under a tent on the grounds of Keeneland.

The 1943 sale was conducted by officials from Fasig-Tipton, but there were numerous complaints from breeders about the conditions. A meeting of breeders, led by Arthur B. Hancock of Claiborne Farm, was called at the Lafayette Hotel a few weeks after the sale to discuss what future direction they should take. “There have been a lot of gripes about the sale and the sales company,” Hancock was quoted in Bloodhorse magazine as saying. “I haven't had any trouble personally, but I've heard a lot of criticism. Let's go around the table and see what these gripes are.”

Bloodhorse reported: “Most of the grievances seemed to imply a general pettiness in the management of the sales.”

Within weeks, after discussions with Fasig-Tipton failed to resolve their differences, the breeders voted to form the Breeders' Sales Company and hoped to build a sale pavilion on the grounds of Keeneland.

According to the Sept. 4, 1943, edition of Bloodhorse, “Mr. Headley, on behalf of Keeneland, offered the ground for such a pavilion, but specified that it must not be in the ownership of a sales company.” Twenty years later, Keeneland played a different tune.

The new company was a true co-op, with any year-end profits derived from the sale commission to be divided among participating breeders on a pro-rata basis. It held its first sale in the summer of 1944 and enjoyed sustained growth, eventually expanding to offer five different sales during the year for racing stock, yearlings and breeding stock.

In 1962, that all changed, when the Breeders' Sales Company was turned over to Keeneland. There are different stories about who was responsible. Some say Headley insisted the breeders turn it over to Keeneland to prevent the association from going bankrupt. Others have said Leslie Combs of Spendthrift Farm and Howard Reineman of Crown Crest Farm maneuvered to give it to Keeneland, with Combs allegedly maneuvering to become the next president of Keeneland.

No matter who was responsible, the deed was done. In a meeting at the Campbell  House in Lexington, approval was given to hand the Breeders' Sales Company to Keeneland. Small-scale breeders who depended on the year-end profit sharing  revenue were upset because they felt they were going to get squeezed. Many of them saw tremendous growth in the Thoroughbred commercial market coming on the horizon.

The decision to give the Breeders' Sales Company to Keeneland was perhaps the most monumental mistake Thoroughbred breeders collectively have ever made. From 1962 on, after billions of dollars of auction sales, Keeneland has collected hundreds of millions of dollars in profit while many small-scale breeders have struggled.

TOMORROW: Who owns Keeneland, what became of the shareholders, who runs the company, and where does all that money go?

Copyright © 2008, The Paulick Report

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