The Derby: Kentucky Fights to Keep Horse Supremacy

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Morry Gash / AP

Horses exercise at Churchill Downs in Louisville, Ky., on April 26, 2010

The Kentucky Derby represents a perfect and unique marriage of place and event. You can play the Super Bowl anywhere, and no place, not even New York City, has a claim on the World Series, but you could no more take the Kentucky Derby out of Kentucky than you could run the Ohio River to Nebraska. But behind the pageantry and spectacle of the 136th Derby this Saturday, the Bluegrass State is confronting an unwelcome worry: after nearly a century of dominance, Kentucky is losing its grip on the horse-racing industry.

Kentucky's status as the breeding capital of the world — the multibillion-dollar business that keeps those beautiful fences painted as they snake through pristine horse country — is under siege. Most of the state's racetracks are struggling, some to the point of possible closure, and at every track, racing dates and purses — or both — have been cut. States like Pennsylvania and Louisiana, powered in large part by revenues from trackside casinos, are threatening to erode Kentucky's breeding dominance. "It's as serious as a heart attack," Kentucky horseman Brereton Jones, who was governor from 1991 to 1995, tells TIME. "Kentucky is known around the world as the horse capital of the world, and for good reason," says the state's current governor, Steve Beshear. "But other states have seen that and would love to claim that position for themselves."

With smaller purses, fewer dates and tracks with uncertain futures, more trainers are choosing to race their horses in other states. Breeders, too, are moving to take advantage of new incentives in other states. Most owners have no choice. "Most of these farms aren't owned by the superrich," says Beshear. "They are small farms, where money is tight like it is everywhere else."

Many in Kentucky, including Beshear and Jones (both Democrats), believe Kentucky needs to expand gambling at racetracks to save the industry. Beshear argues that the recession has made any other kind of state assistance impossible. "There is no extra money to go around," he said. "We're facing a $1.5 billion budget shortfall in this state, and already I have reduced the budget seven times in the 2½ years I've been in office." A share of new gambling money would let tracks increase their purses, giving trainers and owners incentives to race their horses in Kentucky, and would pay higher bonuses to owners who breed their horses in Kentucky.

Beshear made expanded gambling a central part of his 2007 campaign for governor but has since been stymied at every turn by senate president David Williams, a Republican who has dominated the upper chamber — and some say the state government — since taking control of it 10 years ago. He has opposed gambling as contrary to his state party's conservative principles and on purely political grounds. He has bristled at Beshear's unsuccessful attempts to wrest control of the senate away from him. When Beshear sent his budget to the legislature early this year, Williams declared it dead on arrival.

Not even the deepest ties to Kentucky will keep owners from sending stallions out of state to breed if Kentucky can't provide better incentives at home, Jones says. He and his wife Libby run a horse farm near the city of Midway that sits on land where some of the most famous horses in racing history have lived, including the stallion Lexington, who sired the first Derby winner in 1872 and was the nation's leading sire for 16 different years. And yet, Jones sent one of his own stallions, Yankee Gentleman, to Louisiana last year when he was unable to book a full breeding calendar for him in Kentucky. In his new home, Yankee Gentleman quickly jumped from about 30 breedings to 94, at $5,000 each. "These other states are coming on fast," Jones says. "It's still the case that the best horses are bred in Kentucky. But for how long will it still be the case? That's the question."

For now, Kentucky remains far ahead of even the most aggressive contender. In 2009, the state registered 10,189 foals — more than the next four states combined. Most of Saturday's three-year-olds will be Kentucky-bred, and fully 75% of Derby's 135 winners have been bred in Kentucky. "A Kentucky-bred horse has always been what everyone in the world wanted, because they are the best horses in the world," Kentucky horseman Jim Squires tells TIME. Squires bred the 2001 Kentucky Derby winner Monarchos, who finished just two-fifths of a second behind Secretariat's record time.

But in the past 10 years, the number of foals registered in Louisiana and Pennsylvania jumped 107% and 51%, respectively, while Kentucky's share stayed comparatively flat. And, says Squires, things are changing faster on the lower and middle rungs of the horse industry's pecking order as more owners are turning to other states. "In the past 24 to 36 months, we've seen precipitous declines" in land values for horse farms, in the number of mares bred in Kentucky and in the number of stallions at work there, he says.

To reverse those troubling trends, Kentucky is going to have to do more than add slots to its racetracks, says Squires, a former editor of the Chicago Tribune. "They say expanded gambling will save the thoroughbred industry," he says. "But in the long run, the casinos would kill it. Not that I would object to it now. We need something; we're that desperate. But it's not the long-term fix we need."

The state will need to return its focus to producing better racehorses, even if it means fewer horses. When times were good, he says, horsemen and state leaders alike stood by as Wall Street–style speculating drove up prices of land and horses, creating a bubble that was bound to pop. "These were people who had no connection to racing, who had never worked on a farm or even touched a horse. They were just in it to own the horse for a short time and then flip it" like a South Florida condo, he says. "That replaced a very definite culture that had come out of a lot very old traditions."

Those traditions will be on full display on Saturday, when the world will tune in for a sporting extravaganza like no other, the two minutes that John Steinbeck called "one of the most beautiful and violent and satisfying things I have ever experienced." But when it's over, the worrying among Kentucky's horsemen and politicians will resume.