Ogden Mills Phipps: In January, Jim Gagliano succeeded Alan Marzelli as president and chief operating officer of The Jockey Club, and we are very pleased to have him at the helm.

He will get us started with a brief overview of some breeding and racing trends.

Jim …

James L. Gagliano: Thank you very much, Dinny. Good morning.

I think everyone in this room is familiar with recent trends in Thoroughbred breeding and racing. Almost any indicator you look at has an arrow pointing downward.

News accounts on a daily basis remind us that the sport is undergoing change. We’ve read about horse shortages and cancelled racing programs. We’ve read about tracks closing — and they outnumber the new ones that are opening.

But we’re not alone. Other sports and other businesses have experienced similar challenges.

Yesterday, The Jockey Club announced a projected North American foal crop for 2011 at 27,000.

For most of the past decade the foal crop has remained stable at almost 37,000 foals. The economic downturn, however, has resulted in significant contraction and the 2011 crop is the smallest since 1973.

To provide a little more perspective, I thought it would be helpful to share some breeding statistics from our Registry, and then a few statistics that pertain specifically to racing.

From 2000 until 2006, the number of mares reported bred remained very stable, varying by less than 500 mares per year. Since 2007, however, we have seen approximately 15,000 mares, or 22 percent, leave the breeding shed.

The number of stallions has also been steadily declining for an even longer period of time, by approximately 2% per year dating back to the early 1990s.

Beginning in 2004, the rate of decline in stallions accelerated to 5.5%, with nearly 1,300 stallions leaving breeding service during this period of time.

As we studied these trends more closely, we found that the mares and stallions that left the breeding shed shared some very interesting characteristics:

• First, they tended to have lower race earnings than those who continued to be bred. A number of these mares and stallions actually had no racetrack earnings.
• Next, the mares leaving the breeding shed tended to be those that had been covered by the smaller book size stallions, defined generally as stallions covering fewer than 25 mares.
• And the stallions no longer breeding were also those that had previously had smaller book sizes.

So with that, let’s turn to some geographic perspective. Several of the states that have recently suffered the greatest declines are among those that have historically been among the leaders in Thoroughbred production.

There are, however, pockets around the country where breeding levels have maintained or increased, including those states that supplement purses with alternative gaming.

So let’s sum it up:

• We’ve seen a dramatic reduction in the numbers of mares and stallions in the breeding shed
• Those that remain have a more proven race record
• And third, some of our historically most significant breeding states have had steep declines in foals, while those states with alternative gaming-supplemented purses and state incentive programs have experienced growth.

Turning to the racing front, one of the most significant and widely referenced statistics we’ve seen pertains to the dramatic reduction in starts per horse.

There are differing theories on what factor or factors are causing the decline in starts per horse, but there is no disputing the decline.

As I mentioned, the last time the foal crop was the size we’re estimating for 2011 was 1973. Here’s how 1973 compares with 2009.

• In 1973, about 55,000 individual horses raced, compared with about 71,500 starters in 2009.
• In 1973, there were about 62,000 races run — about 8,000 more than the 54,000 run in 2009.
• In 1973, the average horse started 10.1 times; this past year, 6.2.

So what are these figures telling us? Certainly, unless something changes, there will be further contraction at the racetrack as the foals from the smaller crops of 2008, 2009, and 2010 mature to racing age.

It certainly seems likely that, with fewer foals, we will see fewer race days and, frankly, dramatically increased challenges for many racetracks and other industry organizations.