Washington Horse Racing Commission
Meeting Minutes
October 12, 2006

Present were: Carol Smith-Merkulov, Chairperson; Jeff Colliton, Commissioner; Paul George, Commissioner; Dr. A.L. “Bud” Hallowell, DVM, Commissioner; Hartly Kruger, Commissioner; Susan Carlson, Assistant Attorney General; Robert M. Leichner, Executive Secretary; Patty Sorby, Confidential Secretary.

Item #1. Approval of the meeting minutes of July 12, 2006, September 14, 2006 and September 25, 2006.

Commissioner Kruger moved to accept the minutes as submitted. Commissioner George seconded the motion. Unanimously approved.

Item #2. Chairperson’s report.

Chairperson Smith-Merkulov thanked staff, Bob Leichner, Bob Lopez and Patty Sorby for all the work that’s been done on the grant application process and the rules.

Item #3. October 3 Legislative work session on gambling policy.

Commissioner Colliton and Robert Leichner attended the Joint Legislative Committee work session and reported to the members. Questions were asked about the problem gambling treatment program whether it was working and whether it was a financially viable program. Policy questions were asked of the three major commissions Gambling, Horse Racing and Lottery. Commissioner Colliton reinforced the fact that the Horse Racing Commission would remain within its statutory responsibilities. Commissioner Colliton talked about recent horse racing legislation, rules changes and passage of the Senate Bill regarding financial assistance to the non-profit meets and equine research and responded to questions regarding the ex-officio members. Commissioner Colliton felt this was a favorable work session regarding the Horse Racing Commission.

Mr. Leichner said that by addressing legislative concerns immediately that it placed issues at rest. He felt that the Horse Racing Commission testimony was favorably received and thanked Commissioner Colliton for his appearance and testimony.

Item #4. Emerald Downs’ report.

Mr. Jack Hodge, Vice President, Emerald Downs reported the end of the meet statistics. He reported the daily average purses were up. He reported the average number of horses starting was up and late and carded entry scratches were all down. Mr. Hodge said attendance was up over last year and handle was slightly down on live racing, down on full-card simulcasting, satellites were also reported down, but selling of the live signal was significantly up.

Commissioner Kruger asked if the decline in scratches was due to the veterinary staff. Mr. Hodge responded he felt it was a combination of things.

Chairperson Smith-Merkulov asked if he knew what type of season would be held for 2007. Mr. Hodge said they were currently in the budget stage and felt that the same type of season would be held in 2007.

Commissioner George asked if the overlapping season with Portland Meadows was of concern. Mr. Hodge said no.

Chairperson Smith-Merkulov said that the promotions for the anniversary year were tremendous and thanked Susie Sourwine.

Item #5. XpressBet.com 2007 license renewal.

Mr. Leichner presented testimony on the 2007 license renewal application submitted by XpressBet.com. He introduced Greg Scoggins and Gene Chabrier of XpressBet. Mr. Leichner received the renewal application on August 24, 2006 with the $1000 annual license renewal fee. All documents requested were submitted and background checks conducted showing no detrimental information. The $50,000 bond will expire and Mr. Scoggins will supply the new bond as soon as it is processed through the bonding company. Mr. Leichner recommended approval of the license renewal request.

Mr. Scoggins thanked the commission for the opportunity to appear and said he appreciated working with the staff. Mr. Scoggins updated the members on the acquisition of the bond.

Chairperson Smith-Merkulov was very concerned about the terms of the bond and would requested the attorney generals’ office review it prior to approval.

Commissioner George asked about the inability to receive certain signals that were of interest. Mr. Scoggins responded that each company has the ability to offer certain signals. Some of the wagering companies have exclusive rights to some of the signals and the other companies are not permitted to receive and send those signals to account holders.

Commissioner Kruger moved to approve the renewal application for XpressBet.com pending review of the $50,000 bond by the attorney generals’ office. Commissioner Hallowell seconded the motion. Unanimously approved.

Item #6. Review of applications for equine incentive funds.

Mr. Leichner gave an overview of the process involved in submitting the applications for consideration. He said six applications for projects were received from the Blue Mountain Racing Circuit (Sun Downs, Walla Walla, Waitsburg and Dayton race meets), two applications were received from Washington State University and one from the Emerald Downs Diagnostic Clinic. Mr. Leichner said each entity would have ten minutes to present their grant application.

Chairperson Smith-Merkulov said that if an application was not funded it could be submitted next year. Chairperson Smith-Merkulov also reminded applicants the Commission priority as provided in presentations to the legislature and statute was to give first consideration to the non-profit race meets and equine health research.

Mr. Dick Monahan and Mr. Shorty Martin appeared on behalf of the Blue Mountain Racing Circuit. Their application contained requests for Sun Downs rail and horse barn remodels; assistance with jockey liability insurance; a wireless remote camera system; a down payment for a mobile office trailer for female jockeys and to house the WHRC office during the respective race meet; and to restore the test barn at Walla Walla. These requests totaled $271,327.57.

Dr. Robert Schneider presented an application for an experimental study entitled “An evaluation of a New Surgical Treatment for Desmitis of the Proximal Insertion of the Suspensory Ligament in Horses.” Dr. Schneider explained that six horses free of lameness will be used with both hind limbs affected. One hind leg will undergo the new surgery procedure one hind limb will utilize conventional methods of rest and rehabilitation. This study requested a total of $42,446.00.

Dr. Melissa Hines, Dr. Allison Stewart and Assistant Professor, Dr. Linda Martin submitted an equine research project on relative adrenal insufficiency in animals. This project would assess through a simple test, stress factors that may cause an animal to do poorly in the recuperative process in a clinical situation. The request totaled $56,562.00.

The final project application was submitted by the Emerald Equine Diagnostic Clinic for funding to purchase a Nuclear Scintigraphy machine (bone scan unit). This machine would allow veterinarians and horse owners the ability to receive high resolution ultrasound imagery of tendons and ligaments. This request totaled $50,000.00.

Chairperson Smith-Merkulov moved to approve the grant applications for the Blue Mountain Racing Circuit totaling $222,554 which included funds for the rail and racetrack renovation, barn project, remote wireless camera, jockey insurance assistance and limited funds for the mobile office trailer for the female jockeys and the WHRC office and the grant application by Washington State University regarding the study to evaluate, from a new surgical treatment for horses for Desmitis of the proximal insertion of the suspensory ligament in horses, totaling $42,446.00. Total grant monies awarded were $265,000.00 for the non-profit meets and equine research. Commissioner Kruger seconded the motion.

Commissioner Hallowell asked for consideration for funding the Nuclear Scintigraphy machine. He felt that machine would cover a broad spectrum of the horse industry would pay for itself by pre-diagnosing injuries in race horses.

Commissioners Smith-Merkulov, Colliton, George, and Kruger voted yes on the motion. Commissioner Hallowell voted no. Motion passed by majority.

Break for lunch. 12:15 P.M. Reconvened at 1:15 P.M.

Item #7. Rules of Racing:

a. Thoroughbred certification discussion.

Mr. Leichner presented the issue regarding Washington bred certification. He stated there were two options and was requesting direction from the Commission on which option to file with the code reviser. He stated that staff has kept with the Commission motion to contain no fees for Washington bred certification in either option. Mr. Leichner also said per statute at least one race per day must be exclusively for Washington bred horses. There is no provision to cancel a race.

Larry Hillis spoke on behalf of himself as breeder and owner said he was against a certification by the Washington Thoroughbred Breeders Association (WTBA) when the current process of certification by the Jockey Club is sufficient. An additional fee would harm the Washington bred program. He stated that he would quit the breeding program rather than pay an additional fee.

Speaking next as Horsemen’s Benevolent and Protective Association (HBPA) President, Mr. Hillis understands that the WTBA is in financial difficulties and suggests talks should begin with the HBPA and the WTBA to become one organization, united together, for the good of the breeding and racing of horses at Emerald Downs.

Jack Fabulich said the only reason to utilize the WTBA certification process would be to give money to support the WTBA. There is no advantage with this program change. He said he did not want to change the current process.

Jack Hodge said there is not an integrity issue in Washington State. There is no benefit in giving the WTBA an additional fee for certifying thoroughbreds with the WTBA. Mr. Hodge stated he would also stop breeding if forced to pay an additional fee for certification. He said this was an unnecessary means to raise revenue for the WTBA. They should raise their dues if they are in financial straits.

Don Lyons stated that he was glad someone else stated his case for him. He is in agreement with Mr. Fabulich and Mr. Hodge.

Sue Coleman said it affected her the same. She asked Mr. Vacca how many cases have there been where misrepresentation had occurred. She asked about actual facts of misrepresentation.

Ralph Vacca, General Manager, WTBA said he cannot say how many cases have occurred. There are no specific facts. The major reason is to generate operating funds for the WTBA to exist. The WTBA believes it is justified. He said he was very happy to hear Larry Hillis’ suggestion to combine the WTBA and the HBPA as an option. Mr. Vacca stated the WTBA supports option one in the proposed certification rule.

Chairperson Smith-Merkulov stated that this process was begun by the WTBA because of an allegation that there had been irregularities in the past. There are no facts to support that allegation and stated why fix something that is not broken.

Mr. Leichner said he had received a note from Mr. Charlie Dunn supporting the Jockey Club certification and does not support the WTBA certification.

Commissioner Kruger supports not changing the current process.

Commissioner Hallowell stated that he had not talked to anyone in favor of changing the current process and had talked to many who were not in favor of changing the process.

Chairperson Smith-Merkulov moved to file the rule using the current process for certifying Washington thoroughbreds. Commissioner Colliton seconded the motion. Unanimously approved.

Chairperson Smith-Merkulov then addressed the statute requires that one Washington bred only race be run each race day.

Mr. Hodge stated that Washington is down in foal production and it is very hard to get enough entries to make a Washington bred only race. In order to run there must be seven or more entries, some days it is hard to get three entries.

Mr. Leichner stated this statute has been in effect since 1949 and there is no authority to cancel the required Washington bred race.

Chairperson Smith-Merkulov suggested Mr. Vacca and Mr. Leichner gather the history on this statute.

Mr. Leichner stated that he would work with Mr. Vacca and collect the information. Ms. Carlson will do the legal research on the statue and once compiled, the information will be presented to the Commission.

Item #8. Executive Secretary’s report.

a. Review Jockey Incentive Fund distribution.

Mr. Leichner furnished an updated list for the Jockey Incentive Fund distribution. Mr. Mangold, who is no longer in good standing, was removed from the distribution list. If approved, this list will be furnished to the Office of Financial Management to have warrants issued and 1099 documents prepared.

Commissioner Kruger moved to approve the list of recipients as submitted. Commissioner George seconded. Unanimously approved.

b. Proposed 2007 License fees.

Mr. Leichner said that as required by rule, license fees had been reviewed at the end of the 2006 racing season. Two options are offered for adjusting them for the 2007 racing season. Estimates for 2007 licensing exceed current revenues by 6.0 percent. In using the fiscal growth factor it would create odd license fees. Staff recommendation is to increase the fee to the nearest whole dollar within the percentage limitation. Mr. Leichner requested approval to increase fees according to the growth factor at the nearest whole dollar amount (Option 2).

Chairperson Smith-Merkulov moved to approve the proposed 2007 WHRC licensing fee schedule as submitted in Option 2. Commissioner Hallowell seconded the motion. Unanimously approved.

c. Review Source Market Fee rates.

Mr. Leichner stated the commission must annually review the distribution of the source market fee and any changes adopted by rule. Mr. Leichner provided source market fee distribution calculations for 2007 and recommended to continue the current formula.

The members wished to continue the current formula so no motion was required.

d. Accountant’s Recap.

Mr. Leichner gave the members an overview of the accountant’s comparison of 2005 and 2006 wagering period and the 2005 and 2006 wagering year. Mr. Leichner voiced concerns over the downturn of the revenues.

Chairperson Smith-Merkulov asked if some of the seasonal employees will be hired during the off-season in Olympia. Mr. Leichner said he hoped to and advised the members that Mr. Scott Saito had resigned his position as Clerk of Scales. The Executive Ethics Board had advised that the position Mr. Saito was offered would be a conflict of interest if he were to take it.

e. Accountant’s end of meet recap.
i. Owner’s bonus amount.

Mr. Leichner provided a copy of the accountant’s recap of the bonus awards and stated that the owner’s bonus account was down approximately $75,000 from 2005.

ii. Breeder’s bonus award amount.

Mr. Leichner provided the accountant’s summary for the breeder’s awards

f. 2005/2007 budget.

Mr. Leichner explained the revenues and expenditures comparing estimates to actuals. The fund balance was $830,873 at the end of September after expending $300,000 for the grant awards and the jockey incentive fund the fund balance is $530,873.

Chairperson Smith-Merkulov said the Commission needs to control any discretionary spending. Mr. Leichner agreed, recommending to forego travel, equipment, and other similar expenditures.

Mr. Leichner explained the distribution of the interest for funds, 485 and 497.

g. University of Arizona, Symposium on Racing, December 4-7, 2006.

Mr. Leichner gave an overview of the expenses of sending someone to attend the symposium.

Chairperson Smith-Merkulov said this was the type of expenditure that needs to be avoided.

MaryAnn O’Connell, Executive Director, HBPA stated the symposium was the most knowledgeable symposium offered and that the Executive Secretary should attend.

Commissioner Colliton said that he felt the Executive Secretary and one Commissioner should attend.

Chairperson Smith-Merkulov amended her position on the matter and suggested the Executive Secretary should attend.

Commissioner Kruger moved to send Mr. Leichner to the symposium in Tucson, Arizona. Chairperson Smith-Merkulov seconded the motion. Unanimously approved.

h. AAEP Conference in San Antonio, December 1-6, 2006.

Mr. Leichner had a request from Sally Calkins, State Veterinarian to attend the convention in San Antonio, Texas.

There was no action on this request. No motion required.

i. 2007 Commission meeting dates.

Mr. Leichner stated the proposed meeting dates for 2007 were the second Thursday of each month with the exception of May 2007 that would be held on May 18th in eastern Washington.

Commissioner Colliton moved to accept the 2007 WHRC meeting dates. Commissioner Hallowell seconded the motion. Unanimously approved.

Item #9. Any other business that may be properly brought before the Commission.

Ms. Sue Coleman requested to speak, she had several issues that she wanted to bring before the Commission. She talked about the 5% charge by the WTBA for processing the breeder’s awards. She thanked Mr. Crockett for explaining the breeder monies account and why no interest was collected for these funds that are forwarded to the WTBA for distribution. She wanted the breeder monies to be placed in an interest bearing account that would be distributed with the breeder awards. She felt that unclaimed monies should be sent to the Unclaimed Property Division with the Department of Revenue including interest.

Sue Coleman gave the presented the letter with her questions to Mr. Leichner.

Mr. Hodge stated that the Breeder Awards were considered a liability account, money Emerald Downs owes.

Chairperson Smith-Merkulov asked if there was any further business. Hearing none adjourned the meeting.

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Robert M. Leichner, Executive Secretary