Economic Development Spending: Should the Horse Racing Industry be on the Chopping Block?

By: Chris Henderson, Senior Staff Member

The mayor’s proposed budget estimates that the city will receive about 271 million dollars in 2012. This will make 2012 the fourth year in a row that general fund receipts have either declined or remained flat.[1] “Prior to fiscal year 2009 there is only one other year in Lexington’s history in which general fund revenue failed to grow, year-over-year.”[2] The inability to collect enough revenue has forced the Mayor to make deep cuts and crucial layoffs with government personnel. In his annual Budget Address, Gray stated that 28 government employees would be laid off and announced that a hiring freeze would be enacted on both the police and fire departments.[3] With Lexington facing a constrained budget, city leaders must understand that restructuring the local economy begins with making smarter decision about how Lexington spends.

But the essential question is, “why has revenue consistently declined,” specifically when Lexington hosted the World Equestrian Games in 2010? The answer is simple- Lexington did not invest in blue ocean industries. In Kim Chan’s ground breaking book “Blue Ocean Strategy,” she described how businesses can thrive if they “imagine a market universe composed of two sorts of oceans: red oceans and blue oceans.”[4] Red oceans represent all the industries in existence today.[5] In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known.[6] As the market space gets crowded, prospects for profits and growth are reduced.[7] Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth.[8]

For example, in preparation for the World equestrian games, “Lexington invested $107 million of local, state, and federal public money for improvements at the horse park and around the city and an additional $151 million in tax money for public works projects.”[9] In addition to the government support, “Businesses put at least $70 million into the games, including $32 million from title sponsor Alltech.”[10] But what did they get in return? Lexington only received an economic impact of 201.5 million to the local economy.[11] To add insult to injury, Lexington lost out on a bid to have the games return to the bluegrass state.[12] Although Kentucky has a long tradition of horse racing, city leaders must strike a balance between preserving the current horse racing culture and creating a new one. In order for Lexington to thrive economically, they must invest in blue ocean industries.

[1] Mayor’s 2012 Budget address,Lexingtonky.gov, http://www.lexingtonky.gov/index.aspx?page=2806 (Last Visited Nov. 29, 2011).

[2] Id.

[3] Id.

[4] W. Chan Kim & Renee Mauborgne R, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business School Press, 2005)

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Janet Patton, World Equestrian Games: One Year Later, Oct 9, 2011. Kentucky.com/business.http://www.kentucky.com/2011/10/09/1913723/one-year-later-impact-of-world.html (Last Visited Nov. 29, 2011).

[10] Id.

[11] Beshear: world equestrian games brought $201.5 million to local economy, June 27, 2011.http://www.kyforward.com/2011/06/beshear-world-equestrian-games-brought-201-5-million-to-local-economy/

[12] Patton, Supra note 9.