Market Focus : Japan Keeps Eye on Horse Racing Prize : With big money at stake, a very tight rein is held on foreign-born horses. U.S. breeders want that changed.

The trumpets blare, and the horses spring out of their gates. The Nippon Derby is on.

Astrogate, offspring of the legendary American racehorse Secretariat, soon falls behind. Mihono Bourbon, however, is the real favorite. A crowd of 162,647, packed in and around the grandstand like commuters on a rush-hour train, roar their approval as he pulls away from the pack for an easy win.

So, Mihono Bourbon’s owner gets the $1.3-million purse, the biggest of the year. But is Mihono Bourbon the fastest horse in Japan? Well, not necessarily. He’s just the fastest horse that has been born, raised and trained in Japan.

Here’s the rub. In an effort to nurture a domestic horse-breeding and racing business, Japan has barred foreign-born horses from the Nippon Derby and all but a few hundred of the 28,000 horse races held in Japan each year. And even those select few must be reared and trained in Japan--or their race options are down to two per year.

“Unless Japan has a strong breeding industry, it can never be a premier horse-racing nation,” insists Yoshitaka Kitahara, general manager of the racing department at the Japan Racing Assn., by way of justifying the restrictions. His quasi-governmental organization runs Japan’s most important races, subsidizes Japanese horse ranches and channels $1 billion in gambling earnings into the Japanese Treasury each year.

But Americans are calling foul at being excluded from the increasingly profitable Japanese horse-racing business. The unfairness of Japan’s policy became particularly apparent June 6 when A.P. Indy, an American horse owned by Japanese developer Tomonori Tsurumaki, won the prestigious Belmont Stakes in Belmont, N.Y.

The market in Japan is enormous because the Japanese are avid gamblers. They plunked down $32 billion at the racetrack last year, about double the annual take for legal betting in the United States. At the Nippon Derby alone, Japanese bet a record $371 million on their favorite horses. Of course, those sums don’t include illegal off-track betting, which flourishes here as in the United States.

Although young people and women have recently joined the traditional blue-collar customers at Japanese racetracks, the sport still lacks the snob appeal that exists elsewhere.

You won’t find couples dressed in their Sunday best here, sipping mint juleps, as you might find in Kentucky. The floor is littered with old lunch boxes and tip sheets. The crowds are so thick, most observers have to be satisfied with watching the action on TV sets posted around the grounds or on a giant electronic movie screen in the middle of the racetrack.

And there are some odd practices. One veteran advised a visitor against betting on Astrogate in last month’s Nippon Derby because the jockey was young and would be under instructions to lose in order not to upset the strict, age-based hierarchy among jockeys.

Japanese officials say the races attract so many loyal fans because of the deep roots the business has put down in numerous small horse-breeding ranches throughout the northern island of Hokkaido.

The Japanese government nurtures the business with much the same policies as it uses to promote computers. First, there is a classification scheme that treats horses by the degree to which they are “Japan-ized.”

Horses born and trained overseas are allowed to participate in just two races a year and only by invitation. The Japan Cup, the key “international” race, usually takes place in November and is invariably won by a foreign horse.

Horses born overseas but “naturalized” by being raised and trained in Japan are allowed to race in about 30% of the 3,389 thoroughbred races operated by the Japan Racing Assn. Only 114 of the 6,074 horses registered to race in that association’s 10 racetracks fit into that category.

In the classics, including the Nippon Derby, only horses born, raised and trained in Japan are permitted to race. And foreign horses are completely excluded from the 24,612 races managed by the Japan Regional Horseracing Assn.

There is also a unique system of awards to promote Japanese breeders. In addition to the purse for the owner of the winning horse, money goes to the ranch that bred the winning horse and to the owner of the winning horse’s mother.

Thus, the ranch that raised Mihono Bourbon will receive $52,000. The horse’s owner will also get a newly instituted award for winning with a Japanese-born horse. There is another award category for owners of winning horses fathered by a Japanese horse.

The Japan Racing Assn. also buys the winner of the Japan Derby each year and lets Japanese breeders use the horse at no cost for breeding new generations of Japanese horses.

As if that weren’t enough encouragement for Japanese breeders, they are also protected by a $31,000 tariff on every horse imported into Japan.

Americans eager to get access to the Japanese prize money and to the large market for racehorses are pushing Japan to open up its races. Sen. Mitch McConnell (R-Ky.) and others have leaned on the U.S. Trade Representative’s office, which has, in turn, put pressure on Japan.

The Japan Racing Assn. has responded with a five-year plan under which foreign-born horses would be permitted in 65% of their races by 1996. The association accounts for only about 10% of the races in Japan but about two-thirds of the prize money. The number of races in which foreign-owned or foreign-trained racehorses are allowed will also increase gradually.

“Unless we open up, it is natural that we will face foreign criticism,” says Yoshitaka Kitahara, general manager of the association’s racing department.

Japanese racehorse owners are happy with the proposals.

“A horse that costs you $393,000 in Japan, you can buy for just $236,000 in America,” said Shigeo Sugiyama, whose family owns 20 racehorses, only two of them foreign-born. In a practice that has become increasingly common, Sugiyama buys pregnant horses overseas and brings them back to Japan so that the newborn colts will qualify as Japanese horses.

But Japanese horse breeders say the new plan will ruin them, and they are fighting to delay its implementation.

“Why do we have to bear the brunt of foreign pressure?” says Takashi Uno, adviser to Japan’s largest association of horse breeders based in the northern island of Hokkaido. “There must be other ways to satisfy foreigners.

“Horse racing is a cultural asset of the nation,” Uno argues. “It isn’t just gambling.” He says Japanese fans send flowers and carrots to prize horses and will even make the daylong trip to Hokkaido to spend a night in the stables with their favorite horses.

“Raising a horse and sending it out to race is like sending your child to compete in sports,” Uno says.

The horse-breeders’ association has paid Mitsubishi Research Institute, a think tank, to study the impact of liberalization on their business in hopes of stalling the five-year plan.

But unlike other areas of trade friction, few Japanese seem sympathetic to the breeders. “It isn’t as if Japanese culture is at stake, as in sumo or rice,” Hiroshi Kume, anchor of Asahi Television, said recently during his nightly news program.

Kitahara of the racing association, however, says his group does not want to hurt Japan’s horse breeders and hopes to reach a compromise.

RUN FOR THE MONEY

Horse racing in Japan is a lucrative business--and American horse breeders are pushing to get a bigger slice of the pie. Currently, horses born overseas but trained in Japan are allowed to enter only a fraction of the races.

Year Annual Revenues (from legal bets) Prize money annually 1987 18.9 billion $751 million 1988 20.7 billion 796 million 1989 23 billion 870 million 1990 26.6 billion 801 million 1991 31.8 billion 1.02 billion

Year Races open annually to Total races foreign-born, horses held in (trained in Japan) Japan annually 1987 537 28,036 1988 553 27,840 1989 635 27,908 1990 784 28,217 1991 960 18,001

Source: Japan Horse Racing Association (10 racetracks) and the Japan Regional Horse Racing Association (30 racetracks)