Racing’s Red Flag Is Up

Twenty-eight years Kim Lloyd gave to horse racing. Started as a teenager and worked his way up. He never ranked among the top trainers, but his horses ran well enough to keep him getting out of bed at dawn, seven days a week, heading out to the stables.

“If you had to do that for a regular job, it’d kill you,” he said. “With horses, you just don’t think of it that way.”

His soft Oklahoma drawl does not fully account for the wistfulness of his words. This week, with the Breeders’ Cup at Santa Anita Park, Lloyd is resigned to knowing he will be far from the sport that is in his blood.

These days, the 48-year-old sells cars at a Fontana dealership. Count him among a growing number of trainers forced out of the business -- or forced to move to tracks in other states -- by the workers’ compensation crisis in California.

They cannot afford the mandatory insurance to cover medical costs if their barn workers are injured on the job.

“We were paying seven cents on the dollar and it went up to nine to 11 to 55,” Lloyd said. “Then you have to write the checks to pay bills and you’re short of money and baby needs shoes.”

Rising premiums have triggered a worrisome chain of events. According to one industry estimate, as many as 20% of the state’s trainers have quit or relocated, which makes for fewer horses at a time when the sport is already facing a shortage.

Races that regularly featured eight or 10 entries now have four or five. And that discourages fans.

“People come to the track to watch full fields,” said Eric Johnson, a state Assembly consultant who has followed the unfolding crisis. “They aren’t ooh-ing and ahh-ing when the exacta comes back at $7.40.”

Horse racing isn’t alone in feeling the workers’ comp crunch. Statewide, employers have seen the overall cost of premiums increase from $9 billion to an estimated $29 billion in the last eight years.

The system’s woes began with deregulation in the mid-1990s and have been exacerbated by abuse and fraud. Reform was a hot topic during the recent gubernatorial campaign.

California horse racing, which has 15,000 licensed employees and perhaps tens of thousands more in related jobs, has been hit especially hard.

Jockeys, grooms, hot walkers, exercise riders and others in the business don’t sit at desks all day. Their insurance premiums are higher because they work with powerful and unpredictable animals.

“From exercise riders to jockeys to people being kicked by horses, they face the potential for paralysis on a daily basis,” said John Patrick Unick, vice president and national sales manager for Maroevich, O’Shea and Coghlan insurance brokers in San Francisco.

And horse owners, unlike other businessmen, don’t depend on their industry for a living. Most are in it for thrills.

“There comes a breaking point,” said Vladimir Cerin, a veteran Southern California trainer. “They decide they’d rather have a new boat or a diamond ring for the wife than the headaches of the horse industry.”

With no investment in fixed sites such as factories and warehouses, they also might load their horses onto trailers and move to tracks in Kentucky, New York and Illinois, where insurance is three to four times cheaper.

Jerry Hollendorfer pays as much as $18,000 a month in workers’ comp to keep a 50-horse stable at a Northern California track but sees his expenses drop to $4,000 when he ships his horses to race in Illinois for a portion of each year.

“The guys back there almost don’t believe you when you tell them how much you’re paying,” the trainer said. “They say you’re stupid to be training back there in California.”

Compare that to years gone by when the West Coast ranked as a racing mecca. Lloyd recalls the days when he arrived in Southern California as a young man.

“We had full fields and you couldn’t get in the grandstand,” he said. “It was like Disneyland every day.”

A fledgling trainer could start with a few horses and build gradually. “If you came up with a nice horse, you carried yourself along for a while,” he said.

The situation began to deteriorate near the end of the 1990s. Feed prices rose and tracks in other states began fattening purses with revenue from slot machines, something their California counterparts were not allowed to install on the premises.

At the same time, the workers’ comp situation began to spiral out of control, critics say, because state policy allowed for injured workers to see chiropractors and physical therapists more often than in other states. There have been complaints about mandatory career counseling and the way in which California determines when a worker is permanently disabled.

California also became known as a state rampant with fraud and underreported payrolls, said Ed Halpern, executive director of California Thoroughbred Trainers. By last year, some trainers were paying a base rate of more than $43 per $100 of payroll and $93 every time a jockey left the gate.

“I started 1,000 horses in California last year,” Hollendorfer said. “There’s a pretty big bite right there.”

Lloyd figures he hung around the sport a year longer than he should have, scratching for revenue, watching bills mount.

A relatively simple incident finally did him in: One of his workers broke a thumb and spent three years on disability, driving Lloyd’s rates even higher. He said he kept asking the state to investigate.

“Get the guy back to work or get him off the dole,” he said. “What are you going to say? It doesn’t matter what you say.”

His exit from the sport rated only a brief note at the bottom of a recent news release from the Oak Tree Racing Assn. It was another refrain in a familiar story.

Clifford Sise recently moved 30 horses to Philadelphia Park, where his workers’ comp bill is 75% cheaper. Christopher Paasch, reached by telephone in Kentucky, said he had no choice but to take his horses east.

The biggest blow came last spring when Wayne Lukas cleared out of Barn 66 at Santa Anita Park, spreading his horses throughout New York, Kentucky and Illinois. The first trainer to surpass $200 million in purses, Lukas has saddled 13 Triple Crown race winners in a Hall of Fame career.

“Economically, I can’t justify running there anymore,” he said of California at the time.

While all of this was going on, horsemen scrambled to react.

After one high-risk policy carrier pulled out, the industry put up $5 million in collateral toward creating a new plan with another carrier. Unick, who brokered the plan, called it a starting point toward lower rates.

State legislators stepped in with additional help, voting to defray costs by diverting as much as $5 million annually from purses and commissions.

Still, horsemen needed more help and felt they could not wait for politicians wrangling with an overall solution to the crisis.

“There’s too much at stake for them to just sit on the sidelines,” said Johnson, a consultant to the Assembly Committee on Governmental Organization. “They needed to come up with something.”

Assemblyman Jerome Horton (D-Inglewood) championed a bill that would allow tracks to siphon an additional 0.5% -- as much as $10 million annually -- from exotic wagers such as exactas and trifectas.

Fans would feel the difference, receiving $51.50 on an exacta that once paid $52, for example.

Steven Crist, publisher of the Daily Racing Form, has criticized the proposal, writing: “The only reason bettors are being targeted for this robbery is why muggers go after little old ladies: They’re defenseless, and they don’t fight back.”

His stance has prompted letters to the editor from horsemen who argue that other states have even higher takeouts.

“Owners get mugged every day from every angle possible,” wrote Thomas A. Noone, a Redondo Beach owner. “Remember, take the bettor out of the game and the game will die. Take the owner out of the game and guess what? There is no game.”

The measure currently is hung up in partisan wrangling, with legislators set to consider it again next year. Halpern said: “People are willing to hang on three months longer on the hope it will get finished in January.”

Until then, California racing pins its survival on a natural edge. Trainers such as Hollendorfer and Cerin talk about the warm weather and living near the ocean, saying they would never move east. Even Lukas has returned, in abridged fashion, sending 18 horses back to Barn 66 last month.

No such comeback is in the cards for Lloyd, though he cannot seem to get racing out of his blood, not with the Breeders’ Cup in town this week.

“Oh my gosh,” he said. “When your horse swings out and he’s coming for home, believe me, it brings you out of your seat. There’s nothing as exciting.”

His new job pays a steady salary, no more getting up at dawn, no more worrying about bills. Now someone else pays a workers’ comp premium on him.

“Easiest thing I’ve ever done,” he said. “Still, it’s not the horse business, is it?”