Links:

Taking Stock: Philanthropy and Racehorses Define Gary and Mary West

Hello Everyone,

ROAP is conducting an interference survey and Chairman Dan Fick requested that the HBPA please participate in the survey and in hopes that each of you could possibly further distribute the survey link to your individual members and Board members. ROAP have been asked to present the results of the survey at the upcoming University of Arizona’s Race Track Industry Program Symposium on Racing December 4-5th and they would very much appreciate our input on this topic.

Link to the survey: https://www.surveymonkey.com/r/2018InterferenceSurvey

Good News for Racing in Nebraska

Gana Excavation & Trucking has been awarded the contract by the NE HBPA to excavate and construct the new track at the Lincoln Race Course simulcast facility. With the extended gate chute, Lincoln Race Course will have one turn wide 6 furlong races (and up to 6.5 furlong one turn) and two turn mile races.

The 80 acres has been mowed and Gana Excavation & Trucking is scheduled to be on site by August 13 to start excavation and moving dirt. Contracted completion date is June 1, 2019. HBPA Board plans on hosting live racing at the new Lincoln track later in 2019 race season upon installation of a rail and other Race Course improvements, and approval of final plans with City of Lincoln.

The Board of the HBPA is dedicated to increase the number of live racing days in Nebraska. The expansion of the Lincoln Race Course track will be beneficial to Nebraska Horsemen, Nebraska Breeders, Nebraska Agriculture, Nebraska’s Economy and our loyal Horse Racing fans!

Barry Lake HBPA President

Review of Nebraska Revised Statute  Chapter 2 Section 1207 & 1207.01  Deduction from Wagers & Distributions  “Breed Fund” Download Link.

Backside Meeting


Barry Lake – President April 26, 2018
Grand Island, NE
http://www.nebraskahorsemen.com/
www.facebook.com/nebraskahbpa/ Twitter - @NebraskaHBPA


AGENDA
A.  HBPA Financials

B.  Breeders Fund Update

C.  HBPA Debt: Then & Now

D.  Internal Controls

E.  Lincoln Race Course

F.   Fonner Live Meet
G.   OER Addendum

A. HBPA Financials:   2018 HBPA Budget

•    Revenues: $2,399,750.00
o $   224,000.00 – Administrative Income
o $     10,600.00 – Interest  Income
o $          150.00 – Sales Tax Collection Fee
o $2,160,000.00 – Rental  Income
o $       5,000.00 – Uncategorized Income
•    Expenses: $2,456,117.00
o $   866,127.00 - Depreciation / Interest / Bookkeeper
o $   463,290.00 – Management / General Expenses
o $     50,000.00 – Benevolence  Trust
o $1,076,700.00 – Purse & Track Subsidies (Breakdown Below)
▪    $524,000.00 – Purse Award (Fonner Park)
▪    $175,000.00 – Purse Award (Columbus)
▪    $  76,000.00 – Fonner Underpayment Account – 2017
▪    $  12,500.00 – CER Underpayment – 2017
▪    $270,000.00 – HBPA Subsidy to FP / Col (operations/admin)
▪    $    4,200.00 – Starting Gate Expense

HBPA Financials:   Revenues / Expenses 2017 / 2016

•    Revenues

2017                2016

o Rental                                                                          $ 2,160,000     $
2,179,125
o Administrative                                                            $    243,690     $    
184,473
o Interest                                                                        $      11,133    
$       11,430
o Other                                                                           $    132,529    
$     108,865
Total revenues                                                           $ 2,547,352     $
2,483,893
•    Expenses
o  Program expenses                                                       $1,033,758    $1,023,426
o Administrative                                                            $   293,018      $   
283,602
o  Rental depreciation                                                     $   395,060      $
403,044
o Other rental expenses                                                 $     47,287      $     
43,307
o Interest expense                                                          $   272,752      $   
320,110
Total expenses                                                           $ 2,041,875    $2,073,489

B. Breed Fund Update: Background

• In July, October & December of 2017, NTBA petitioned the NRC to “order” the Horsemen’s Bookkeeper
to pay all current and future accrued funds from the “Breeder’s Fund” to the NTBA for distribution.
• On Feb 21, 2018, The NRC ordered all funds ($ future funds) in possession by any licensee or
maintained by the HBPA shall be paid to the NTBA. The main reason was to prevent a “Potential
Conflict of Interest”
o Note: Zach Mader represented the NTBA as President in these proceedings even though he sits on
the Fonner Park Board.

• Subsequent lawsuits have been filed that have resulted in a “Stay” of the NRC order. There have
been several challenges to the “OER” filing by NTBA / Fonner Park. So far, the court has ruled for
“OER
/HBPA in each challenge”.  A hearing on the Petition for Judicial Review is scheduled for June of
2018.

Nebraska Revised Statute Chapter 2, Section 12 Governing Law Concerning the “Breed Fund”

NEB. REV. STAT 2-1207 subsection (2)

(2) At all race meets held pursuant to this section, the licensee shall deduct from the total sum
wagered one-third of the amount over fifteen percent deducted pursuant to subsection (1) of this
section on wagers on horses selected to run first, second, or third and one percent of all exotic
wagers to be used to promote agriculture and horse breeding in Nebraska and for the support and
preservation of horseracing pursuant to section 2-1207.01.

Section 1207 (2) defines the amount of money that is to be taken out of the total sum wagered, and
then directs us to 2-1207.01 which defines how the money is to be used.

NEB. REV. STAT 2-1207.01 - Deduction from wagers; distribution; costs
The amount deducted from wagers pursuant to subsection (2) of section 2-1207 may be used to promote
agriculture and horsebreeding in Nebraska and shall be distributed as purse supplements and breeder
and stallion awards for Nebraska-bred horses, as defined and registered pursuant to section 2-1213,
at the racetrack where the funds were generated, except that if a racetrack does not continue to
conduct live race meets, amounts deducted may be distributed as purse supplements and breeder and
stallion awards at racetracks that conduct live race meets and amounts deducted pursuant to a
contract with the organization representing the majority of the licensed owners and trainers [HBPA]
at the racetrack's most recent live race meet shall be used by that organization [HBPA] to promote
live thoroughbred horseracing in the state or as purse supplements at racetracks that conduct live
race meets in the state. Any costs incurred by the State Racing Commission pursuant to this section
and subsection (2) of section 2-1207 shall be separately accounted for and be deducted from such
funds.

Breed Fund Update: Interpretation of 2-1207.01

• The amount deducted shall be distributed “at the racetrack where the funds were generated”. If
it’s deducted at the track, it shall be distributed at said track.
•    Exception: “If a racetrack does NOT Continue to conduct live race meets.”
o The definition of continue: “to keep happening, existing or doing  something”
o As the racetrack continues to offer live race meets, the amounts deducted shall be distributed at
that racetrack.
• If a racetrack does not continue to conduct live race meets, amounts deducted from this
racetrack, can be used at racetracks with live meets. When Atokad closed - $105,000.00 went to
Fonner Park.
• It is a violation of NEB.REV STAT 2-1207-01 for any licensee to transfer funds for expenditure at
a racetrack where the funds were not generated.

Breed Fund Update: Custodian of “Breed Funds”

• Each Track (FP, HP, LRC & CR) must deposit “Breed Funds” in individual bank accounts which are
controlled by the Licensee (tracks).
• In the past, the HBPA contracted with most individual tracks to act as Horsemen’s Bookkeeper for
1) General Purse Funds & 2) NE Breed Funds.
o At each live meet, the host track transferred amounts deducted for “Breed” payment to the
Horsemen’s Bookkeeper account to pay general purses & NE Bred Purse supplements & Stallion Awards.
• In 2017, Fonner Park & NTBA wrote $291,000.00 in Breeders Purse supplements, Breeder / Stallion
awards and Stakes races. Fonner Park funded only $122,000.00 leaving owners, jockeys, and breeders
with unpaid amounts of $169,000.00
• After no payment for about one month - the HBPA borrowed $169,000 from a bank and paid owners,
jockeys and breeders. Fonner Park and NE “Fonner Park has not repaid the HBPA that $169,000.00.

Section 40 of the 2017 Live Meet Contract Between the HBPA and Fonner Park states:

40. BREEDERS’ FUNDS. As a condition of the HBPA providing distribution of Breeders’ funds and
associated reconciling documentation for said funds, the monies paid by the Breeders and
distributed through the Horsemen’s Bookkeeper shall be deposited on the following schedule:
a) All accumulated breeders’ funds generated from the end of the host track’s live race meet the
previous year until opening day of the current live meet will need to be made available to the
Horsemen’s Bookkeeper within two weeks of the current live meet; and
b) All breeders’ revenues generated from the host track will be paid on a weekly basis to the
Horsemen’s Bookkeeper.

•   The contract clearly states “Breeders Funds” are generated from the Host Track and are to be
deposited by the Host Track into the Horsemen’s Bookkeeper’s Account. Fonner Park & the NTBA only
deposited
$122,000.00 of the $291,000.00 required, leaving the HBPA (Nebraska Horsemen) holding the bag for
$169,000.00.
• The 2018 Live Meet Contract agreed to by both the HBPA and Fonner Park again defines that Fonner
Park and/or the NTBA is responsible for collection, maintaining and paying out “Breed Fund” awards
for the 2018 Fonner Park Live Race meet.
• The HBPA does NOT have custody of “Breed Funds.” It is the responsibility of each track to
collect and maintain their “Breed Fund” accounts.

C. HBPA - Debt: Then and Now
The  HBPA's bank called in the summer of 2015 and said the HBPA Operating loan was going to exceed
the
$800,000 limit and the HBPA had to take action to get control of its spending or the Bank would not
allow any more checks written on the Operating loan. At that time the Operating loan was going to
reach close to
$900,000- which along with long term debt was going to exceed $8,000,000.

The HBPA worked on a Budget with reduced expenses for 2016 and the bank agreed to increase the
operating loan from $800,000 to $900,000 conditioned on the Bank lower 2016 expenses and
eliminating over time using the operating loan to subsidize purses at Horsemen's park, Fonner Park
and Columbus race tracks.

the HBPA has reduced reliance on the operating loan for race track subsidies and met amortization
payments on the1. Operating loan and 2. long term mortgage debt on Lincoln and Horsemen's Park - at
the end of 2017 was around $5.5M, from over $8M during 2015.

D. Internal Controls: BKD Review – 2012
BKD: Informed HBPA Board – There was a lack of internal controls.

• Encountered difficulties in reconciling in reconciling the cash activity recorded in the
Bookkeeper’s accounts per the HBPA’s records to the underlying records.
• The database system utilized by the HBPA is manual and is not able to produce information
electronically, making it easier to reconcile the cash activity to the underlying records,
especially given the volume of activity in each of the accounts.
• There is only one set of financials for the Bookkeepers account. There should be separate
accounts for each track and type of account holder.
• Segregation of accounting duties is an essential element of effective internal controls,
involving the separation of custody of assets from related recording and monitoring of
transactions. The bookkeeper has unlimited access to bank statements, accounting records, and
disbursement of funds with no direct oversight.
•    There is not enough restricted cash to cover the HBPA’s liability
• Lack of defined duties and formal policies to insure the proper segregation is maintained at all
times & employees have an understanding of their duties.

No Action was taken by the Board in 2013 / 2014 / 2015

Internal Controls: BKD Review – 2016/2017

Corrective Actions taken by the HBPA board in 2016/ 2017:
• In 2016, the HBPA began using InCompass racing database system to keep records for account
holders.
•    The cash activity is now reconciled weekly for better accountability for the cash activity.
•   Create a separate set of financial statements for the Horsemen’s Bookkeeper account in order to
keep it separate from other HBPA accounts.
•    Separate accounts are maintained for each track and type of account holder.
• Jean Condon was hired to provide oversight and reconciliations to the monthly budget and bank
statements and add another layer for checks and balances.
• Budget has been prepared and adjusted monthly so the HBPA Board can review Revenues / Expenses
including any variances.
• The President & Executive Director are overseeing the duties of cash disbursement and signing of
checks.
• HBPA Mission Statement, Employee Manual , Organization Structure and Employee Job Descriptions
are currently being reviewed for implementation.

Internal Controls:  BKD response to HBPA Corrective Actions

• Given the inherent limitations of an organization the size of NHBPA, the Board and employees
appear to be taking positive steps to implement proper separation of duties pertaining to the
receipt and disbursement of cash during meets and accounting across the entire year.
• During BKD’s 2017 review, there were significantly fewer adjustments to the year-end financial
statements along with more detailed support of year-end balances.
• Cash accounts appeared properly reconciled and other major balance sheet accounts were properly
stated at December 31, 2017.
• BKD recommends continuing work on defining duties in formal policies to ensure proper segregation
is maintained at all times and employees have an understanding of their duties and requirements in
the overall internal control structure of the bank.
The HBPA has made incredible progress implementing Internal Controls.

E. Lincoln Race Course: Member Update
•    HBPA owns 106 acres at the Lincoln Race Course site.
• Soil testing has been completed. There is considerable “lean clay” under the top soil, with some
deposits over fifty (50) feet in depth.
• Lean clay is extremely valuable in the construction industry. It is used for commercial building
construction, as well as a base for major road construction. Several companies are in need of lean
clay.
• HBPA is working on a bid package to “offer for sale” the lean clay at the site to several
construction companies.
• The capital gained from the sale of this commodity will be utilized for the construction of the
track, rail, buildings and barns to support expanded live racing in Nebraska.

• HBPA is in process of obtaining a mining permit from the city and meetings have been held with
the planning commission.
•    The plan is being “fast tracked” in hopes that the track would be available for racing next
year.

F.  Fonner Park Live Meet: 2018 Live Meet Contract – HBPA / Fonner Park
• The 2018 HBPA / Fonner Park Live Meet contract contains several sections pertaining to the
custody, control and disbursement of Nebraska Breed Funds. This was approved by a unanimous vote of
the HBPA Board
o Section 37: NE Thoroughbred Breeder’s Development Fund.
Pursuant to Nebraska law, funds generated for the Nebraska Thoroughbred Breeders Development Fund
from statutory wagering deductions at Fonner Park are to be distributed in accordance with NEB.
REV. STAT. Section 2-1207, Subsection 2, and Section 2-1207.01.
o Section 40: Breeders Funds.
The HBPA will not be responsible for, and assume no control over, the distribution of Breeder’s
funds generated at Fonner Park pursuant NEB. REV. STAT. Section 2-1207 Subsection 2 and Section
1207.01 and associated reconciling for said funds. The parties shall cooperate in good faith to
enable Fonner Park and/or the NTBA, if directed by Fonner Park, to control and disburse those
Breeders funds generated at Fonner Park pursuant to NEB.REV. STAT., Section 1207, Subsection (2)
and Section 2-1207.01.

Fonner Park Meet:  2018 Live Meet Contract – HBPA / Fonner Park

•    HBPA Contributions to Fonner Park in 2018: (Source: 2018 Live Meet Contract)
o $524,000.00 – Purse  Supplements
o $  36,000.00 – For Purses – Previous Years Underpayment Account
o $  40,000.00 – For Breed  Fund
o $186,000.00 – Operational / Administration Expenses
$786,000.00 – Total Payment from the HBPA

•    OER Contributions to Fonner Park (Source: OER – Est. for 2-15-18 / 5-5-18)
o $240,677.00 – 2018 Live Meet contribution for  purses
o $193,121.00 – 2018 Live Meet contribution for  operations
$433,798.00 – Total Live Meet Payment from OER

•    Total Payment to Fonner Park from the HBPA / OER for 2018 Live Meet = $1,219,798.00

Fonner Park Meet:  HBPA Purse Correspondence with Fonner Park

From: barry lake <barryklake@yahoo.com>
To:
Sent: Saturday,    arch 2 , 201  11:   :    A CDT
Subject: Fonner Purse Account 3/24/18

- Lynne Schuller said she met yesterday (3/23/18) with you on her regular Friday trip to Fonner
Park. You mentioned to Lynne that Fonner Park needs to cut purses 8% because your gross Fonner
gaming handle is down $240,000 in your 2018 race meet.

I am attaching the HBPA's estimate of the adequacy of Fonner's Purse account to fund the HBPA
projected Fonner Purses of $1,613,900 (assumed the same 2018 Fonner Purses as 2017 Fonner Purse
payments). The HBPA attachment projects Fonner will have an excess of $7,422.66 in the HBPA Fonner
Purse account to fund the projected Fonner 2018 purses.

Fonner has run 100 races through March 18, 2018 (last weekend) compared to Fonner running 99 races
for the same time frame in 2017.

Accordingly, the HBPA does not think Fonner needs to cut purses 8%. The Purse revenue sources to
fund Fonner purses need to be monitored daily during the racing days. If the HBPA or Fonner
projections change adversely, then any purse reduction could be addressed at that time.
Furthermore, the Fonner Racing Secretary needs to write races that follow the budgeted Purse fund.
I will give you a call to discuss. Thanks. Barry Lake
HBPA President
Fonner Park Meet:  HBPA Purse Correspondence with Fonner Park
From: barry lake <barryklake@yahoo.com>
To:
Sent: Thursday,   arch 2 , 201  01:   : 1 P CDT
Subject: Fonner purses
-I am attaching the HBPA's estimate of the adequacy of Fonner's Purse account to fund the HBPA
projected Fonner Purses of $1,613,900 (assumed the same 2018 Fonner Purses as 2017 Fonner Purse
payments). The HBPA attachment projects Fonner will have an excess of $36,335.93 in the HBPA Fonner
Purse account to fund the projected Fonner 2018 purses. (Based upon Gaming revenues as of
3/25/18).
Accordingly, the HBPA does not think Fonner needs to cut purses nor does Fonner Park need an
additional
$55,000.00 from the HBPA Underpayment account to fund the projected Fonner Purses. The Purse
revenue sources to fund Fonner purses need to be monitored daily during the racing days. If the
HBPA or Fonner projections change adversely, then any purse reduction could be addressed at that
time. Furthermore, the Fonner Racing Secretary needs to write races that follow the budgeted Purse
fund.

If you have any questions, please give me a call. Thanks. Barry Lake - HBPA President

G. Addendum:  OER DEVELOPMENTS IN LIVE RACING
Over the past 3 years, Omaha Exposition and Racing (OER) has focused its efforts and financial
resources in reviving live Thoroughbred racing in the state’s two largest markets (Omaha &
Lincoln).
Omaha/Horsemen’s Park has grown live racing dates by 200% since 201 . Traditionally, Horsemen’s
Park ran only one weekend (3 days) of live racing from 1998-2015. Under new management, OER ran 5
days of live racing in 2016, 7 days in 2017, and will run days in 201 . Horsemen’s Park/OER has
added and paid 100% of the purses and expenses of these additional dates. Breeder’s Funds generated
by Horsemen’s Park were used to supplement Nebraska Bred horses in these races to the tune of 202k
in 2016 and 208k in 2017. In 2018, Nebraska Breed supplements and awards are estimated at 2 0k over
the day meet. In 201 when Horsemen’s  Park ran only 3 days, the Nebraska Breed supplements and
awards totaled only 146k.
In 2016 OER invested in a large video board for the infield to give outdoor fans a better
experience during the live races. In addition to many other major investments to the property to
enhance the live racing experience, OER purchased 700 tons of new dirt to re-condition the entire
track surface which provided a safer course for our horses and jockeys.
In 2017 OER built an additional barn (265k) to accommodate more horses for live racing. OER also
made large investments in improving facilities for the fans. More than 100k was spent by OER to
concrete the entire track apron.
OER understands the importance of live racing in the Omaha market and what these new live dates
mean to the Horsemen of Nebraska. For decades Ak-sar-ben Racetrack was one of the crown jewels
nationally in the racing industry. The Omaha market needs, wants and supports more live racing each
year. If live Thoroughbred racing is to survive in the state, Omaha and Lincoln will need to
continue to add live racing. The Breeder’s Funds generated at these two facilities and by state
statute can only be spent at the track that generates those funds, are key to live racing dates and
supplementing those race purses.
Lincoln Race Course, which is also managed by OER, has increased their number of live races by 300%
since 2015. In 2015, only 3 horses competed in 1 Nebraska Breed race on one day in Lincoln. In
2017, 16 horses competed in 4 Nebraska Breed races over two days. Although this may not seem like a
huge increase due to our limited facilities at LRC, 13 additional Nebraska horse owners, breeders
and jockeys had a new source of revenue that they never had before.
The Nebraska HBPA and OER are in the process of moving forward with development of Lincoln Race
Course. We intend to add a 7 furlong course and barns to our facility. Once complete, the Breeder’s
Funds generated  and accumulated in LRC’s separate Breed Fund account will be needed to supplement
the vast expansion of live races at that track.
OER keeps separate bank accounts for the Breeder’s Funds at each of our tracks. We do not and have
not ever put Breeder’s Funds generated at each facility into our general accounts. Our Controller
provides the Nebraska Breeder’s Association President with a monthly balance statement for each
track. Our Breeder’s Fund accounts are subject to and part of our annual audit by Frankel Zacharia
Accounting firm.
After the closing of Ak-sar-ben there was a two-year period (1996 & 1997) during which Omaha did
not run live horse racing. Because Omaha/Horsemen’s Park wagering handle was still generating the
statutory  Breeder’s Funds and couldn’t spend those accumulated funds without live Nebraska Bred
races, an exception

was created to the statute that allowed Breed Funds generated at Horsemen’s Park to be used at
other tracks that were conducting “live meets”. Breeder’s Funds generated at Omaha were used to
supplement breed races at tracks such as Fonner Park in Grand Island.
That practice should have ceased once Omaha/Horsemen’s Park ran it’s first live race in 1  .

In 1  Horsemen’s Park handled nearly 0 million dollars. The Breeder’s Fund account was flush with
money in Omaha so the practice of sending Omaha funds to other tracks continued instead of adding
live dates to Horsemen’s Park and spending the funds as directed by statute.
In 2017 Horsemen’s Park handled less than million dollars. The amount of Breeder’s Funds generated
by Omaha has decreased by . % since 1 . If Omaha/Horsemen’s Park is to continue running a live
meet, they will need every penny of the funds their handle generates to pay the supplements and
awards for those races.
Since 1988 Nebraska Thoroughbred Racing has experienced reduced number of live racing dates every
year. The loss of racing opportunities has forced most Horsemen and Breeders to leave the state or
get out of the business. OER is committed to keeping Nebraska Horse Racing alive. In 2016 OER added
dates/races to both Horsemen’s Park and Lincoln Race Course. This was the first  increase of live
racing dates since 1   .  OER   has continued to add live racing opportunities for our horsemen,
our Breeders and our fans each year.
The fact that a new OER board & management has been able to become financially profitable and
responsible with our revenues over the past 3 years has allowed us to finance our live meet purses 
without  HBPA assistance. In years past, the HBPA has provided supplements to OER as well as the
other tracks in the state. The savings to the HBPA by Omaha and Lincoln being self-sufficient in
their live meets has allowed the HBPA
to utilize those previous supplements to pay off debt and stabilize their financial standing.