Dead race horses. Thousands of them. Not good for business if your business is horse racing.

In Ontario, a rising death knell for the financially gutted industry — facing track closures and withering purses in a best-case scenario — also peels for the beautiful four-legged creatures who carry jockeys and pull sulkies around 17 racing ovals.

A government panel assembled in June to study the sport’s dim future has forecast a mass slaughter of up to 13,000 thoroughbreds, standardbreds and quarter horses by early next year should the industry collapse completely. Already, it’s expected two-thirds of Ontario tracks will close, there will be fewer racing days, less money in the prize pot and therefore, less reason for owners and breeders to maintain expensive animals who may not have a place to run.

Against this horrific assessment, the finest 387 Ontario-bred thoroughbred babies go up for auction beginning Monday at Woodbine Racetrack. Horse people are worried, says thoroughbred owner and trainer Ian Howard of Vaughan.

“The question is: If (a horse’s) value is zero, how do you justify feeding them when you have no way to make a living anymore because the tracks you need to be in existence are gone?” says the 53-year-old, referring to all breeds without places to race.

“That’s when it gets ugly.”

Things first got ugly for horse folk when the province announced in March it was terminating a lucrative slots revenue sharing program with racetracks. According to the Horse Racing Industry Transitional Panel report delivered Aug. 17 to Ted McMeekin, Minister of Agriculture, Food and Rural Affairs, between 7,500 to 13,000 horses are at risk for systemic euthanization. That’s about half the horses active in all forms of racing.

“It’s a sad reality,” says Glenn Sikura, president the Canadian Thoroughbred Horse Society’s Ontario division, which stages the annual yearling auction at the 50-year-old Woodbine sales pavilion.

“We’ve been so cautious not to talk about (mass euthanasia) in the industry because first of all, we’re all animal lovers and god forbid anything like that would happen,” says the 52-year-old Sikura who owns a 40-horse breeding farm in Aurora. He hopes to sell eight of his Hill ‘N’ Dale yearlings.

“I would hope I could find each and every one of my horses a home. But could I? Realistically? I don’t know.”

The yearling sale runs Monday, Tuesday and Saturday and will serve as a litmus test for a jittery industry: How many babies are sold and what prices they fetch will indicate the degree of buyer confidence in racing’s murky future in Ontario.

But horse people say that buyer confidence was further rattled when McMeekin’s Aug. 24 response to his panel’s report provided scant moral support or financial hope before one of the industry’s make-or-break days for breeders.

“We were hoping for a stronger message before our sale,” says yearling sales chair Yvonne Schwabe, describing the statement as disappointing and “cowardly.”

McMeekin is expected to respond more comprehensively when the interim report’s recommendations and findings are finalized in a few weeks. But that’s too late for thoroughbred breeders with stock that began arriving Thursday in Toronto.

This sale will account for about 75 per cent of annual incomes for breeders, says Sikura. If prices don’t meet expectations — for instance, last year’s median was $25,000, up from $20,000 in 2010 — it will be disastrous for some operations immediately.

“It will put them out of business,” says Schwabe, who’s counting on a robust return for her yearlings. The 51-year-old Acton, Ont., breeder needs to sell all three babies to keep the family operation her German immigrant parents founded in 1961, Persley Den Farms, afloat.

The standardbred yearling sale is next, Sept. 15-16 at Flamboro Downs in Dundas, Ont. These breeders are anxious too.

As the industry contracts, it’s expected standardbred horses will be impacted more drastically than thoroughbreds. Ontario had 26,338 horses in racing in 2010, the latest numbers show: 18,184 were standardbred, with 7,122 thoroughbreds and 1,032 quarter horses.

Standardbred breeder Ann Straatman of Lucan, Ont., says though few are discussing the worst case scenario publicly, it’s vital the government acknowledges the potential for death or abandonment of horses as the industry withers.

McMeekin made no mention of the report’s forecast of wide-scale euthanasia.

“It’s there in black and white, in their own report, that this many horses will die,” says Straatman, 46, who owns and manages Seelster Farms. She will show 54 animals in London, Ont., in the mid-October Forest City yearling sale in which she is a part-owner.

“I’m glad they included (potential for euthanasia) because I don’t want the government deciding not to work with us in the future because this is exactly what’s going to happen (to horses).”

Poor results from the three-day yearling sale — low prices, unsold animals or no-show stock — could further undermine a sport that will officially close one historic track, Fort Erie, in December and has warned that this year’s running of North America’s longest continually run thoroughbred stakes race, the Queen’s Plate, may have been the last after 153 years.

A report released Thursday by the Ministry of Finance suggested Ontario’s 17 racetracks should be consolidated to between five to seven to remain viable.

Even before the auctioneer’s hammer is raised, the yearling sale has a worrisome sign. Its stock is down about 15 per cent from last year. Sikura speculates some of those breeders felt the cost of shipping a yearling to Toronto wasn’t worth it or they’ve given them away.

“If a $20,000 horse becomes a $10,000 horse, then the horse that used to bring $10,000 is now a giveaway,” says Sikura, who estimates it costs about $33,000 to care for a horse that races regularly each year.

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“So maybe some of those (no-show breeders) made a pre-emptive strike by finding new homes for their animals.”

Schwabe says she’s is counting on Ontario’s history of producing quality horses to override concerns there may be no racing in 2013. For instance, two sales grads, Inglorious (sold for $90,000 in 2009) and Edenwold (sold for $100,000 in 2004) won Queen’s Plates and more than $1 million in earnings.

“I’m trying to stay optimistic, I’m trying to keep everyone optimistic but to be honest, I have heard of situations where people who have bought (yearlings) in the past just aren’t going to buy because of the uncertainty of what’s going to happen next year,” says Schwabe.

“The whole conversation (about euthanasia) makes me very uncomfortable and very sad that there’s a possibility for anything like that down the road.”

Former provincial Cabinet ministers Elmer Buchanan, John Snobelen and John Wilkinson were commissioned as panellists in June to work with stakeholders across all facets of horse racing to “develop a vision for its future” and plan a “more sustainable business model.”

On page 31, the panellists describe the euthanasia scenario in blunt terms and recommend the government brace itself for the emotional fallout from people (the panel concluded about 20,000 to 30,000 work full-time in the industry) who would no longer have employment.

“If the industry closes, the panel has received expert advice that provision should be made for the humane dispatch and disposal of 7,500 to 13,000 horses in early 2013. Regrettably, initiatives to encourage euthanizing horses while supporting horse owners and other industry participants in emotional distress would be imperative,” the document states.

Snobelen downplayed the need for euthanasia when reached last week. He says the panel discussed it because “what we’re trying to do is make sure there are no unintended consequences from any government action in Ontario and that’s why we spent some time on this (to) make sure we’re well apprised of it.”

A noted horseman, Snobelen also believes the sport will not collapse.

“I’m confident the most dire circumstances are not going to happen, that between the industry and the government there will be a way found to make sure horse racing stays viable in Ontario,” Snobelen said.

That sentiment is small comfort to horse people these days.

Sikura says he has pregnant mares carrying foals “I don’t even know what to do with” — and about $100,000 in stud fees to pay when those babies are born next year. The report states foals born in 2013 would be yearlings for sale in 2014 and begin racing the next year or 2016.

As for maintaining a thoroughbred that races regularly, Sikura says it costs about $33,000 annually. Horses can live long after their retirement from racing, with lifespans of 22 to 28 years — sometimes longer.

The Slots at Racetracks Program ended when in March the Ontario government announced its cancellation of the revenue-sharing pact at 17 provincial tracks. The government indicated horse racing industry’s share of slot revenue, which was $345 million in 2011-2012, would be directed to other areas such as health care and education.

Soon after the announcement, the Ontario Lottery and Gaming Corporation closed slot facilities at racetracks in Fort Erie, Windsor and Sarnia. The report for McMeekin noted these three tracks would continue to receive some slots funding until March 31, 2013. The remaining 14 tracks slots’ agreements end March 31 too.

The interim report notes racetracks are divided into three classes: premier, signature and grassroots, based on the quality of horses running there. That quality is, in turn, related to the size of the purses offered.

The tiered structure allows horses to move up and down the tiers so they can continue to race and be competitive and earn purses at different levels.