Yeah, the two options. Either you planted the city on horses or it is a bug, but an interesting one. I wonder if maybe what it does is check if you have horses in the workable radius and then checks if you have horses (from your other city?) rather than check if you have horses from the horses in the workable radius. On the one hand, I'm pretty sure I remember having built circuses in some cities while having it grayed out in others. On the other hand, I don't think I've seen horses so close together. I'm not sure which is less plausible at the moment.