By Bill Oppenheim
We interrupt our regularly scheduled program (APEX ratings) to note the stark contrast, detailed in the Weekly Sales Ticker, between the desultory figures at Keeneland's January Sale and the continuing upward trend of the Magic Millions Book 1 Yearling Sale in Queensland, which grossed A$134 million, up almost A$20 million (+16%) from last year, and double the A$67 million gross just four years ago, in 2013. Even the average was up 6%, to A$206,922, even as 10% more horses were sold. Their clearance rate from the catalogue was 79.5%, a percentage North American and European sales, for the most part, can only dream about.
Of course it's hardly comparing apples to apples, since Magic Millions is the number two yearling sale in Australia, whereas Keeneland January is a catch-all mixed sale, and part of a winter mixed sale sector which constitutes only around 4% of the North American and European combined auction market. One thing which the January sale highlighted is the decline of regional breeding markets as more and more of the North American breeding market becomes centralized in Kentucky. The U.S. Jockey Club On-line Fact Book contains a section which details the 41% drop in the North American Foal Crop between 2005-2014 (click here)–and, of course, that is now almost three years old, and it's unlikely to have been improving, except maybe in Maryland, which is enjoying a much-needed revival. During that period, the Kentucky foal crop declined 24%, from 10,037 to 7,620, but the decline in other major racing jurisdictions was double that.
In 2005, 11 states plus Canada reported crops of 700+ foals, totalling 22,237 foals. By 2014 that was down to five states plus Canada, for a total of 11,630 foals–a decline of 48%. Florida, which reported 4,499 foals in 2005, was down 52%; California, which reported 3,664 foals in 2005, was down 53%. New York, which still has the strongest regional program, matched Kentucky in declining by 'only' 25%, but Illinois, which used to have a strong state-bred program, was down 61%, and Washington state, which used to be famous for Washington-breds outrunning their pedigrees in California and points beyond, was down 72%, from 730 foals in 2005, to just 206 foals in 2014. So that's a lot of what happened at Keeneland January: regional breeders are producing half the foals they used to. Sure, the World Economic Crash of 2008-09 played a big part in that–in fact, according to the article by Michele MacDonald to which I've referred before (Racing Post, Dec 23, 2016), the foal crop in Australia even declined by 30% between 2007-2015. But that statistic has not stunted Australia's thoroughbred industry's commercial growth.
Even as North American breeding continues to centralize in Kentucky, there is a very big flashing yellow sign for breeders in the results of last year's major North American yearling sales. We went back and counted some 575 yearlings which sold for $200,000 or more at Keeneland September (401) and Fasig-Tipton sales in Kentucky, New York, and Maryland in 2016. Sounds like a lot, huh –575 yearlings which brought $200k or more? But is it? In 2017 there are 16 stallions standing in Kentucky for $75,000 or more (including American Pharoah, listed as 'Private'). These sires are likely to average 100 foals– 1,600 foals of 2018. Nowadays about 70% of foals by this level of sire are offered at auction, mostly as yearlings. That's 1,120 prospective yearlings (let's call them 'yearlings' even though some may be offered as foals, some more than once, etc.). If buying levels were to remain the same (of course they won't, but they have been relatively static since 2013) and if the $75k+ sires accounted for all $200k+ yearlings (definitely won't happen), even then only half the foals offered for sale by $75k+ stallions would be sold for a good break-even price or profit. What happens to the rest? Do breeders sell them at a loss; put them into training themselves; and are they likely to be wanting to spend $75,000+ on a stud fee this year or next year when there are 500 expensively-produced yearlings selling for at or under the stud fee?
A few examples from the 2016 yearling sales (click here): Giant's Causeway ($85,000 fee in 2014)–47 offered/31 sold, average $165,617, median $110,000; Distorted Humor ($100,000)–40 offered, 27 sold, average $159,925, median $100,000; Kitten's Joy ($100,000)–92 offered, 57 sold, average $88,113, median $50,000. 2017 stud fees: Giant's Causeway (3-time Champion Sire, 20 years old) $75,000; Distorted Humor (Okay, he's 24, but the sire of 131 Black-Type Winners including 52 Graded/Group SW) $80,000; Kitten's Joy (okay, he's a turf sire, but had a Group 1 winner in Europe last year, and is a for-real good sire) $100,000. It's not just limited to North America, either, nor is it limited to older sires, in fact Sea The Stars, who stood for €85,000 in 2014 and is the sire of 20 GSW including five Group 1 winners in four crops of 3-year-olds and up, had 55 yearlings offered, 43 sold, for an average of about €174,000 and a median of €97,000. He'll be standing for €125,000 this year.
Sure, there will be a lot of foal-sharing among the expensive stallions–that's nothing new–but there are three serious, linked factors which have to be considered: first, the imbalance between the supply of commercial yearlings by $75k+ sires and the number of people prepared to spend $200k+ on yearlings (and the number of yearlings they're prepared to buy); second, the fact that even though the foal crop shrank by 25% in Kentucky and New York between 2005-2014 (and by 40% nationally), yet the pool of buyers must be shrinking as fast or faster than the foal crop; and third, that a high proportion of even top-end buyers are boutique operations, understandably from their point of view more interested in quality than quantity. Then there's the reality of breeding horses: if you're very good, or very lucky, or both, one out of five will make 'their' lists. Breeders in Australia are evidently still making fair money on three out of the other four; in North America, and to some extent (maybe a lesser extent, maybe not) in Europe, they are not. For a lot of breeders, even in Kentucky, it's not pencilling out. Conclusion: it's difficult to see how stud fees on some of the most expensive stallions can possibly be sustained. Of course, the 2017 Northern Hemisphere yearling market is a long way away, and lots of business incentives may be coming; but at current levels, quite a few expensive stud fees will be looking too high for breeders this time next year–if not now.
More APEX analysis next week. In the meantime, click here to see a sortable Excel file of 817 APEX sires, alphabetically. We'll tweet when it's on the website.
Contact Bill Oppenheim at [email protected] (cc [email protected]).
Not a subscriber? Click here to sign up for the daily PDF or alerts.
