Fragile Currency Underpins Strong Middle Market

You may or may not feel that the current political turmoil, simultaneously entering its latest phase in the Parliament she had addressed earlier in the week, showed something of its roots at the Queen's home racetrack on Saturday. That would depend on whether or not you consider Brexit to show Britain turning her back on the international community. But what I do know is that the timing of Champions' Day, just two weeks before the Breeders' Cup, is culpably insular.

Not many people are still prepared to rock such a valuable boat, now that so many legitimate benefits are safely aboard. I only mention it to remind us—as probably only the teak filly Magical (Ire) (Galileo {Ire}) will be able to testify, with just a fortnight to soak up a hard race in horrible conditions and an intercontinental flight—that Flat racing, and specifically the exposure of elite performers to the bloodstock market as their careers draw to an end, is an international enterprise.

Because that's certainly how we should assess Europe's premier yearling auction. Just look at the top eight buyers at Book 1 of the Tattersalls October Sale: Godolphin, Shadwell, SackvilleDonald, MV Magnier, Roger Varian, David Redvers, Blandford and Kevin Ryan. Yes, there are some British names there, but almost invariably they represent overseas investment, through the likes of King Power, Sheikh Obaid and Qatar Racing.

This time, moreover, these familiar players were followed by U.S. interest in what was generally considered unprecedented depth. Mike Ryan filled both ninth and 10th places in the purchasing table, with 10 yearlings bought in his own right and another 11 as agent for Klaravich Stables, and several other American agents were in town to fortify the middle market. (Not forgetting, moreover, that certain of their European counterparts were sometimes operating on behalf of U.S. clients.)

In other words, the big money spent in Book 1 had little domestic impetus. And, to that extent, the fact that even the locals need to convert the value of sales—because they are, of course, quaintly recorded in guineas—should help us remember that these international investors do not stuff their mattresses with pounds sterling. When they step onto the airport tarmac, they know they'll get a lot more “bang for their buck” at Tattersalls if sterling is weak.

And that's another reason for connecting the ebb and flow of the marketplace with the broader political picture. Because the uncertainties of the Brexit impasse—never mind the uncertainties awaiting beyond various potential outcomes—mean that international investors have been able to make hay in the British marketplace ever since 2016.

At the two October Sales preceding the referendum, sterling was trading at $1.53 and $1.59. After the plebiscite, for the 2016 sale, it had plunged to $1.22. For the next two years, it was trading at $1.32. And while the chronic volatility of the situation has actually seen the currency retrieve similar levels to that in the few days since—thanks to renewed talk of a deal, or at least of averting a crash-out—Book 1 itself traded at an exchange rate, around $1.20, consistent with the depressed levels prevailing through most of the summer.

So while the Tattersalls accountants can justly celebrate another remarkably strong sale, retreating only 3.8% on last year's seventh consecutive record, the table below shows how benign the trading environment remains for those with petrodollars to spend (to take a not terribly random example). Turnover, for instance, has advanced wildly since 2014, from 79,274,000gns to 102,429,000gns—but the prevailing rate of exchange actually values 2014 business as slightly greater than this year's. The average Book 1 yearling, moreover, has only once cost less (converted to dollars, that is) over the past six years.

Even judged strictly on its own guineas ledger, it came as no surprise—on the same premise, that we need to assess the transatlantic market as an organic whole—that a relentless bull run could not quite be maintained. Because the North American yearling market, between Fasig-Tipton's three summer sales and Keeneland September, had shed 5.8% of its turnover after a particularly dizzy leap the previous year. There's no doubt the market has stabilised somewhat; and, in a number of respects, that's no bad thing.

Interestingly, the loss of momentum appears to be traceable to precisely that sector populated by the big international spenders. Analysis of spending by the top 10 buyers at each sale shows that they have collectively contributed less this time—whether measured as a percentage of turnover, or of lots sold—than in any year since Book 1 was streamlined in 2011. They accounted for 53.6% of the gross, and one-in-three of the lots purchased. In 2014, the equivalent percentages had come in as high as 67.7% and  55.7%, respectively. Two years ago, the biggest spenders were averaging 542,507gns per yearling; this time they confined themselves to 412,444gns.

Two obvious debts of gratitude here, then. One is to that middle-market blood transfusion from American exporters, effectively stifling the habitual grumbles about polarisation. And the other is to Sheikh Mohammed, who reprised his starring role at Keeneland by giving 17,575,000gns for 19 yearlings, representing 17.2% of the gross. That didn't quite match his impact last year, when he accounted for one guinea for every five spent, but the accompanying table shows that there's no doubting—nor, please, ever any undervaluing—his commitment and evergreen enthusiasm.

And similar comments naturally apply to his brother, whose fidelity to his trainers has done so much to transform the profile of Book 2. Having acquired between 39 and 42 lots in each of the four previous years, Sheikh Hamdan ended up with 51 this time. At 8,505,000gns, the dockets signed by Angus Gold in Book 2 actually exceeded those that made his patron the second biggest spender in Book 1 (7,175,000gns). As the table below shows, Sheikh Hamdan's share of Book 2 turnover doubled from 7.1% in 2012 to 14.2% last year. This time, the sale's first ever seven-figure yearling moved Shadwell's stake up to 17.5%.

As in Book 1, it would seem that all those old complaints of polarisation must have been quietened somewhat. The number of Book 2 sales for 200,000gns or more has grown very steeply over recent years: there were only four back in 2012, in 2017 and 2018 there had been 44 and 45. This time, even though the auction record fell twice in the opening session, the number dropped to 35. Yet the median remained rock-steady, actually inching slightly forward to 55,500gns.

The feeling is, then, that this was a solid, resilient October Sale, with especially wholesome strength through that vulnerable middle tier. And naturally that reflects well both on the quality of the stock, and on its selection and presentation.

Perhaps a degree of contraction at the very top end, despite the congenial currency, reflects the sheer maturity of so many farms operated by the elite owner-breeders. Saturday's card at Ascot was the latest to be dominated by homebreds. Not one of the six Group 1 winners on Arc day had been through a sales ring. Just as well, then, for all of us who depend on these people to sustain our industry that they can afford to supplement their stock at public auction.