By Sid Fernando
There's been a series of conversations in these pages from industry insiders lately about the woes of third- and fourth-year sires, because these stallions don't get the patronage from breeders that first-year (and, in many cases, second-year) horses do, and this has led to all sorts of angst for stallion owners and stud farms. Many have touched on a wide range of issues related to it, but most have not addressed and lingered on the specific mechanisms of why this happens and why it's part of the new normal.
This topic is so hot in Kentucky–the center of the U.S. breeding industry–that it's made its way up the food chain to The Jockey Club, which is considering capping the number of mares a stallion can breed in North America during the Northern Hemisphere breeding season at 140. Ostensibly, TJC's concern is for the well-being of the breed, indicating that it has genetic evidence of increasing levels of inbreeding in the population, which some feel has been exacerbated by popular stallions from similar bloodlines breeding more than 140 mares a year in North America. Limiting the number to 140, their thinking goes, will address this issue by cutting back the numbers for those sires, and it will also help the books of other horses–proven but lesser commercial stallions and the unproven third- and fourth-year sires–who will theoretically benefit from the spillover of those horses currently breeding more than 140 mares.
TJC's proposal is a regulatory measure meant to impact two issues: the health of the breed (increasing levels of inbreeding are considered by some a pressing worry, like climate change); and the reapportionment of mares and monies in the form of stud fees (considered by others to be a heavy-handed, Bernie Sanders-type of infringement on the free-market system under which they operate).
I only mention this proposal because it accurately zeroes in on the two sectors in the industry that matter when it comes to book size: the stud farms, which stand the stallions; and the breeders, who send mares to them. Stud farms and breeders, particularly in Kentucky, have evolved through the last five or so decades to become big-time vendors, either as sellers of stallion nominations or sellers of weanlings or yearlings at public auction, and this commercial transformation has been the cause for the effects we are seeing.
You could probably count on two hands the number of notable mare owners who breed strictly to race nowadays. Most of them, especially in Kentucky, breed to sell, and even those who primarily breed to race have diversified their operations to include a selling component. Noted owner-breeder George Strawbridge Jr., for example, sold 2019 Horse of the Year Bricks and Mortar (Giant's Causeway) for $200,000 as a Keeneland yearling, and last year the longtime homebreeding operation of the Phipps Stable sold yearling colts for the first time, also at Keeneland.
If you're breeding strictly to sell, as so many are now, first-year sires and elite proven sires are the best options for making money–your primary concern. Conversely, breeding to third- or fourth-year sires are the riskiest options. See Tables 1 and 2 on the table (click here) (Northern Hemisphere time) from 2016 to 2019 for the top 10 leading first-crop sires of 2019 and the top 10 leading general sires, respectively. Note in Table 1 (click here) that eight of the 10 stallions bred more than 140 mares in their first year at stud, including eight of nine in Kentucky. (Khozan [Distorted Humor] stands in Florida.) The only Kentucky sire who didn't, Bayern (Offlee Wild), covered 139 mares.
Let's use a simple example to explain this risk dynamic with unproven sires. Say that you're breeding to sell and own 10 mares, five of which are high-end, either as stakes producers or young stakes winners, and five of which are average mares of lesser quality. If you bred your top five mares to third- or fourth-year stallions, you'd be selling their yearlings when these stallions' first runners were either 3-year-olds (third-year sires) or 4-year-olds (fourth-year sires). Obviously, you'd be at the mercy of how those runners performed. If they were not successful by the time you sold, you'd get punished in the sales ring and your mares would get devalued in the process, crippling your investments. That's a lot of downside risk exposure.
Now, you might consider this risk with one or two of your five lesser mares, gambling that a third-year sire will hit and enhance your sales yearling's value, but chances are good that you wouldn't expose your five best mares to that type of exposure and would hedge your investments by taking conservative routes with first-year sires. Why? Because when you sell first-crop yearlings, the sires have only their race records and pedigrees to recommend them, and no sire-performance blemishes against them.
Going to a stallion in his second year isn't as risky as using a third- or fourth-year horse, but it isn't as risk-free as a first-year sire, either, because you'd be selling your yearling when the stallion's first runners were 2-year-olds. An abysmal performance by a sire's first juveniles through the summer could adversely impact the sales price of your yearling in September, but there is some leeway afforded a sire in this example with four months of racing still to come before the end of the year.
Risk with sales yearlings by unproven sires, then, increases with each crop.
These examples also explain why stallions generally get better mares in their first two seasons–and why they tend generally to do best with their first crops–and lesser mares in their third and fourth years at stud, in addition to fewer numbers of mares. The long and the short of it is that commercial breeders are highly risk averse, and because they're breeding for profit first in the sales ring, they will generally favor first-year horses and not risk their better mares on third- and fourth-year sires.
Back when owner-breeders were breeding to race, stallions would stand in closely held 32- or 40-share syndicates, with one share for each mare, but as the business became more commercial and the number of owner-breeders started to decrease, book sizes started to increase.
These days, a 40-share syndicate will typically offer two mares for each share, plus a bonus pool from extra mares to be split among the syndicate members–who, typically, are a smaller group of investment partners who breed to the horse primarily to sell weanlings and yearlings, and who sell as many nominations as they can to recoup their investment, preferably within a year or two. These ownership groups are highly dependent on commercial breeders, and when it comes to first-year horses, both of their interests are aligned: both want to breed their best or better mares to these horses. The stud farm's aim is to stockpile as many high-quality mares among as many mares as they can get to their first-year stallion, because they know that to get a leading first-crop sire down the line requires a combination of quality and quantity. See Tables 1, 3, and 4 (Click here) and note the number of mares these horses bred in each year at stud. Also note the increasing trend to breed more that 140 mares in the first year.
Stud farms are aware that their young stallions have limited shelf life, even if they find a place on the top 10 first-crop sire list–unless they get quality mares in a stallion's second to fourth seasons at stud as well. But here, the interests of stud farms and commercial breeders diverge, because, as explained earlier, commercial breeders are loathe to submit their quality mares to third- and fourth-year stallions, regardless of price discounts given to those horses during those years. Take a look at Table 4 (Click here), which lists the 10 leading first-crop sires of 2017, with Overanalyze (Dixie Union) the leader that year. Note that from this group, whose oldest runners are 5-year-olds this year, five of these 10 stallions are no longer standing in Kentucky in 2020–including Overanalyze, who'll be headed to Korea soon.
For stallion owners, this is a brutal cycle of feast and famine. The first few years are great for a new stallion, thanks to commercial breeders, but the next two are generally not so good, also because of them. And at each price point on the commercial ladder, it's uniformly true that there's a commensurate drop in mare quality from the first two years to the next two years, and that's generally a debilitating hit from which it's tough for any stallion to recover.
Is there a solution to this? The short answer is no, unless stud farms and syndicates take matters into their own hands and provide their stallions with quality mares in years three and four to make up for the loss of support from commercial breeders. This, of course, becomes an added expense for them, but it's a route that many have embarked upon to help their young horses.
And what of the commercial aspects to TJC's proposal of capping mares?
Answer this by playing the role of that commercial breeder, with five top mares and five lesser mares in your portfolio, and ask yourself this: What would you do with your lesser mares if, because of a breeding cap, you were unable to get to some of the first- or second-crop stallions you wanted to breed to? Would you breed these mares to riskier third- and fourth-year sires or proven horses that weren't commercial instead? Or would you sell your lesser stock and concentrate more on quality?
On a commercial level, you can imagine some scenarios that could play out under this plan from TJC.
Click here for accompanying tables, Report of Mares Bred, 2014-2019
Sid Fernando is president and CEO of Werk Thoroughbred Consultants, Inc., originator of the Werk Nick Rating and eNicks.