Do Keeneland November Results Predict Downturn?

(By Avalyn Hunter)

Generally speaking, the auction picture in 2012 has been rosier than in 2011, with most sales reporting increases in average and median prices. Keeneland November suffered big drops to both figures, but when the Edward P. Evans and Saud bin Khaled dispersals of 2011--which grossed more than $72.7 million between them--are factored out, the 2012 numbers are quite encouraging for players at the top of the market.

But the news is not so good for everyone, and anyone expecting a continued bull market in the horse world next year, even on a modest level, would be wise to proceed with caution. At the middle and lower levels of the market, returns were not as solid as at the top. On the ninth through 11th days of Keeneland's sale, the median prices were down compared to the same days of last year's sale, and while the average for day 11 of the 2012 sale was higher than for the final day of the 2011 sale, this was largely thanks to the sale of Royal Irish Lass for $210,000--the highest price by far brought by any horse during the sale's final three days.

Historically, soft markets at the middle and lower levels have been warning signs of a lack of stability in the overall market. Sales of relatively modest stock don't create headlines, but they have much to say about both the confidence in the future held by smaller owners and breeders and the amount of money such people are able and willing to spend. With the overall economy still shaky at best and the threat of significant tax increases looming for next year, it seems that the owners of most medium- to small-sized Thoroughbred businesses are doing the same thing that other small business owners are doing: playing matters conservatively and waiting for more favorable times before deciding to expand. That means that the market in 2013 is likely to see modest gains at best and may still be quite vulnerable if conditions in the overall economy decline. Let the seller, as well as the buyer, beware.


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Sadler's Wells

The Thoroughbred industry as a whole is a hobby, not a business. It does not generate enough outside money to self-sustain. It relies on rich people treating horse racing as a sport or an entertainment expense.

19 Nov 2012 6:57 PM
Sadler's Wells

The problem is that for 35 years (maybe 40 if you want to go back to Secretariat's syndication) people think of horse racing as a way to get rich. Breed foals for the sales ring rather than for the track. Economists look at our industry and are horrified by what they see. It can't sustain itself. Prepare for hard times ahead.

19 Nov 2012 6:59 PM
Pedigree Ann

"People" paints the whole industry with an unnecessarily broad brush. Your "people" are the big commercial breeders and their outside clients with deep pocketbooks. Get down there with the actual horsepeople, who breed solid, proven producers to proven sires for under $15K and are still taking a bath. Doing everything right, but the market still prefers the high-cost "glamour" horses, many of which never make a cent. Even though the evidence of the Breeders' Cup is that "modestly-bred" horses run as well if not better than the sales-toppers.

20 Nov 2012 9:43 AM

Pedigree Ann,

I'm afraid that Sadler's Wells has it exactly right. In this business you can do everything exactly right, know all there is to know, and still come out a loser. Even if all in the "market" (the buyers) had ultimate expertise, and purchased accordingly, both they and the breeders (sellers) would still end up in red ink. Even those few who may show a profit essentially owe this to the rich who are more than willing to accept a loss.

20 Nov 2012 1:28 PM
John from Baltimore

With the average start per horse now around 15 starts.  A $75,000 horse costs $5,000 per start. A $50,000 horse cost $3,333 per start and that is just for the horse.  Add in training and vet bills and your cost is anywhere from $5,000 to $10,000 per start.  Is owning a horse that much fun.  With only 3% stake horses the other 97% are a hard sell.  The horses need to last longer so more owners get a chance to get their money back.  The only way to increase soundness is to reward longievity.  The purse structure need to be flattened so horses need to stick around to make money.  The million dollar purses are great for a select few, bad for the many.

20 Nov 2012 6:24 PM

John from Baltimore:

Sorry, but you're wrong. The longer they stay in training, the more the NET loss. -Fairly recent stats: all told, per yr. about $2B in training and assoc. expenses; about $1B total purse money. (this does not include purchase price/or, if homebred, cost of production).

20 Nov 2012 10:50 PM
John from Baltimore

My point was that purses have to be raised at the middle levels to cover the costs for more horses over all.  Stake horses recieve a too great a share of purse money. The production costs for horse racing is up side down from any other business supply model.  The breeding industry is not rewarded for cost efficiencies and supplying horses for racing at the lowest cost.  The breeding industry thinks they are doing better when they sell horses for more money which in turn causes hosrse owners to lose more money.  Frank Stronick didn't build Magna by supplying the most expensive auto parts to the auto makers.  Wonder why he dosn't run his breeding farm to to supply horses to his tracks under the same business model.  Revenue for purses needs to rise or costs of racing needs to go down or the pool of owners will continue to shrink.  Any one that dosn't think horses need to last longer is an idiot.

21 Nov 2012 6:29 PM

I think it highly unlikely, but there might be a way to "factory farm" the breeding and rearing of racehorses (akin to chickens, pigs, or even auto parts). I certainly wouldn't want to see such an attempt-it's already morally disgusting what we do to many of our food sources. But, absent this, I doubt we can make much of a dent in the production costs of racehorses. More equalization of purse distribution might somewhat lessen the financial burden for many, but it could also, very likely, so alter Racing's framework, audience, etc., as to cause its very end (consider the cascade of cause/effect scenarios). No, John from Baltimore, Horse Racing's production costs aren't "upside down...", nor is the culprit disparites in purse distribution. Rather the "fix", the only fix (not that this can be accomplished) lies with your phrase "Revenue for purses needs to rise". Absent this, Racing will continue to remain a red ink game. So, how can this revenue increase? Instead of dwelling on your other dead-end paths, perhaps put your mind to just that-which is, essentially, the focus with those in the industry.  

22 Nov 2012 1:01 PM

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