Commercial Sales In a Down Market

The headlines on have told the same story every night for the past two weeks:  with a few exceptions at the top of the market, it's a bad time to be selling yearlings.

I've been crunching numbers from the Keeneland September yearling sale every evening these past couple of weeks -- I review data for the daily Auctions Data Digest, among other products -- so the trend has been quite clear throughout the sale.  It hit home today on a personal level when I watched my own colt led out of the ring with a give-away final price.

We can cite all kinds of factors for the low prices brought by many nice yearlings this week.  Some hips were placed poorly, others had physical imperfections.  But Keeneland does a stellar job of sorting 5,000+ hips over a 15-day sale, and the problems generally aren't due to timing.  And vetting issues have been part of Thoroughbred sales forever -- some of the evaluation techniques have changed, but the overall process is the same as it was a few years ago in headier days for the Thoroughbred market. 

No, what it comes down to this year is two common factors:  overproduction and a down economy. 

The Jockey Club estimates a smaller foal crop in 2009.  I've got to think that trend will continue until we either reach equilibrium in the commercial market or we enter a new era of lucre resulting from an influx of outside money into the industry.  That's unlikely, at least until the U.S. and world economies start to inspire confidence and Thoroughbred racing does something to attract new players.

In the meantime, it's a buyers' market for Thoroughbred racing stock. 

Towards the middle of the coming week, I'll be reviewing the final sales figures for Keeneland September, and I'm interested to see the final tallies.  The percentage of "profitable" hips will be telling (we calculate profitability using an in-house formula that looks at the stud fee and broodmare amortization for a yearling's sire and dam, plus a maintenance/preparation cost to get the yearling from birth to the sale).  I've got to think we'll be looking at a high rate of unprofitable production from the 2007 foal crop.  And this sale means a lot:  more than 15% of U.S.-bred yearlings will have gone through the Keeneland ring before the sale is over.

I'd like some feedback from others in the industry.  What does the state of the market look like to you?  Where do you see room for improvement?  What changes are we likely to see?  And do you believe the upcoming breeding stock/mixed market will see similar downturns?

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