By George Doria, The Saratoga Sire
The
Keeneland January 'Horses of all Ages' sale ended with a drop in gross of 53.4%
from last year. The steady and steep drop in prices, that started to make
itself evident late last summer, is no longer surprising or really even
"news," merely a reality of the times. And, I will argue, the best
thing that can happen to the industry.
One of the problems in racing is the cost of keeping a horse in training. At
many of the best tracks that dollar amount is already at, or edging toward,
$100 dollars a day. That's before vets, cost of meds, shoes, entry fees etc...
That's roughly $36,000 a year before the aforementioned added expenses. Yes, it
is 'The Sport of Kings' but we need more than just kings to supply our sport.
Kings don't have any interest in running $5,000 claimers, they want Derby
horses and can afford to pay for them. The problem that has created, however,
has caused a trickle down effect that has hurt the industry.
Let's look at it in terms of the current sub-prime housing market mess. In the
Hudson Valley, where I live, on the heels of 9/11 there began a mass exodus out
of the city and into the suburbs. White collar workers from the city that could
afford to pay much more for houses than they traditionally sold for did just
that; they paid more, much more. As a result houses that may have been valued
at $x dollars quickly escalated to two or three times their true value. Also to
accommodate this boon more and larger houses (fashionable pedigrees) popped up
out of the ground on almost every available piece of real estate. That had the
effect of escalating housing costs even more (think auctions). And, of course,
property taxes went up to reflect the newly
assessed housing prices as well as to accommodate services for the ever
growing population. Many that had lived in those areas either moved
(predominantly just a little farther north) because they could no longer keep
pace with the taxes or because they could now sell their house - at record
amounts - and buy more house elsewhere also at inflated rates. Or, they
borrowed money against their newly valued pot of gold. Of course the result of
'trading' real estate as though it was a commodity, not a necessity and long
term investment, was that for all intents and purposes (in my estimate) the
market sapped about 20-25 years of appreciation out of real estate within 5
years. This left many with the glum reality of paying to eventually own
(hopefully) what they already possess without much, or any, hope of
appreciation. How does this compare to racing?
Think of taxes as the equal of day money, that $100 a day + expenses that is necessary to keep a horse in training.
This cost can't be avoided and doesn't go down.
The first thing that happens when someone can't afford to pay that is
that they move. In the industry that means they either move their horses to
another, less expensive track or get out of the business. But if the price of
purses is a reflection of the racing stock at a track, then it is already a
losing situation to move one's horse from an A track to a B or C track where
purses will make it most unlikely that owners can ever break even or better on
their investment. We're already lucky in that most people in this business love
it enough to endure losses.
I also think we can equate the cost of horses at the sales over the last decade
and a half very well to the escalating price of houses caused by people over
paying or speculating on houses as short term investments. Many of those in the
industry were forced to purchase stock at ever increasing prices just to keep
up with the Jones'. This trend was caused predominantly by two forces, as I see
it: the wildly escalating cost of the top end of the market dragging all prices
upward, and speculators- pinhookers- in the horse industry, gambling on
fashionable stock as a short term investment. Also, the "fashionable" market
has had the result of over-breeding stallions. When a horse (especially a new
stallion) covers 150-200 mares two things result. The new fashion will demand
more money at the sales but when they fail at the track the depreciation is
dramatic because there are so many of the same model.
The elements that in the country at large are slowly turning the landscape in
many areas into ghost-towns will have, in my opinion, just the opposite effect
in the horse industry. While many breeders are going to take quite a hit for a
while, or be forced out of business, those breeders that always had an eye
toward producing racing stock are going to see their way out of the woods. And,
the easing of prices to reflect understandable, reasonable levels of risk will
allow many that would have been forced out of racing the ability to continue. A
53.4% (48% avg. 44.1% median) decreased
cost at the sales translates to a lot of day money. Of course the top
end stock is going to remain out of reach for most. However, many horses that
at one time may have been out of reach for many will now become available. Also
the escalated risk of speculation will keep pinhookers from buying as high or
as many, and that also will have the same result. I think this is a winning
situation for the industry.
I know I'm going to get a lot of flack from pinhookers for painting them as
part of the problem but to some extent they are. To some extent every
middle-man in every industry are both good and bad. Good in that they provide a
necessary service, bad in that the price rarely truly reflects the benefit of
the service.
The only way owners have to mitigate the cost of racing is through purses. In a
time when handle is slumping and as a result purses, the return to reasonable
prices at market is a welcome recipe for health in the industry.
While I'm hopeful that what some see as a downturn in business will actually
result in renewed health more is necessary to keep the industry healthy. And
that something is transparency. In the horse industry that means disclosure of
any and all procedures a horse has received. Even the car industry has a lemon
law! Buyer beware is not good enough when the price and risk of success is
already so high. Transparency coerces integrity. It forces honesty when that is
not being offered. And this has to be present in this industry more than any
other because the sport's very existence is based on the good faith belief, by
the players, that all is legitimate
It all begins in the breeding shed and at the auctions. That is where the cost
of racing starts adding up. If all the (possible) appreciation is taken out of
a horse before it gets to the track what is the upside of racing? Many have put
forth ideas for monetary remedies such as a cap on stallion fees, limiting crop
size, minimum standing age of stallions (one of
mine read here), among others and combinations of those ideas. The reality
may be that there are too many tracks, too many horses and not enough money to
support them all. All businesses go through cycles of boom and bust. Some are
not going to make it through this retraction. Most that will fail probably
deserve to. The continued health of any business is dependant on having a
quality product, foresight and good planning based on realty, not speculation.
When speculation holds sway the majority lose. For the health of the sport everyone
involved in the industry has to view it
as a inter-dependant enterprise, not as a piece of real estate that can be
fought over and dominated. That means horsemen, tracks, ADW's, breeder's, fans,
and governments. Perhaps even the secondary and tertiary businesses such as
trucking, farming etc... When the sport is healthy everybody benefits. After
the chaff has blown away I think the industry will experience a healthier
future from the results of the perceived downturn. Not everything is always as
it appears.
