Fee Feasibility - By Dan Liebman

(Originally published in the December 12, 2009 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)    

The reality of a recession—whether or not you were using that term to describe the economy at the time—hit hard in November 2008 when the Keeneland breeding stock sale rolled around. The only inevitability coming out of the sale was stud fees would have to drop. And they did.

Of course some farms that had announced their fees prior to the sale had to lower them further—which they should have done. Others never announced a second round of lower fees, but clearly the negotiations were on when breeders inquired.

Things are no different in 2009. Though there actually were some strengths in the Keeneland November sale, considering the quality of the offerings and continued instability in the industry, the sale finished down and stud fees must follow suit again (except for a small number of stallions).

So, fewer mares were bred in 2009, and one would expect even fewer to be sent to the breeding shed in 2010. That affects both the stud fee receipts and yearling sales for multiple years.

There are numerous indicators of the current state of the market, as breeders begin deciding which mares to breed in the coming year and more importantly how much they can afford in the way of stud fees.

For one, the number of racehorses being retired has decreased considerably. Only 19 horses will enter stud in 2010 for a fee of $5,000 or more, compared to 44 in 2009. Noteworthy also is that the highest fee for any newcomer is the $25,000 for Zensational, pictured on this issue’s cover and joining the stallion roster at Hill ‘n’ Dale Farms near Lexington.

The fee for Zensational (by Unbridled’s Song) is the lowest top fee for a horse entering stud since 1996 (Tabasco Cat) and only the second time since 1990 that such a fee was highest among newcomers.

Information from The Blood-Horse database, compiled from stud fees known during the past three years and the coming year, shows a significant decline in the average stud fee for Kentucky-based stallions.

In 2007, 298 stallions in Kentucky stood for a combined $6,932,100, an average of $23,262. The following year the number of stallions increased to 340 and the gross for all fees was up to $7,981,250, but the average was only slightly higher at $23,474.

The number of stallions fell to 288 this year, and the total fees dropped more than $2 million to $5,848,200. This produced an average of $20,306.

As we look ahead to the breeding season that begins in February, nearly the same number of stallions reportedly will stand in Kentucky (286), but for substantially less money. The gross for all fees is $4,395,950, a drop in two years time of 45%. The average stud fee is $15,370, a decrease from two years ago of 35%.

Lest anyone think the decrease in stud fees is enough to make breeders whole again, they would be wrong. For one thing, the horses sold this year and last (many for a loss) were produced from higher fees. For another, many of the reduced fees are for stallions that were purchased and retired to stud at increased costs.

It is never hard for a stallion manager to know whether he has priced a horse correctly. If breeders are not calling to book mares, the stud fee is usually one of the reasons. Even a stallion that may be cool to breeders generally has a price point where it can make sense to send a mare to him.

This year, as much as ever, price is not the only consideration, with terms more important than ever. Many farms are offering a 10% discount on a live foal, stands and nurses fee if the payment is made prior to Nov. 1 of the year bred. In addition, most farms are providing a discount on multiple mares bred, whether to the same stallion or more than one stallion at the same farm.

Lowering the cost of production will help breeders, but the key will be to keep stud fees reasonable for years to come as the recovery happens.

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