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.

6 Comments

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FiftyYearsPlus

Considering that that the median earnings for the top 50 sires range from $25K to $35K, even the reductions to date do not provide an attractive proposition to most breeders when you factor in all the other costs of getting a foal to the races.

08 Dec 2009 2:23 PM
Byron Rogers

Dan,

Interesting and valid observations. You missed one point though.....

With less stallions, less mares being bred, less foals and less money, how is the Breeders' Cup going to be funded?

08 Dec 2009 2:47 PM
BridleOaks Farm

"Lest anyone think the decrease in stud fees is enough to make breeders whole again, they would be wrong."

Well said.  The stud fees are just a part of the expense.  As a commercial breeder, we have to look at the entire cash outlay we incur while bringing our product to market, and then make decisions and adjustments accordingly.  Quite frankly, our vet fees have not come down (we just use them a fraction of what we have in the past...and then pray for nothing complicated to affect our babies & mares.  But we all know how that goes...).  Farrior fees have not come down, feed, bedding & hay prices are still exorbitant.  Diesel & fuel prices keep going up along with the prices for fencing and barn materials.  Fees for sales prepping yearlings ($30-$50/day) and 2 yo's in  training($50-$75/day) sure as *#&%@ aren't going down either.  Those horses that we take to the track...well purses are coming down, but all of the expenses associated with racing continue to increase.

After 2 years of this market (and we're still standing), the impact of every decision we make is immensely magnified, not only by the stallions to which we send our mares, but to those farms we can work with in order to survive.  We are "all in" with breeding our mares this year.  Breeding and developing commercially viable race horses is who we are and what we do. Hopefully, the farm managers can realize and appreciate that by working with us and enabling us to survive today, we can then grow & prosper together again when this market is turned around.  

To the farm managers...it is the relationships forged during these tough times that we remember later on down the road when business is good and prosperous...And one day we will be there again.

08 Dec 2009 6:04 PM
Pa. Quandary

Larry is right !

08 Dec 2009 9:17 PM
da3hoss

I don't know anything, but personally I think the huge fees for hiring someone to "sales prep" your yearling or 2 year-old has turned into a monster you can't get away from...it's like looking at a fat, shiny, over-supplemented, creatine laced halter horse when what you want is a cutting horse on the ranch...this garbage of a 2 year-old having to be "let down" after the sales is ridiculous.

Only the owners can turn it back around...don't know how you can do it, because novices to the sales ring sure do like those fat babies...

11 Dec 2009 1:32 PM
Horseguy

BridleOaks makes very valid points.  Yes, stud fees need to be a smaller percentage of production costs on average. And this is the part of the production costs that breeders have a direct say in. Unlike the demand for land, utilities, the ingredients of horse feed, skilled employees, etc, all of which have other usage the retired race horse has but one. As stallion managers have said time and again the stud fee is set by the buyers. Clearly, for a number of years now the industry has been dominated I would argue by hobby breeders. Breeders who do not rely solely on the breeding, raising and marketing of Thoroughbreds for a living. I am not saying that by in large they are not well versed at their endeavors.  But as Greenspan once said "irrational exuberance" may have been at play. Fixed cost such as board, feed and employee compensation have been pretty keep as low as they can be in recent years. I can not say the same for veterinarian fees which can be a substantial amount of a monthly bill with racing and breeding stock.  Without having to use charts, graphs, spread sheets and 8X10 glossy photos. A few numbers will make my point. I only work off of median yearling averages. I use median averages because the spread between the median average and the average is so wide due to the nature of the business that it is a useless number for planning a business around. The Keeneland Sept yearling median average for the last 9 years is $34,000, (average $90,000). Keeping the production costs numbers simple and on the low side, from last cover to fall of the hammer, $30,000,  with an average stud fee of $23,000 total production cost are $53,000 with a very good chance of only getting back $34,000. And this does not take into consideration the purchase cost of the mare, barren years, etc. A simple example of the Keeneland January and November sales. Some would say that I am comparing apples to oranges with the following example.  I say the numbers are close enough. That even if extrapolated out the end result would not be dramatically different.  Taking the Bloodhorse's 07 average stud fee in KY of $23,262, multiply by the number of horses SOLD, 5,243, add $25,000 production cost, subtract the total from the gross of both sales in 2007 and those horses had an average profit of over $30,000. In 2009 4,117 horses had an average profit of $1,463. Dramatic to say the least.  Again, this does not take into account the purchase price of the horse. Not an easy business to pitch.  Have we hit bottom? In this business it always comes down to two things, demand which is stimulated by purses. Granted, the great recession had a lot to do with the dramatic down turn. But it also had a lot to do with people taking a close look at the numbers and doing the math

13 Dec 2009 2:13 PM

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