Fees Creep Up; Value Still There - By Eric Mitchell

 (Originally published in the December 10, 2011 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.

By Eric Mitchell - @EJMitchellKy on Twitter

By Eric Mitchell Stud fees are rising, nudged upward by the gradual recovery seen this year in the Thoroughbred commercial market. However, the current tide is not raising all boats.

The vast majority of growth is occurring in the category of proven sires standing for $50,000 and more. Double-digit percentage increases are being seen for 2012 in the top three of eight stud fee categories The Blood-Horse uses to monitor the stallion market (see the chart on page 3494). The average stud fees for the bottom four categories are all down from last year.

It is clear to see where breeders see quality. For the top four stud fee categories—ranging in price from $150,000 down to $15,000, the average number of mares bred in 2011 is between 135 and 104. Cross over into the $10,000-$14,999 stud fee range, and the average number of mares bred falls to 72. The average number of mares bred in the lowest three stud fee categories—from $9,999-$2,500—range from 47 to 31.

The highest fee range ($100,000 and up) is collectively increasing the most, up 18.3% to $129,167 from $109,167 last year. The growth can actually be attributed to only two of the six stallions in this category. Darley doubled Bernardini’s fee to $150,000 this year, and Gainesway Farm raised Tapit’s fee from $80,000 to $125,000. Two grade I winners in To Honor and Serve and Stay Thirsty, five new stakes winners so far in 2011, and a Northern Hemisphere yearling average of $327,710 helped justify Bernardini’s price jump. Tapit, already a top sire, also had a good year with grade I winners Zazu and Grey Goose Breeders’ Cup Juvenile (gr. I) victor Hansen, who is a leading candidate for 2-year-old male championship honors.

In the $25,000-$99,999, range the average stud fee is going up 14%. This is apparently the range in which stallion owners/managers believe the market will rebound sufficiently to allow breeders a good opportunity for a profit because in the $15,000-$24,999 range, the average stud fee only goes up a modest 2.7%.

Generally speaking, a higher stud fee does translate into a higher quality of foals. Stallions commanding fees of $100,000 and up produce the highest percentages of stakes winners (8.9%), graded stakes winners (4.3%), and grade I stakes winners (1.6%), according to figures run by The Blood-Horse MarketWatch team.

For breeders looking for value, however, the $15,000-$24,999 stud fee range is a good place to shop. The stallions in this range have produced 5.7% stakes winners and 2% graded stakes winners, which are collectively below the stallions in the fee ranges above them but not too far behind. Also with an average of 104 mares bred, the numbers are adequate to ensure these sires have the opportunity to produce more good runners.

Unproven Still Means Risky

Unproven sires, those whose first foals are 2-year-olds of 2011 and younger, have collectively seen their stud fees continue to decline. As recently as three years ago, first-year stallions could command a premium among young sires. Entering-year sires for the 2009 breeding season averaged $11,983, This year it’s the second-crop sires of 2012 that have the highest average stud fee at $8,683.

Leading next year’s second-crop sire class to date are Darley’s Hard Spun, Ashford Stud’s Scat Daddy, Gaines­way’s Corinthian and Hat Trick, and Airdrie Stud’s Flashy Bull.

The next-highest-priced young stallions for 2012 are those that will have their first foals next year (average of $8,455). Ranked third by average stud fee are the sires entering stud in 2012 at $8,180. Uncle Mo commands the highest stud fee of the entering-year class at $35,000. Last year three stallions commanded $35,000—Blame, Quality Road, and Lookin At Lucky. Among last year’s stud fee leaders only Lookin At Lucky has had his fee reduced—to $30,000.

While no breeder who has managed to survive the last few years wants to see any increase in stud fees, the stallions whose fees have gone up seem to have the proven quality to warrant the bump. That is how the free market is supposed to work. But, for the most part, stallion owners seem to have shown restraint and an understanding that breeders still need as big a window of opportunity as can be provided to stay in the game and thrive. 

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FiftyYearsPlus

In order to get a relative measurement of value from the Leading Sires List, I randomly selected six sires from the first two tiers of thirty from the Leading Sires List that reflected 2012 stud fees.  A simple average of the attributes of these tiers was aggregated below.  By way of contrast, the actual results from an old fashioned breeder/owner/trainer stable have been reflected below as well.

Sires 1-30 on the Leading Sires List:

Avg Stud Fee: $75K

Avg Foals Starting: 72%

Avg Foals Winning: 50%

Avg Stakes Winners From Foals: 5.8%

Avg Graded Stakes Winners From Foals: 2.8%

Avg Earnings From Foals: $57,943

Median Earnings From Foals: $27,573

Sires 31-60 on the Leading Sires List:

Avg Stud Fee: $23,750

Avg Foals Starting: 74%

Avg Foals Winning: 52%

Avg Stakes Winners From Foals: 4.3%

Avg Graded Stakes Winners From Foals: 1.8%

Avg Earnings From Foals: $45,333

Median Earnings From Foals: $25,380

Private Stable:

Avg Stud Fee: $15,938

Foals Starting: 100%

Foals Winning: 88% (Note: All open MSW)

Stakes Winners From Foals: 0%

Graded Stakes Winners From Foals: 0% (Note: One G1 runner-up)

Avg Earnings From Foals: $57,290

Median Earnings From Foals: $49,888

There are many different observations that can be drawn from this data.  However, the degree of genetic perfection is academic if a foal is not brought to the races well raised and thoughtfully prepared.

In viewing this data, it is also readily apparent that when stud fees exceed or equal the median expected gross earnings of a foal crop, that any breeder and/or owner had better be prepared for frequent sizeable financial disappointments unless they are fortunate enough to have a performer in the top 15% of that foal crop.

07 Dec 2011 12:09 AM

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