Fueling the Sales - by Eric Mitchell

The commercial market is never helped when fewer horses sell, as occurred collectively during the major 2-year-olds in training sales this year. But the forces expected to shape the upcoming yearling sales seem largely positive because of significant growth and change in key racing markets.

The end of head-to-head racing between Gulfstream Park and Calder Casino & Race Course, for example, could not have come at a better time. How it plays out with Gulfstream operating a 40-day meet at Calder remains to be seen, but horsemen should be encouraged that The Stronach Group has shown a commitment to improving and growing its racing product.

Stability in South Florida means the short-term future looks bright in three major racing jurisdictions that not too long ago were battling to achieve growth.

Only four years ago New York was still trying to nail down the operator for a casino at Aqueduct Racetrack, which had been authorized since 2001. The casino opened in October 2011 and is now going gangbusters with the net win for fiscal year 2012-13 at nearly $792.6 million, which is 13.8% higher than in FY12. New York horsemen got a greater share of this windfall last October when the takeout for purses rose from 7% to 7.5%—a percentage that is now set.

Around the same time New York was getting the Aqueduct casino up and running, California was struggling to grow purses and improve its racing product. Options in the Golden State were few because compacts with Native American tribes had long ago eliminated any chance of offering gaming at racetracks. The California Horse Racing Board made the unpopular decision to raise takeout 2 percentage points on exactas (from 20.68% to 22.68%) and 3 percentage points on wagers involving three or more horses (20.68% to 23.68%).

The higher takeouts took effect Jan. 1, 2011, amid howls of protest and calls to boycott California racing. Fortunately for California, the decision has proved to be a good one. Nearly $146.5 million in total purses were paid during FY13, which is up 13.7% from the total purses paid in FY11. Handle on California races dipped slightly from $2.9 billion to $2.88 billion for FY12—the first full year following the takeout increase—but total handle has completely recovered. Total all-sources wagering on California races reached just shy of $3.04 billion for FY13.

Other rays of light across the racing scene should also embolden people to participate. The growth of casinos in Maryland and Ohio will mean higher purses and improved state-bred incentive programs, and even though Kentucky is unlikely to see a true casino within its borders, the growth already generated by Instant Racing machines at Kentucky Downs and Ellis Park and soon at Keeneland, will help the Bluegrass area combat the gaming that surrounds it.

Yearling-to-juvenile pinhookers are a significant buying block at yearling sales, so how much cash they have to reinvest will undoubtedly be a factor. The growth we have seen in the overall average purchase price of yearlings between 2011 and 2013 has been accompanied by an overall drop in the buy-back rate at the country’s nine major 2-year-old sales. The collective buy-back rate at these sales in 2011 dropped to 25% from 27% the year before. By 2013 the buy-back rate was down to 19%. Meanwhile, the overall average yearling price was up 19% in 2011 and rose another 11% in 2012. Now in both 2011 and 2012 the number of yearlings offered declined, and that will help the average price. But in 2013 an additional 372 yearlings were sent to market and the average price increased another 14.4%.

For the 2014 2-year-old season, the buy-back rate crept up to 23%, which is the equivalent of 200 horses that didn’t find new homes. Assuming half these horses didn’t get sold privately later, then sellers have about $7.6 million less in revenue than they had in 2013 (100 horses multiplied by the 2014 average 2-year-old price of $75,839). This could generate a cooling breeze across the yearling markets.

Still, owners should smell opportunity as earning potential grows on the major racing circuits. The heat from expanding purse accounts should warm that breeze appreciably.


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