08/21/2008 11:00PM

Certain sectors could take a hit


These are nervous times for yearling sellers. The economy's slide, combined with the higher cost of raising horses, had many consignors worried as far back as last spring, well before the major yearling season opened.

The results of major select auctions this season offer some reassurance to upper-level consignors. But regional and open sales have largely confirmed sellers' fears for the rest of the market, suggesting sharply mixed results for the Keeneland yearling sale that runs Sept. 8-23.

The Keeneland September auction is the world's largest horse sale and will offer a record 5,555 yearlings, edging last year's record of 5,553 horses. The sale comes at a time when many buyers are feeling conservative, especially for non-select yearlings, and auction houses are worried about oversupply. High-end purchasers like Sheikh Mohammed al-Maktoum and Coolmore Stud are shielded from hard financial times and might bid as high as ever at the two select sessions on Sept. 8 and Sept. 9. But average buyers who target the middle market and below in the auction's second week are likely to be thin this year, just when the number of horses calls for more bidders, not fewer.

"There are some justifiable concerns," said Keeneland's director of sales, Geoffrey Russell. "The economic climate has changed dramatically in a year, so I think it's fair to hold concerns. But we will try our best to find as many buyers from all corners of the world for these horses. Certain countries are doing very well right now, so we will try to aim toward those that are having good economic factors and rates of exchange."

Last year, Keeneland September's returns were down but better than expected, thanks largely to foreign buyers taking advantage of the weak dollar. The two-week auction grossed $385,018,600 for 3,799 yearlings, down 4 percent from the preceding year, when fewer horses sold. The average price of $101,347 dropped 10 percent, and the $42,000 median was off 7 percent.

Buoyed by foreign bidders, the second week was actually stronger than the first. This year, foreign buyers could prove even more important in week two, provided their own economies aren't weak. The dollar remains down against the British pound and the euro, and there are still favorable exchange rates available from Canada to Australia.

And here's some cheering news for the top of the market. Among the foreign owners expected to visit Keeneland this year are representatives from Nathan Tinkler's Patinack Farm. The Australian mining magnate is building a large racing and breeding operation in his home country and has spent millions in Australia, Japan, and, most recently, Deauville.

"Last year, the European market was very strong and helped dramatically, but I would be apprehensive at the moment about their strength this year," Russell said. "But the Latin American economies are doing very well. That could be a bright spot.

"Until the crisis in Georgia, I would also have thought some of the Russian states would have been helpful, but we don't quite know what's going to happen now with the outbreak of war in Georgia.

"I think, as in all markets, quality is going to sell," he added. "And that is perceived quality, so we're not just talking about horses in the first two or four days. The best horses in each section of the auction are going to sell very well."

So far this season, select sales have performed solidly, considering such gloomy economic factors as high fuel prices, the housing market collapse and consequent rise in foreclosure rates, rapidly rising inflation, and the credit crunch. That there's still reasonable demand for select-quality yearlings - those deemed to have the best combination of pedigrees and physical conformation - is due in some measure to the fact that seven-figure spenders are more likely to have bigger cushions against economic downturns. Yearlings selling in the $100,000 to $350,000 range also seemed to get some support at select auctions, thanks to public syndicates like Team Valor, which are spotting some bargains in the current buyers' market, and pinhookers, who enjoyed a good juvenile auction season early this year before the economy worsened.

Fasig-Tipton's Saratoga select sale managed to stay nearly level with last year's returns. Some weanling-to-yearling pinhookers who paid a premium for their weanlings last season got caught in the switch as the market for 2008 yearlings stayed level or dropped, even as the sellers' expenses for hay, grain, and fuel rose sharply. But, overall, the figures showed stability. Gross for the two-night auction fell 12 percent on a smaller catalog, dropping to $36,080,000 for 122 horses. But the average price increased 2 percent to $295,738, and the median price of $227,500 was unchanged from last year. Buybacks also rose slightly to 26 percent.

That's the good news. The bad news comes for horses that don't meet the exacting demands of pinhookers or the so-called end-users, racehorse owners. Buyers in the under-$100,000 part of the market will likely be hit harder by the faltering economy.

Consignors got their first taste of trouble in the middle and lower market in July, when Fasig-Tipton's Kentucky yearling sale, a select but larger and more workmanlike catalog compared with Saratoga's, ended with declines across the board and a buyback rate that jumped 7 percent to 39 percent. The auction sold 305 yearlings for $28,151,000, a drop of 23 percent from last year's number for 354 horses. The $92,298 average price was down 10 percent, and the $75,000 median was off by 6 percent.

There was good news from Fasig-Tipton's New York-bred preferred auction in August, where the lucrative statebred program and continuing optimism that slots may be coming to Aqueduct to enrich statebred purses helped pad the returns: The average price gained 5 percent, reaching $54,390, and the median soared 18 percent to $45,000. But, ominously, even with the improved median, 47 percent of the 100 yearlings that passed through the auction ring went home unsold. And at the less expensive Saratoga open sale, the market benefited from a deep slash in numbers offered, with average ($8,157) and median ($5,300) up 14 and 18 percent, respectively. But again the buyback rate was a startling 50 percent.

These mixed results have many consignors worried, but, as Russell points out, it's hard to compare smaller sales with Keeneland's vastly larger auction.

"We haven't had a sale that has large enough numbers to come with good statistical reviews, to be honest," he said. "I am very concerned about overproduction, and I think this year we might see the effects of overproduction.

"I think the most important thing, regardless of the economy, is the quality of the horse. If they see horses they like, they'll be happy to buy them. If they don't, they'll be more hesitant."