11/21/2008 12:00AM

Determining a sire's value an inexact science


LEXINGTON, Ky. - The public appraisal of Curlin at a value of $20 million this week stirred curiosity about how an appraiser puts a value on a horse, especially a stallion. Essentially, there are two broad steps to doing this: assessing the horse in a class of comparable animals and estimating what income might be derived from the use of the horse at stud.

Stallion prospects coming off the track are simple to evaluate in terms of their race records. Aside from rare cases, no stallion prospect retires to stud in Kentucky without a significant racing record, and that by itself helps to place the horse in a class of similar animals and set a valuation on a horse.

Most appraisers do this by comparing retiring horses with other similar animals. As a result, classic winner and Horse of the Year Curlin would be comparable to classic winner and 3-year-old champion pro-tem Big Brown and somewhat comparable to classic winner and juvenile champion Street Sense, who retired to stud a year ago.

For 2008, Street Sense stood as part of the Darley stallion roster at Jonabell Farm in Lexington for $75,000 live foal. Big Brown has already been announced as standing for $65,000 at his new home, Three Chimneys Farm, for the 2009 breeding season.

Using these two horses as a pricing guide, Curlin was expected to be priced in the range of $65,000 to $75,000, and as was announced on Friday, Curlin will stand at Lane's End Farm for a fee of $75,000.

The stud fee multiplied by the expected number of live foals over a period of time - usually four years for high-end Kentucky stallions - provides an approximate gross price for a stallion.

For example, when Secretariat was syndicated before beginning his 3-year-old season in 1973, the share price of $190,000 was based on a general expectation of being able to stand him for a fee of $50,000. With a syndicate of 32, that put his cash value at slightly more than $6 million.

Big Brown's stud deal was completed before he ran in the Belmont, and it was a sale of a minority interest in the horse that prompted a reported valuation of $50 million. That reflected the potential for standing him had he won the Triple Crown, and would likely indicate a fee of $100,000 to $125,000.

Syndication deals have become less common over the past 20 years or so, and Street Sense, Curlin, and Big Brown will be owned either by single entities or a small group of partners.

While this tends to obscure the absolute market demand for a particular horse, it does not change his practical value because what breeders will pay over time is the functional value of what a horse is worth.

And there can be no doubt that demand changes radically throughout the early years a horse is at stud and that stallion owners have to be attuned to this.

Their long-term goal is the appreciation of their asset, and every breeder or stallion manager should do everything to make that happen, which includes pricing the stallion at a number attractive to the breeder.

For instance, stallions rarely stand for as much in their second season at stud as they do in their first, and in their third and fourth seasons, pricing can be erratic indeed and is almost always significantly lower than in the first two years.

This odd system of pricing is the direct result of nearly all Kentucky stallions being used as sires for the commercial weanling, yearling, and 2-year-old markets. There, everything depends on how buyers respond to the initial offerings of young stock.

If buyers snap up the young horses enthusiastically at a high multiple of the stud fee, it may be enough to maintain a stallion's fee at his entry level, but typically, the fees are set high and come down on a declining curve.

The simplest explanation for this curve is a proportional decline in demand from breeders who are unwilling to take risks, and stallion managers have to respond to the unwillingness by lessening the risk in the form of a lower price. Another way of looking at this is to see the entry-year fee as a combination of stud fee plus the marquee value of having a first-year horse.

It is easy to understand why everyone, either breeder or buyer, loves the first-year horse. When a horse's first foals come to the sales, nobody has ever had a bad one or a slow one.

And the cold spike of fear in any breeder is the thought of getting stuck with yearlings and foals if the sire's first-crop runners do not strike gold, or at least a bit of silver, immediately.

But when they do, as happened this year with freshman sire Tapit (sire of champion juvenile filly pro-tem Stardom Bound), the rewards can be very significant.

A further complication in the process of appraising value is the current state of the general economy, which also has a direct impact on horse prices. As the overall economy moves up or down, so does the demand for buying horses. An initial appraisal of Curlin, made in August, put his value at $30 million, but that has declined by a third in tandem with the overall horse markets, such as the Keeneland November sale, where average prices declined by 39 percent.

If the national and international economy continues its present trend, the current appraisal price for Curlin may look downright generous in six to 12 months.