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Election, Brexit unlikely to scare big players at Keeneland September
The commercial Thoroughbred industry tends to operate within a bubble, generally impervious to the tumult of the outside world except for extreme exceptions. That trend will be put to the test starting Monday, as the Keeneland September yearling sale begins its two-week run in what is an uncertain world.
Because of its large catalog offering numerous horses in a variety of price ranges, Keeneland September is considered the best barometer of the yearling market’s health in North America. This year’s sale takes place less than two months before a U.S. presidential election in what has been an extremely divisive campaign. The marathon sale also is a large supplier of runners around the world, attracting foreign buyers from both established and emerging jurisdictions whose participation is an indicator of how the rest of the world is interacting with the American product. An international question has become whether Brexit, the exit of the United Kingdom from the European Union, would have any impact on the Thoroughbred market.
Leading up to this year’s renewal of Keeneland September, consignors and sales officials weren’t worried, believing that the top end of the market is generally immune to economic uncertainty, a belief borne out by sales figures in recent election years.
“It depends on what business somebody is in,” said Meg Levy, owner of Bluewater Sales. “Most of the big players in this game, their wherewithal is not absolutely contingent on something like an election.”
In both the election years of 2000 and 2004, Keeneland September’s cumulative gross, average, and median all improved compared to the prior year. The sale, in fact, turned in what was then its highest gross and average ever in 2000, followed by its then-second-highest figures in 2001, despite the Sept. 11, 2001, terrorist attacks, which caused the second session of the sale to be postponed by a day.
“Sept. 11, we were all at Keeneland,” Levy said. “Yes, it affected the market, but still, horses were selling. You wouldn’t even have thought. And here you were with all these horses and people who couldn’t leave Keeneland.”
The past two election years, 2008 and 2012, have shown mixed figures, but there were extenuating circumstances. A global economic crash that many economists consider to be the worst financial crisis since the Great Depression manifested during the 2008 September sale, with the resulting global crisis resulting in bank failures in Europe and sharp reductions in the values of commodities worldwide. The biggest single-day crash in the history of the Dow Jones industrial average occurred that September, and the market took a 54 percent plunge in a little less than 18 months.
The crash wreaked havoc on what was an inflated marketplace, with Keeneland September’s gross, average, and median taking double-digit hits. The broodmare market, often an indicator of long-range predictions for the industry, took even deeper hits, with that year’s Keeneland November gross dropping 45 percent, average 39 percent, and median 43 percent. Keeneland’s total annual sales revenues, combining gross receipts from the January horses of all ages, April 2-year-olds in training, September yearling, and November breeding stock sales dropped from $815,493,000 in 2007 to $396,216,000 in 2009, and Keeneland committed several years to working with longtime clients whose finances took a hit to settle their accounts.
Industry rebuilding following the crisis has led to a stable but extremely selective market in recent years. Although the 2012 Keeneland September gross was down due to fewer horses sold – a trend attributable to the shrinking North American foal crop – the average and median were up. The 2013 auction marked the key turnaround, with the sale posting its highest across-the-board economic figures since the market crash in 2008. Last year’s renewal displayed moderate gains in both gross and average. The median, a key gauge of a healthy market, remained unchanged from the record $50,000 posted in 2013 and 2014.
“I think in general, especially the last two years, you’ve been able to feel people having more confidence in the market,” said Duncan Taylor, president and CEO of his family’s Taylor Made Sales. “I know I have.”
The national economy has displayed signs that Keeneland September could expect similar results this year. After declines in January and February, with its lowest point coming Feb. 11, the Dow has generally trended upward this year as Election Day approaches.
Taylor reflected on a conversation he had with “an astute businessperson.”
“He was saying, ‘I think everything will just be sort of steady up until the election, but once we get through that, I think the economy’s going to take off,’” Taylor recalled. “So that would make you think that, yeah, there are some people being hesitant.”
The Brexit vote in June created perhaps another reason for some to be hesitant. In the immediate aftermath of the narrow decision, money and stock markets worldwide were in fluctuation, with the Dow among those indicators taking a dip.
Foreign buyers have a notable impact on the top of the yearling and breeding stock markets in North America. But sales officials note that those buyers are generally impervious to market fluctuations, short of complete worldwide meltdowns such as that seen in 2008.
The high-end buyers “don’t just deal in dollars and pounds and euros,” Keeneland director of sales Geoffrey Russell said. “They’re global traders. They have euros, they have dollars, they have British pounds. They play around with them and use whichever ones benefits them the most. I don’t think it’s going to have any effect on them. It may have an effect on people in the middle market who come here to buy and find out it’s more expensive.”
Ten days before the start of the Keeneland sale, one American dollar was worth .90 euros and .75 British pounds, leading some to suggest that a buyer’s market could occur for American-based owners.
“I work for a couple of guys who are money managers,” said Levy of Bluewater Sales. “They seem to understand the risks of this business very well. The first couple of texts that I got [after the Brexit vote], they said, ‘Well, I guess we’re gonna go to Britain and buy a few.’
“I think horses, in general, you have to understand the game and be resilient enough and have a passion for it to live through any kind of economic condition. We’re all crazy. It just depends on how strong you want to be.”