12/30/2009 12:00AM

Farms brace for more declining fees


LEXINGTON, Ky. - Breeding season traditionally starts Feb. 15, and for the second year in a row, breeding sheds will open with generally lower stud fees. But will mare owners be lined up outside? That's the question on most stallion managers' minds right now, and they have good reason to wonder.

Last year, after devastating declines at the 2008 auctions, North America's mare owners sent 14 percent fewer mares to the breeding shed. They also delayed mating the broodmares they kept in production. Waiting paid off, as stud farms cut fees and offered breeding incentives.

The 2009 sales didn't look much better for commercial breeders. The season's major yearling sales were down again, by a combined 32 percent in gross and 20 percent in average. Foreseeing another difficult breeding season ahead, stud farms have reacted in many cases by lowering stallions' fees again.

"People are booking later this year, even later than they did last year," said Vinery president Tom Ludt. "And I think you're seeing people breed mares at lower fees than they did in the past. We cut our stud fees and offer a fair price for our stallions, and most of our horses are doing okay, but it's slower than normal. When you talk to people, I think everybody's slower."

Comparing stallions with published fees that stood at the same farms in 2009 and 2010, Vinery and other major stud farms show significant fee cuts. Vinery cut total fees for returning stallions by 37 percent. Darley trimmed fees by 11 percent this year. (Medaglia d'Oro, whose fee rose from $60,000 to $100,000 is not included because Darley purchased him in June, effectively after the 2009 breeding season.) At Lane's End, total fees fell 32 percent (not including Kingmambo, whose fee went from $250,000 to private for 2010). A few other examples under the same criteria include Three Chimneys, where total fees for returning stallions fell 13 percent (Smarty Jones, who went from private to $10,000 for 2010, and new sire Red Giant are excluded); WinStar by 24 percent; Taylor Made by 20 percent; and Ashford by 29 percent.

"Shareholders want us to put the fees as high as possible to get returns," Ludt said. "The breeder wants us to put it as low as possible so they can get a good price. So we have to find the happy medium. It is harder on a second- or third-year stallion where you're dealing with high acquisition prices, but you can't worry about that."

Will current fees be enough for breeders still smarting from a second consecutive year of market declines? For highly desirable stallions, yes, says Lantern Hill Farm owner Suzi Shoemaker.

"There are stallions like Dixie Union, Candy Ride, Tapit, and Tiznow that were priced very attractively and filled up almost before the November sale, which astonished a lot of people," she said. "Those horses are getting a lot of play, but there is a vast number of stallions that are still overpriced."

But many stallion managers say fees probably won't get much lower.

"It seems like there's less panic among stallion farms than there was in December of 2008," said Case Clay, president of Three Chimneys Farm. "Farms cut fees two years in a row - and rightly so, because the market had gotten skewed - but now we seem to be aligned with the market. Last year you were seeing fee cuts midseason, but I don't see that happening much this year."

Instead, farms have offered incentives, such as multiple-mare discounts, discounts for early stud fee payment, and breed-back incentives. That's a good deal for both parties, Clay said.

"It's almost like a frequent-flyer program, and you get some more customer loyalty that way as opposed to just offering everybody the same price that might be a third less than what the market would bear," he said.

"That absolutely plays into the decision, particularly with multiple-mare discounts," Shoemaker said of incentives, adding that early-payment discounts also are attractive.

Shoemaker said she factors in how well a stallion suits a mare, her clients' wishes, and any available incentives before she makes a recommendation. Special offers can tip the balance.

"We might decide to use a particular stallion with a mare because that would give us three mares total, and then we all get a discount," she said. "If it's a good mating for the mare and the client agrees, it can become the determining factor."

By the end of December, Shoemaker had booked about half of her farm's mares. She and her clients are happy to wait before settling plans for the rest, because they know they're in a breeder's market.

"The horses that we know of who are in their second or third year [as sires] or that have gone cold for whatever reason but may suit that particular mare, we figure later in the season we'll be getting bigger discounts," she said. "So the mares that aren't booked, we're simply expecting that prices will come down."