06/24/2016 12:56PM

Impact of Brexit uncertain


The question on a lot of people’s minds in racing Friday was whether Brexit, the exit of the United Kingdom from the European Union, would have any effect on the auction or bloodstock markets in North America. The short answer is probably not, though it’s too early to tell.

Money markets and stock markets worldwide were in turmoil Friday after British citizens voted on Thursday for the U.K. to exit the E.U. In early trading, the British pound was down 7 percent against the dollar, the Dow was off 2.5 percent, the German stock index DAX was down 6.5 percent, and the Nikkei in Japan was down 7.9 percent.

Historically, the public auction markets in North America – which totaled $940 million in expenditures in 2015 for weanlings, yearlings, 2-year-olds, and breeding stock – have been the province of American buyers, with the exception of the top of the market, where foreign buyers have a notable influence. But those buyers are generally impervious to market fluctuations – short of a complete meltdown of world stock markets such as in 2008.

“[The high-end buyers] don’t just deal in dollars and pounds and euros,” said Geoffrey Russell, director of sales for Keeneland, based in Lexington, Ky. “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.”

Foreign buyers have a strong hand in the upper end of the yearling and broodmare markets in particular, but Boyd Browning, chief executive of Fasig-Tipton Co., said he does not expect to see any impact from the Brexit vote anytime soon. Fasig-Tipton Kentucky in Lexington kicks off the sale season July 11-12 with a horses-of-racing-age and yearling sale, and in New York on Aug. 8-9 it conducts the Saratoga select yearling sale.

“In the short term, in terms of the July sale, it will have a minimal effect,” Browning said of the downturn in the value of the British pound and euro. “It’s not a sale that traditionally has been shopped extensively by European owners and buyers.

“We live in a world where there’s volatility, and we’re much more accustomed to volatility, and we don’t know the state of the markets between now and July 11. There’s liable to be a significant rebound and recovery, and the worst anyone can do is overreact on short-term news like this, and I don’t think it will have a meaningful impact on our yearling sales this summer.

“Honestly, the European participation in the North American yearling market has diminished in recent years. If the Dow [Jones Industrial Average] were to have a significant drop between now and the yearling sales, that would be more of a concern.”

The breeding season in the Northern Hemisphere is over, but if the pound stays at its current rate vs. the dollar in 2017, American breeders would be getting a nice discount on stud fees compared with 2016. For example, first-crop sire Frankel, one of the most expensive stallions in the world, stands at Banstead Manor in England for 125,000 pounds. At the start of this year’s breeding season, his stud fee was $190,096, but on June 24 it would have been $170,220, or 10 percent lower.

Breeders who play at the top end of the market, though, are not as sensitive to a $20,000 difference in a stud fee, and commercial American breeders have not sent a significant number of mares to Frankel or any other stallion in Britain.

In terms of foreign auctions, commercial American breeders are not significant players, preferring to concentrate on American pedigrees. If the pound is still low vs. the dollar come the November and December breeding stock stales in England, some breeders will likely go overseas to find bargains, but it will not be a large number.

Jack Sisterson, a California-based bloodstock agent and assistant trainer for Doug O’Neill, has actively purchased horses of racing age in recent seasons. He was contacted by fellow agents in Britain early Friday suggesting that a buyer’s market could occur for American-based owners.

“I did get a few texts from agents saying this is a time to buy,” Sisterson said.

There tends to be an increase in the private market for British prospects in early summer each year, following the conclusion of the Royal Ascot meeting, which was run June 14-18. That could be more robust this year.

“Everyone wants to run at Ascot, and after that, prices become more realistic,” trainer Simon Callaghan said.

Callaghan said the bloodstock market, similar to the financial markets, may need a few days to reflect on the implications of Thursday’s vote.

“I think it will take some time to see the effects,” Callaghan said.

Trainer John Sadler has bought prospects privately for his leading clients, Pete and Kosta Hronis, in recent years. Sadler said he wonders if sellers in Britain will simply raise potential prices to offset significant currency declines. He said he is in negotiations to buy a “long-distance horse.”

“They make the [price] higher to get the numbers they want,” he said.

–additional reporting by Steve Andersen