09/07/2010 4:51PM

Keeneland September auction searching for stability

Photos by Z/Keeneland
Geoffrey Russell, Keeneland’s director of sales, said he hopes that the soft yearling market’s lower prices will prove tempting to buyers.

For commercial Thoroughbred breeders, 2010 marks a turning point as the last of the yearlings bred on pre-crash 2008 stud fees head through the auction ring.

Sellers who have survived the collapse of the Thoroughbred market’s bubble and the subsequent tightening of credit for equine business fervently hope better times lie ahead, and they have at least two reasons for guarded hope. Stud fees in 2009 generally were lower, raising the possibility of better profit margins for the 2011 yearling crop, and earlier this year The Jockey Club projected that foal crop – the supply half of the supply-and-demand seesaw – will shrink by about 4,000 horses, to 30,000, the smallest crop since 1977.

But the question for now is whether this year’s sale yearlings, particularly those headed to the Keeneland September auction – the world’s largest Thoroughbred yearling auction – will sell well enough to keep their breeders in the game until next year. The portents, as seen in the summer yearling sales, are mixed. The bad news includes a slowdown in spending by Sheikh Mohammed al-Maktoum, a significant prop to the upper market for many years, and continued unease about the general economy. But there’s some good news, too, in the form of steady median prices at earlier yearling auctions and domestic buyers’ willingness to keep buying racing prospects in spite of weaker purses. In today’s Thoroughbred market, stability is the new mark of success.

MORE: Complete coverage of Keeneland September in DRF's Breeding section

“We’re hoping, obviously, that people haven’t spent money, and they’re going to spend it here, and that’s why they didn’t spend it anywhere else,” said Keeneland’s director of sales, Geoffrey Russell. “We won’t know that until we see them here.

“I think, not just in Thoroughbreds but in any high-dollar item, there is great interest in high quality, so I think quality horses will sell,” he said. “Probably at a reduced price, but will sell.”

In an apparent effort to make the auction more glamorous and more convenient for buyers, Keeneland dramatically reformatted the September sale this year. The auction still covers two weeks, from Sunday, Sept. 12, through Sunday, Sept. 26, with a dark day Saturday, Sept. 18. But its two select sessions, cataloged in Book 1 for Sept. 12-13, will be much smaller than in previous years, selling only about 100 yearlings each. They also will take place at night, traditionally perceived as a more formal and glittering setting.

The auction’s Book 2 now encompasses four days and about 1,300 yearlings. Those will be cataloged for the most part in the alphabetical order of their dams’ names, a method designed to spread quality offerings throughout the catalog and encourage buyers to scout for prospects the entire week.

Following the Sept. 18 dark day, the auction’s second week will offer “a diverse selection for a growing buying bench, both domestically and internationally,” according to Keeneland’s promotional materials.

For buyers willing to step up and bid, the yearling market’s continuing softness, combined with Keeneland’s wide selection, could prove tempting.
“The cost of entry into the Thoroughbred market is more favorable than it’s ever been,” Russell said. “That’s made some people interested who, in the past, thought they’d have to pay $1 million to buy a yearling. Now they realize they don’t have to spend at that level to get in. That’s a positive.”

How much or how little the buying bench really has grown is of deep concern to consignors at every level of today’s Thoroughbred market. The few results so far for 2010’s yearling sales haven’t been entirely reassuring, but sellers and sales executives have still found sunny patches to fuel their hopes that the market is, at least, regaining stability after two years of steep decline.

Fasig-Tipton’s July select sale in Kentucky posted mild declines, with average price falling two percent and median down 9 percent. But the buyback rate also dropped, from 37 percent last year to 29 percent, in a sign that sellers had reconciled to buyers’ smaller budgets in order to make a sale.
Three weeks later, the small and select Fasig-Tipton Saratoga sale reinforced those results when average fell 16 percent and median lost 4 percent. Sale executives hastened to point out that the declines came after the 2009 auction, larded by a dozen purchases by Sheikh Mohammed al-Maktoum averaging $987,500, had posted near-record numbers. Maktoum, incidentally, bought more horses for less money at Saratoga this year, averaging $460,357 for 14 yearlings. However, the increased buyback rate (from 22 percent in 2009 to 29 percent) and a decline in million-dollar lots (from five in 2009 to one in 2010) caused a frisson among sellers who point yearlings for the extreme top of the market.

The impression that upscale home runs were less likely now, especially as Maktoum reins in his spending, only increased with results from Arqana’s Deauville select auction in France. There, the buyback rate increased from 26 percent to 31 percent and average slid 16 percent, but median remained relatively steady on a 3 percent drop. Gross fell 29 percent, partly on a smaller catalog. Ominously, though, Sheikh Mohammed al-Maktoum and his brother Sheikh Hamdan’s Shadwell Estate, normally stalwarts of the Deauville auction, sharply reduced their Deauville purchases.

“The severe decrease in spending by the Maktoum family, in particular the lack of activity by Shadwell − which when added together produces a deficit of around five million euros (about $6.35 million) − is a significant factor in the drop in aggregate,” said Arqana’s managing director, Olivier Delloye.

Many pointed out that the Deauville sale coincided with the Muslim holy month of Ramadan, which could well have affected the Maktoums’ willingness to buy yearlings − although in 2008, when Ramadan started Sept.1, Sheikh Mohammed bought 27 yearlings for more than $18.1 million at Keeneland September, and Sheikh Hamdan bought 28 for more than $14.1 million. Keeneland September, incidentally, opens this year after Ramadan ends Sept. 9.

Sellers are gambling that Sheikh Mohammed won’t embark on a large-scale spending spree at Keeneland September. Based on signs from the summer sales, that’s likely to keep the market ceiling relatively low and possibly lower than last year. But there are signs that domestic buyers will pick up some of the upper-market slack. Among those to watch are Besilu Farm, buyer of the Saratoga select sale’s $1.2 million topper; Live Oak Stud; Coolmore; Brushwood Stable; WinStar Farm/Maverick Racing; and Robert and Lawana Low.

Level or near-level median figures suggest some stability in the market. And the strong performance of Saratoga’s New York-bred preferred sale offers some early evidence that less-expensive yearlings for regional racing, especially in regions where purses are strong or slots are on the horizon, could hold steady in September. In the middle market, some familiar buyers are still signing receipts, including West Point Thoroughbreds, Starlight Stable, Morrowdale Farm, and yearling-to-juvenile resellers.

Still, those buyers are highly selective, Russell said.

“The physical conformation is very, very important,” he said. “If you have pedigree but you don’t have good conformation, they’re not interested. To hit the big number, you have to have both. If you’re a little light in pedigree with a good individual, you will get a premium still, and there’s no premium if it’s not a good-looking horse. In the past, if you had a filly that was well bred but lacked desirable conformation, people would go for it. But I don’t think even that works these days.

“The bright spot is that people still have great interest in our sport and in participating in it,” Russell said. “But I think the number of horses they want to participate in it with is going to be smaller. The breeders have done a good job of reducing the number of horses that are available. I think there was a period of time where they felt anything that was bred should go through the auction ring, and now they have realized that’s not the case. The yearling crop this year has dropped, but next year is when we’ll see the larger drop,” because the foals of 2010 were the bred in 2009, the first year after the recession, Russell said. “The yearling crop next year could be one of the lowest.”

That, sellers hope, could make those yearlings worth more in 2011 if demand holds up. But the prospects of big home runs remain distant for most sellers. For now, they’re hoping for stability and a chance to hit a single or double.

September 12-26, 2010

Keeneland Association sale pavilion, 4201 Versailles Rd., Lexington, Ky., 40510

What’s new
The auction’s two select sessions, cataloged as Book 1 on Sept. 12–13, will take place at night this year instead of during the daytime, starting at 7 p.m. The second section of the auction, cataloged as Book 2, comprises about 1,300 horses selling Sept. 14–17 in continuous daily sessions starting at 10 a.m. After a dark day on Saturday, Sept. 18, the auction resumes with the remaining horses selling through Sept. 26 in continuous daily sessions starting at 10 a.m.

4,857, down from last year’s 5,189

Recent history
The 2009 edition suffered a second consecutive year of deep declines as the market continued to feel the effects of oversupply and curtailed demand in a recessionary economic landscape. The gross for 3,159 yearlings fell 41 percent to $191,859,200; average price dropped 36 percent to $60,734; and median dove 45 percent to $22,000. The upper market was not immune to losses. The sale produced only four yearling prices at $1 million or more, down from 18 a year earlier. The sale-topper was a $2.05 million Storm Cat-Fleet Indian colt purchased by Darley Stud from Summer Wind Farm (Taylor Made, agent).

Live streaming video at www.keeneland.com.

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