07/10/2008 11:00PM

Little downturn seen for yearling sales


LEXINGTON, Ky. - Economic recession hardly seems the ideal climate for selling Thoroughbred yearlings, but officials at Keeneland and Fasig-Tipton aren't convinced that the general economic downturn will wreak havoc on the summer's yearling sales, which start with the July sale Monday and Tuesday at Fasig-Tipton Kentucky. Caution is the watchword for the coming yearling sales season, especially for lower-middle-class offerings that could be more vulnerable in a sagging economy. But sale company officials and industry analysts sound surprisingly upbeat about the coming yearling season, pointing to oil wealth, good juvenile auction returns, and favorable exchange rates for foreign buyers as factors that could keep the Thoroughbred market on firm footing.

Last year, consignors and sales houses braced themselves for an expected correction after several years of booming returns. Average and median did indeed decline at Fasig-Tipton July, Fasig-Tipton Saratoga, and Keeneland September. But the select market's downturn was less dramatic than feared, partly because the dollar's weakness gave foreign spenders more buying power than ever at United States auctions. And the markets that fared best often were the less expensive ones, such as the open sessions at the Ocala Breeders' Sales Co.'s August auction, which posted increases in average and median, and the later sessions at Keeneland's September sale.

Select-sale companies are keeping their expectations modest, but they also are careful not to overplay the recession.

"I think it will be similar to the 2007 market," said Fasig-Tipton's chief operating officer, Boyd Browning. "We all have concerns about the overall economy, particularly in the United States. But we've seen the sales hold up pretty solidly throughout 2008. The feedback we've gotten from talking to potential buyers has been very positive. I don't think we're going to see a dramatic influx of new purchasers. But our core customers seem like they're going to be in play at similar levels to the past, and hopefully we'll have a little more European participation at the summer sale."

The 2008 exchange rate still favors many foreign buyers, especially those from Europe and the United Kingdom, where the euro and the British pound were worth about $1.60 and $1.97, respectively, on the eve of Fasig-Tipton's bellwether July sale.

"We might be somewhat immune," bloodstock market analyst Michael S. Brown of SireAverages.com said of the economy's likely effect on the yearling season. "The last time we had a gasoline crisis, 30 years ago, the Thoroughbred market was pretty good. The dollar being weak will have a huge effect in bringing overseas buyers in. On July 1 this year, the euro was about $1.58, and last year on July 1 was worth $1.37. The dollar versus the pound is about 2 to 1. Last year, buyers from other countries were getting bargains, and this year they'll be getting even bigger bargains. I'm very bullish about it."

Concerns over global economic declines pushed by skyrocketing fuel prices could offset gains from the weak dollar, but, as Keeneland sales director Geoffrey Russell noted, there are some other bright spots even in gloomy economic times. Oil and gas investors are riding high, for example.

"In all recessions, there are some people who are making money and some who are not," Russell said. "So of course there's concern when the economy goes into recession, but there are always people who are making money within the recession, so there's that silver lining."

In a slowing general economy, the market for open-session stock - where auction houses have warned of overproduction - could be weaker in 2008 as lower-end buyers feel the pinch of the housing crisis, the credit crunch, and a volatile stock market. But many in the sales business predict that yearling-to-juvenile resellers who made money at the spring's 2-year-old auctions will help offset potential declines for middle-market yearling consignors when they return to buy at the summer sales.

"I think the underlying economy is certainly a reason for concern," OBS president Tom Ventura said. "But we had those same concerns in April and June for our 2-year-old sales, and it didn't seem to have a negative impact. We've been pretty resilient through the 2-year-old market, and I hope that that continues through the yearling sales.

"Especially in our select end, the prices will be in pinhookers' comfort range, so the pinhookers will shop it hard, and we'll have the pinhookers competing against the racehorse buyers. And you need the pinhookers to keep the market honest."

Sale company officials remain determinedly optimistic, but generally acknowledge that they are not expecting large upswings in any segment.

"There are an awful lot of horses out there in the commercial market at this time, and as a sales company our responsibility is to try to recruit as many buyers as possible," said Keeneland's Russell. "We're hoping that we'll be able to accomplish that, but yes, I think it will be a little more difficult this year."

If a broader market correction occurs in 2008, it's likely to have its strongest punch in the regional markets and for open-quality yearlings at larger sales, where the oversupply is more evident. That's of special concern at Keeneland, which Russell said would likely have a record catalog again this year, surpassing last year's record of 5,553 horses.

"I think there is still overproduction in the commercial marketplace," said Russell, who was outspoken last year about the unpleasant financial consequences of overproduction for the Thoroughbred auction ring. "The foal crop hasn't gone up all that much, but it seems that the commercial marketplace seems to have expanded over the last couple of years. I think people need to breed to race and not necessarily breed to sell. But some people breed to sell and then if they don't sell, they race, and that's fine.

"The old adage that good horses are going to sell well is going to be very true. I think there is money still out there for Thoroughbreds, but I don't know how much money there is."