11/18/2013 11:33AM

Lower buyback rates signal improved market


No matter how you slice it, business has been good at the major Kentucky mixed sales.

Gross sales, as well as average and median prices, were up almost across the board during the one-day Fasig-Tipton Kentucky select fall mixed sale and the first three books of the Keeneland November breeding stock sale, comprising the first six of 10 sessions.

One particular indicator that gave industry stakeholders a sense of optimism about the health of the mixed market was a significant and consistent drop in the buyback rate.

When a horse is sent through the auction ring, it is often given a reserve price that must be met by the highest bidder, or the horse is not sold, essentially being “bought back” by the seller. This is marked in sales results as “RNA,” short for “reserve not attained.” Those horses are either sold privately following their trip through the auction ring, kept by their owners, or pointed for another sale.

The Fasig-Tipton November sale saw a decrease in the buyback rate from 35 percent in 2012 to 21 percent this year. At the Keeneland November sale, the buyback percentage fell from 27 percent to 23 percent.

Put simply, buyers are meeting, and often exceeding, the expectations set by sellers without the latter having to lower their reserves to move horses, leading to increased average and median sale figures. This, said Keeneland’s director of sales, Geoffrey Russell, is a sign of a healthy marketplace.

“Usually, when the RNA rate goes down, the median and average go down, and we had that a couple years ago,” Russell said. “Now, I think there’s more activity in the market. It’s a competitive market, and people want to buy horses. In recent times, with the distressed market, there was no confidence, and now there’s confidence in the marketplace, both selling and buying.”

In a post-recession economy, one might assume that the lower buyback rate is a product of sellers tempering their expectations and lowering their reserves to meet the demand of the buying bench. Granted, that demand has risen dramatically in recent years, but in that time, conversations about the market’s vitality were often peppered with the phrase “cautious optimism.”

However, many consignors said they did not make major adjustments to their plans in regard to setting reserves coming into this November sale season and credited the rising tide of the Thoroughbred market, along with the overall economy, for the improved clearance rates.

“I think it’s a supply-and-demand factor combined with a stronger, more buoyant market, so when the supply drops somewhat and the demand improves, you’re going to have a higher clearance, as exemplified in this sale and the fall yearling sales,” said Michael Hernon, director of sales at Gainesway. “We always set reserves very fairly, [and] realistically, and consequently, we have a very high clearance rate with our horses. We try and position them best within the respective sale.”

Boyd Browning Jr., president of Fasig-Tipton Co., was pleased by the clearance rate at his ultra-boutique November sale, where the high reserves matched the quality of the stock, but resulted in some high-profile horses going home with their sellers. At this year’s sale, Afleeting Lady, a Grade 2 winner out of Broodmare of the Year Oatsee, became the highest buyback of the November sale season, finishing under her reserve with a final bid of $2.7 million.

Despite that notable RNA, it’s hard to argue with a 14 percentage-point drop in buybacks at the Fasig-Tipton November sale.

“The decrease in the RNA rate was certainly significant,” Browning said. “There’s no question that 12 months ago, if you’d have asked me, ‘What will your November sale look like in 2013?’ I would have said, ‘Just get me somewhere close to last year.’ ”

At the Keeneland November sale, the buyback rates actually deviated from expectations, considering the high-profile dispersals of E. Paul Robsham Stables and the late Eric Kronfeld’s stable. The considerable population of horses in the Robsham dispersal, handled as agent by Lane’s End, was sold without reserve, which would make an especially low buyback rate seem like a given.

However, the days that featured the dispersals – Session 1 (20.98 percent buybacks) and Session 3 (20.06 percent) – finished with higher RNA percentages than the ones that did not feature dispersals – Day 2 (19.88 percent) and Day 4 (19.11 percent).

The highest RNA of the Keeneland November sale was Grade 1 winner Summer Soiree, who closed the bidding at $1.95 million.

Another cause for the decreased buyback rate pegged by industry members is one that carried over from the late-summer and fall yearling sales: more buyers landing on horses and subsequently getting outbid, leaving them with additional money with which to test the market later in the sale.

“There’s just so much more demand, and it doesn’t take you long to realize that prices are up to where they are, and you kind of have to reduce your expectations a little bit,” said John A. “Sandy” Stuart of Bluegrass Thoroughbred Services, who approached the November sales as both a buyer and consignor. “The day before [a particular horse is offered], when you’re doing all your looking, you might need to look one notch lower than you’d like to. That trickle-down effect, that’s why the RNA rate would be lower.

“Toward the end of these days, we’ve still got money in our pockets because everything else is too expensive,” Stuart added. “I’ve noticed from a buyer’s standpoint, when we’re looking for mares or babies, our valuations have been 40 percent lower than what these horses have been bringing. That’s a big margin right there. We’re trying to figure out what’s the true value of these horses, and we’re way low.”

Stuart, like Hernon, said he did not make any major changes to the way he approached the sale with his reserves. However, he noted that consignors must be reasonable with their reserves going forward to avoid overreacting to the influx of buyer interest and asking for too much.

“Breeders certainly want to protect their goods a little more, no doubt,” Stuart said. “They’ll read the headlines. And that might not be such a great thing because the cream rises to the top. People really like the select few Book 1- or Book 2-types – the ones that stand out in those books. Hopefully, people will still be realistic in [the later books] because I’m not sure there’s a lot of added demand for those types. Purse monies for those quality are still the same.”

Russell said recent history suggests that consignors are likely to keep their heads in the midst of a bull market, as evidenced by this year’s Keeneland September yearling sale.

“I think the consignors from the September sale looked like they understood the market and the levels of it very, very well,” he said. “The ‘not sold’ rate the second week of the September sale was better than the first week, so they understand this market and know they can’t push this market. If they push, it doesn’t work, so they’ve got to meet the market, and they’ve done a very good job doing that. You just hope that it continues. As the market changes and the different buyers come in, I anticipate the consignors will understand that and price their product accordingly.”