01/11/2013 12:41PM

Thoroughbred auction market readjustment continuing for the better

Tom Keyser
Boyd Browning of Fasig-Tipton senses "no euphoria, but steady growth and improvement" in the Thoroughbred marketplace.

The Thoroughbred auction market saw a shift in its supply-and-demand dynamic in 2012, with fewer horses selling but for higher average prices, as the industry continued its steady climb back from a deep recession.

As the North American foal crop continues to shrink, that trend is expected to continue into 2013, with buyers gravitating toward the top end of the market and continuing to shy away from those horses on the lower end.

Geoffrey Russell, Keeneland’s director of sales, said the foundation for the 2013 auction market had been laid years ago.

“I think that we’ve seen, starting in September 2011 and continuing on through last year, we’re seeing a good, solid base set down for rebuilding our industry,” Russell said. “The compliments go to our breeders who have realized, through whatever means, that they have to reduce their commercial mares. Not every mare produces a commercial yearling, so we’re seeing the supply-and-demand aspect come into that.

“There are other factors,” said Russell, “but once those factors are taken into consideration, supply and demand do help, because you’re seeing more people [bidding] on horses. What we saw last year in the [Keeneland] September [yearling] sale was great interest in a lot of horses, so the auctioneers were confident that the people that didn’t buy those would go on and buy another one, so it continues to roll.”

While total revenue of $717 million at North American sales for all categories (weanlings, yearlings, 2-year-olds, and broodmares) fell as 994 fewer horses went through sales rings last year compared with 2011, it was by only 1.4 percent, and the average price rose for a second straight year, by 6.1 percent. The market is bouncing back from total sales of $617 million in 2010, the lowest since 1996 and a far cry from the record total of $1.27 billion in 2006. The overall national average is still below its pre-crash levels of 2008, but Fasig-Tipton Co.’s president, Boyd Browning, saw the direction, paired with rising medians across the different market segments, as good signs.

“I’m cautiously optimistic,” Browning said. “We’ve seen indications that the overall market seems to be improving, and the overall economy throughout the world seems to be slightly improving. Most of our indicators are slightly positive – no dramatic changes in the marketplace, no euphoria, but steady growth and improvement.”

One factor that could help spur additional interest from buyers in 2013 is the bolstering of some key tax incentives for Thoroughbred owners, stemming from the recent “fiscal cliff” legislation. Among the changes was an increase in the expense allowance for purchased horses to $500,000 and a 50 percent bonus depreciation for “new” purchases such as yearlings.

“Even though we’ve got major big-picture problems with the horse industry, in the short-term, tax rates are going to go up dramatically, and we appear, for the time being, to have good legislation in place that makes the horse business attractive to the people that are going to get taxed the most,” said Mark Taylor of Taylor Made Sales Agency. “If people are looking at, ‘Hey, by the time I pay federal, state, and every other tax they can possibly put on me, it’s north of 50 percent, or I can just go buy a million dollars’ worth of yearlings, and write half of them off,’ it makes it more attractive. You’re either going to give it to the government or have fun with it. Hopefully, a lot of people would rather have fun with it.”

Moving forward, both Taylor and Russell said they noticed strength in the broodmare market at the close of 2012, which could indicate a renewed interest from breeders in Thoroughbreds for the long haul. While the average price for broodmares in 2012 rose only 2 percent compared with 2011, the median jumped 24 percent, suggesting a resurgence in mid-level activity on the part of breeders.

Russell said that at both Keeneland’s recently concluded January horses of all ages sale and last November’s breeding stock sale, there was “increased interest in mares all of a sudden. It’s good to see that long-term investment. After 2008, people didn’t want to own a broodmare. They were happy to buy foals to sell as yearlings, but they weren’t interested in a long-term investment.”

Of course, there will always be room in the market for the blue-chip broodmare prospects.

“What you saw in the November sale for quality mares, that seems to be the strongest part of the market, because the people that are playing at that level are somewhat economy-proof,” Taylor said. “They want that quality and there’s a flight to quality right now.”

With the mixed sale season beginning to wind down, the 2-year-old season soon will be the focus of the national sales calendar. At last year’s two-year-old sales, average price rose a solid 17 percent.

Tom Ventura, president of Ocala Breeders’ Sales Co., said the 2-year-old sales, because that is the market segment closest to the racetrack, are the quickest to react to developments in Thoroughbred racing. With a mild general upswing in the racing business, highlighted by pockets of strength both domestically and internationally, Ventura projected another year of gains in the juvenile sector.

“I think the 2-year-old market has probably weathered the downturn better than the rest of the market, and I think that part of the market will still be strong,” he said. “Last year, we were anticipating the increased purses in New York as being influential at the 2-year-old level, and that had a positive impact.”