06/30/2011 12:04PM

Yearling sale season could be helped by smaller crops

Last year’s Fasig-Tipton July select sale saw declines of 2 percent in average and 9 percent in median. This year’s sale has a catalog that is 25 percent smaller and goes from two days to one.

LEXINGTON, Ky. − Ask American auction officials what they’re predicting for the upcoming select yearling sale season, and the first answer you’ll get is this: smaller catalogs. The Jockey Club estimates the North American registered foal crop fell from about 31,750 in 2009 to 27,800 in 2010, a sharp 12 percent decline and its lowest level since the mid-1970s. Dwindling Thoroughbred crop sizes are bad news for racetracks combatting small fields, but they’ll probably be a plus for the 2011 yearling market.

Two years after the bloodstock bubble collapsed with the economy, the North American yearling market appeared to find its footing again in 2010. And with fewer horses expected to come to auction this summer and fall, American sales companies are hoping decreased supply will keep major yearling sales on a level, if not positive, trend. But they expect buyer ranks to remain thin, especially at the top of the select market and for lower-end stock. The long-term challenge remains: find new buyers and racehorse owners.

“I think we’ll see a slightly better market than we saw last year,” Fasig-Tipton CEO Boyd Browning said. “I’d anticipate a similar demand, and a little diminished supply and similar demand should result in slight improvement, hopefully, in some average prices. I don’t see any indication there’s been a dramatic improvement or deterioration in the marketplace.”

Fasig-Tipton’s July select sale kicks off the major auction season July 12 in Lexington. Its catalog is 25 percent smaller, and the sale drops back from two days to one this year. Smaller supply didn’t prevent the July sale from slipping last season. It ended with declines of 2 percent in average ($75,780), 9 percent in median ($50,000). But those drops were shallower than in 2009, when average and median declined 16 percent and 27 percent. A smaller catalog and a stronger juvenile sale season for some key yearling-to-juvenile pinhookers could help Fasig-Tipton’s opening yearling sale at least hold level with last year, and possibly gain. Both national and regional boutique sales could benefit from a stronger pinhooker presence, sale officials say.

“The pinhookers that have made it through the past few years, they’re going to stay in their comfort range as before,” said Tom Ventura, general manager of Ocala Breeders’ Sales Company, which hosts its select sale Aug. 23.

Last year the OBS auction’s select session sold 131 horses for a $35,981 average, up 9 percent, and median gained 8  percent to reach $27,000.

“You won’t see as many horses pinhooked to 2-year-old sales on the high end as we did four or five years ago,” Ventura said. “But I think sellers and buyers feel comfortable there’s some stabilization, although you do question the depth of the market in the mid- to lower-price range.”

The pinhookers’ influence probably will be strongly felt at Keeneland’s two-week September sale, where savvy horsemen can find bargains buried in the yearling season’s biggest catalog. Keeneland’s sale director, Geoffrey Russell, hopes the 2011 Triple Crown results will reinforce the idea that bidders can find top runners for under $300,000 at America’s largest yearling mart. Kentucky Derby winner Animal Kingdom brought $100,000 at Keeneland September when Team Valor’s Barry Irwin bought out his original partners in the colt; Belmont winner Ruler On Ice sold for the same price. Preakness winner Shackleford was a buyback there at $275,000.

“That should make the business open to more people who feel they can compete and get a classic winner,” Russell said. “As this market has contracted, you can buy good horses at all prices.”

After radical restructuring last year, the September auction performed best of all among major select auctions with a 7 percent gain in average ($64,810) and a 14 percent gain in median ($25,000). This year, the sale format will get some additional fine-tuning, including shortening its Book Two portion from four days to three and starting those sessions at 11 a.m. instead of at 10 a.m. But Keeneland will again open the auction with a pair of small nighttime select sessions at 7 p.m. on Sept. 11-12.

“Big picture, the economy’s still trudging along,” Russell said. “Our lifestyles haven’t changed very much in a year, so hopefully the good job breeders have done in reducing the mares they have in production, often by selling them to emerging markets we’ve helped them find, should help us dramatically.”

Fasig-Tipton’s flagship Saratoga select sale, scheduled this year for Aug. 8-9, has drawn some high-end pinhookers in recent years, but for the most part it’s a scene for end-users, people shopping for racehorses rather than resale prospects. Last year, average ($275,551) fell 16 percent but was coming off a near-record figure the year before. The median was probably a better indication of the overall market’s gradual stability. At sale’s end, the Saratoga median was $250,000, the same as the previous year, although a later revision to reflect a private sale trimmed the median by 4 percent, to $240,000.

At 2010’s auctions, there were still buyers − even new ones, such as million-dollar spender Benjamin Leon of Besilu Stable − putting up seven figures for yearlings. Chances are some of those stalwarts − such as Shadwell, Lael Stables, Brushwood, and Darley − will still play in 2011. But sale officials expect even the heavyweights will keep a firm lid on upper-level prices, out of prudence and from a lack of competition in the boutique market’s highest echelons.

Below the top level, sale companies and consignors are more dependent on public syndicates, middle-class domestic buyers, and emerging international markets to shore up their middle markets. Select sale houses expect two trends at 2011 yearling auctions: European buying will continue to fade slowly, but other buyers, particularly from Eastern Europe and Asia, will emerge to take up some of the slack.

“I think they do still want American horses, and we hope to see more activity from places like Russia,” Russell said. “You have Korea, Japan, Singapore, all major racing countries. In the past, Korea and Singapore have tended to go to Australia or New Zealand, but with the Australian dollar being so strong, we might capture some of them because our dollar isn’t as strong against those currencies.”

Russell said he doesn’t expect those markets to take over from Europe entirely, especially at the upper market, but they could aid prices in the middle market. In the meantime, he also said he expects Middle Eastern countries such as Qatar to come to the fore.

Some domestic developments might also give a lift to markets.

“The economy’s still unsettled, but the attitude is better than it was after we had the first initial shock in 2008,” Ventura said. “In the near future, they’re actually putting slot machines in Aqueduct, and when they get up and running it’s going to impact those purses significantly. If you look around at some other tracks, their purse structures are decent, so it gives a buyer a chance to get out on his horses, and that’s helpful. To invest in horses is a risky business, but people are now buying horses at discounted rates and running them for more or less the same purses, and possibly more in New York on the horizon.”

For domestic buyers, there are some tax incentives under a law signed by President Obama in 2010, including a 100 percent bonus depreciation and a higher expense allowance for horses. Animals or farm equipment placed in service between Sept. 9, 2010, and Dec. 31, 2011, may be eligible for 100 percent depreciation, and the expense allowance allows a buyer to write off as much as $500,000 of the cost of horses or farm equipment placed in service, up to $2 million. In addition, the new law will keep the top tax on capital gains and dividends at 15 percent through 2012, rather than the originally planned 20 percent for capital gains and 35 percent on dividends. Those added incentives for 2011 purchases are most likely to move the needle among middle- and upper-market buyers, Russell said.

“Yes, people enjoy the game, and, yes, they enjoy the fun,” Russell said. “But if they can get an advantage on owning a horse, they want that, too.”

And if that tempts someone to make a more bid or buy a horse, it’s worth it, sales executives say.

“We need more people, period,” Browning said. “The reality is that the people entering the sales world to buy yearlings and 2-year-olds are ultimately going to the racetrack. The way we get more buyers is to have more people wanting to race horses and have a positive experience. When that happens, the sales business gets to be real fun.”