07/16/2009 11:00PM

Yearling sales brace for new season

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LEXINGTON, Ky. - Last year's major yearling sales ended on a gloomy note.

Fasig-Tipton's July and Saratoga select sales both saw most categories decline, the sole exception being Saratoga's average; that last figure rebounded after a difficult opening night to end 2 percent up from 2007's figure. But celebrations over that modest rise were short-lived: the global financial crisis hit in the middle of Keeneland's September sale, the world's largest Thoroughbred yearling sale and generally the best indicator of the market's health.

In the end, even Keeneland's September figures did not fall as steeply as the stock market had during those two autumn weeks of general economic turmoil. Keeneland's gross lost 15 percent, while average and median fell 10 percent and 12 percent, respectively, leaving auction houses, buyers, and sellers feeling relieved that they had dodged a bullet - but deeply concerned about the long-term outlook in a breeding industry struggling with the twin perils of overproduction and the worst economic recession in at least 25 years.

Those perils still loom, so it's not surprising that participants in 2009's major yearling sales are bracing themselves for the new season, which opens with the July 20-21 Fasig-Tipton July select sale in Lexington.

Fasig-Tipton president Boyd Browning expects the 2009 market will look much like the 2008 edition.

"I think we're going to see the continuation of the trends we've seen in recent years," he said. "There's going to be demand for quality yearlings, there will be competition for horses that are desirable, particularly if those are highly desirable. For those that don't make the cut or are perceived as being not in the acceptable range by the majority of buyers, it's going to be difficult."

Since 2008's round of yearling sales, there has been both good and bad news for sellers to consider. First, the good news. Horses perceived as high-quality still brought significant bidding activity at all sales, from the yearling and breeding stock auctions of 2008 through to the juvenile sales of early 2009. There almost certainly will be fewer millionaire horses than there were, say, five years ago, and the ceiling is lower than it used to be for a top-priced horse, thanks to less bidding competition as even major buyers have trimmed spending. But trade remained fairly healthy for horses at the top of the market, especially ready-to-race horses on the private market and at the November and juvenile sales.

Now for the bad news. Domestic and international economies are still suffering in a prolonged recession that is likely to take a larger bite out of luxury spending. There are some brightening spots in the U.S. economy, such as an increase in housing starts in June, but more inauspicious news came this week as major commercial lender CIT Group, a financier to more than a million small and mid-sized businesses nationwide, approached bankruptcy. Also in the negative category, spending in 2008 tailed off for horses with longer waits for potential payoffs at the racetrack, a category that covers unbroken yearlings.

One positive effect of the economy is a decrease in yearling supply.

"We are seeing that clients and customers who don't feel they have a commercial product are willing to race that foal instead of putting it through the sale ring," Keeneland sale director Geoffrey Russell said. "That's a positive."

Fasig-Tipton's Browning said: "There's been an adjustment at the top end of the yearling market, as evidenced by the fact that the season's sales-topping filly in North America last year brought $3.1 million, and the sales-topping colt brought $2 million. Those are significantly different sums than the sales-toppers of three to five years ago. We've already seen that adjustment, and I think it will stay similar to last year at the top end."

Foreign buyers have buoyed sales in recent years, and they are a question mark this year, in light of the global economic downturn. But exchange rates are still favorable for British and European buyers, and, in a bid to tap deeper into the Japanese buyer base, Fasig-Tipton will pay the way for some Japanese buyers to attend the Saratoga sale.

A key group to watch at the 2009 yearling sales: pinhookers, the resellers who purchase yearlings to auction as 2-year-olds. As buyers, pinhookers benefitted last year when yearling prices generally fell by 10 percent to 12 percent. But many took a hit this spring when consigning those yearlings into a juvenile market that was down by about 30 percent, and a number have said they will cut expenditures to restock with yearlings.

"That absolutely has to cause some level of concern," said Fasig-Tipton's Browning. "The Dow closed 43 percent lower the day before the [Fasig-Tipton] Calder 2-year-old date this year, compared to where it was on Sept. 1, 2008. The pinhookers lived through a 43 percent change in the financial markets from when they bought horses to when they sold them. Overall, they've done a pretty remarkable job of weathering the change in worldwide economic conditions. But it has to have had some impact on their overall capital."

On the other hand, pinhookers, unlike most racehorse owners, are in the profession of buying and selling horses. That means they will at least be spending on some level, OBS general manager Tom Ventura said.

"They're going to buy horses," Ventura said. "And at least this year they may feel they're buying in a market that is more similar to what they'll see at 2-year-old sales next year. They might pull back in average price they pay per horse, but I think they'll be getting good value for that."

Keeneland's Russell said: "I think it's going to be an interesting year. I think there are people who will realize there's an opportunity. Yes, this year will be a buyer's market, there's no mistake about that. But hopefully that will encourage more people to participate as buyers. Over the last decade, people who wanted to get into the business but were apprehensive because the prices were too high might now be encouraged."