07/14/2010 6:23PM

Yearling sales will provide many answers


LEXINGTON, Ky. − The major yearling auction season begins July 13 with Fasig-Tipton’s July select sale in Lexington, and sale participants say they are expecting more meat and potatoes than caviar and champagne in a market still muted by the recession.

After the last couple of years, any increases in gross, average, or median prices will be gravy indeed, and stability will be a victory. In 2006, when the market was riding the crest of a decadelong boom, a total of 10,216 yearlings brought $579,476,050. Last year, 6,230 yearlings brought $279,733,957, a 39 percent drop in number sold and a 52 percent drop in gross sales. Between 2008 and 2009, number sold fell 27 percent and gross fell 36 percent.

“Many sellers are facing financial pressures in addition to the normal sale pressure,” said Boyd Browning, the CEO of Fasig-Tipton. “They’re still coming off those high production costs from before the economy changed. Clearly, production cost in stud fees will be lower going forward. Hopefully, we’ve seen the worst of the economy, and there will be some improvement that gives people confidence and, hopefully, cash flow.”

This sale season is notable because 2010’s yearlings were the last crop bred before the market crashed with 2008’s global economic meltdown. The stud fees their breeders paid to produce those yearlings were based on sale projections that went badly awry with the recession.

“I think people understand the new reality,” said Geoffrey Russell, Keeneland’s director of sales. “I think we’re going to have prices that are deflated compared to previous years, and production costs are greater, so this is going to be a tough year for breeders. On the other side of that, we’re looking at it as an opportune time for people to get involved in this industry. As the market is transition, it’s a good time to get in.

“Will there be home runs this year? Probably not,” he said. “Will there be base hits? Yes. Will there be doubles? Yes.”

Breeding activity has declined, and sale catalogs probably will shrink this year. But will that be enough if buyers’ demands for horses also shrinks in the face of declining purses and serious concerns about New York and California’s major racing circuits? Sale companies acknowledge those factors make recruiting buyers harder.

“It’s damn sure not helping,” Browning said. “The reality is that today the economic models at a lot of levels of our game are not very favorable. We continue to have core issues we’ve got to improve to make the game healthier long term.”

Buzz Chace, who expects his 12- to 15-client list to remain steady, says he’s an optimist.

“There’s always someone new coming into the business,” Chace said. “I’ll be active throughout the year. I’m not a guy who picks up the phone and hustles people to buy, but I think when the sales start people will want to get in there and buy. Nobody I’ve talked to has said they’re not coming this year. I think it’s going to be good.”

Returning buyers, even if they trim their orders, are good news for auction houses. But sale companies are also seeking new buyers and new ways to make their sales, and the industry, more attractive. Keeneland has reformatted its September sale, slimming down its select sessions and moving them from day to night to add to the glamour factor. Fasig-Tipton has a racing club to lead people into ownership.

“We are finding new owners, but it’s a long-term process that takes time and development,” Browning said.

Recent sales provide some evidence that new buyers aren’t shying away completely. One striking example: New players Chuck and Maribeth Sandford bought the $475,000 sale-topper at the Ocala Breeders’ Sales Company’s February 2-year-old sale.

“There’s still great interest in our industry,” Russell said. “Yes, it is dependent on discretionary dollars, but people are starting to make money again. We’re also a global industry, and now we’re seeing other parts of the world going up, so we’re aiming at them as well as our domestic people.”

In the last two years, buyers have seemed most willing to spend on horses who are close to racing. That hasn’t helped the yearling market, where horses still face months of breaking and training expenses before they’ll make their first starts. That could make pinhookers, who buy yearlings to resell as juveniles, even more important at this year’s yearling sales.

The 2010 juvenile market posted increases in median price at five of seven major markets coast to coast. That means some resellers have more money to spend for yearlings than they did last year. But Mulligan, president of the National Association of 2-Year-Old Consignors and a pinhooker himself, warns that pinhookers are still feeling conservative about spending for yearlings, especially now that banks are willing to loan less money to equine operations.

“I think pinhookers will be a lot more cautious once they get over that $80,000 to $100,000 range,” Mulligan said. “In years past, there might have been three or four of us fighting over a horse that was over $100,000. I’ve spent up to $300,000 for a horse to pinhook before. Now I’m not as comfortable doing that because I don’t believe there’s the depth of buying base at the upper end at 2-year-old sales, even though those sales have produced a lot of quality winners.”

Even with a buyer’s market looming, Browning said: “I’m hopeful we can have some increases in average price and median. I hope that’s an achievable goal.”

Increases might be easier to achieve at Fasig-Tipton’s smaller July select and flagship Saratoga select sales, which each last just two days. At Keeneland, which hosts the sale of about 5,000 horses at the September auction, Russell was more cautious.

“Nobody knows whether this is a V-, a U-, or an L-shaped recession,” Russell said. “At this stage, maybe we’ll settle for an L.”