Darby Dan offers breeders new deal

LEXINGTON, Ky. - Darby Dan Farm in Lexington announced this week that it would make an extra effort to help some commercial breeders succeed in the auction ring.

Under its new program, called "Profit Protection," Darby Dan will allow breeders who patronize the farm's less expensive stallions - those with 2003 fees under $10,000 - to pay stud fees when the resulting foal is sold as a weanling or a yearling. More significantly, the program puts a new wrinkle in the traditional "pay-from-proceeds" and foal-share agreements by tying the stud fee payment directly to the foal's sale price, a provision that Darby Dan hopes will draw mare owners.

Small commercial breeders with limited bankrolls often have bred their mares under pay-from-proceeds terms, which extend the time the payment is due until the breeder has cash in hand from selling the foal. But there's a drawback: If the foal sells poorly, bringing less than the amount the breeder spent on the stud fee in the first place, then the breeder owes the stud farm money. To avoid that scenario, many breeders prefer foal-sharing, in which the stallion owner waives the stud fee in return for a 50 percent share in the foal. That's less risky for the mare owner, but it also means that the stallion owner gets half of the sale proceeds, even if the foal hits a home run and his sale price far exceeds the stud fee.

Darby Dan's payment structure offers breeders a chance to pay the stud fee based on actual returns. If the sale doesn't turn out to be what Darby Dan defines as "financially successful," the breeder will keep 50 percent of his net income, even if the horse sells for less than the stud fee. But if the sale is "financially successful," the breeder splits his proceeds with the farm, with Darby Dan taking no more than 25 percent on top of the original stud fee.

Darby Dan defines a "financially successful" sale as one that nets two times the stud fee for the breeder, after he pays sales-related commissions and fees.

"Basically, we're giving you an interest-free loan for 18 months if you're selling the foal as a weanling, and longer if you're selling it as a yearling," said Darby Dan representative Davant Latham. "We're trying to limit the breeder's downside risk, and at the same time allow him to hit a home run. We get the interest back on that loan if he has a successful sale, but unlike a foal-share, the breeder gets to keep most of the home run. We never get paid more than the breeder does, because he always gets to keep most of his profit, and the breeder will never be in the hole to us.

"It's designed for the smaller guy who's having a tougher and tougher time making a profit in the market."

It's also designed to help Darby Dan's stallions, as Latham put it, "an opportunity by putting mares under them."

That's a crucial point. To make it as a stallion today, a horse needs a sizeable book of mares that will put more yearlings in the sale ring and runners on the track, maximizing the sire's chances of success. And with more than 450 active Thoroughbred stallions in Kentucky alone, the competition among stallions and stallion farms is intense.

"We put our thoughts together to find a way to lessen the risk for the commercial breeder without compromising our stallions' aggregate earnings and underlying value," Darby Dan owner John Phillips said in announcing the program. "We believe this elastic stud fee structure will minimize risk for the breeding on any given commercial mating. The plan protects profit."

While many breeders contacted hadn't yet had time to examine the program closely, most welcomed the idea as another step in customer service that could benefit mare owners.

"It's very innovative," said Pam Robinson, who owns 22 mares and Brandywine Farm in Paris, Ky., with her husband, Jim. Robinson said her mares' mating plans were set before Darby Dan announced its plans. Like most breeders, Robinson said her operation's top priority is always to breed according to a particular mare's pedigree and conformation in order to get the most commercially viable foal. But she noted that customer-friendly plans like Darby Dan's are a positive development that can help on both the individual level, for breeders whose mares fit with those stallions, and on a larger level by possibly sparking other innovations.

"They're attempting to help the commercial breeder," she said. "It's good for any business for people to be innovative and come up with new strategies."