Stallion Fees Sink as Financial Crisis Hits Thoroughbred Market
By David Papadopoulos
Oct. 16 (Bloomberg) -- Claiborne Farm, the 93-year-old breeding company that housed Triple-Crown winner Secretariat, slashed mating fees this month, a move that may signal the start of the thoroughbred industry\'s biggest slump in two decades.
``We decided to show some concern and cut where we can,\'\' said Bernie Sams, who oversees Claiborne\'s stallion operation in Paris, Kentucky. Sams lowered fees on five of the farm\'s 13 sires by an average of 30 percent for the 2009 breeding season.
The global financial crisis that has erased trillions of dollars in stock market value is curtailing demand for thoroughbreds in auctions across the U.S. and Europe as breeders flood the market with record numbers of horses. As auction prices plunge from near-record highs, so do the fees of up to $300,000- per-mating that breeders can charge.
``That discretionary income just isn\'t there for horses anymore,\'\' University of Louisville basketball coach Rick Pitino, who owns thoroughbreds in a racing partnership, said in an interview in New York. ``It\'s difficult.\'\'
Thirteen yearlings, or one-year-old horses, fetched more than $1 million at a sale last month at Lexington, Kentucky-based Keeneland Association Inc., the world\'s biggest thoroughbred market. Last year, 24 horses topped that price.
Demand was also weak for the cheapest horses. The average price on the sale\'s final day was $7,621, down 16 percent from 2007. Keeneland catalogued a record 5,555 yearlings this year as a 15-year sales boom fueled in part by purchases by Sheikh Mohammed bin Rashid al-Maktoum, the billionaire ruler of Dubai, prompted breeders to ramp up production.
`Ride Them or Eat Them\'
``We are plagued by a vast oversupply,\'\' James Squires, a 65-year-old breeder, said in a telephone interview from his farm in Versailles, Kentucky. He managed to sell one of the seven yearlings he took to auctions this year. ``You can\'t give them away. We\'re going to have to ride them or eat them.\'\'
Squires, who bred 2001 Kentucky Derby winner Monarchos, said he\'s pared his operation to stem losses. He and his wife today have full or partial stakes in 10 broodmares -- female horses used for breeding. Three years ago, they had 20.
Claiborne\'s stud fee reductions will set a precedent as broodmare owners such as Squires scale back, Baden ``Buzz\'\' Chace, a 67-year-old bloodstock agent who buys thoroughbreds for clients, said in an interview on his way to Monmouth Park Racetrack in Oceanport, New Jersey.
`Too Many Bad Horses\'
``There are too many bad horses out there,\'\' said Chace, whose clients include Barry K. Schwartz, co-founder of Calvin Klein Inc., and Norma Hess, the widow of Leon Hess, former chairman of the oil company now known as Hess Corp.
Chace predicts a 30 percent average stud fee drop for the 2009 season, which runs from February to July. A sire can produce 100 foals or more in those months. That adds up to annual revenue of about $30 million on the most expensive stallions, such as WinStar Farm LLC\'s Distorted Humor.
WinStar is considering cutting fees on some of its five sires, Doug Cauthen, president of the Versailles-based farm, said in a telephone interview. ``It\'s too soon to say\'\' whether Distorted Humor\'s $300,000 fee will be lowered, said Cauthen, who forecasts an industrywide decline of up to 20 percent.
The sales slump halts a surge in the thoroughbred market that was driven in part by bidding wars between Sheikh Mohammed, the world\'s biggest buyer of racehorses, and his main rival, Irish breeder John Magnier.
Record Prices
Tussles between the two left several records: highest price for a yearling in two decades; highest price ever for a two- year-old; most ever paid for a broodmare.
Sheikh Mohammed has pared his spending at auctions the past two years as he boosted investment in his breeding operations. He spent an average of $18 million at Keeneland\'s September sales in 2007 and 2008, down more than half from a $39 million average over the previous four years.
The sheikh\'s retrenchment has helped make the ``very top\'\' of the market one of the weakest segments, said Olin Gentry, president of Gaines-Gentry Thoroughbreds, a Lexington-based company that owns about 100 broodmares and has minority stakes in more than 25 stallions. Gentry said he\'ll breed fewer mares next year to sires with fees over $100,000, opting instead for mid-market stallions -- those in the $20,000-to-$100,000 range.
The ``very bottom,\'\' where small-scale breeders such as Squires often sell, has also been hard hit, Gentry said.
``There are some horses that should become pets,\'\' Gentry said in a telephone interview from Newmarket, England, where he was attending a sale at Tattersalls, the world\'s oldest thoroughbred auctioneer. ``I don\'t know how they can be bred in the best of times. It\'s really impossible to make a return.\'\'
It has been for Squires.
He said he needs to generate $600,000 a year to cover his costs. So far this year he\'s taken in just $20,000. He\'s considering selling his best broodmare to pay down a credit line of almost $400,000 that he\'s maxed out.
``Guys like me,\'\' Squires said, ``are doomed.\'\'
