Stud Fees: Where Are They Going in 2012?

With improvements at the yearling sales, will stud fees rise?

Marty Buckner of Clarkland Farm liked a lot of things about the Keeneland September yearling sale. The barns were busy during the Central Kentucky auction, prices rose, and profits increased with the help of lower stud fees.

But, Buckner warned, if the situation for commercial breeders is going to continue to get better, “stud fees still need to drop. The stud fees we are still invested in,” she said, “are a little too high.”

Kerry Cauthen of Four Star Sales predicted that stallion managers would be cautious when finalizing their stud fees for 2012 even though many results of this year’s yearling sales have been encouraging.

“You are definitely going to see the stud fees for some horses go up,” Cauthen said. “But as a whole, I would be completely befuddled if stud fees didn’t go lateral (stayed about the same) or even, possibly, decrease further. There is stability in the marketplace, but there isn’t irrational exuberance yet. That exuberance will probably come back when the supply is well outstripped by demand, but we are several steps away from that place in time.”

The stallions whose stud fees will be raised “are the ones that are really proving themselves on the racetrack (with their progeny),” Cauthen said. “With other sires, ‘What have you done for me lately?’  will be on every breeder’s mind. Doing OK isn’t good enough anymore. A stallion has to truly achieve in order to have a higher stud fee. You will find that those horses (that don’t ‘truly achieve’) will leave Kentucky sooner and go to regional marketplaces like New York and Pennsylvania, where there is slots money. Those markets thrive on good, solid racehorse-producing sires.”

Mark Taylor of Taylor Made Sales Agency, a Kentucky operation that also has a stallion division, believed it would be unrealistic not to see some increases in stud fees following improvements at yearling sales.

“That’s just a situation where capitalism takes over," Taylor said. “In theory, you would say, 'Everybody should still lower their stud fees.’ But that’s not necessarily what the stallion managers are going to do because they’re responsible to their shareholders; they’re no different than any public company that is responsible to their shareholders. They want to maximize the revenue, so they’re going to set the price where they can get the highest amount of mares at the highest stud fee so they can to generate revenue.”

But changes in the downsizing Thoroughbred industry, which are creating more competition among stallions for mares, will limit or prevent the growth of stud fees in general, in Taylor’s opinion.

“I don’t think stud fees are going to go down dramatically, but they’ll probably go down another tick overall from where they were,” Taylor said. “Even though the pool of mares is smaller, the books of some of the most popular stallions are already kind of saturated, and there is a ceiling on how many mares those horses can breed. Once those stallions are booked up, people will have look at other horses. But if you set the fees of those other stallions too high, breeders aren’t going to pay them. They’ll just go to plan B. There is a very subtle art to setting stud fees.”

The economics of the breeding business, Taylor believes, have adjusted to a point that new people might be persuaded to give the venture a try even though it remains a financial challenge.

“Stud fees need to continue to go down and the guy getting in needs to be able to control the production costs,” Taylor said. “You have to be able to control things like the day rate (for boarding) and the costs of vet work. You have to get to where you can do a good job on a shoestring if you’re breeding to stallions with lower than $100,000 stud fees.”