Bloodstock & Markets - Tracking Profitability

People use all sorts of statistics to evaluate the success of Thoroughbred auctions. Some look at the average price, but others consider median price more meaningful.

Additional figures that are popular with sale analysts include the buy-back rate and gross revenue. For consignors, probably one of the most significant results is the percentage of their horses that are profitable.

The Blood-Horse regularly tracks the percentage of horses offered that make money for their sellers at important auctions. Some of this publication’s records go back for more than 20 years.

For yearlings and sale weanlings the calculation for profitability takes into account the cost of upkeep, which has been adjusted upward over the years, and the stud fees paid to produce the horses. For pinhooked yearlings and 2-year-olds in training, the previous purchase prices and the cost of upkeep are key factors. In recent years the calculations for weanlings, yearlings, and 2-year-olds have included the sale companies’ commissions.

In a development that wasn’t surprising, the percentage of profitable sale horses has declined during the tough economic times that followed the American recession’s late 2008 expansion into a global financial crisis. But even before that downturn, it often wasn’t easy for sellers to make money.

The results for profitable pinhooked horses offered in the major select sales of 2-year-olds in training conducted by Fasig-Tipton, the Ocala Breeders’ Sales Co., Keeneland (since 1993), and Barretts (since 1990) have been higher than 50% only three times during a 23-year period from 1988 through 2010. The peak was 52%, reached both in 1990 and 2006. The statistic dropped to a low of 30% in 1991 and was only 35% in 1988 and 2009. It reached 47% in 2010 (before OBS had reported all its post-sale changes in the number of bought-back horses as required by Florida law).

In 2009 juvenile pinhookers experienced one of their most difficult selling seasons ever because they had purchased most of their prospects before the economic problems spread around the world in 2008 and then had to resell their horses at a time when the demand and prices for Thoroughbreds were falling dramatically.
For the Keeneland September yearling sale, which is the largest auction of its kind in the world, the results for profitable horses peaked at 30% in 1997 and reached 29% in both 1998 and 1999 during the 19-year period from 1992 through 2010. The low of 10% for the thousands of yearlings offered came in 1992, in the wake of another devastating downturn in the Thoroughbred marketplace, and the figure was only 13% in both 2009 and 2010.

For the select portion of the September auction, when the horses with the best combination of pedigree and conformation traditionally have been offered, the rate of profitability has never been lower than 24% (in 2009) during the same time period, and it has grown as high as 55% twice (in 1995 and 1997). It has been 50% or higher eight times.

From 1992 through 2010, pinhooked yearlings in the Keeneland September sale achieved a profitability rate of more than 50% only once. The figure was 57% in 1993. The low for the time period was 32% in 2001.
But for the pinhooked yearlings in the select portion of the Keeneland September auction, the result has been 50% or higher 11 times since 1990. It reached its highest point of 79% in 1993 and was 71% in 2004. The low of 37% was posted in 2010.

In both good times and bad for the Thoroughbred auction industry, consignors struggled to make money with the weanlings they offered at the Keeneland November breeding stock sale from 1993 through 2010. Sellers were the most successful in 1997 when 36% of the young horses they offered made money. But the result has been below 20% four times, with the worst result being 14% in both 2008 and 2009. It didn’t get much better in 2010, when only 15% of the weanlings offered were profitable.

One reason for the low rate of profitability is that most Keeneland sale consignors wait until their best young horses are yearlings to offer them at public auction.

The Blood-Horse doesn’t calculate the profitability of broodmares offered at the Keeneland November auction. But it does report the percentage offered that sell for prices above the stud fees paid for the foals they are carrying. From 1993 through 2010, the rate has been more than 70% five times, peaking at 78% in 1997. The lows were 42% in 2008, 47% in 2009, and 44% in 2010. Those years are the only times the results have fallen below 50%.

Buoyant Barretts
One of the most encouraging developments in the Thoroughbred marketplace so far in 2011 has been the rebound enjoyed by the Barretts March select sale of 2-year-olds in training. After suffering downturns of 26.4% in average and 25% in median in 2010, the auction rallied and the average grew 11.1% while the median increased 16.7%. The buy-back rate dropped from 31% last year to 23.6% while the top price for an individual horse rose from $475,000 to $625,000.

Jess Jackson and Barbara Banke’s Stonestreet Stables, Japanese buyers, and Patrice Miller of the Pennsylvania consulting firm EQB contributed to the surges.

A smaller catalog was an important factor in the continued decline in the gross, but auctioneer Ryan Mahan was pleased overall with the auction’s performance.

“I thought the sale was very good,” he said. “It was the first time I’ve seen real energy there in a while, and that’s kind of what I build on in selling horses is energy.”

Mahan mentioned a variety of factors that were involved in making the auction more successful.

“Barretts is a comfortable place to do business, and people like it,” he said. “It’s easy to get to, and the racetrack (at Fairplex Park, where the sale company’s facilities are located) is wonderful.”

A 2009 remodeling project turned the Barretts sale pavilion into a dual-use facility that serves as an upscale offtrack betting parlor in addition to hosting Thoroughbred auctions. That change has added energy to the sale, according to Mahan, because the sale pavilion is “crowded all the time and with all those bodies, there comes excitement.”

The move this year to a night start for the March sale “added a little bit of glamour that we haven’t seen in the past,” Mahan said. “In today’s world it’s tough to sell a horse at 10:30 in the morning or in the afternoon and get a guy really energized and excited. At seven o’clock at night, there is a little bit more appeal to it.”

Even though the bulk of sale Thoroughbreds are offered east of the Mississippi River, Mahan believes Barretts plays a vital role in the marketplace because California is an important racing center. Prominent buyers who live in the Golden State have gotten their start or purchased some of their first horses at Barretts, which also conducts yearling and mixed sales along with a May juvenile auction.

“The first time I met Jess Jackson he was at Barretts, and he was buying inexpensive mares,” Mahan said. “The first time I met B. Wayne Hughes (who owns Spendthrift Farm in Kentucky) was at Barretts. Bob Lewis went to Barretts because his Foothill Beverage Company was nearby and he was close to a lot of people who put on sales there, including Jerry McMahon (Barretts’ founding president and general manager, who resigned from the company and departed early in 2009).”

The Robertson Era
Walt Robertson, who joined Keeneland as its vice president of sales early this year after retiring from Fasig-Tipton last November, called his new post “a dream job,” and three months later he still is enthusiastic.

“It’s been great,” he said April 7 during the under tack show for Keene-
land’s select sale of 2-year-olds in training in Lexington. But, Robertson added: “I don’t care what phase of this business you’re in, you can always work on customer service and you can also improve on your selection process (for horses). My hope is that I can have a positive influence on both. I absolutely will be involved in the selection process. Everything with us is always on the table, so if we can find a better way, we’ll do it.”

Since Robertson arrived at Keeneland, the format for the September sale has been tweaked, reducing the number of days and number of yearlings offered in the Book 2 portion of the auction. The starting time for Book 2’s sessions was changed from 10 a.m. (EDT) to 11 a.m.

“The buyers and sellers last year sometimes needed to be three places at once,” Robertson said. “The big farms had their Book 2 horses in two different barns. This way the sellers can do all their Book 2 business in one barn, and the changes also will make it easier and less complicated for the buyers.”

As for the near future, Robertson didn’t mention any radical alterations in Keeneland’s sales program.
“Hopefully, the bottom of the market is behind us,” he said. “Everybody would like to see a quicker ascent, but I do think we’re pointed in the right direction. Will it happen overnight? I wish it would, but I think it (a significant rebound) will likely be a matter of years.

“You can only do so much based on the economy you’re living in. However, we’ve been making a huge effort to attract foreign buyers. Last year buyers from 49 different countries (outside the United States) bought horses from us, and that was huge and game-changing. We’re going to continue to do that (recruit foreign buyers) and work hard (to recruit horses) domestically. This isn’t rocket science. You just go out, work hard, and treat people right.”