Anne M. Eberhardt

Auctions 2010: Have We Hit the Bottom?

Sale company officials and horsemen discuss New Year's prospects for auctions.

The 2009 auction season will go down as one of the worst in Thoroughbred sales history. Economic forces outside the industry and a variety of problems within sent the commercial marketplace reeling. The gross revenue of $652,458,368 for the four main categories of auction horses – weanlings, yearlings, 2-year-olds, and broodmares – plummeted 32.4% from 2008 and was the lowest total since 1996’s comparable figure of $610,752,655.

Will 2010 bring some relief or will it be even worse? Following are predictions and thoughts about the future direction of the auction business from several sale company officials and horsemen:

Geoffrey Russell, director of sales, Keeneland: “I think the Thoroughbred industry has done a wonderful job in trying to take care of the issues it can such as overproduction and the offering of non-commercial horses at public auction. In 2009, we saw a significant reduction in the number of horses offered. That added to the reduction in the stud fees done by the stallion masters has created the potential for commercial breeders to make a profit.

“The factor that none of us has any control of or knows how to react to is how the macro world is going to change in 2010. The smart people say we are coming out of a recession; that is positive, and the stock market is doing well. We are an optimistic industry and we will hope that the economy will improve and thus help the auction part of the Thoroughbred industry. But we’re still susceptible to outside forces, so it’s hard to make a prediction.”

Boyd Browning, president and chief executive officer, Fasig-Tipton: "We’ve begun to see some signs of economic recovery both in the United States and throughout the world, and hopefully, we’ve seen the bottom of this market. Whether there is going to be a modest recovery in the auction business at the outset (of 2010) or maybe one that is a little bit more significant, I’m not in a position to quantify that. But my hope is and my expectation is that we’ve found the bottom of the market and we’ll begin to see some recovery in 2010.

“I’m not intelligent enough to tell you exactly when it’s going to start or how it’s going to come into fruition, but I would hope that we would see signs of that recovery beginning with our first major sale, which is our Calder 2-year-old in training sale. We’re very pleased with the overall quality of horses that we’ll present for the sale, both in terms of their pedigrees and their physical conformation. It will be very good group of horses that will be on that racetrack for the preview and on the sales grounds at Calder this year. I think there were some expectations by some folks in the industry that the quality of horses offered at the 2-year-old sales this year was going to be weaker, but we’re very confident and bullish about the horses that we’re going to have at Calder.

"Clearly, the pinhookers dealt in the most unpleasant of circumstances buying in 2008 and reselling in 2009. We know there was a dramatic (negative) change in the worldwide economy between the acquisition date and the sale date for that group of horses. There was a 40% to 45% reduction in most of the economic indicators from when those horses were acquired in 2008 and when they were resold in 2009. Hopefully, the positions will be reversed a little bit this time around; many of these horses might have been acquired at or near the bottom of the market and we’ll see a little bit of recovery in the overall marketplace before these horses are sold. You would certainly think that the pinhookers are going to be in better financial shape because there has not been a deterioration in the market since the day their horses were acquired. Knock on wood that nothing that nothing dramatic happens in the economy between now and the springtime.

"(A reduction in supply and lower stud fees) will help increase profitability, hopefully on a long-term basis. But I think we’re still going to see what we’ve seen in recent years in the market. We’re going to see that buyers are going to still be selective; they’re going to want quality horses whether it’s at a 2-year-old sale, whether it’s a yearling sale, or whether it’s at a mixed sale. And they’re going to be willing to pay good prices for the quality horses. But it’s still going to be very difficult to sell an average or ordinary horse.”

Duncan Taylor, Taylor Made Sales Agency:  "I’m really more confused than I’ve ever been, but if I had to guess anything, I would say it (the market) would go down another 10% or 15%. I just think that the horse business follows the stock market, and we’re farther behind. A lot of people who were in the horse business and liked it have lost a lot of money so they can’t be as strong in the market. Hopefully, not a lot of people are going to go bankrupt, but you see these stories in the news about the banks foreclosing on people and stuff like that. Money is just going to be harder to get, and the people who have just got through losing a bunch, they’re not going to be as likely to jump in strong. But if people can hang in there and make some good buys, they are going to be rewarded.

“There are some things working in the breeders’ favor like the number of foals going down. The supply and demand thing is already turning around, and that could be helpful. The highest horse going to stud (in 2010) is Zensational at $25,000. I’m not saying he’s a Curlin but still it’s been quite a while since the leading (most expensive) horse going to stud was that cheap. I don’t know if you call that value, but it’s more realistic.”

Headley Bell, Mill Ridge Farm and Nicoma Bloodstock: “I was surprised that 2009 was as resilient as it was. If we can continue to stay that course, we’ll live through 2010, which is better than not. I really think it continues to be a matter of pushing forward with it all. What does that mean percentagewise? I think we still have some adjustments to make, and there will continue to be trimming of all of the numbers.

“I’m hopeful that there will still be a solid, legitimate demand, which seemed to be the case in 2009. The fact that we made it through ’09 as well as we did, considering the general economy, was a real boost. All I think the industry was trying to do was move horses in 2009, and for the most part, it really did. The breeders adjusted to it, and the fact that you could find homes for horses was positive. Because of the cost to maintain them, it was a mission accomplished. And I would say breeders and sellers are still of the same mind (to move horses again in 2010).

“As long as racing still presents a viable auction, and as long as there is some positive action on that front by our leaders, I think there will be enough confidence to make people to continue to want to participate in this business. But I think that’s a real key. I think industry leaders need to take advantage of this time to build a really strong foundation, a united foundation, for the future. That’s what I hope comes out of 2010, more than what is going to be the percentage of increase or decrease (in auction prices). I hope that we unite towards building the strongest foundation we can for the future of the industry. That’s why to me 2010 is a pivotal year.”