Anne M. Eberhardt

Keeneland Sale Faces Economic Hurdles

Consignors are steeling themselves and their clients for a significant downturn in the market at Keeneland’s breeding stock sale, which starts Nov. 3 in Lexington and runs for 15 days. But they also are hoping that the drop in prices will bring out the bargain hunters, who could help reduce the severity of the setbacks, which seem inevitable during the current global financial crisis and Thoroughbred auction slump.

“At all levels of the market, there is going to be a contraction -- no doubt about it -- even though the good stuff is still going to sell well,” said Tom VanMeter of Eaton Sales. “I’m telling everybody that it’s a good time to buy and get horses for less than they could have two years ago or even last year. But I’m also telling our clients that are selling that this thing is going to be tight and tough, and we need to batten down the hatches on the reserves so we can get their horses sold, if that’s what they want.”

Last year, the November sale generated its highest ever gross revenue of $340,727,200 and the average price of $100,807 was up 1.1% from the previous year. The $35,000 median price equaled the sale record that was established in 2005 and first equaled in 2006. In addition, Playful Act sold for $10.5 million, setting a Thoroughbred auction world record for a broodmare or broodmare prospect.

But this time around, the November sale faces a much different economic situation than it did in 2007. There is a severe credit crunch; the jobless rate is rising; and there have been wild fluctuations in the stock market, which, overall, has plunged dramatically from last year’s all-time high. Other countries are experiencing similar problems, and the bad news has gotten significantly worse even since the Keeneland September yearling auction, which suffered downturns of 14.8% in gross and 10.2% in average. The median declined 11.7%.

Adding to the challenge is the fact that the November sale has the largest ever catalog for a Thoroughbred auction. Many of the 5,709 horses listed are broodmares and broodmare prospects, which generally require their buyers to make long-term financial commitments.

“The prices for quality horses are going to hold up reasonably well,” said Kerry Cauthen of Four Star Sales. “You’re not going to see some of the inflationary prices that you might have gotten lucky with in the past. Horses will bring their true values and fair values, but not excessive values. In the latter parts of the sale, you’re going to see a cleaning out of the closet. There are a lot of horse that shouldn’t have been bred, but have been, and we’ve known about that problem for a long time. It’s been talked about probably for the last 10 years, and it’s time to pay the piper.”

Some sellers are so nervous about the market that they have already begun withdrawing horses from the November auction. Jon Kelly, co-owner of Vacare, scratched the grade I winner, blaming the struggling economy and setbacks at other Thoroughbred sales. As of Nov. 1, Keeneland’s records showed that more than 800 horses were out of the auction.

“We’ve already had 30-35 scratches from our consignment,” said Mark Toothaker of Legacy Bloodstock. “People have just said they would rather wait, and I understand that. But if some of these things don’t change hands now, what in the world is this sale going to look like next year.? There’s going to be 8,000 horses, and it’s going to be scary.”

On a brighter note, “we haven’t heard any different from buyers than we have in a normal year,” said Geoffrey Russell, Keenealnd’s director of sales. “Among the people, we’ve touched base with, nobody has jumped up and said, ‘Oh, I’m not coming.’ The feedback we have received from our overseas markets has been very positive, so we expect to see plenty of them show up the second week. Now, the $64-million question is how much do they want to spend?”

A promising and growing sector of the Keeneland November market, according to Russell, involves horses in training.

“That expanded niche is very interesting and very exciting,” he said.  “The quality of horses that Zayat Stables is bringing is going to give it an extra bump. These horses have been running very successfully, so buyers know these horses are ready to keep on going. They could run them at Churchill Downs the week after the sale or go out to Hollywood Park straightaway and get a return on their investment very quickly.”

Following are comments from other people about their expectations for the November sale:

Barbara Vanlangendonck, Summerfield: “People are going to be conservative on the middle class horses, so you’re going to see a little bit of a dip. I don’t think the lesser horses are going to bring anything, period. The market is telling you what they’re worth right now, and you have to be realistic.”

Craig Bandoroff, Denali Stud: “There’s going to be trade. There’s going to be people to buy horses. How they’re going to value them, where (at what prices) people are going to sell them, we’re just going to have to go out there and find out. You’ve got to see what the action is and see what’s happening. Obviously, there’s a lot questions and a lot of uncertainty, so who knows? It will be a good time to buy because I think there are less people who have the guts to come to the table. But I think it’s going to be even better to buy next year because I don’t know that people are in a position where they’ve got to let some these horses go.”

Case Clay, Three Chimneys Sales: “Consumer confidence around the world is down, and I’m afraid that it’s realistic to think that it’s probably going to be reflected in the sale. The big question is how do you value these horses? Do you value them at their prices last year and slash off 35%? I don’t know. We’ll see when the sale starts.”

Brandon Perry, Paragon Farms: “Everyone probably is not going to know what to expect. But we’re shopping every market – weanlings, broodmares, broodmare prospects -- and doing our homework. I would be surprised if the market didn’t mimic the rest of the sales this year. The good horses are going to sell well, but I think it’s going to be a tough market for the mediocre ones. A bad horse is still a bad horse, and it’s going to be real bad for that kind of horse, unfortunately. People are definitely drawing in the reins a little bit.”

Davant Latham, Kentucky bloodstock agent: “There will be some value, with no absolute steals in the first week, and it will be a very dangerous the second week for sellers. It’s dangerous for buyers as well because there’s going to be what appear to be tremendous opportunities, but if you buy, you’ve got to hope that the economy turns (for the better) a little bit. It’s not just about picking the nice horse that is going to mature into a better horse.”

Martha Jane Mulholland, Mulholland Springs: “There is a lot of temporary uncertainty. Based on prior sales, it looks like it will be a little down at the top and a little rougher deeper into the books, but all this will smooth out over time. The general economy and the horse economy go up and down. You just have to focus on breeding and buying a good horse and kind of ignore the variations.”

Mike Ryan, Kentucky bloodstock agent: “It’s the same old story. The good stuff will still sell well. There will be demand at the top. Apart from that, I think it’s going to be a little tough in the middle and very tough at the bottom. The better mares, people are holding on to them because they’re irreplaceable. The mares that are available today compared to 15 years ago, aren’t even a shadow (in terms of quality). You get a lot of race mares that are good runners, but they have no pedigree.”

Michael Hernon, Gainesway Farm: “The front end of the sale will hold up quite well. There are some very good offerings in book one and book two. Then it will change into more of a buyers’ market, and I think this will represent a time of extraordinary opportunity. I think we’ll reflect back on this time down the road and recognize that mares were bought very well. As exemplified on Wall Street right now, it’s a great opportunity to pick up solid blue chip stocks that are selling almost at a record low.”