Walking around the Keeneland sale grounds during the September yearling auction, one heard many reasons for the "correction" in the marketplace. Take your pick:
* There is a lack of sire power;
* The economy is bad;
* The effects of 9/11;
* The death of Prince Ahmed Salman;
* This just isn't a good crop;
* There seems to be a lot of small horses this year;
* Many good mares have been taken out of commercial production. While all of those factors may be perceived as influencing the current downturn being experienced at major yearling sales, from this perspective they do not include one of the primary reasons.
Stud fees are too high. Selling horses in the commercial marketplace must always be a factor of "times stud fee." When fees rise rapidly, that ratio gets out of kilter. It happened in the 1980s and it is happening again. When the cost of production keeps rising year after year after year, at some point a ceiling is reached. Welcome to the ceiling. Once again, stud fees have been rising more because of what happens in the sale ring than what happens on the racetrack. While naturally one follows the other, problems occur when one gets out of balance with the other. "I kind of feel sorry for the new guys in the business," a longtime breeder said at Keeneland Sept. 10. "I've been there; I've seen it before. These guys haven't...of course if they stay in for 15 or 20 years, they will see it again." Exactly. We all understand that if we have an early freeze and lots of orange groves are hit, we will pay more for juice. We know that based on decisions made by OPEC, it may cost us more for gas. But the horse business is different. A breeder must look at the stud fees he pays, look at the mares he has, and make a decision based on some sort of fiscal understanding of the industry. The problem is by the time he goes to sell two years later, the dynamics might have totally changed. But should they have?
It is one thing to raise fees "slightly" when a stallion gets hot, but what happened in the past five years is many fees jumped by exorbitant percentages. It was one thing for a breeder to pay $75,000 for a season to Deputy Minister in 1997. Sell a yearling for $250,000 and there was some nice profit there. But in 2000, his fee had doubled. So people selling a yearling by him this year--a stallion that hasn't sired a grade/group I winner since 1999--have much more invested in their cost of production in a down market. Selling a Saint Ballado yearling when he stood for $40,000 made some breeders a hefty sum. But he was jumped to $125,000 and last year was not represented by a single graded stakes winner. This is not meant to single out stallions, for they are merely representative. And obviously no one held a gun to anyone's head to agree to pay a certain stud fee. It's almost as if stallion managers are willing to make as much money while they can, then suffer through the downturns along with everyone else. Especially at a time when stallions are routinely servicing more mares--and many also shuttling to the Southern Hemisphere--do stallion managers see dollar signs in their eyes. This is the time of year when farms begin releasing their stud fees and broodmare owners start making decisions for the coming breeding season. What needs to happen is for several of the larger stallion stations to announce a significant drop in stud fees. When this happens, others will follow suit. By dropping fees, stallion owners will make their stud horses more appealing to more people. Breeders will feel like they are getting a fair shake. A bit more profit margin will help all consignors, agents, buyers, owners, breeders, and sale companies. The new guys will be able to stay in the game, better understand it, and be ready for the next down cycle when it occurs. Because it will happen.