Keeneland September Sale Preview: Head Scratcher

Published in the Sept. 7 issue of The Blood-Horse
So far, it's been a topsy-turvy season for selling yearlings. Conventional wisdom said the upper end would be the market's strongest level while the middle and lower sectors would take the biggest hits due to a struggling economy and volatile stock market.

But the summer's most elite auctions--Keeneland July and Fasig-Tipton Saratoga--suffered major setbacks while Fasig-Tipton Kentucky enjoyed a significant upswing in gross revenue for less fancy horses and managed to squeeze out a small increase in average price.

In the regional arena, business boomed at the Fasig-Tipton New York-preferred sale and was stable at Del Mar. The Ocala Breeders' Sales Company's auction experienced a slump, and so did the Fasig-Tipton Texas sale. But in both cases, the declines were less steep than they were at the most prestigious yearling auctions.

The results have left sale company officials and horsemen scratching their heads. Are they trends or do they just reflect the up-and-down fortunes of individual auctions? Keeneland's September sale should settle the issue. With 4,367 yearlings catalogued, the auction is the largest of its kind in the world. Because it offers numerous horses in a wide variety of price ranges, it is considered the best barometer of the yearling market's health in North America.

Based on what they've seen so far in 2002, many consignors are uneasy heading into the 12-session Keeneland marathon (Sept. 9-21), which has a break on Sept. 13 built into its schedule. Among those expressing their worries was Lynn Davis, the director of sales for Darby Dan Farm.

"After Fasig-Tipton Kentucky had a good sale--even though the buy-back rate was up--I thought, 'OK, I feel like September is safe,' " she said. "But with the experience that we had at Saratoga, I am very concerned about the select portion of the Keeneland September sale now, very concerned. What's happening, I'm not sure. The typical response is that there is not a lot of depth. But there never has been a lot of depth at the top of the market. It just seems to have bottomed out all of a sudden."

Even Highclere's Jeffry Morris, who sold two horses for $1.4 million at Saratoga, was not optimistic about the future.

"We don't expect to enjoy this forever," Morris said. "I figure I'd better savor this because there's going to be a whole lot of downside coming."

One of the most disturbing developments this year has been a decrease in spending by the Maktoum family of Dubai and Coolmore Stud's international conglomerate. The Maktoums--through John Ferguson, Shadwell Estate Co., Richard O'Gorman, and Anthony Penfold--purchased nine yearlings for $7,135,000 at the 2002 Keeneland July and Saratoga sales. Last year, Ferguson alone bought 15 for $21.3 million at the same auctions. Demi O'Byrne, who represents Coolmore, purchased four yearlings for $4,330,000 at Keeneland July and Saratoga this year. In 2001, he bought seven yearlings for $12,675,000.

Both Ferguson and O'Byrne maintain that their lack of participation does not reflect a change in business plans. They say they are investing less because there are fewer horses that meet their high standards for pedigree and conformation. Others, like Satish and Anne Sanan of Padua Stables and pharmaceutical executive Eugene Melnyk, also have not spent as much money as they did in 2001 for select yearlings.

A common complaint heard from buyers at the select summer sales involved the lack of sire power. The deaths of Mr. Prospector, Nureyev, and Seattle Slew have reduced the ranks of top, proven stallions while Danzig is aging and losing popularity commercially.

Last year there were 64 yearlings by the influential sires A.P. Indy, Danzig, Seattle Slew, and Storm Cat catalogued to Keeneland September's two select sessions. There are only 53 by the same stallions this year. There are no yearlings by Mr. Prospector compared to 23 in 2001. Thirteen of those sold for an average of $980,000. Only Storm Cat ranked higher on the sale's list of leading sires, with 13 yearlings averaging $1,756,538. There's a big hole to fill, and it's hard to believe that Mr. Prospector's absence won't have an impact on Keeneland's bottom line during the select sessions.

The developments at the Fasig-Tipton Texas and OBS sales also suggest that there might be less demand for the undistinguished stock that is sold in the final week of the Keeneland September auction. But the sale has faced adversity in the past and produced impressive results. Even though it was disrupted by last year's Sept. 11 terrorist attacks, the auction generated its second-highest gross ever, passing the $200-million mark for the third year in a row. The final figures also include the September sale's second-highest average ever and the second-most-expensive horse in its history.

Financial Signs

There are several factors likely to affect the demand for and the profitability of horses during the Keeneland September sale. For much of the recent past, as the Dow Jones Industrial Average escalated the average price rose steadily during the Keeneland select sessions. However, last year, the DJIA's annual high fell, but the select sessions experienced another increase in average. The DJIA has lost even more ground in 2002. At least one major buyer, Satish Sanan, has said his decision to spend less has, in part, been influenced by stock market woes.

The investment carried into the September sale by commercial breeders and pinhookers is also a factor. Commercial breeders have paid more than ever before for stud fees, so they will need higher prices to achieve profits. Weanling-to-yearling pinhookers are at less of a risk because they have reduced their investment after rocky experiences in September in 2000 and 2001. Their spending strategy also was probably affected by the sharp decrease (19.1%) in the number of weanlings catalogued to the 2002 Keeneland November breeding stock sale. Contributing to the decline were deaths to foals caused by mare reproductive loss syndrome. In addition, consignors offered fewer horses because of the 12.8% decrease in average price for weanlings at 2000's November auction, according to Geoffrey Russell, Keeneland's director of sales.

The average stud fee (in the year of conception) paid by commercial breeders has risen by 4.3%, from $73,134 last year to an all-time high of $76,252 this year for the select sessions. For the September sale as a whole, the average has risen by 7.8%, from $27,886 to another record of $30,067.