Ray Paulick<br>Editor in Chief

Ray Paulick
Editor in Chief

Sales Cycle

The 2000 Keeneland July yearling sale is going to be a tough act to follow, but that could easily have been said about any of the last five installments of the world's premier auction of young racing prospects.

The July sale may not be looked upon as the bellwether event it once was -- having been replaced by Keeneland's September sale in that regard -- but it continues to provide something of a barometric reading of the Thoroughbred market, imperfections and all.

When the crazy '80s were in full swing, the July sale in Lexington was the focal point of an equine feeding frenzy, with the average yearling price leaping from $200,425 in 1980 to $601,467 in 1984. The value of stallion prospects similarly soared, due to the inflated prices paid for yearlings.

But the market took a downward turn in 1985, despite a world record price of $13.1 million for a son of Nijinsky II sold at Keeneland in July. Fueled by the Tax Reform Act of 1986, average price for a July yearling steadily declined in the latter half of the 1980s and early '90s, bottoming out at $233,325 in 1994. Lagging behind the curve were stud fees, which escalated as prices for yearlings and stallion shares rose, leaving breeders with inflated production costs.

While Keeneland July's prices continued to drop until 1994, the middle of the market commenced a strong rally in 1993, when the Keeneland September sale's average and median jumped by nearly 25% from the previous year. That rally has sustained itself for eight consecutive years, with the average price of a 2000 September yearling ($88,085) more than three times higher than it was in 1992.

The July sale recovery began, slowly at first, in 1995, when average price increased from $233,325 to $247,074. It picked up steam in the late 1990s, gaining 42% in 1996, 2% in '97, 35% in '98, 21% in '99, and 7% in '00. Last year's $621,015 average, a gain of 166% since 1994, exceeded the 1984 sale average as the highest ever.

Fasig-Tipton's most important yearling sale, held each year in August in Saratoga Springs, N.Y., has followed the same trend line. After falling sharply from a mid-'80s peak of $258,980 to an average price of $92,643 in 1993, the Saratoga sale has expanded rapidly. Last year's average price of $305,847 represented a new high, up 17% from the previous year and 230% from its low point in '93.

For much of the 1990s, breeders produced yearlings from stud fees driven down by depressed market prices. Profitability, as measured by the ratio between yearling price and stud fee paid to produce the yearling two years earlier, has soared to nearly nine times the stud fee at Keeneland July and Fasig-Tipton Saratoga and to four times the fee at Keeneland September. By contrast, Keeneland July was just over two times the fee in 1992; Saratoga 3.5 times stud fee; and Keeneland September 1.75 times stud fee.

However, just as lower stud fees lagged behind market decreases a decade ago, higher stud fees have followed the strong market of the late '90s. Yearlings by A.P. Indy and Storm Cat selling in 2001 were produced from fees in 1999 that were 33% higher than those paid one year earlier. Fees for Broad Brush, Kris S., Dynaformer, and Saint Ballado jumped 50% from 1998 to '99. For many stallions, fees for the 2000 and 2001 breeding season escalated further. For breeders to maintain their profit margins of recent years, yearling prices will have to continue their upward march.

Sustaining price increases in the yearling market will be a tall order. Select 2-year-old markets have been weak in 2001, world economies are ailing, the stock market correction has greatly reduced wealth, and mare reproductive loss syndrome has put a pall over the horse industry.

This could be the year that reminds us of the cyclical nature of the Thoroughbred marketplace.