Belt Tightening: Pinhookers Experience Mixed Results

Published in the June 9 issue of The Blood-Horse
Yearling-to-juvenile pinhookers provide most of the horses for sales of 2-year-olds in training. Because their role is so big, the success or failure of such consignors has a great impact on the market for young racing prospects.

This year, the financial results were mixed for pinhookers at the five major select juvenile auctions. In some ways, little changed from 2000, when the risks increased and the rewards decreased. Even though the number of horses pinhookers offered dropped by nearly 10% in 2001, the percentage that failed to sell remained about the same -- and was still too high. The percentages of profitable and unprofitable pinhooked horses also didn't change much.

However, there was some good news. This year's rate of return (ROR) on investment rose for the pinhooked juveniles that did get sold. And that upswing occurred primarily because the short-term investors in young horses reduced their costs.

Pinhookers spent less money, on average, for their stock as yearlings. After the buy-back rate soared and profits fell for pinhooked juveniles in 2000, they approached the next round of sales more cautiously. Burned by expensive investments that lost money, they tried to reduce their risk by purchasing cheaper yearlings. It proved to be a difficult task because prices remained robust for quality horses.

The pinhooking statistics for this year's select juvenile market are summarized in Table 1, which combines results from the Ocala Breeders' Sales Company's Feb. 6 auction at Calder Race Course in Florida; Fasig-Tipton's Feb. 27 sale at Calder; Barretts' March 13 auction at Fairplex Park in Southern California; OBS' March 20 and 21 sale in Ocala, Fla.; and Keeneland's April 17 auction in Lexington. The table also shows the same statistics for the same sales dating back to 1992.

The number of pinhooked horses on offer at the five auctions fell from 745 in 2000 to 673 in 2001, while the number sold dropped from 443 to 409. At the same time, the buy-back rate fell slightly from last year's high for the 10-year period of 41% to 39%. The percentage of pinhooked horses generating profits inched upward from 44% of those offered in 2000 to 45% in 2001, even though this year's profitability calculations included sale company commissions and last year's did not.

As Table 1 further indicates, the average yearling price for pinhooked horses resold at the major select juvenile sales fell from a record high of $68,132 to $62,324. The average juvenile price brought by the pinhooked horses rose slightly, from $139,275 in 2000 to $140,502 in 2001. This year's average was the highest ever. That increase, accompanied by a decline in average yearling price, helped pump up the rate of return from 78% to 94%. With sale company commissions included, this year's rate of return slipped to 85%, but still exceeded last year's figure.

Tables 2-4 summarize other aspects of 2001's pinhooking returns. Table 2 lists the results from each of the five major select sales. Fasig-Tipton's Calder auction and Barretts' March sale posted the highest rates of return. The OBS March sale had the lowest ROR.

Table 3 divides this year's group of 673 pinhooked horses by the yearling sales at which they were purchased in 2000. As usual, the giant Keeneland September auction produced the largest number of pinhooking prospects, 360. Among sales that accounted for 10 or more pinhooking prospects, Keeneland's January horses of all ages sale and the OBS January mixed sale generated the highest rates of return -- 282% and 145%, respectively. Rates of return also exceeded 100% for pinhooked horses purchased at the Fasig-Tipton Kentucky October yearling sale and the Fasig-Tipton Saratoga select yearling auction.

Table 4 characterizes this year's 673 pinhooked juveniles according to their yearling purchase price range. The ROR was greatest in the $20,000 to $29,999 and the $50,000 to $74,999 categories. It was the lowest in the highest price level category of $200,000 and up, a trend that also was seen in 2000. The number of horses offered in the $200,000-and-up category dropped from 43 in 2000 to 25 in 2001.

Table 5 completes this annual pinhooking summary by examining returns achieved at the five major select sales by horses that had been bought back at yearling auctions. It was more difficult to make money with these unintentional pinhooks than with the intentional pinhooks profiled in Tables 1-4. Only 35% of these horses fetched high enough prices as juveniles -- in comparison to their final bids as yearlings -- to produce profits.

Pinhooking remained a very tough game in 2001. As a result, many juvenile consignors who specialize in reselling horses do not plan to make aggressive investments in this year's yearling market.

"We're going to try again to reduce the amount of money that we've got in our yearlings," said Becky Thomas of Sequel Bloodstock. "The bottom line is that if a horse doesn't work fast, you don't get a high price. Since we don't know which of our yearlings are going to work fast, we make it less risky by spending less for them. You used to be able to pay a lot of money for a horse with a good pedigree because the buyers would give them a little bit of a break if they didn't go fast. But not anymore. It doesn't matter if they are by A.P. Indy or Storm Cat, they had better be quick or you're dead."

Eddie Woods also plans to be cautious.

"We've always tried to be selective about what we buy," he said. "But this year, I think we'll have to be even a little bit more careful not to go wild on a real nice horse and spend a lot of money. The problems in the stock market have affected us on the selling end, and we'll have to give everything we do more thought."

Said Mike Mulligan of Leprechaun Racing: "Overall, consignors of 2-year-olds will approach the yearling sales with continued conservatism."