Lemon Aid

By Dan Liebman

Jeanne Vance and Laddie Dance should send a magnum of Dom Perignon to John Magnier. Throw in some caviar just for the heck of it.

Magnier, master of the vast Coolmore empire, raised the bar on current stallion syndications when he outbid the world for controlling interest in Fusaichi Pegasus in a deal that apparently values the 2000 Kentucky Derby (gr. I) winner at $60-70 million.

Vance and Dance--has a nice ring to it, doesn't it--own current handicap star Lemon Drop Kid, who will stand at Lane's End Farm upon his retirement. That deal is said to be valued at $30 million, with the owners to receive a bonus should the son of Kingmambo be named Horse of the Year (word has it the bonus is a hefty $10 million).

Meanwhile, in Lexington and Saratoga Springs, N.Y., recent select yearling sales posted record averages, and horsemen were falling all over one another to bid $1 million and up for unproven horseflesh. So many horsemen were willing to do so, in fact, that many were shut out. Meaning orders went unfilled. Meaning buyers still have money to spend. Meaning Keeneland's September sale in a few weeks should be yet another blockbuster.

Meaning the market is going up so fast we are setting ourselves up for another crash, right?

Well, that is a topic of conversation these days. That there must be a crash just around the corner.

Not so fast. This is not the '80s, when the bloodstock market tanked so quickly that many speculators who saw the industry as a place to get rich quick instead found out it is also a place to get poor even quicker. Must we dredge up Nelson Bunker Hunt's line one more time: How do you make a million dollars in the horse business? Start with $10 million.

Many of those free-wheeling spenders in the '80s were associated with limited partnerships, investors caught up with the bright lights of the bid boards as prices escalated out of control. In fact, Keeneland added a digit to its bid board, hoping to sell more eight-figure yearlings (the eighth number was used once, which, considering the commission, certainly made the exercise worthwhile).

Now that things have been spiraling up again in dramatic fashion, it is only natural to begin wondering what the future holds. For those who figure what goes up must come down, some thoughts as to why that may not be the case:

  • New money factor: Noted thinker Jethro Bodine once said, "Uncle Jed's got some new kind of dollars...mill-yon dollars." We are attracting some of Uncle Jed's brethren. The '90s were good to people, and the Thoroughbred industry has been lucky enough to attract some "new money" from owners and breeders (I say "owners and breeders" because name an owner who doesn't become a breeder). We all know the brightest business person in any other field can become like a silly school kid when making decisions in the horse business, but this latest group has big bankrolls and plans of attack: Robert McNair, David Shimmon, Satish Sanan, Eugene Melnyk, John Oxley, Gerald Ford, and Kenny Troutt, to name a few.

  • Price-to-stud-fee ratio: At both Keeneland in July and Saratoga in August, the price-to-stud-fee ratio continued to rise. This supports the theory that breeders can pay more for stud fees and still show a profit when selling commercially. Sixty-eight percent of yearlings sold at both select sales were profitable under The Blood-Horse formula of two times the stud fee plus $15,000 for expenses. At Keeneland, the average stud fee dropped 15.1% while the average sale price increased 6.7%. A record price-to-stud-fee ratio of 8.95 was registered. At Saratoga, the average stud fee was nearly constant with the previous year while the average price jumped 17%. The price-to-stud-fee ratio was 8.62.

  • Racing's exposure: TVG, Youbet.com, Racing Network, NTRA, Churchill, Magna, etc. Racing is getting more exposure and reaching more people. More coverage. More bettors. More owners. All of which equals more upside.

  • Bigger books: Economics 101 says you can get out more quickly by breeding 100 mares than by breeding 40. Current logic is 250 times stud fee equals syndication price. So pay $200,000 for Fusaichi Pegasus or $125,000 for Lemon Drop Kid. The sales are currently supporting these prices.

Crash and burn? Not so fast, folks.

DAN LIEBMAN is executive editor of The Blood-Horse.