Returns at Keeneland (above) and Fasig-Tipton have dropped
to the tune of $500,000,000 in two years
Not so splendid isolation
Michele McDonald on the struggles facing an American bloodstock industry that has declining appeal to European buyers
THERE is an extended pauseas Ben Taylor ponders the challenges stalking racing and breeding in America.
"I don't know where to start," he says, staring out at the gloomy, symbolic rain that lashes down outside the offices of his family's Taylor Made Farm in Kentucky. "We are kind of in dire straits."
Just a week earlier, the Taylors wrapped up their ninth consecutive leading consignor title at the Keeneland January horses of all ages sale, but their sales agency's turnover was the lowest since 2002, as was the overall sale gross at Keeneland.
Indeed, this year's January sale posted total turnover of $23,895,000, a dramatic decline on the $70,446,000 aggregate of only two years ago. Likewise,Taylor Made-consigned horses brought in only $3,084,200 this year compared to $6,221,400 in 2008.
Such numbers starkly demonstrate just how much the American bloodstock market has plummeted. It is not just Keeneland's year opening auction that has struggled; most sales have dropped by 50% in the last two years, even more in some cases.
|50%||the amount that turnover at most sales has
dropped in 2 years
|$500,000,000||the drop in spending at Keeneland and Fasig-Tipton compared to 2008|
|10%||the amount betting in America in 2009 fell from 2008|
|$87,000,000||the 2009 fall in American prize-money compared to 2007|
|30,000||the US foal crop is expected to fall below that level for the first time since 1977|
|50%||the amount the Kentucky foal crop could fall in the next few years|
Perhaps the most staggering figure is that overall sale turnover at America's two primary auction houses, Keeneland and Fasig-Tipton, fell by roughly half a billion dollars in 2009 compared to just over $1.05-billion in the peak year of 2007.
But sale numbers are only one aspect of the predicament. Americans increasingly find themselves with less internationally desirable products to sell at the elite level simply because many of their most prominent stallions are ageing, have died or been retiredat the same time sire power in Europe has been throttling upward.
Simultaneously, wagering on American racing has dropped dramatically since reaching a high of $15.2-billion in 2003. Last year betting fell by almost 10 per cent compared to the 2008 tally of $12.3-billion. Inevitably, prize-money has shrunk in tandem, with $87-million less distributed to owners in 2009 than the all-time high of $1.18-billion handed out in 2007.
None of which helps sell horses.
Miss Isella topped this year's Keeneland January Sale, which has recently suffered major declinesPICTURE: Keeneland
Established owners have less money to reinvest. Potential new owners, pinched in their other business pursuits by the recession, are not inclined to take a chance on a game in which, in America, they can expect to reap only enough prize-money to cover 47% of their expenses, according to the International Federation of Horseracing Authorities (admittedly that is still considerably more than British owners recoup)
Against this, American breeding also is in retreat, with estimates that its 2010 foal crop will fallbelow 30,000 for the first time since the 1970s; yet in 1990, more than 40,333 foals were born in America.
"The business model of thoroughbred racing is bad right now-no one can make any money," Ben Taylor argues. "We were basically spoiled for a long time. There were people breeding any mare to any stallion and they could make money selling the foals.
"There were people out there involved in the business who, when you asked them what colour their mare was, didn't know. I think the business is going to get weeded down to people who are more hands on and know what they are doing. The foal crop may go down 50% in the next few years, at least in Kentucky."
"We're certainly going through a market readjustment," agrees Bill Casner, chairman of WinStar Farm and former chairman of the Thoroughbred Owners and Breeders Association. "Long term, it probably will be healthy. Initially, it's very painful."
A major factor affecting the US breeding industry has been the growth of the Coolmore and Darley operations, both of which have extensively bought quality mares at auction with the knock-on effect that their progeny rarely come up for sale.
The emergence of so many bright young sires in Europe, particularly under the Coolmore banner, has further discouraged European buyers. "The first thing that comes to mind as a concern right now in the US is our stallions' marketability to Europeans," said Clay.
Equally Darley's huge expansion into the American stallion market has put "pressure" on other farms to compete with the fees and deals they offer to breeders, according to Case Clay, the president of Three Chimneys Farm. "We also saw this in Australia and Europe, but the entrance of Darley into the Kentucky market has put pressure on price and payment terms," he said.
American farms have found it difficult to compete for sire prospects that would appeal to Europeans not just due to the dominance of Darley and Coolmore but turf-oriented sires tend to not be as profitable in the American market that has evolvedsince the deaths of Northern Dancer , Nureyev, Riverman, Lyphard and Nijinsky.
"An unfortunate reality is that our grip on the international sires that made everybody come to North American bloodstock auctions has been lost. I don't see any recent trends that are changing that fact," says John Sikura, president of Hill ‘n' Dale Farms and Sales Agency.
"The pendulum has swung away from America right now, certainly as far as the Europeans and stallions are concerned," adds Martin O'Dowd, vice president and general manager of Runnymede Farm, which breeds, sells and races in America and Europe and also participates in the Japanese market. "I think it is far more attractive to operate In Europe right now than it is over here."
Both O'Dowd and Sikura cite what could be described as a loss of the American soul for breeding and racing as contributing to the developments. "We've changed from being an industry that really loved the horse and every part of that-looking at foals and going to parties and sold-out racetracks-to one where, for the majority of people who participate, it is strictly a business," Sikura said.
It is a theme picked up by Geoffrey Russell, Keeneland's director of sales. "We kind of got the model wrong," he says. "Racing must be the most important part of our industry-that's why we breed thoroughbred horses-but we lost that for a while when it was easier to make money selling."
The downward trend at US sales rings is expected to continue this year, although there is a degree of hope that lower prices could draw some people back into racing and breeding.
"I think it's going to be more of the same as in 2009; the math is still not good for breeders, who will be selling yearlings this year bred on 2008 stud fees, which were still relatively high," Case Clay says. "Our market's feet are still touching the bottom and our feet will drag along the bottom this year. Perhaps there will be a slow increase in 2011."
The bloodstock crisis in America is stuck at the same crossroads as the racing industry itself, with the sport struggling to adapt to changing times which have seen many racecourses coming into the ownership of public companies, disputes over simulcasting, and the rise of internet betting - all of which have eroded its traditional revenue streams.
Kentucky, the headquarters of American breeding, is among the jurisdictions hindered by a ban on slot machine-style gaming, money from which is used in other racing states to offer prize-money incentives to both owners and breeders.
Without change for the better, WinStar's Bill Casner predicts the American foal crop could shrink to as low as 20,000 to 25,000 within the next two years. "These days, the numbers just don't make sense anymore," he says. "There are so many mares out there that are not economically viable."
"You'll have a lot fewer racehorses available for races and the result will be that a lot of racetracks will fail. We have to accept the situation for what it is and we have to work very hard to reinvent this industry. It will come back, but there will probably be a lot of people who will not survive in this business."