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US breeders need stud fees to come down to increase their profit margins

  PICTURE: Racing Post  

Studs playing a waiting game on stallion fees

JACK WERK, president of eNicks and Werk Thoroughbred Consultants, a leading consultancy based in California, follows stud fees like you or I might follow sports scores. When he speaks on the subject, it pays to listen.

"Most years, stud farms would release fees before, during, and right after the Keeneland September yearling sales," he said earlier this week.

"Of course, there'd be the few new horses running in the Breeders' Cup races that would have fees set based on how they ran, but for the most part I'd say more than 80 per cent of fees would have been announced by the biginning of October."

Last year, fees were announced later than that because of the onset of the financial meltdown. "Most of the fees were still announced last year before the November mixed sales, and that was still late," Werk said.

"But this year we've had – and are having – a real waiting game. Claiborne was the first to announce fees, and they, and a few other farms, did so in the middle of October. And since then we keep getting announcements, but we've probably only heard about 60 per cent of the stallions so far. I've never seen this before."

Werk provided the accompanying chart of stud fees, which lists all North American stallions standing for $50,000 and above that had been announced up to Wednesday, Novermber 18.

There are 18 stallions on this list, led by a trio at $150,000 each: Darley's Street Cry, Three Chimneys' Dynaformer, and Lane's End's A.P. Indy.

In total, these 18 horses will stand for $1,460,000 in 2010. In 2009, their combined fees were $1,875,000. This represents a cumulative decline of 22.1 percent, but it's probably not low enough, especially for commercial breeders.

Before the financial crisis hammered the commercial markets last year, there was universal acknowledgement that stud fees had been raised to precipitous levels and that a correction was near.

Because of the overall damage to the general economy in the US caused by the crisis, however, it's difficult to now forensically deduce how much of the hole in the commercial markets was exactly attributable to overblown stud fees.

"Farms waited this year and some are still waiting because no one wants to drop fees too low and leave money on the table," Werk said. "Remember, they dropped fees last year when stud fees were announced, and then some farms had to announce again that they were dropping fees even more because they hadn't dropped them far enough the first time.

"I think that every breeder in the country knows that when they now call a farm, they can negotiate the stud fee, with the exception of a few notable horses, of course."

Of the 18 on the list, only two – the notable duo ofMedaglia D'Oro and Tapit – have seen an increase in fee from 2009 to 2010. Twelve of the 18 have had declines in fees, and four stallions had unchanged fees.

The largest percentage rise was Medaglia D'Oro's at 66 per cent, and the big dippers were Adena Springs' father-son duo of Awesome Again and Ghostzapper at minus 60 per cent each.

The last column of the chart lists the median price for each sire at major auctions in the US in 2009, taken from the bloodhorse.com database.

The correlation of these figures to 2009 and 2010 stud fees are a starting point for commercial breeders in analysing and comparing market effectiveness of horses.

The median figures also indicate why some fees had to drop, why others may still need to, and why others may be priced right for breeders.

As an example of two who weren't priced right in 2009, see the Adena stallions Awesome Again and Ghostzapper, who both stood for $125,000 this spring yet their yearling medians were only $30,000 and $35,000 respectively.

At $50,000 each in 2010, they are obviously more palatable, especially Awesome Again as a proven sire of racehorses.

The 18 stallions on the chart, as mentioned before, saw their cumulative fees for 2010 dropped by 22.1 per cent from 2009.

But consider that the market-making  Keeneland September yearling sale this year was down 41.5 per cent by aggregate and 40.5 per cent by median versus last year. These are stiff numbers to parse without bending fees even more. Expect another round of cuts for some before the breeding sheds open.

US STALLION FEES AT $75,000+ IN 2010 ($)
Stallion 2010 2009 % change Y'ling median '09 (US)
Street Cry 150,000 150,000 0 150,000
Dynaformer 150,000 150,000 0 225,000
A.P. Indy 150,000 250,000 -40 235,000
Medaglia D'Oro 100,000 60,000 +66 155,000
Giant's Causeway 100,000 125,000 -20 100,000
Distorted Humor 100,000 150,000 -33 235,000
Tiznow 75,000 75,000 0 60,000
Smart Strike 75,000 125,000 -40 170,000
Elusive Quality 75,000 75,000 0 110,000

 

 

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