Why Are We in This Business?

As everyone in the racing business knows by now, prices for race horses have dropped precipitously over the past year. At the current Keeneland yearling sale, both the average and median prices are off between 30-35% as compared to last year. It's now possible -- as it has not been for the past few years, to obtain high-quality racing prospects at what seems, by historical standards, to be a fair price.

But, in fact, even if one buys at those fair prices, the game is still stacked against the owner who actually wants to make money by owning race horses. Despite the increasing saturation of race track-based slot machines, purses have stagnated and even declined, while the cost of doing business steadily increases.

Let's look at a couple of examples to see how succesful a horse has to be on the track for its owner to break even.

First, let's look at a typical high-end yearling purchase, say for $250,000. That's not the top of the market, but it's a lot more than I tend to carry around in my wallet for impulse purchases.

On top of the $250,000 puchase price, we need to add about 5% for a commission to the bloodstock agent; you wouldn't buy a horse at that level without expert advice. That's $12,500. Throw in another $7,500 for sale expenses, including vetting all the horses that you end up not buying. Then there's insurance, which you'd want on an expensive horse. Probably $45,000 to the end of its 4-year0old year, or about 6% of the insured value annually.

Then we send the horse to Florida for breaking and preliminary training, before sending him back north (let's say Saratoga) in the middle of his two-year-old year. That's another $20,000 for training and vet, plus about $4,000 for all the increasingly expensive van rides. So far, we're up to $339,000.

Now, let's add in training the horse at the track from August of its two-year-old year through the end of its four-year-old year. We'll hire a top-level trainer, at say $125 a day, and, even if we try to manage vet costs, they won't be less than $500 a month. So, training and vet costs to the end of the four-year-old season are another $125,000. All together, we've spent about $464,000 to get the horse that far.

So, how much does the horse need to earn on the track to break even? A lot more than $464,000. The trainer gets at least 10%, and, increasingly, more like 12% of earnings; the jockey gets on average another 7%, and, at least if you race in New York, another 3% or so goes for a variety of mandatory deductions. So we have to gross up the required earnings to get back to our net target of $464,000. In fact, we'd need to earn almost $600,000 in purses just to break even.

Sure, there's some possibility of residual stallion or broodmare value at this level, but in the current market, and discounting for the time value of whatever money might come in down the road, that isn't going to be much. If we're looking at making a profit on the race track, we need that $600,000. And how many horses earn that much?

Now let's take a more modest example. Say we buy a decent New York-bred yearling for $35,000. We won't bother with a bloodstock adviser, and we'll skip the insurance. And we'll probably be tougher on the vet expenses, and place the horse with a trainer whose day rate is more like $100 a day. Using those parameters, it'll cost us a total of $80,000, including the purchase price, to get our $35,000 yearling to the end of its two-year-old year, assuming we send it to the track in August, and another $88,000 for two years of training and vet bills. So, by the end of its four-year-old year, we've spent $168,000.

Applying the same formula to gross up the earnings for trainers' and jockeys' percentages, we'd need purse earnings of $215,000 to get even on our $35,000 yearling. I've had a few horses that did that well, but it's not an everyday occurrence. Look at the lifetime earnings for horses running in New York and you won't see that many above $200,000.

And all these projections don't include all the little extra costs that go with being an owner, from lunches for friends at the turf club to, one hopes, lots of win pictures, to stakes nominations, to donations to worthy race track charities.

So, why are we in this business? Because we love horses and have a terrific ability to see the future through the rosiest of rose-colored glasses. It's a great business to be in. Just don't expect to make money.

If Not For You

If not for you,
Winter would have no spring,
Couldn't hear the robin sing,
I just wouldn't have a clue,
Anyway it wouldn't ring true,
If not for you.

Bob Dylan, ©1970 Big Sky Music

I'm pretty sure the folks at Keeneland, shaken as they may be by the bottom falling out of the yearling market the past two days, nonetheless harbor thoughts similar to those of Bob Dylan about Dubai's Sheikh Mohammed bin Rashid Al Maktoum and his entourage. Of the 222 horses reported sold on the first two days of the annual Keeneland yearling sale, 50 of them were purchased by the Sheikh's bloodstock adviser, John Ferguson, or by entities associated with Dubai's royal family, including the Shadwell Estate Co., and Rabbah Bloodstock. That's an overwhelming 22.5% of the total number sold, and an even bigger percentage of the money paid over those two days. Gross receipts for the prestigious Book 1 horses sold at Keeneland this year were $58.8 million (a 48% drop from last year). And of that sharply reduced amount, the Dubai forces accounted for $18,305,000, or mre than 31% of the gross sales. If not for you, your Highness....

If we subtract the Dubai-associated purchases from the results, then here's what's left: 172 horses sold (of a total of 418 cataloged) for $40,451,000, an average of just over $235,000. Sure, we can assume that most of the horses purchased by the folks from Dubai would have sold even without their bids, but certainly at lower prices. In fact, it's not unreasonable to assume that the average for the sale would have been a lot closer to that $235,000 than to the actually reported average -- including Dubai -- of $265,000.

As compared to their equally visible activity at the boutique Fasig-Tipton Saratoga yearling sale last month, the Dubai forces at Keeneland put less emphasis on supporting their own sires -- Street Cry, Bernardini and Medaglia D'Oro, and more on acquiring superior racing and breeding prospects at what, for them, must have seemed like bargain prices. Only 16 of the 50 horses bought by Ferguson, Shadwell and Rabbah were sired by their own stallions, compared with more than half of their Saratoga purchases.

(Shadwell and Rabbah were still somewhat active early on Wednesday, buying three of the first 50 horses to go through the ring on the first day of Book 2 of the sale, though there was little prospect for any more million-dollar-plus purchases by any of the Dubai buyers.)

With this year's purchases, the Sheikh and his associates are aquiring a lot of stellar American bloodlines. They bought yearlings, for example, by A P Indy, Storm Cat, Distorted Humor, Tapit (a new sire whose yearlings look great and who, I think, will make a name for himself quickly), Dynaformer, Ghostzapper, Kingmambo, Elusive Quality, Forestry, Rahy and Unbridled's Song, in addition to those by their own sires. They've also taken advantage of the price collapse to buy into some of the premier American female familes. With another year or two of such purchases, the Sheikh may have all the bloodstock he needs to breed the very best race horses in the world. If and when that time comes, and he cuts back on the volume of his purchases, the yearling market will be in for an even more serious shock.

If not for you....

Looking for a Good Horse at Keeneland

For the past several years, I've been part of a team that looks for horses at the Keeneland yearling sale, on behalf of cients with serious money and a serious desire to win graded-stakes races. Some "bloodstock agents" may claim to do it all themselves, and a lot of buyers just pick out a horse in the Keeneland walking ring minutes before its hip number is called for auction. But those of us --and there are many -- who are seriously trying to find the very best horses have no alternative but to put in a lot of hard work. For those who perhaps don't know the auction process, here's how it works.

Keeneland list some 5,000-plus yearlings for sale every September (though that number may, and should, shrink in response to the severe downturn in the thoroughbred market). The catalog is divided into "books," with each book containing horses that are, in general, a little worse than those in the earlier books, and a little better than those in the later books. The first two books, 1200 horses that are offered on the first four days of the sale, generally contain the horses with the fanciest pedigrees and the best appearance, as judged by the Keeneland staff. That's where the big money is, and where most of the million-dollar babies have been bought in the past.

Our group, and others like it, tries to look at every single horse in books 1 and 2, and as many as possible in Books 3 through 5, a part of the catalog that traitionally produces some of the best bargains in the sale and a good number of stakes winners. To do that, we need to work through the following steps:

First, someone looks at every horse and short-lists those that are worth a second look. Books 1 through 5 have a total of more than 3600 horses in them. That's a lot of looking, walking around Keeneland's 49 barns.

Second, the team leader looks at every horse in Book 1 and every horse that's been short-listed for Books 2 through 5. In addition, she checks with the consignors, just in case we've missed something.

Third, we do ultrasound heart scans on our short-short list, to measure the horses' cardiac function and eliminate those who dont have big enough or efficient enough hearts to sustain them at the very highest racing levels. The scans are analyzed against a database of thoroughbreds to see how they match up along the bell curve. All this can't be done while the horses are being shown to buyers, so, after an eight-hour day looking at yearlings, we start all over again at 4 pm, when showing winds down, and keep going until 10 pm or so doing the ultrasounds.

Fourth, we get a vet to review the records on those horses that have made in through the first three steps, checking the x-ray records on file in the Keeneland repository and, if necessary, scoping the horse to determine whether it's able to take in enough air to keep it running past sprint distances.

Finally, we have a very short list that we can take to the clients, the folks with money enough to buy the very best (well, the very best that Sheikh Mohammed and Coolmore aren't bidding on).

All this takes time, and that's where the problem is. With the exception of the Book 1 horses, most horses for sale are on the Keeneland grounds and available to be seen for only a day or two before they are sold. In that time frame, there often isn't the time to do all the steps described above. So some good horses fall by the wayside. If we can't have the time to do the scans and then to get the vet reports, then we can't recommend the horses to our clients, and potential bidders are lost.

Realistically, we can't wait until the morning that the horse goes on sale to ask the vet for a review; they have way too much to do. So, if we want to get the vet to look the day before, that means we have to do the cardio the night before that, i.e., two days before the horse sells. And to do that, the horse really should be on the grounds and available to be shown three days before the sale date. With 400 horses selling each day, and limited barn space, that simply isnt happening. And, because it's not, sales opportunities are being lost.

So, what could Keeneland do? (Or, what could the newly revived Fasig-Tipton do to challenge Keeneland?)

First, we need to have fewer horses per day. Maybe not the 200 per day that sell in Book 1, but perhaps 300 would be a happy medium. That would allow the next book's horses to move into the barns earlier and provide more time for buyers to see them.

Second, there needs to be more time for the vets to do their work. At present, Keeneland's repository opens at 8 am and closes when that day's sale is over. The vets are willing to work longer hours, so why not let them? Open up the repository at, say, 5 am, and keep it open as long as some workaholic vet needs it.

With all the money that Keeneland spends attracting foreign buyers to come to the sale, you'd think a little more to make the working conditions more conducive to selling wouldn't be such a stretch. It would surely help those of us who are trying to buy good horses, and isn't that what the sellers and auction houses want?