Thursday, November 26, 2009

Fear and Trembling in Lexington

US financial markets were closed Thursday for Thanksgiving, and Middle Eastern markets were closed for Eid al-Adha. But in the rest of the known world, markets were plummeting on the news that Dubai and its major corporations, closely linked to Sheikh Mohammed, are unable to repay some $59 billion in debt that will be coming due in the near future. European banks, in particular, were thought to be exposed to high levels of risk , as many of them had borrowed dollars and then turned around and re-lent the money to fuel Dubai's crazed building boom.

As is often the case, the Paulick Report picked up on Dubai's troubles quickly, posting an online report from Bloomberg News. The debt default story is getting massive international coverage. See, for example, here, here, and here.)

In the grand scheme of things, the couple of hundred million a year that the Sheikh and his associates spend on thoroughbred bloodstock probably doesn't matter much, one way or the other, to Dubai's future. And, for the moment, the repo men haven't actually arrived in the Persian (oops, I guess that should be Arabian) Gulf sheikhdom to start seizing the household silver. But, after apparently having had to go hat in hand to his neighbor, the ruler of Abu Dhabi, for a quick fix of $5 or $10 billion, Sheikh Mohammed might well decide that either (a) he might need to spend a bit more time on the fundamentals of governing, or (b) putting more money into a frivolity like racing at a time of financial crisis might be just the least bit unseemly.

In either case, that could be very bad news indeed for the US thoroughbred breeding industry. As I pointed out after the Keeneland September yearling sale this year, Sheikh Mohammed and company accounted for a quarter of the horses sold in the high-end Book 1 of the sale, and for more than 30% of the gross proceeds for Book 1. Take that away, and the already shaky US breeding industry may truly be on life support. As for Fasig-Tipton, in the brief time since a company closely linked to the Sheikh bought a controlling interest, F-T has been doing lots of spending to become more competitive with Keeneland. And Sheikh Mohammed himself made a rare visit to the Saratoga sale this past summer. But Dubai's current troubles suggest that particular tap may be turned off any day now.

It's way too early to know what effect, if any, Dubai's financial problems will have on racing and breeding. As of late Thursday night, the Dubai World Cup website was still promising a gala opening for the Meydan track in January and the usual gala for the World Cup in March. And the Sheikh has never been as important a force in the spring two-year-old auctions as he is at the fall yearling sales. But one gets the feeling that there may be many more shoes still to drop, with none of them boding well for racing.

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