Wednesday, May 25, 2011

What Were the Koreans Thinking?

This week's Fasig-Tipton Timonium sale of two-year-olds in training is being reported as at least a modest success. The average price was down only slightly from last year ($47,263 versus $47,984 in 2010), the median was down 7.4%, from 27,000 to $25,000, and the percentage of horses in the catalog that were actually sold (subtracting both RNAs and scratches) was down 10 points, from 68.2% of last year's catalog of 400 horses to only 57.2% of this year's enlarged catalog of 600. I guess that, in a difficult market for sellers, modest losses count as success.

[Note that my numbers differ slightly from those reported in the Blood-Horse; mine are calculated from the official sale report released by Fasig-Tipton, which can be found here.]

Perhaps the most bizarre element in the Timonium sale was the eager participation of Korean buyers at the lower end of the market. Koreans, bidding principally through the K.O.I.D. purchasing agency, bought 46 of the 343 horses sold, or nearly one of every seven two-year-olds that went to new owners. Kudos to Fasig-Tipton for attracting a new group of buyers; without the Koreans' participation, the overall numbers would certainly have been even lower.

But the way the Koreans bid and bought was truly bizarre. Of the 46 horses they purchased (including two "post-sale" purchases recorded in the official totals, and including two horses bought not by K.O.I.D., but by buyers with Korean names and no previous presence in the US market), 33 of them -- more than 70% -- were bought for a single price, exactly $20,000. Overall, the Koreans' average price was $19,935 and the median was, unsurprisingly, $20,000.

There is simply no way that kind of distribution occurs in a normal auction. The Koreans may well have set a limit of $20,000 for most of their purchases; they bought only five horses for more than that, the highest a Mineshaft filly for $45,000. But a $20,000 limit doesn't mean one should pay $20,000 for virtually every horse, which is what these neophyte buyers did.

So here's what I think happened. Early on the first day of the sale, Monday, at least a few consignors noted that the Korean bidders were going to $20,000, but no higher, and not often lower; only three of their 30 Monday purchases were for less than that magic number. So, I suspect, when consignors saw how the Koreans were bidding, the consignors or breeders kept pushing the bidding up to $20,000, or set their reserves at $19,999 (in which case the auctioneer will pull bids out of the air up to one step below the reserve price). The Koreans followed their game plan, which apparently was to pay up to $20,000 for anything they wanted, and a lot of sellers went home very happy with anywhere from $2,000 to $10,000 more than they would have gotten without those locked-in bids.

How much extra did the Koreans pay? Let's say an average of $5,000 each for the 33 horses they bought right at that magic $20,000 figure. That's a total of $165,000. Not a lot, perhaps in the overall scheme of the Korean economy, or even of the overall auction totals, but a very nice bonus for the consignors who caught on. $165,000 can buy a lot of hay.

Just as the Arab, European and Japanese buyers in the American bloodstock market over the years, I suspect the Koreans will learn too, and the good old boys selling horses will need to find ever-newer marks. But that's capitalism, right?