Thursday, June 4, 2020

Pre-Coronavirus Preview of 2YO Sales Season

This piece was published at just before the March 17-18, 2020 OBS sale of two-year-olds in training.

Thanks to for asking me to contribute. I’ll be writing about the business of racing, as I’ve done over the years in my blog of the same name. And, since we’re just about to start the two-year-old sales season, let’s take a look at how those sales came to be.
         Back in 1953, there were exactly four thoroughbred farms in Marion County, Florida. The 1953 foal crop in Florida was all of 79 horses. But one of those, Needles, went on the win the Kentucky Derby and the Belmont Stakes, then retired to stud in Florida, and the state’s breeding industry was born.
         Based largely on Needles’s success, the Ocala-area farms changed the way young horses are sold. Before World War II, and continuing into the 1950s, most thoroughbreds were raced by their breeders, who were typically wealthy individuals with their own farms. Some foals would be sold at yearling auctions, but the game was mostly breed-to-race. Then, in the 1950s, newly rich owners came into racing, seeking glory on the track without the years of breeding. Ultimately, that led to the emergence of two-year-old (in racing parlance, “juveniles”) sales, offering horses that were almost ready to race.
In 1958, Ocala Stud sold its entire two-year-old crop off the farm, and the Florida Breeders Sales Co. began selling two-year-olds at Hialeah; often those two-year-olds would be racing there within days or weeks. Fast-forward to 1974, when the late Norman Casse and his fellow Ocala breeding pioneers decided to organize their own sales company; Ocala Breeders Sales Co. (OBS) held its first juvenile sale in January 1975. Forty-five years later, two-year-old sales are a major part of the thoroughbred marketplace. This year’s two-year-old sales season starts in Ocala March 17 and 18, to be followed by OBS sales in April and June, by Fasig-Tipton sales at Gulfstream in April, Timonium MD in May and at Santa Anita in June, by a Keeneland sale in April, and by a variety of small regional auctions.
         From being non-existent some 60 years ago, two-year-old sales have become big business. Last year, 2,312 juveniles, or roughly 10% of the foal crop, were sold at auction, with an average price of over $90,000. Yearling sales are still a bigger piece of the market – almost 7,000 yearlings were sold at auction last year – but the juvenile sales are a major element in what’s now a year-round sales calendar. And the sales have created a previously unknown industry – pinhooking, in which horse traders buy yearlings or weanlings and then resell them at the two-year-old sales. Pinhooking operations may now outnumber breeding farms in the Ocala area, relying on the warmer Florida weather and the high levels of calcium in the grass to develop horses quickly, so they look like promising athletes by the time the sales come around in the spring.
         As the sales have matured, the demands of buyers have escalated. Nowadays, bloodstock agents sit up in the grandstand and hand-time not merely the 1- or 2-furlong breeze that each horse runs, but also the horse’s “gallop-out” around the turn after the finish line. Buyers use slow-motion video and ultrasound scans of horses’ hearts in addition to the traditional physical inspections and review of vet records. And buyers are very, very picky. At most of the sales, barely half of the horses listed in the catalogue end up going to new homes. The rest are either scratched by their consignors because they couldn’t meet the demanding prep schedule or don’t draw a bid higher than the seller’s reserve price.
         The key to selling a horse for lots of money at a two-year-old sale is for the horse to breeze fast – very fast. The bullet breezes at the sales are typically close to 10 seconds flat for an eighth of a mile and 21 seconds for a quarter, faster than those horses will ever run again.  And while there’s a general correlation between fast breezes and later success on the racetrack, it’s only a modest one, and the opportunity for mistakes abounds. Back in 2006, at the Fasig-Tipton sale at Calder, a Forestry colt subsequently named The Green Monkey recorded the fastest breeze of the sale and prompted a bidding war between the Coolmore juggernaut from Ireland and Sheikh Mohammed al Maktoum of Dubai, pushing the horse’s price to a world-record $16 million. The Green Monkey, running in Coolmore silks, never won a race, earning a grand total of $10,000 on the track, and was quickly retired to an ignominious stud career in Florida. It’s easy to make mistakes; maybe if Coolmore and the Sheikh’s people had focused a little more, they would have noticed that the colt did his 9.8-second breeze in a rotary gallop, which can’t possibly be sustained for any real race distance. But, oh well, it’s only money.
         Occasionally, sellers try to convince prospective buyers that the hell-bent-for-leather breeze is a bad idea, and return to the original juvenile sale format, where horses just galloped past the crowd. Pinhooker Kip Elser has had some success doing that recently, and Frank Stronach tried for some years to sell his Adena Springs Farm’s juveniles at the farm with just a gallop show, but mostly speed still rules, not necessarily to the benefit of the horses that are pushed hard to make the sale in time, rather than going through a longer period of gradual bone development.
         This year’s OBS March sale has catalogued some 681 horses, a sizeable increase from recent years, including half a dozen by Triple Crown winner American Pharoah and one by Frankel, arguably the best horse of this century. Virtually all the leading North American sires are well represented, and there are more Kentucky-breds in the catalogue than Florida-breds. So, even as the Florida foal crop has declined drastically since the 2008 financial crash, OBS’s sales business, designed originally as a way of marketing the state’s own foals, has morphed into what amounts to a nationwide profit center. Thanks, pinhookers.
         At last year’s March sale, 306 of the 577 horses originally listed in the catalogue ended up being sold, at an average price of nearly $147,000. With an expanded catalogue this year, it may be hard to match that average. I’ll be writing about what actually happens at this year’s sales, and we’ll see. If you have a weanling or yearling that doesn’t sell, there are always the two-year-old sales. But if your two-year-old doesn’t sell, suddenly you have very few options. So it’s a high-pressure situation; it’ll be interesting to see who the winners and losers turn out to be.

Wednesday, June 3, 2020

OBS March Sale: Unsettling Indications for the Market

This post was first published in in March, 2020.

This week’s sale of two-year-olds in training at Ocala Breeders Sales Co. was never going to set any records. As Nicole Russo carefully wrote in the Daily Racing Form, “the market was expected to show restraint.” But I suspect that few anticipated the extent of the debacle that actually occurred. In brief: the average price for horses that were sold dropped 34% from last year, from $144,603 to $95,585. The median price, typically a more representative reflection of the sale as a whole, dropped 37.5%, from $80,000 to $50,000. Of the 485 horses that actually went through the auction ring, only 291 were sold – a buyback rate of 40%, compared to just 24% last year. And those 291 sales represented less than 43% of the total number of 681 horses that were in the sales catalogue to begin with, the first time in my memory that fewer than half the horses listed actually found new homes. While some horses in the catalogue, as always, were scratched for physical reasons, or because they just breezed too slowly, it appears a good number were withdrawn because their owners correctly anticipated a poor market.
         There are three overlapping reasons for the declines. First, the sale took place against the backdrop of the coronavirus pandemic, which both limited the number of buyers who felt comfortable going to Ocala – though OBS did provide expanded telephone bidding – and created a huge amount of uncertainty. Will there even be places to race the two-year-olds that one is buying?
         Second, the stock market is in free fall, down some 30% from its high point. And the sort of people who buy expensive racehorses are also the sort of people who have a lot of wealth in the market. So seeing their portfolios drop dramatically might, to say the least, inhibit their willingness to throw money at unproven thoroughbreds.
         Third, even without the possibly temporary hiccup of the coronavirus and stock market crash, racing itself doesn’t have a rosy outlook. Betting handle has been flat – actually declining in inflation-adjusted dollars – for many years, and the recent explosion in sports-book betting on other contests threatens even that modest current handle. In addition, clusters of breakdowns - at Aqueduct in 2011, at Santa Anita last year - have strengthened public support for abolishing racing altogether. The recent indictments of “super-trainers” Jason Servis and Jorge Navarro and other racing insiders just adds to the public perception that racing is crooked, not to mention cruel.
         Still, with the cancellation of the Fasig-Tipton Gulfstream sale and the Keeneland April sale, OBS March was the only place a buyer could look for a high-quality two-year-old that might be ready to race early in the year (assuming that there will be anywhere to race). So it’s a bit surprising that the top prices at the sale were only in the $600,000 range, plus or minus. In most years, there are at least a few million-dollar babies. Last year, for example, the sale topper in March went for $2 million, and none of the five most expensive horses at that sale sold for less than $800,000. There can’t be that much difference in quality from one year to another, so the decline in buyers’ willingness to pay foolishly high prices for horses that probably won’t earn that money back on the race track – remember The Green Monkey! – must in large part result from the three uncertainty factors listed above – the virus, the stock market, and racing’s own uncertain future.
         The OBS March results have unsettling implications for the rest of the thoroughbred sales season. Pinhookers, who buy weanlings and yearlings and then try to sell them at a profit as two-year-olds, need the money from those sales to finance another round of yearling buying. With the Gulfstream and Keeneland sales cancelled – though Fasig-Tipton did add another sale in June at Timonium, MD – it’s getting harder to see where pinhooking consignors will hit those home runs that fuel their next round of buying. Combine that with what’s likely to be a continuing stock-market miasma, and breeders who are sending their yearlings to the summer and fall sales must already be having palpitations. The breeding industry went through one much-needed round of contraction after the financial crash of 2008, with the result that the US thoroughbred foal crop is currently down roughly 50% from its peak. By the time this year’s trifecta of virus, stock market and scandal have played out, thoroughbred racing and breeding may become even more of a niche industry than it already is.

Tuesday, June 2, 2020

Can New York Horsemen Afford to Go to Saratoga This Year?

(The following was published on May 14, 2020 at

The lockdown of major US race tracks appears to be easing, albeit minus in-person spectators. Churchill Downs opens its spring meet this weekend; Golden Gate in northern California is already running; Santa Anita has published its first post-coronavirus condition book and is taking entries for this coming Friday, even without final government approval. On the East Coast, though, things are moving a bit more slowly. Monmouth Park has announced plans to start racing on the July 4th weekend, but neither the Maryland Jockey Club, which operates Laurel and Pimlico, nor the New York Racing Association (NYRA) have been able to convince their state regulators to give them firm opening dates.
         In New York, training continues on the Belmont backstretch, with strong health and safety protocols in place. NYRA has submitted reopening plans to the state, but the famously racing-unfriendly Governor Andrew Cuomo is in no hurry to move those plans to the top of his inbox. And while we can reasonably expect the go-ahead for racing at Belmont sometime within the next month or so, the future of this year’s Saratoga meet remains entirely up in the air.
         This past weekend, broadcaster Mike Francesa caused a Twitter storm by announcing that the Saratoga meet had been cancelled, only to be met by an immediate denial from NYRA public relations chief Pat McKenna, who posted that “NYRA is seeking to resume live racing at Belmont Park in the absence of fans and we have prepared operating plans that follow the same model for Saratoga should that be necessary.” But, with Saratoga’s scheduled opening day of July 16 barely two months away, NYRA is sending decidedly mixed signals. Ticket sales are on hold, reflecting the likelihood of racing without spectators, if, indeed, there’s racing at all. And the Saratoga calendar on the NYRA website is blank for July and August.
         NYRA management clearly wants to run a Saratoga meet of some kind. Last year’s all-sources handle for the 39-day meet (one race day was lost to the weather) was $705 million, an average of better than $18 million a day. And, unusually for racing in the US, that number has steadily increased in recent years, since NYRA went to a 40-day Saratoga meet in 2010. Over the past nine years, total Saratoga handle increased 28%. Even adjusting for inflation, that’s a 9% increase, at a time when US racing’s overall inflation-adjusted handle has been in steady decline.
         So, Saratoga, along with a few other bright spots, like Churchill’s Oaks-Derby weekend and the boutique meets at Keenland, Del Mar and Kentucky Downs, is a part of the racing calendar that no one would like to cancel. But, if the meet has to go ahead without spectators and without the purse supplements that flow from the  currently-closed Resorts World casino at Aqueduct, can New York’s long-suffering owners and trainers actually afford to go there?
         While it’s true that Saratoga purses are the highest in the country (except for the very short Kentucky Downs meet), those purses weren’t enough even last year to attract the usual complement of out-of-town horsemen, and the racing office was scrambling to fill cards from early in the meet. Hard to imagine that $90,000 for maiden specials and $98,000 for an N3X allowance wouldn’t be a sufficient draw, but that’s what happened. And the competition isn’t getting any easier. The condition book for the Churchill Downs meet this year, for example, has purses of $79,000 for maiden specials and $83,000 for an N2X allowance, pretty close to what Saratoga was offering last year.
         The new Churchill condition book does show a small purse decrease from last year, but only a small one – about $6,000 for those allowances, only $2,000 or so for the bread-and-butter claiming races. And the Santa Anita condition book has somewhat larger reductions: from $65,000 to $50,000 for maiden specials and from $43,000 to $29,000 for $25,000 claimers. But neither of those tracks is as dependent on slots money as is NYRA. If Saratoga does run this year, could it even match Churchill’s figures?
         There are two major elements in the Saratoga purse structure that are problematic this year: the lack of casino money and the lack of on-track betting. Casino money is easy to account for; in normal times, Resorts World accounts for 39% of the NYRA purse account. If that money doesn’t come back and can’t be replaced from other sources, those $90,000 maiden races would be at $55,000, back where they were in 2010 before the slot-machine dollars started flowing. And all other purses would take a similar hit.
         On-track betting is a little trickier. Unlike most tracks, Saratoga still earns a significant portion of its handle from on-track betting (including betting on the in-house NYRABets account). Last year, $146.6 million of the total $705 million, or 20.8%, was bet on-track. That compares with a national average of something less than 10% that’s actually bet on-track in the US. And on-track betting is way more lucrative than off-track. NYRA gets, on average, 20% of everything that’s bet on-track (that 20% is the blended “takeout” over all the different kinds of bets that are offered). That’s then divided up among the state, track operations and the horsemen’s purse account. In contrast, only about 8% of what’s bet off-track comes back to NYRA as host fees; the rest goes to ADW operators like Churchill’s Twin Spires or TVG, who actually take the bets, and in rebates to the big players who wouldn’t bet a dollar if they had to play into a real 20% takeout.
         So, if Saratoga runs without spectators, it will probably get only a small fraction – through its NYRABets accounts – of that $146.6 million it took in on-track last year. And, because of the difference between takeout and host fees, for every on-track dollar it loses, it will have to pull in about $2.50 in new off-track betting. To replace the entire lost on-track handle, then, NYRA would need something like $365 million in new off-track betting, over and above the $558 million that it already generated off-track last year.
         Possible? Yes; the last months have shown that there’s an appetite for televised racing, and Saratoga would certainly be the star attraction of the summer season. But, realistically, could NYRA actually generate a 65% increase in off-track betting, above last year’s already high level. Doubtful.
         So, let’s say, for the sake of argument, that a Saratoga meet could hit last year’s handle total - $705 million – but that it would be all off-track. That would reduce NYRA;’s take from betting by about $18 million, or, very roughly, by about a quarter of the total retained by NYRA last year. Applying that to the 61% of purses that are still bankrolled by the takeout, that’s another 15% hit to the purse account. So, our $90,000 maiden, reduced to $55,000 by the absence of slot money, now drops to somewhere around $42,000.
         Would any horse owners or trainers head to Saratoga for a condition book that featured $42,000 maiden specials, $50,000 N2X allowances and $25,000 claimers that had purses equal to the claiming price? Given the costs of operating in New York, which I discussed in two recent posts on, the answer has to be no.
         So if there is to be a Saratoga meet this year, and if it is to be without spectators and slot-machine money, then NYRA will have to do what Churchill Downs has apparently done with its new condition book: use its cash reserves to keep racing going while it hopes for an eventual recovery. The Churchill condition book does have some small purse decreases from the equivalent period last year – a $6,000 drop for maiden specials and allowances, only $1,000 or $2,000 for claiming races – but nothing like the adjustments that NYRA would have to make. And Churchill has the advantage of having plenty of cash; it drew down a $700 million loan facility at the beginning of this year and doesn’t have to pay the money back until 2024. Though NYRA no longer publishes its financial statements, it’s safe to say that it has nowhere near the financial security net of Churchill.
         NYRA CEO Dave O’Rourke came in as a finance guy in 2008 and understands the numbers as well as anyone. Can he find the money to make a spectator-less Saratoga meet doable? We shall see.

Monday, June 1, 2020

Two-Year-Old Sales Start Up Again

The last time I looked at two-year-olds-in-training sales, the market had virtually collapsed, in the shadow of a looming pandemic and a stock market crash. At the Ocala Breeders Sales Co.’s March sale – the only one held so far this year – both average and median price dropped more than a third from last year, and more than half the horses listed in the catalog went home unsold. After a decade of steadily rising prices – last year some 2,200 juveniles were sold at auction for an average price of more than $94,000 – the game of musical chairs had stopped, and only a lucky few had somewhere to sit. 
         Since then, the coronavirus has caused the cancellation of the marquee Fasig-Tipton Gulfstream sale, as well as the high-level Keeneland 2YO sale. Other fixtures on the calendar, including the Fasig-Tipton Timonium sale and the OBS April and June sales, have been pushed back.
         But now, ready or not, most states are reopening their economies, and the sales are back. OBS will offer its April catalogue from June 9-12, fattened with about half the horses that would have been through the ring at the aborted Gulfstream sale. Fasig-Tipton has rescheduled its Timonium sale, also with a bevy of Gulfstream sale refugees, for June 29-30, and the OBS June sale, usually the last chance for sellers to find a home for their juveniles, will now be held July 14-17, just before the annual yearling sales season begins.
         It’s hard to predict how the market will respond. There are definitely some major negatives. Racing, albeit without fans, has pretty much rebounded from the closings in March and April, but total nationwide betting handle, all of it by phone or online, is just about what it was on corresponding days last year. That’s a discouraging fact, given that all other sports betting and casino gambling has been shut down, leaving potential gamblers nowhere else to go. Even in the absence of other sports, and of betting on those sports, racing seems to have made few new fans. And, from a horseman’s perspective, purses are down at all the major tracks that are restarting racing, reflecting the loss of slot revenue and on-track handle. The stock market has made back some, though by no means all, of its p­andemic losses, but market uncertainty may still deter some big spenders.
         With a truncated two-year-old racing season, with no particular reason for optimism about racing’s long-term future, and with uncertainty caused by the coronavirus by no means abating, it’s hard for sellers and the auction companies to be optimistic about this year’s remaining sales. Most consignors are probably not so much looking for the home run that will buy them a new yacht, but rather just hoping to get enough of their working capital back so they can return to the yearling auctions this summer and fall and stock up, at least to some degree, for next year.
         There are, it’s true, some reasons for at least mild excitement. The breeze show for the June OBS sale is already underway, with consignors pushing their two-year-olds to run a furlong in 10 seconds flat or faster, and a quarter in 21, even though that’s something the horses will never have to do again. And OBS has tried to make it easier, both for potential buyers who are reluctant to attend in person, by permitting online bidding, and for consignors, by waiving its commission on horses that fail to reach their reserve on the auction ring. Fasig-Tipton has taken even greater steps to accommodate those who don’t want to attend in person, putting the x-rays of sales horses online for prospective buyers and their vets.
         And there are some interesting new sires that will be represented at the sales. Two Kentucky Derby winners, California Chrome and Nyquist, have their first juveniles ready this year, as do Grade 1 winners Frosted and Runhappy, whose yearlings sold last year for averages of $160,000 and $200,000 respectively. But will two-year-old buyers pay the same kind of premium that pinhookers were offering for those horses as yearlings last year?
         When the OBS sale results are in, at the end of next week, they’ll require some careful analysis. For one thing, those refugees from the F-T Gulfstream sale will undoubtedly skew the figures higher than they otherwise would have been. Even on the first days of the OBS sale breeze show, four of the seven horses recording bullet works (including a ridiculous 9.4 seconds for an eighth and 20.1 for a quarter) were supplemental entries, added to the OBS catalog after the Gulfstream sale had been cancelled. Probably the best approach to analyzing next week’s sale would be to divide the results into two categories, one for the horses originally catalogued for the spring sale and the other for the supplemental nominations.  Both those categories, I suspect, will continue or even extend the trend of the OBS March sale, with high numbers of unsold horses and declining average and median prices. The silver lining? For those blue-collar owners and trainers who have managed to stay in the game, there will be a lot of two-year-olds on offer for not much money that could well turn out to be decent race horses.