PAULICK REPORT FORUM brought to you by BREEDERS’ CUP: TWO TO GET READY
By Ray Paulick
No market segment will go unscathed when an industry has the kind of downturn the Thoroughbred bloodstock business experienced over the last 18 months. The 2009 yearling market took a $150-million hit in gross revenue, falling from $438 million in 2008 to $280 million last year, a 36% decline and the lowest since 1996. A yearling’s average price of $44,900 was the lowest since 2002.
Similarly, total revenue generated in 2009 sales of 2-year-olds in training–$118 million—fell by 33% to its lowest point since 1996. The 2009 average of $48,972 was the lowest since 2003. The good news is that the median, middle-market number remained steady at $20,000. The number of 2-year-olds sold in 2009, 2,412, along with the 3,363 offered was the lowest in those two categories in more than 20 years.
Mike Mulligan, the president of the National Association of Two-Year-Old Consignors (NATC) and operator with wife Britt of Leprechaun Racing in Ocala, Fla., said sellers of 2-year-olds have made adjustments coming into 2010. He also believes, not surprisingly, that the 2-year-old market should be the place Thoroughbred owners turn to when they are looking for horses with the potential to win at the highest level and cites a number of statistics supporting that contention (click here to see the NATC’s scorecard of stakes winners).
For Mulligan, 2009 was a difficult year personally, and not just because of the downturn in the bloodstock market. Last March, shortly after selling a $275,000 yearling purchase for $1.1 million at the Fasig-Tipton Calder sale, Mulligan blacked out and fell, suffering a serious head injury. He required four surgeries during the year, the most recent in December. “I was injured pretty badly and it was very distractive and scary,” Mulligan said. “But I was able to travel to all the yearling sales and we are in business as usual. My wits are about me, and I want everyone to know that everything is OK. We got so much support from people in the industry, from my partnership base and friends, and that was very gratifying.”
Mulligan spoke with the Paulick Report about the upcoming 2-year-old sale season that begins next week with the OBS selected sale of 2-year-olds on Feb. 16. Other major 2-year-old sales include Fasig-Tipton’s Calder sale March 2; the OBS March sale March 16-17; Barretts selected sale March 22; Keeneland’s sale April 5; and the OBS April sale April 19-22.
What are the most critical factors that will drive the 2010 market for 2-year-olds?
I think it’s the success, particularly the success of the 2009 graduates at every level of the game. I’ve been doing the advertising for the NATC for nearly a decade now, and the statistics are very favorable for 2-year-olds, versus other ways to acquire a horse. If anyone new to the game was using an analyst to evaluate these statistics, I feel confident he would point them to the 2-year-old sales.
Obviously there will be fewer horses in the 2-year-old market because of the global economy and 2-year-old consignors not having a spectacular year in 2009, which means their spending at yearling sales was reduced. I know I spent less last year, looking more for that horse that fell through the cracks at a yearling sale.
What is the outlook for this sale season?
I feel cautiously optimistic. We have already seen the hit from the economy and the stock market. There will still be a vast number of buyers that go to 2-year-old sales and trainers that like to buy horses are still going to be there.
How has the banking crisis and tightening of credit affected pinhooking?
It certainly has affected things. Credit tightening has cut people back. It would have to hurt some people and it always has a trickle down effect. What happened in the Thoroughbred market is like what happened in the real estate market years ago. I had a friend who had been flipping houses and doing well, then all of a sudden that market collapsed. The banking crisis caused mares to be sold at a bad time, horses were sold as weanlings instead of as yearlings, yearlings were sold instead of going to the track.
How has the market changed over time?
Years ago there was more of a middle market, where one guy might buy 10 horses for $80,000 or $90,000 each. Today, that same guy might get two or three horses for $250,000 each. When I first raced horses, winning a maiden race, even on a weekday, that was the greatest feeling ever. But now there is more of a Kentucky Derby mentality, where people are looking for that special horse, that big horse. But there are plenty of horses that don’t sell or bring small money that end up being really nice horses. It’s something I’ve seen while reviewing graded stakes winners over the last 10 years, the number of nice horses that come out of these 2-year-olds sales for very little money and are ready to run.
Pinhooking partnerships have been an attractive investment for quite a few people. Are we getting to the point where we have too many people working on the assembly line, either as breeders or pinhooking investors, and not enough people to buy the end product?
I think that’s very true. We all know racing has some challenges to overcome over the next couple of years to deepen the fan base. Many big racing enthusiasts end up getting into other aspects of the industry, including horse ownership. We need more customers that want to buy racehorses. Racing is supposed to be a sport. I’ve never told anybody, ‘Lets go race these horses and we’ll make a bunch of money.’ Look at yachting. How much do some people spend on yachts to win a boat race. It’s more of a sport than a financial endeavor. Racing needs to be looked upon from that standpoint, and we haven’t done a good job promoting that aspect of participation.
Florida’s foal crop has fallen sharply the last two years and a number of stallions have left the state. Why has that happened, and how will it affect 2-year-old sales?
It’s going to have an impact on the market, but I really feel a lot of the mares not bred over the last couple of years were not elite mares putting out attractive horses in the yearling market or that ended up at 2-year-old sales. I think the middle to high end mares that can contribute, those mares are still being bred.
What other factors have led to the decline in the number of 2-year-olds in training being offered?
Yearling buyers have learned from 2-year-old consignors about what horses will make the grade. I feel there is more and more competition on the better, more athletic horses at yearling sales–more end users are buying the horses that pinhookers might have been on before. You are trying to buy ‘X’ number of horses, and the competition is there from fellow pinhookers and end users. Ten or 12 years ago you could buy a good physical horse by an off sire, but now it’s not so easy. If they are an athlete they are going to be pursued that much more today at the yearling sales.
Are buyers getting tougher in their vetting of horses?
If I’m given a choice between a yearling that vets perfectly, scopes perfectly and has what I think is limited ability versus a horse with a couple of minor problems but has what could be huge ability, I’ll take the horse with the minor problems. When buyers see a special horse they are inclined to overlook minor issues. None of us can afford to overlook major physical problems.
What difference has the synthetic track had on the OBS sales?
I think it has created a level playing field to some extent. Horses are not able separate themselves as much from a time standpoint, and it’s a much safer track. Turnbacks (horses returned by buyers after the sale because of bone issues) have significantly decreased since we put in the synthetic track. They come out of their breezes more sound.
There have been two other changes in the last couple of years that in my mind have helped us continue to produce good products. First, we’ve gone to one breeze show. The second breeze show on rare occasions may have helped a horse that was sick or not able to perform during the first breeze. But realistically there weren’t that many horses that moved up on a second breeze. Most of the buyers had made their minds up by the time the first breeze show was over. The NATC and the sales companies agreed it would be best to go to one breeze.
Second, we restricted whip use, not allowing a horse to be whipped once they start breezing and not allowing the horse to be whipped past the wire in the gallop out. A buyer gets a truer picture, and the results of these two things were outstanding this year, in terms of horses that went from 2-year-old sales to be champions, Grade 1 winners and performing well in the Breeders’ Cup.
Why was the National Association of Two-Year-Old Consignors formed?
When we first created it in 2000, there was some drug testing issues implemented by sale companies, and a group of consignors said we needed a voice so that the guidelines and testing were appropriate and best for the horses. We collectively grouped together to have a voice with the sale companies, we work collectively in advertising 2-year-old sales in the trade publications that say this is who we are and talking about the success of 2-year-old sale graduates. Over the years we have been encouraged consignors to make horses eligible for NATC Futurities..
Has it succeeded in its mission?
We’ve done well. We have educated buyers who have come to the sale just because of our advertising, and we’ve done well with the Futurity, something that’s more for the middle horse going to a regional market in the East Coast.
We are trying to do what’s best for the horse and to sell a good product. If you sell a lot of expensive horses that haven’t produced, you’re going to lose your buyer base. That hasn’t been the case. The results on the racetrack speak for themselves.
Copyright © 2010, The Paulick Report
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Tags: Barretts, Breeders' Cup, Britt Mulligan, fasig-tipton, fasig-tipton calder, Keeneland, leprechaun racing, Mike Mulligan, NATC, National Association of two-year-old consignors, obs, ocala, Pinhooking, racing partnerships, Ray Paulick, Two year olds
February 10th, 2010 at 10:46 am
All the buyers became pinhookers. The goal is to sell a good one to Arabs for millions. The prices at yearling sales got way too high because of these pinhook investors. Good horse should not cost over 500,000. Buyers need a way to get out now.
February 10th, 2010 at 10:58 am
Romulus-
The pinhookers very rarely pay exorbitant prices at the yearling sales. They almost never go above $500,000.
It’s the end-users (looking to hit a homerun on stallion prospects) that drove yearling prices to insane levels.
February 10th, 2010 at 11:08 am
“Are we getting to the point where we have too many people working on the assembly line, either as breeders or pinhooking investors, and not enough people to buy the end product?” IMHO, we’ve been way past this point for quite some time. Though the bloodstock world was booming until the fall sales of 2008, the focus was purely on the high end. The lack of a middle market in this game to me translates to not enough people to buy the horses.
February 10th, 2010 at 11:54 am
Until a complete chain of ownership and medical records are available…
Until two-year-olds in training don’t have to “recover” at the farm before they can race…
Until yearlings look like yearlings….
February 10th, 2010 at 3:40 pm
When you hear pronouncements from horsetraders like that above who sell 2 yr. olds, ” …we are trying to do what’s best for the horse and sell a good product,” i am reminded of the political world, and used car industry and the penchant of both to misrepresent to disguise reality. As a horseman and horsetrainer i know first hand the reality of 2yr. old sales is often the inverse of that promised.
2 yr. old sales, as they are currently conducted in the U.S. are a travesty to the horse and horse buyer. Yet the racing media has a love affair with pinhookers and stories about their profits. Unwittingly, these journalists send a far different message than the one they intend and hope will attract new players. instead their stories uncover a far seamier side of racing, one that drives fans away: that racing insiders act like PREDATORS, caring only about short term economic gain which they take at everyone’s expense, especially the horse.
ask yourself, what is the real added value that horsetrading pinhookers add to the sport besides raising a horse’s purchase price. Why should we promote them and their practices?
If they could REALLY ascertain talent like they claim, they wouldn’t be so opposed to working them beyond an 1/8, (remember the 1/4 work?) If they were honest about the care and management of their horses they wouldn’t be paranoid about going farther, and selling later instead of Feb. and march. But they can’t do that because many of their prospects are “finished” by June because of their training practices. (They love to blame the horse or breeder for its unsoundess.)
Arn’t pinhookers just acting like “scalpers” of tickets. Does a scalper bring added value to any entertainment function? Entertainment leaders don’t promote scalpers do they? Why does the racing media promote pinhookers, they are irrelevant to the sport. (Unless your sport is quick economic gain, in a less than transparent way.)
Every time we give pinhookers an audience we promote what’s wrong with this industry. The racing media’s current love fest with pinhooking contributes to the sleaze effect in our sport. It doesn’t grow the sport it harms it, don’t ya get it!!
February 10th, 2010 at 4:32 pm
Mike Mulligan is right. Do some research of your own and look at the numbers. Buying 2yo’s makes sense.
February 10th, 2010 at 5:42 pm
stanley, there’s a lot to criticize. maybe part of our problem is we come at everything negatively. do you see absolutely nothing good about these folks (pinhookers) efforts to put a good product out there? I’d agree that early two year old breezes should be eliminated. But, who is going to force that? What is needed possibly is owner education. Owners are coming at our sport with an idea of making a buck. But, owners, being on the horse side of the sport, need be coming at the sport as an athletic competitive enterprise. This requires a knowledge of basic physiology and speed horse training. This is what has yet to be conveyed to our owners, who then become unwitting shills for our hucksters. Which btw is how we lose everyone of them, most sooner than later.
February 11th, 2010 at 8:59 am
Ratherrapid,
i respect your viewpoint. i guess my message got lost in its exhuberance and emotionalism.
the issue isn’t specific pinhookers, who may not act in the interest of the horse or owner.
I have much respect for horsetraders who practice their fine art, and it is an art which requires a high skill set, (i’m not being facetious).
the issue is not whether there is any value to the sport in buying a horse and reselling it at a profit.
the issue is that the sport and business of racing needs to try something DIFFERENT if we are to GROW.
2YR.old sales can be a legitimate value to bringing in new players.
lets just take the high road and do what’s right instead of making excuses about why we can’t.
Remember when the horsemen lobbyed the sales company at Calder to change the surface in the walking areas where 2yr. olds were shown. They wanted something more “forgiving,” that allowed them to show their horses in a better light.
The sales company acquiesed instead of saying lets not disguise your horses unsoundness. Both parties, in my opinion made the wrong decision. That is just one example of what we do to shoot ourselves in the foot.
I respect Mr. Mulligan and all the other fine horseman who make a living selling 2yr. olds. 2yr. old consigners need to change the system, they have a good organization in place to do that. it’s time to get to work instead of blaming “hucksters” for what’s wrong.
February 12th, 2010 at 12:08 pm
Stanley, terrific post #5. There are so many things that just don’t make sense aside of making the most money off horses as fast as possible.
Breeze sales are pure madness and breezes prove nothing except that owners can be fleeced. The stride of these babies look dangerously like quarter horses. What’s the freaking point? How ignorant can buyers be and crooked, greedy the agents? These babies are already on multiple drugs, some can’t take the whole thing and drop dead. Shear abuse, madness and organized fleecing. A few manage to win big races but why waste so many in the process? Does anyone give a damn about the welfare of these horses and how important it is to take good care of them starting early on so they make it to the races without injuries and race more than once or twice?