Posts Tagged ‘keeneland september yearling sale’

When Rob Whiteley managed the Foxfield commercial breeding operation for corporate raider Carl Icahn, he had to justify every dollar on the ledger sheets for the real-life Gordon Gekko. You couldn’t pull the wool over Icahn’s eyes on fiscal matters.

Today, free from Icahn, Whiteley runs his own operation, Liberation Farm, breeding and selling Thoroughbreds for the commercial market. He applies many of the lessons and disciplines he learned from his old boss. Coming out of the recent Keeneland September yearling sale, the most important marketplace for commercial breeders, Whiteley examined the profitability of the business he has dedicated himself to since leaving academia 25 years ago (his pre-racing resume includes Stanford, Rutgers, Harvard and the University of California at Berkeley).

The resulting article was published in the Thoroughbred Daily News last Friday, Oct. 3. If you haven’t read it, and you have any interest in the future of this business, Whiteley’s analysis is a must-read. (The TDN is a subscription-only site, but there is no charge for an online subscription.)

What Whiteley found may have been shocking to some, though not necessarily surprising to the many small, blue-collar breeding operations scattered across the rural landscape of Central Kentucky: breeders are bleeding red ink. Many of them face uncertain futures, even without the greater financial crisis brought on by tighter credit markets from the Wall Street/banking meltdown.

Turfway needs an injection of capital and creative or intellectual investment that Keeneland so far is not providing. Investing in Turfway is one way of helping Kentucky’s breeders.

 Copyright © 2008, The Paulick Report

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While Congress begins deliberations on the proposed economic bailout package that could cost taxpayers as much as $1 trillion, Thoroughbred owners and breeders are beginning to feel the effects of the turbulence on Wall Street and other world markets.

The financial markets meltdown came smack dab in the middle of the industry’s most important transactional event: the Keeneland September yearling sale. The sale began with a lowered price ceiling during opening select sessions that saw some resilience in the middle market, but, as many consignors feared, the bottom fell out after the first week. Most yearlings going through the ring in the latter part of the Keeneland sale will reflect economic losses to their owners once stud fees, mare investment  and boarding costs are taken into consideration.

In addition, many yearling-to-juvenile sale pinhookers from Florida depend on bank loans to fund at least a portion of their investment, and those loans or lines of credit from banks are evaporating in the current crisis that actually began last August with the sub-prime mortgage fiasco.

Loans of all kinds will be more difficult to acquire, one banker told the Paulick Report, whether it’s for pin-hooking, stallion and mare acquisitions, or real estate. “A wide range of people need bank financing to buy farms or mares,” he said. “Some people who didn’t start off thinking they wanted to borrow end up taking out loans just like any other business often does. Stallion deals are often supported by banks. No matter what you are borrowing money for, it’s harder now and it will cost more. Everything is going to be more difficult.”

The crisis could have a severe effect on the bloodstock markets at Fasig-Tipton and Keeneland in October and November, especially for mares in the $50,000 and under price range. It is expected the top end of the market, which is unlikely to establish any new records for high prices, will maintain some semblence of strength. The deadline to enter mares and weanlings in Keeneland’s massive November breeding stock sale preceded the financial market meltdown. What will be interesting to follow is the number of horses entered for Keeneland’s January sale of horses of all ages. Will breeders look ahead at cutting their losses on marginal mares and newly turned yearlings?

“Things that have some value in the real world, like real estate loans, have no value in the market,” one analyst said. “Assets that used to be like cash no longer are like cash.”

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Investors haven’t been wild about Churchill Downs stock (CHDN), which closed at $46.45 Friday and hasn’t seen $50 a share since May 1. It’s 52-week high, $57.55, was achieved last December.

CEO Bob Evans and the TrackNet Media Group that was formed with Magna Entertainment to broker simulcast deals has refused to talk seriously with the Thoroughbred Horsemen’s Group, which is negotiating account wagering contracts with racetracks on behalf of local horsemen’s groups such as the Kentucky or Florida Horsemen’s Benevolent and Protective Associations. In fact, Churchill has filed anti-trust lawsuits against the organizations. Evans may be hoping that the longer he puts off dealing with the THG, the less resolve the horsemen will have to stick together in attempting to forge a better contract on account wagering.

That strategy doesn’t appear to be working. To the contrary, it looks more like Churchill Downs’ partner in TrackNet Media is bailing. Frank Stronach, the chairman and acting CEO of Magna Entertainment, sent out a press release a couple of weeks ago saying that Magna recognizes the THG as a beneficial national organization and is negotiating with THG.

SPEAKING OF WAGERING, hats off to Bloodhorse editor Dan Liebman for calling out the Jockey Club after it capitulated to Evans and to Churchill Downs’ biggest shareholder, Dick Duchossois, and decided to no longer provide the trade magazine with meet ending pari-mutuel handle figures. Churchill tracks under Evans and Duchossois have said that handle is no longer a meaningful statistic. Oh, really?

The decision by the Jockey Club to no longer provide this key economic indicator was disgraceful, but I wouldn’t hold out any hope the poobahs there will change their mind.

Two years ago, leading buyer John Ferguson bought 25 yearlings during the two select sessions of the Keeneland September yearling sale for $56,885,000, an average price of $2,275,400. This year, Sheikh Mohammed’s chief bloodstock adviser signed tickets for 19 yearlings, but only spent $15,655,000, an average price of $823,947.

Sheikh Mohammed’s commitment to buying what he and his advisers think are the best yearlings hasn’t changed in two years. The competition has changed, however, leaving a very short list of people to bid against the sheikh once yearling prices get to a certain point, with $1 million seemingly the magic mark. As a result of the absence of high-pitched battles that drive prices sky-high, gross receipts and average declined during Monday and Tuesday’s select sessions, but the middle-market median price has remained the same. The high-end bubble burst also created a spike in horses bought back by consignors who seem to be clinging to the expectations set two or three years ago at this sale.

Absent from those high-pitched battles was Demi O’B yrne, representing Ireland’s Coolmore operation, which two years ago spent $8,825,000 for eight yearlings and in 2007 bought 11 for $16,850,000. Coolmore did more watching than bidding this year during the select sessions, buying only five yearlings for $2,865,000. But that might be more a product of the perceived quality of the high-end yearlings that were invited into the select session by a Keeneland inspection team that some buyers have quietly said is not doing as good a job as it used to do. We’ll see how active Coolmore is over the next two days during the Wednesday and Thursday sessions that historically have proven to provide good value to buyers and a high percentage of stakes winners that rivals the select sessions.

There were 300 horses sold Monday and Tuesday for $113,357,000, an average price of $377,857 and median of $300,000. In 2007, there were 337 yearlings sold for $145,377,000, an average of $431,386 and the same $300,000 median. Thus, the gross dropped by 22% in one year, and the average declined by 12.4%. There were 132 horses through the ring that failed to sell, a buy-back rate of 30.6%, an all-time high for the Keeneland September select sessions.

This year’s select sale gross is the lowest since the $100,576,000 achieved in 2002 and the second-worst since 1999. That’s especially bad news for breeders whose product is produced for the high-end buyer in the Thoroughbred market. But it’s also bad news for Keeneland, a sale company that has had a dominant market share position on its chief rival, Fasig-Tipton, which was purchased earlier this year by an associate of Dubai’s ruler, Sheikh Mohammed.

The purchase of Fasig-Tipton, combined with a commitment by its new owner to recapitalize the company and turn loose its newly crafted management team will pose a serious challenge to Keeneland moving forward, and begs the question: Can anyone teach the elephant to dance?

Tuesday’s sessions yielded more $1-million yearlings than Monday’s (11 to 5, as reported by the sale company), but the total is far below the 30 sold last year. The session totals were: 146 sold for $57,310,000, an average of $392,534 and median of $300,000. The Tuesday session in 2007 sold 166 for $77,982,000, an average of $469,771.

Over the first two sessions, Ferguson, representing Sheikh Mohammed, and Rick Nichols, buying in the name of Sheikh Hamdan’s Shadwell Estate Co. Ltd., combined to spend more money in 2008 than they did in 2007: $25,375,000 vs. $22,380,000. Their combined purchases accounted for 22.4% of the select session gross receipts.

The 2008 declines would have been far worse were it not for a new operation, Legends Racing, a partnership formed by Gaines-Gentry Thoroughbreds, that was the third leading buyer behind Ferguson and Shadwell with 10 yearlings bought for $6,655,000. Another significant domestic buyer was Peter Wittmann’s Maverick Racing, which spent $3,100,000 on five yearlings to rank fourth among select session buyers.

The top-price of the select sessions was the $3.1 million Storm Cat filly sold Monday and purchased by Ferguson for Sheikh Mohammed.

Though Storm Cat produced the top price, A.P. Indy was the leading sire by average, with 21 sold for an average of $647,142. Here is Keeneland’s list of leading sires.

Taylor Made Sales Agency was the leading consignor by gross revenue, with 74 yearlings bringing $25,690,000, followed by Lane’s End, which sold 24 for $14,520,000. Here is Keeneland’s list of leading consignors by gross and by average.

One horse Lane’s End didn’t sell was a colt by Storm Cat out of the multiple Grade 1 winner Tranquility Lake, who produced Grade 1-winning grass star After Market for breeders Marty and Pam Wygod. The colt was part of the Lane’s End consignment and was widely believed to be a potential sale topper when it was announced he had been withdrawn about an hour before he was scheduled to be sold on Tuesday.

As the action was winding down late Tuesday afternoon, Marty Wygod and Russell Drake, farm manager for the Wygods, were puffing on what looked like victory cigars behind the Keeneland sale pavilion. After seeing the results of the first two days, Wygod said he was happy with the decision to keep the Storm Cat colt and race him rather than offer him in a shaky market, saying: “There’s just not enough money out there right now for this kind of horse.”

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By Ray Paulick

Dubai’s Sheikh Mohammed struck again Tuesday morning to purchase the first seven-figure yearling of the Keeneland September sale’s second session when he stood in the back-ring area with bloodstock adviser John Ferguson and bought an A.P. Indy filly out of the Grade 1 winning Smart Strike mare Shadow Cast for $1 million. It was the third purchase of the morning for the ruler of Dubai, who paced all buyers in Monday’s opening session with $8,835,000 in expenditures. He has now spent nearly $11 million, and there are many top lots left to sell. The A.P. Indy filly was consigned by Lane’s End, agent

12:05…TDN reports that Hip 329, a Storm Cat colt out of multiple Grade 1 winner Tranquility Lake, by Rahy, and one of the leading prospects to top the sale, has been withdrawn by Marty Wygod, who raced the mare and one of her foals, Grade 1 winner After Market (also by Storm Cat). After Market stands at Lane’s End, which also had the Storm Cat yearling in its Keeneland consignment.

12:30…There’s the buzz that’s been lacking for most of the sale. In just a few minutes, three horses reach seven figures, beginning with Hip 317, an El Prado colt out of the Clever Trick mare Swift and Classy, that Tom Evans’ Trackside Farm, agent for Liberation Farm and partners, sold for $1 million to Legends Racing, Monday’s leading domestic buyer. The next horse through the ring, an A.P. Indy colt out of Taegu, by Halo, brings $1.5 million from Sheikh Hamdan’s Shadwell Farm chief Rick Nichols, A few minutes after that, Hip 323 also reached $1 million. That colt, by Mr. Greeley out of stakes winner and stakes producer Tempest Dancer, by Storm Cat, is sold by Gainesway, agent, and is also picked up by Legends Racing, whose bidding is being done by Olin Gentry of Gaines-Gentry Thoroughbreds, which put the partnership together. Legends Racing is no named because it is being advised by three Throughbred training "legends," Hall of Famers D. Wayne Lukas, Nick Zito and future Hall of Famer Bob Baffert. The Legends horses will be divided among those three trainers.

3:00 update…A little lunch, a little nap, and I’m back. Ready for some numbers?

Today’s session is going much better from the standpoint of horses getting sold. The RNA or buyback rate is a more palatable 25% through the first 121 horses through the ring, and there have been at least eight million-dollar yearlings, including four from the Legends Racing Partnership, which ranks as the day’s leading buyer with about 90 more to be offered after spending $4,350,000.

Legends purchased four so far: Hip 317 (colt by El Prado) for $1,000,000; Hip 323 (colt by Mr. Greeley) for $1,000,000; Hip 331 (colt by Storm Cat) for $1.2 million; and Hip 355 (colt by Unbridled’s Song) for $1.15 million. The partnership has made no secret that it hopes to compete in the Triple Crown races using Lukas, Zito and Baffert as trainers.

First-day leading buyer Ferguson, spending Sheikh Mohammed’s money, signed five tickets for $3,495,000, and Darley Stud was listed as buyer of two more for $600,000, for a grand total of $4,095,000 with 90 left o sell. Ferguson’s purchases were Hip 272 (Elusive Quality colt) for $350,000; Hip 274 (Kingmambo colt) for $775,000; Hip 288 (A.P. Indy filly) for $1,000,000; Hip 345 (Kingmambo colt) for $1,000,000; and Hip 384 (Elusive Quality colt) for $370,000. The two Darley purchases were Hip 332 (Mr. Greeley filly) for $400,000; and Hip 373 (Street Cry filly) for $200,000.

Sheikh Hamdan’s Shadwell Estate Co. Ltd. spent $2,000,000 on three yearlings (with 90 hips left to go), and Demi O’Byrne of Coolmore bought three for $1,490,000. The Shadwell purchases included the day’s highest price (so far), Hipe 318 (A.P. Indy colt) for $1.5 million; Hipe 387 (Awesome Again filly) for $200,000; and Hip 388 (Dynaformer filly) for $300,000.

O’Byrne’s buys were Hipe 279 (Arch filly) for $500,000; Hip 320 (Giant’s Causeway filly) for $400,000; and Hip 352 (Giant’s Causeway colt) for $590,000.

Two other $1,000,000-plus yearlings sold went to Troy Steve Bloodstock (Hip 360, Giant’s Causeway filly) for $1,250,000; and Charlotte Weber’s Live Oak Plantation (Hip 340, Giant’s Causeway filly) for $1,150,000. I’m not very familiar with England-based Troy Steve Bloodstock, but here is Web site.

3:35 update…Maybe I spoke too soon about the reduced buyback rate. From Hip 390 to 409, there were nine yearlings not sold from 19 through the ring, which moved the RNA needle upwards to 27.9%, very close to Monday’s final percentage of 29.0%. Shadwell bought another one, Hip 395 (Distorted Humor colt), for $850,000, bringing its total to 16 purchases in two days.

Final numbers to be posted in a separate story.

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(Keeneland did not report the number or percentage of RNAs in results sheets handed out after Monday’s session.)

One of those RNAs, an A.P. Indy colt out of Horse of the Year Azeri, was the talk of the sale when he was bought back by Michael Paulson for $7.7 million, which set a new record price for a buy-back. The previous record of $7.5 million was established in 1985 at the now-defunct Keeneland July selected yearling sale that also resulted in a $13.1 million world record price for a yearling sold. The 1985 buyback was for a Northern Dancer colt, Ajdal, who became England’s champion sprinter.

Paulson told Bloodhorse he is looking for partners with whom to race the colt.

The A.P. Indy-Azeri colt was consigned by Hill ‘n’ Dale Sales Agency, agent, which also was listed as the seller and buyer of a $1.2 million Storm Cat filly out of Starrer. That yearling was listed as a sale but was a buy-back by breeder George Krikorian, according to an adviser to Krikorian. That filly was one of five Keeneland listed at prices of $1 million or higher, a decline from the 11 seven-figure yearlings sold on day one last September.

The Darley and Shadwell operations of Dubai’s Sheikh Mohammed and Sheikh Hamdan, respectively, bought 21 yearlings for $15,045,000, which represents 27% of the first day’s gross receipts. John Ferguson, Sheikh Mohammed’s chief bloodstock adviser, signed the tickets on nine yearlings for $8,825,000 (another bought for $160,000 was listed in the name of Darley Stud), with Shadwell purchasing 12 for $6,220,000.

Among those purchased by Ferguson was an A.P. Indy filly out of Chimichurri that he went to $3.1 million to buy from Gainesway, agent for Jess Jackson’s Stonestreet Thoroughbred Holdings. The filly was the highest price among yearlings sold on Monday.

Legends Racing, a new partnership organized this year by Gaines-Gentry Thoroughbreds, was the leading domestic buyer with five purchases totaling $2,005,000. Two American buyers went to seven figures for yearlings: Jon Kelly bought an Empire Maker filly out of Aurora for $1.7 million and Briggs and Cromartie Bloodstock Inc, as agent, bought a Giant’s Causeway colt out of Voodoo Dancer for $1 million.

Demi O’Byrne bought two yearlings for $1,375,000 on behalf of John Magnier’s Coolmore operation.

Taylor Made Sales Agency sold 40 yearlings for $13,065,000 to be the day’s leading consignor by gross, with Eaton Sales next with 19 sold for $7,810,000 and Gainesway third with seven sold for $5,090,000.

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There is always an air of uncertainty as the Keeneland September yearling sale approaches (it begins Monday), but this year the sense of anxiety seems heightened; 2008 has been a virtual perfect storm of bad news that has affected the world economy, financial markets and the racing industry in a variety of ways. Even the normal bright spots – the Triple Crown and race meetings at Keeneland, Saratoga and Del Mar – have come down with a case of the blahs.

Here’s a quick review of some of the major race meetings and big days in 2008:

- Gulfstream Park’s total handle was down 5%; on-track betting plunged 30%

- Keeneland’s spring meet saw an increase in attendance but a curious decline in wagering of 5%

- Saratoga, plagued by bad weather early in the meeting, ended up down 10% in total handle and minus 7% on-track

- Kentucky Oaks wagering was down  7%

- Kentucky Derby wagering dropped 2.5% despite having the second-largest on-track crowd ever

- Preakness handle fell 16%

- Belmont Stakes handle was the lone bright spot in the Triple Crown, increasing by 32% as a result of Big Brown’s attempt to win the Triple Crown

- Spending at 2-year-old sales is down roughly $13 million from 2007 despite solid results at OBS auctions; the high end of the market (Fasig-Tipton and Barretts) suffered the most

- Gross receipts for North American yearling sales going into Keeneland’s September auction are down $20 million from 2007

Some of the wagering declines are due to ongoing disputes involving the Thoroughbred Horsemen’s Group (representing horse owners) and TrackNet Media (the joint venture of Churchill Downs and Magna that negotiates simulcast contracts). Those disputes have affected account wagering handle, in some cases shutting it down almost entirely.

The overall mood for racing has been in a season-long slump, due to several factors.

The most obvious is the long-overdue recognition that medication issues are responsible for increasing skepticism among both fans and industry professionals over whether the sport is being played on a level playing field. The admission by trainer Rick Dutrow that Kentucky Derby and Preakness winner Big Brown raced on anabolic steroids exposed one of racing’s dirty little secrets; namely, that too many therapeutic medications, including steroids, are permitted. Getting rid of steroids has proven to be a very painful and public process, but progress is being made.

The breakdown and subsequent euthanasia of Eight Belles immediately after she finished second in the Kentucky Derby was as high-profile a blow as the sport has had since Ruffian’s death in her 1975 match race against Foolish Pleasure. It appeared to be a case of bad luck and nothing more, but that hasn’t diminished the negative publicity the event attracted.

The Congressional hearings in June that exposed racing’s lack of a central authority and its inability to deal with drug and safety issues further diminished the sport in the public eye. At least it spurred some to action, including the Jockey Club, Thoroughbred Owners and Breeders Association and National Thoroughbred Racing Association, which all created special committees to examine issues and make industry-wide recommendations that no one may be able to enforce.

Compounding the issues that are challenging the sport is the absence of any effective industry-wide effort to attract new investors as end users for the horses produced by breeders. The ranks of breeders and sellers continue to grow as racing becomes less viable economically. A number of prominent buyers in recent years are shifting to the selling side of the ledger, leaving a void among people willing to spend substantial amounts of money on racing prospects. This reduced population of top-level buyers figures to make the high end of the yearling market susceptible, particularly if the two parties who have traditionally been the leading buyers, Sheikh Mohammed’s Darley and John Magnier’s Coolmore operation, do not bid head-to-head on the same yearlings.  And questions remain about how the Dubai purchase of the Fasig-Tipton auction house will affect Sheikh Mohammed’s spending at Keeneland.

Ultimately, Keeneland is the world’s largest yearling auction, and buyers from around the globe will show up and spend hundreds of millions of dollars before this sale is over Sept. 23 after a 15-day run. The question is how close will they come to the $385 million spent at Keeneland in 2007.