Posts Tagged ‘thoroughbred auction’

By Ray Paulick

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.

The two-year drop is even worse. In 2006, the select sessions produced $182,860,000 in revenue for Thoroughbred breeders on the sale of 324 horses, an average of $564,383, the highest-ever in September. That year’s median was also $300,000. So the two-year drop in revenue is 38% and the average has fallen 33%.

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.”

Copyright © 2008, The Paulick Report

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All the economic indicators were down at Monday’s opening session of Keeneland’s bellwether September yearling sale — to no one’s surprise. The world economy is slumping, financial markets are turbulent, the American racing industry is going through hard times and even the U.S. dollar’s recent strengthening was a case of bad timing for breeders hoping that foreign money might make up for a shortfall of American investment. Also to no one’s surprise, oil money from Dubai dominated the early action, accounting for 27% of the gross receipts. 

(Note: An early version of this post incorrectly reported Dubai interests were responsible for 37% of the day’s gross receipts.)

When the final horse went through the ring, Keeneland reported sales revenue of  $56,047,000, a 16.8% decline from the $67,395,000 sold during last year’s opening session. Average price of $363,942 was a 7.7% decline from the $394.123 from last year, with median holding steady at $300,000. There were fewer horses sold this year, 154 to 171 in 2007, largely because of a spike in the percentage that failed to exceed their reserve price. There were 63 yearlings not sold from the 217 offered for an RNA rate of 29.0%. Last year’s buyback percentage was 24%.

(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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By Ray Paulick

In the 46 years since the Breeders’ Sales Company – a co-op established by Central Kentucky breeders — was handed over to Keeneland, the Lexington, Ky., auction house/racetrack has gross receipts of more than $13.5 billion through its sales of weanlings, yearlings, 2-year-olds in training and breeding stock. During that time, the Paulick Report estimates Keeneland has earned commissions of approximately $750 million from horses sold and from buybacks (based on 5% commission from 1962-2000, and 4.5% from 2001 to the present).

That estimated three-quarters of a billion dollars in revenue does not include entry fees from the thousands of horses sold each year (UPDATE: see comment section for a clarification on entry fees) or Keeneland’s portion of the takeout on live racing, simulcasting and account wagering.

What does Keeneland do with all that money?

Because it pays no dividends to its shareholders the way most publicly-held companies do, Keeneland distributes its sizable profits in other ways. For starters, it supplements overnight purses during its two race meetings in the spring and fall, making those meetings among the highest in daily average purses among all North American tracks. The 2008 spring meeting offered total purses of $10,016,860, a daily average of $626,054.

Keeneland makes frequent upgrades to its physical plant, for example adding luxury suites in the early 1990s and expanding its sale pavilion in 2004. It recently contracted with HOK Sport, a leading stadium architecture firm, to examine the possibility of expanding Keeneland to accommodate larger crowds and possibly host future Breeders’ Cup championships. It is currently too small to host a Breeders’ Cup.

Finally, Keeneland makes charitable contributions to the local community and to the horse industry. Since 1936, according to its media guide, Keeneland and its Keeneland Foundation have given more than $15 million to various charities.

As detailed in the Paulick Report’s first installment of this history of Keeneland, the track was funded by Kentucky horsemen and local citizens through an offering of preferred, non-voting stock and common stock that gave shareholders voting rights in certain company affairs. At some point, certainly as early as the 1950s, Keeneland general manager W.T. Bishop began approaching stockholders and requesting they return their shares of common stock to Keeneland. That effort went on for years and was largely successful, in part, some sources say, because Bishop and other Keeneland directors or executives persuaded the stockholders that the shares had no real value, since dividends were not permitted under the 1935 articles of incorporation. As an enticement to return the shares to the association, sources have said Keeneland may have offered lifetime membership in the Keeneland Club or coveted clubhouse or grandstand boxes.

At any rate, of the 3,500-plus shares of Keeneland stock originally sold, only a few remain in the hands of individuals. Those individuals are entitled to attend the annual shareholders meeting, which usually is held in October. At that meeting, shareholders are given an opportunity to inspect the financial records of the company, but no financial materials are distributed.

The vast majority of shares given back to Keeneland are controlled by three trustees who make all of the critical decisions for the company. Keeneland’s board of directors is viewed as a “rubber stamp” board, according to several board members who spoke with the Paulick Report. “It’s usually ‘Here is what we’re going to do, and thank you for coming,’” one longtime board member said. Another said financial documents distributed at Keeneland board meetings are skeletal compared with those of other boards.

The current trustees are Will Farish, Louis Lee Haggin III and William M. Lear Jr. An attorney who is not active in the horse business, Lear only recently replaced another attorney, William T. “Buddy” Bishop III, the son of the longtime Keeneland general manager. Buddy Bishop, who died earlier this year, was named a trustee in 2005 following the death of Charles Nuckols Jr. Farish was named a trustee in 2005 as a replacement for James E. “Ted” Bassett III, who had to step down because of age requirements. Bassett has been associated with Keeneland since 1968 and served as its president and board chairman.  Haggin is the longest-running trustee.

There is little known about if, how or when a voting trust was established to represent the shares turned back to Keeneland. It also isn’t known how that trust might have been established, or whether it may have been created by a specific document. It is also unclear if there is a beneficiary to the voting trust, and who or what that beneficiary might be.

Phone messages and a fax to Bassett from the Paulick Report asking specific questions about the voting trust were not answered.

In 2002, a new holding company, called Keeneland Trustees, Inc., was incorporated in Kentucky as a non-profit corporation. The articles of incorporation of Keeneland Trustees Inc. state that the purpose of the corporation is “to operate for any lawful purpose or purposes, including, but not limited to, holding shares of stock of Keeneland Association, Inc. or ownership interest(s) in any other entity(ies) and perpetuating the purposes for which Keeneland was formed, including promoting the sport of horse racing, improving the breed of Thoroughbred horses and conducting annual race meetings. The Corporation is authorized to exercise any powers conferred upon corporations formed under the Kentucky Nonprofit Corporation Acts as may be necessary or convenient in order to accomplish the above-described purposes.” The officers of that company coincide with who serves as Keeneland’s trustees.

In other words, the Keeneland Association is now owned by Keeneland Trustees, Inc.

If Keeneland Trustees, Inc. is viewed as a non-profit company by the Internal Revenue Service, its IRS Form 990 is to be made available for public inspection as required by section 6104. However, Keeneland vice president Harvie Wilkinson and treasurer Jessica Green told the Paulick Report upon a request to view IRS Form 990 that Keeneland Trustees Inc. is not a non-profit company.

The Keeneland Association is a for-profit company and has been since the late 1950s. Its earnings are taxed, but the IRS apparently does not have the benefit of a second level of taxes that it enjoys with public companies whose shareholders pay an individual tax on dividends. Keeneland retains a large portion of its annual earnings after subsidizing purses and contributing to its Foundation. Its cash reserves, sources have told the Paulick Report, are in the hundreds of millions of dollars.

“They don’t know where to spend all that money,” one longtime Keeneland consignor said.

Some have suggested the retained earnings could present a tax problem, and that is one reason Keeneland is looking at an expansion project that could take a huge bite out of those cash reserves. Potential legal issues might also help explain why the last two individuals appointed Keeneland trustees are attorneys.

Breeders who have sold the billions of dollars of horses that have helped Keeneland earn that approximately $750 million since the Breeders’ Sales Company dissolved in 1962 might want to have a say in how some of those earnings are spent. Is it, for example, in the best interest of those breeders for Keeneland to expand its facility at great cost in order to attract the Breeders’ Cup? That’s a big investment for one extra day of racing every few years.

Nick Nicholson, the track’s current president, thinks not just breeders but others should have a say in Keeneland’s direction. In announcing the recent deal with HOK Sport to look at expansion, Nicholson said: “The citizens of our community, the state, and the Thoroughbred industry have a sense of ownership in Keeneland, and we respect and embrace that. Keeneland is an important part of Central Kentucky’s history and landscape, and we feel all should have a voice in its future.”

Keeneland was formed because of the widespread support of horsemen and the local community, and it became an extremely profitable company because of the many Thoroughbred breeders who sell their horses there.

It would be a refreshing change to see more than three people have a say in Keeneland’s future.

Copyright © 2008, The Paulick Report 

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Thoroughbred breeders are on pins and needles in the days leading up to the bellwether sale that determines the state of the commercial market and the financial well-being of thousands of people engaged in the business of breeding, raising and selling racehorses.

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

- National handle is down 3.7% for the first six months of 2008

- 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.