Disclosures At Auction: The Price Tag of Honesty?
The subject of veterinary disclosure has been the focus of much debate in recent years, particularly as sale companies have required greater disclosure from sellers to buyers in the last decade.
Disclosing critical veterinary information about a horse is designed to reduce what economists call “asymmetric information.” The term describes a situation where one party in a transaction has more information about the product being sold than the other, and it's considered a hindrance to fair and comfortable trade. In the sale of a used car, for example, buyers are more likely to feel at ease and interested in purchasing if they are offered a vehicle history report rather than the Carfax fox puppet.
A recent study released in the Journal of Agricultural and Applied Economics took a look at disclosure and its effects in the Thoroughbred sales market, specifically in the sale of yearlings. Surprisingly, researchers discovered that disclosed information, even if it revealed an imperfection, was more detrimental to the price of some horses than others.
Researchers examined the results from the 2008 Keeneland September Yearling Sale and found that horses in the “select” session (Books 1 and 2), were more likely to have disclosures on file (some voluntary and some mandatory) than horses in the non-select portion of the sale, but the presence of this information did not impact their price. In contrast, disclosed information provided about a horse in the later books was more likely to lower its price.
Disclosure of some information, such as eye defects, cribbing habits, and certain reproductive issues like gelding or ridglng status is required, while the disclosure of other items such as non-invasive surgeries or scope reports, is voluntary.
The study revealed that the percentage of horses with vet statement disclosures in the repository in the select books of the sale was as high as 23.2 percent in Book 1 and 20.1 percent in Book 2.
That number, which industry experts say is primarily comprised of statements on corrective joint surgeries, surprised study co-author Emily Plant, PhD and assistant professor at the University of Montana.
“Probably the biggest thing to jump out at me is the incredibly high incidence rate of vet statements for select horses,” she said.
Horsemen told Plant and co-author Jill Stowe, PhD and assistant professor at the University of Kentucky, that they consider such procedures run-of-the-mill.
“Industry experts indicate that the most common type of vet statements, which report invasive joint surgery, are actually quite common and the procedure is believed to have no bearing on the future performance of the yearling,” the study read. “They also suggest that the incidence of these procedures is high among the select yearlings because these are the ones for whom it is economically beneficial to have the procedure performed.”
Researchers suggested that the very listing of the horse in a select session might be a confidence boost to buyers. Keeneland officials must approve a horse's entry into a select session, which could act as a type of certification to buyers, who assume that any faults are minor if the horse has passed Keeneland's muster.
Kitty Taylor, president of Warrendale Sales says however, voluntary disclosures such as surgeries to insert screws and/or wires to correct conformation can be a negative to certain types of buyers, particularly the Europeans, whether the horse is listed in the select session or not.
“I think, when I talk to buyers at almost any level they have bypassed good horses that are back at the knee or off at the knee or toed-in and if they're buying to race, they realize that now and in certain sire lines expect to see a certain ‘flaw,'” said Taylor. “I encourage people I sell for that unless it's really, really a problem for this horse, a lot of these animals at this stage of life will self-correct through time and you wouldn't recognize it a year from now.”
Plant and Stowe noted that non-select horses were significantly impacted by the disclosure of flaws—in fact, those non-select horses with vet statements on file brought an average of 18 percent less than other non-select horses with no disclosed flaws.
Considering the costs that come along with veterinary reports for the purposes of disclosure, the findings may make sellers consignors with horses at the non-select level wonder—why bother disclosing something, voluntarily or not?
Warrendale's Taylor said that disclosure is what keeps buyers comfortable, even if it means telling them something they don't like hearing.
“You've got to disclose,” said Taylor. “I think disclosure, transparency, is crucial for good trade. I know that when I talk to certain buyers who buy for me at the yearling sales, they'll dismiss other agents they just don't want to buy from. They don't feel comfortable buying from them.”
“A disclosure serves to help stabilize the market and build trust among buyers and sellers,” said Plant. “Buyers trust that sellers disclose necessary information, and thus assists market transactions.”
Instead, Plant said, sellers need to realize the costs associated with a disclosure—it may be time to adjust those reserves.
The full study is available here.