Disclosures At Auction: The Price Tag of Honesty?

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Musculoskeletal injuries were one of the topics covered at the Grayson-Jockey Club Research Foundation's Welfare and Safety Summit  Musculoskeletal injuries were one of the topics covered at the Grayson-Jockey Club Research Foundation's Welfare and Safety Summit

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.”

Economists agree.

“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.

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  • First Watcher

    What about the 2yo in training sales disclosures? Ask anyone who has worked at the barns and for the most part they will tell you the same thing: these babies are subjected to a variety of harmful “procedures and treatments” which are never disclosed to buyers. Even though the sales companies (except OBS) maintain they comply with the voluntary ethical standards established about 10 years ago, they don’t follow through with TESTING.
    OBS’ motto: “let the buyer REALLY beware.”
    The others’: “what we won’t look for we won’t find.”
    The 2yo sales are the epitome of what’s wrong with our industry: short-term gains at the expense of sound racing prospects and long-term buyers.

  • rachel

    I can’t even understand why there’s even a discussion about whether or not a horse’s complete medical history should be available…

  • Richard C

    Without full disclosure — I gather any “inconveniences” could be termed “alleged” (wink, wink) fraud.

  • Mimi Hunter

    Whatever happened to ‘Buyer Beware’? Seriously though, I can see the reasoning. The buyers of the ‘selected’ horses probably figure that any potential problems have been assessed and fixed. That’s why they’re ‘select’. Buyers of the non-select horses probably figure that if the seller’s will admit to this much, how much aren’t they admitting to? Just like any horse sale I’ve ever been to but with a few more zero’s in the selling price.

    • Stanley inman

      Mimi,
      Some of the asymetry between expense and cheap horses sold
      Is because expensive horses often have salvage value
      as breeding stock.

    • Knowitall

      “If they admit to this much, how much are they not admitting to?” Wow, Mimi. I always think the opposite of people in all walks of life. If they are telling me the truth, I tend to think they will continue to do so, until they prove otherwise. I do think it is incumbent on buyer to ask the right questions, though.

      • Red Rider

        How about, “Here’s a horse. Wanna buy it? It is available for inspection?”

  • Guy Fleegman1

    “Honesty” in the Horse Racing Industry? That is a myth.

  • Carrie Brogden

    The filly we bred just won a 3 yr old listed stake at Monmouth had screws in her front ankles as a foal.. If she had not had them, she would never have started. Obviously was the right thing to do and she has never had issues. I did tell those that asked me if she had had them that she did but that was very few people that asked.. The buyers went with their gut instincts at a reasonable price and now they have a beautifully bred stakes filly.

    • David

      These are the stories we all love as breeders, and there are so many of them like this. This article points out something interesting. The buyers at the select levels, with all their top level advisors, all playing with higher end money and volume of horses over the years, will forgive more faults on x-rays and confirmation than the buyers at the non select levels. That speaks volumes to me that the smaller scale buyers should take note of this and be more forgiving with faults that usually don’t keep a horse from racing. There are many other reasons that horses won’t run successfully other than xrays and certain confirmation flaws. Heck, even bad trainers are probably more responsible for horses not racing well than the above reasons. You here a lot of talk about not being able to buy one at a sale because the prices are too high, or that they could have bought that successful horse for cheap but “I didn’t pass him at the sale,” when it really boils down to they were too picky, and all fall on the same perfect show horse instead of a good racing prospect.

      • guest

        David, would you marry me?

        It is all about the “product.” Whoever got the surgery first as a baby, worked the fastest furlong at the ‘in training sales” and is a showboat of who has the most money and who can ‘pinhook’ the best. Two year old training sales, already grinding them for speed when their bones are not even developed, plus packing weight—NOT jockey weight, where most babies aren’t even 2 yrs. old???? What’s wrong with this picture? Who can afford the most sophisticated coverups? You are destroying the equine on every level. One thing nobody ever mentions are the painful abuse these horses go through JUST being tested; over and medicated normally, abnormally, etc. Why do you think they put lip chains on these horses just to get anything done with them or get them to the paddock? Do you know how much that pains a horse? There are many nerves on the upper gum, and with that heavy duty chain the horse will get on his knees for you if he has to. Honesty at Auctions? Yeah right.

        • Red Rider

          ever notice how many $5000 claimers can run the first quarter in 21 and change, but finish six furlongs in 113? ever wonder how many also ran 21 and change as 2yos and brought a pretty penny for it? New meaning for “also ran”.

          The entire sales, breeding, and racing industry is controlled behind the scenes by veterinarians who push for “disclosure” (i.e. more tests, more x-rays) and simultaneously push for more corrective surgeries, more meds,more performance enhancers, and more cash flow. All is performed under the guise of protecting the buyer, integrity, and transparency? Hogwash! If you bought a used car anyone who could afford it would have their own mechanic check it out. Anyone who can afford a racehorse can afford to have their “mechanic” check it out as well.

          The problem is a lack of good horsemen who know how to evaluate a horse other than as beauty contestants and quarter milers. Few could make a buying decision without someone holding their hand and their wallets.

  • Rachel

    I’d love to see a system like the dogs I’ve bought from Europe.
    All paperwork follows the dog for life.
    There’s a complete chain of ownership on the registration papers, original signatures only…lose the registration, each owner must be tracked down.
    On the registration is the permanent conformation and hip rating and stamp.
    A complete medical history book, with every vaccination, procedure, health history signed and stamped by the attending veterinarian.
    A performance book issued by the country’s breed club that includes every working trial and/or show or breed survey.
    Don’t like it? Don’t compete…or just sell the dog to uninformed buyers in the USA…

  • Racingwithbruno

    as a buyer and a seller over the past three years, I believe there is value to full disclosure and it is up to the buyer and his vet to decide whether to pursue the horse or to pass.
    in many cases potential competition received poor advice or got scared and horses was a substantial value at auction. I fully endorse the full disclosure and let my team and i make the final evaluation.

  • Nayrod

    Disclosure,disclosure – that is what every prospective owner/vet should request. X-rays
    can be taken to hide certain faults. Just a different angle can completely
    change the look of a joint. I know some sales request x-rays upfront. If a horse that will bring lots of money and someone really, really wants that horse. Have your vet x-ray the horse, just in case. It’s an investment well spent!

    • Larry Ensor

      All of the leading sales companies require x-rays to be on “deposit”. I wouldn’t buy a horse at an auction that didn’t. Digital x-rays make it pretty tough to “fudge” pictures/views these days. If a horse has a “suspect view” of a joint we may just pass the horse or snap another one. Successful buyers know the drill. One’s that don’t should hire a good agent.

  • Sandra Warren

    I’ve noticed at auctions that occasionally there is an announcement for a minor flaw, a small patch on the hip where the horse bumped himself coming out of the stall, or maybe a tiny cloudy spot on the eye. They always read off a statement from the attending vet that says that the injury is inconsequential, and yet there is always a definite stall in the bidding after that. I can’t think of any time I heard one of these flaws announced where the horse went for more than I thought it was worth. I think there ought to be a threshold under which the seller is not required to announce a minor flaw which can easily be seen by the buyer during a visual inspection (and I say that as a person who has only ever been a buyer, never a consignor).
    I’m much more concerned about buying a horse that has had a stripping procedure or some other treatment of which I am unaware.

  • Larry Kettles

    I feel that full disclosure is needed. Also two year olds at sales should be tested at in. training sales

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