Home -> Law Blog Directory -> Media & Entertainment Law Blogs -> Sports Biz

Media & Entertainment Law

: Sports Biz

Thoroughbred Yearling Sale Prices Fall for Third Year

It's the perfect storm of financial disaster for the thoroughbred breeding business. In 2007, when the current crop of yearlings which are now going through the sales ring were conceived, stud fees were at their recent peak. As those yearlings now come to market, breeders are faced with the Great Recession, an oversupply of foals as a result of the breeding boom in the high times of 2007 and shrinking demand for horses as a result of the difficulties race tracks face.

This year's yearling crop was bred in 2007, a year in which prices were still rising and the industry was still filled with speculators(sound familiar?). 2006 had seen a record price paid for a thoroughbred at auction with the sale of a two year old later named The Green Monkey for $16.2 million. He had not yet proven what type of race he would become at the time breeding decisions were made and stud fees were sold and paid for. Of course, he never won a race and his stud fee is now a mere $5,000.

Keeneland is in the middle of its September yearling sale. The first four days have concluded and it is those days at which the highest price yearlings are sold. This year, sales were down 42% and if the trend continues, the sale will record lower gross sales, average price and median price. For the first time in almost 20 years, those metrics will be lower for three straight sales. It is particularly hard on breeders since 2007 was the peak of stud prices in recent years.

We have recounted some of the problems the industry is facing at the track and if breeding farms are losing money in substantial numbers as well, that doesn't bode well for the future of racing. While it is likely that the market will resolve breeding economics, it will not be without pain. The number of farms that will close is not yet known but it will be substantial, especially those with both significant debt and reliance on yearling sales. The crop of yearlings will be smaller, reducing supply and increasing demand, but the number of tracks may decrease as well, placing additional constraints on breeders that may not be foreseen in their current breeding plans.

Horse racing and breeding has always been a bit of craps shoot, to mix a gambling metaphor. It has been exacerbated by the global Great Recession, as smaller breeders are being pushed out of the business and larger breeders are reducing the numbers they buy. The Great Recession is also increasing the already difficult operating environment of race tracks without any additional source of income, i.e. casinos. That will also place a greater constraint on demand for horse, furthering the depression in thoroughbred prices and increasing the likelihood of smaller farms facing bankruptcy. As Kentucky legislators will again be called on to look at approving adding at least slots to tracks, they would do well to keep in mind the pressures on the Commonwealth's signature industry. I would hate to see them have to redesign our license plates so quickly after spending all that money on new branding.

Full post as published by Sports Biz on September 21, 2009 (boomark / email).