The American Yearling Market:
Irrational Psychology
Several years ago, while completing an internship at a major California breeding farm, one of my responsibilities was to show the stallions to prospective clients. One day, a gentlemen arrived at the farm who was interested in seeing a recently retired Grade 1 winner that would reportedly stand for $40,000 during the upcoming breeding season. As I led the attractive colt out of his stall, you could see the excitement develop in the man's face. Obviously contemplating the colt's potential for greatness as a sire, the man became almost giddy as he gave the colt a lookover.
As we continued on our tour of the stallion barn, I asked him about his breeding program and what kind of goals he may have. He explained that he had a handful of mares at a nearby farm that he bred strictly for racing purposes. He had no plans for
"We're addicted to the anticipation of what may be, and at times, we even perpetuate a strong disdain for proven commodities." |
entering the commercial market. When I learned this, I mentioned a successful, middle-aged sire at the farm who would stand the following season for less than a third of what the new, unproven colt would stand for. His response has stuck with me ever since:
"Well, yeah, but what fun is it to breed to a proven sire?"
In one brief sentence, he summed up the psychological foundations of our industry: We're addicted to the anticipation of what may be, and at times, we even perpetuate a strong disdain for proven commodities. The possibility of getting in on a sire who will later become the next Danzig, regardless of the odds, is an integral part of the mind set that drives our business. And as crucial as this psychology is to fiscal windfalls of some members of our industry, it is equally destructive to efforts aimed at recruiting new owners.
Nowhere is this phenomenon more apparent than at the yearling sales. Sires with the most important credential, proven progeny, are usually pushed to the middle and lower levels of the market in order to make room for the capital that will be spent to medicate this excitement we've developed for first year sires. Agents and advisors will make a substantial portion of their income by selling the 'what if' psychology to their wealthy clients, and as we've all seen, clients succumb more often than not.
As we've done so often in the past, we went back in time, this time 1998, to examine the fiscal fallout for appeasing this craze for the unknown. In 1998, yearlings from dozens of first crop sires would be auctioned off across the country, and at year's end, five sires had risen to the top in terms of overall average:
Tabasco Cat 206,487
Thunder Gulch 167,339
French Deputy 70,452
Bahri 61,946
Go For Gin 58,481
Overall Average per yearling: 133,991
In the same year, yearlings from proven, well-respected sires standing for $15,000 or less were also being sent to the marketplace, but with much less fanfare. For our purposes, we selected sires in this price range that few will argue their usefulness. They include:
El Prado 26,862
Known Fact 31,748
Lord Avie 18,232
Runaway Groom 28,748
Star De Naskra 33,844
Overall Average per yearling: 30,370
In and of themselves, these figures should be alarming to owners who send their trusted advisers to the sales each year. Even if you account for the higher quality mares that are being sent to first year sires in anticipation of market response, agents still shouldn't be spending in such a way that we get this kind of imbalance.
Now, let's fast forward to December 31, 2003, where these yearlings are just about to wrap up their sixth year. Tabulated race records from both groups are itemized below:
|
1st Year Sires
($133,991 Avg.
Yearling Price)
|
Proven Sires ($30,370 Avg. Yearling Price)
|
Foals |
140 |
91 |
Starters |
114 (81.4%) |
69 (75.8%) |
Winners (% from Starters) |
83 (72.8%) |
56 (81.1%) |
Stakes Horses (% from Starters) |
14 (12.2%) |
7 (10.1%) |
Stakes Winners (% from Starters) |
8 (7%) |
3 (4.3%) |
Grades Stakes Horses (% from Starters) |
8 (7%) |
4 (5.7%) |
Avg. Earnings per Starter |
55,332 |
58,139 |
Median Earnings per Starter |
23,585 |
32,599 |
Average Earnings per Start |
3,326 |
2,768 |
Starts per foal |
13.5 |
15.9 |
Starts per starter |
16.6 |
21 |
Several figures stand out in the sampling. First, foals from proven sires earn an average of $2,807 more during the length of their careers. Add that number to the difference in initial investment ($103,621) and the fiscal reality becomes staggering, especially when you think of all the owners that have left the game after such realities set in.
The second number that stands out is median earnings per starter, which tells us that 50% of all starters sired by 1st year sires made $23,585 or less, while 50% of their counterparts made at least $32,599. When stacked up against the initial investment and subsequent expenses, neither of these numbers are good news for prospective owners. However, when mindful of the drastic difference in initial investment, the craze for 1st year sires becomes even more irrational.
It's not all roses for the proven sires though. Graded stakes production, overall stakes production, and average earnings per start tapers off somewhat with the proven sires. While we can't substantiate any claims at this point, our guess is that the drop off is a function of the cheaper mares that middle-aged, proven sires often see. Information that may quantify this phenomenon simply isn't available to us. 1st year sires also get 5.6% more foals to the track, at least in part due to the greater care and patience afforded more expensive investments.
As is the case with most statistical research, replication will need to be demonstrated before solid theory is developed. In the coming months, we'll re-visit this issue as we look at the 1999 yearling crop. While the numbers may show some degree of variance, we're confident that they'll still be in line with data that illustrates the irrational process many agents utilize at yearling sales.
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