Reality Check for Keeneland

Initial reaction to the results from Keeneland's November breeding stock sale seem to be determinedly positive. For example, Frank Mitchell's Bloodstock in the Bluegrass blog talks about how "the recession is over," and that there's "confidence in a down market." And Deirdre Biles' Hammer Time blog on the Blood-Horse web site concludes that there's "at least a glimmer of hope" in the market post-November.

I guess those views, reflecting the by-now-desperate hope of thoroughbred breeders, are based on the fact that the sale numbers this year declined less from 2008 than 2008 had, in turn, declined from 2007. Small consolation. The 2007-2008 decline was about 40% in average price and 45% in gross for the sale as a whole. In contrast, the decline from 2008 to this year was only 7% in the average price and 14% in the gross.

Here are the numbers for this month's sale: of 4702 horses cataloged, 2779 of them sold (59.1% of the catalog), for a total of $159,727,800, or an average of $57,477. Compare that with the 2007 results, before the financial markets crashed in 2008. In 2007, 3381 of the 5415 horses in the catalog (62.4%) sold, for a total of $340,877,200, or an average of $100,821 per head. So, comparing those peak results from two years ago with this year's numbers, we have an overall drop of 53.1% in the gross for the sale, and a drop of 53% in the average price. That's even worse than the decline in my IRA over the same period. So, if that sort of number signals the end of the downturn and provides hope for the future, we're certainly living in a world of very diminished expectations.

And those numbers from the just-concluded sale need to be adjusted for the very atypical profile of this year's catalog. When companies report their financial results, they typically exclude "extraordinary events," such as a one-time sale of assets. Similarly, the real state of this year's Keeneland sale should be looked at by excluding from the results the one-time Overbrook Farm dispersal. That dispersal sale, which is a once-in-a-generation event, involved 148 horses, which sold for $31,760,000, or an average of $214,595, obviously well above the results for the sale as a whole.

If we subtract the Overbrook horses from the sale, here's what we get for the "normal" part of the sale: 2631 of 4554 horses in the catalog (57.8%) sold, for a total of $127,967,800, or an average of $48,638.

Now let's compare that with the 2007 results. In just two years, the gross has declined by 62.5% and the average has dropped 52%. Sounds more like the housing market in Las Vegas than an industry on the brink of recovery.

I wish things were looking better for breeders; many of them are nice people, and many of them put a lot of work and love into raising horses. But the reality is that our industry is going to have to get a lot smaller. Race tracks are closing; Blue Ribbon Downs in Oklahoma is the latest. Purses are stagnant or declining, in the face of steadily rising costs. And there just isn't a market for an animal that is, as bloodstock agents like to say, "just a horse." True, stallion stud fees are coming down, but by nowhere near the 65% from their 2007 levels that they need to. There's lots more downsizing still to come.

Let's see. Breeders are losing money. Owners are losing money -- as we always have, but I suspect even more now. Racetracks are losing money on their live product, with a few shrewd ones (e.g., Churchill Downs Inc.) moving to becoming online betting impresarios, at the expense of their own horsemen. So who's making money in this environment? Oh, of course, bloodstock agents. How could I forget?

It ain't pretty out there.

Why Are We in This Business?

As everyone in the racing business knows by now, prices for race horses have dropped precipitously over the past year. At the current Keeneland yearling sale, both the average and median prices are off between 30-35% as compared to last year. It's now possible -- as it has not been for the past few years, to obtain high-quality racing prospects at what seems, by historical standards, to be a fair price.

But, in fact, even if one buys at those fair prices, the game is still stacked against the owner who actually wants to make money by owning race horses. Despite the increasing saturation of race track-based slot machines, purses have stagnated and even declined, while the cost of doing business steadily increases.

Let's look at a couple of examples to see how succesful a horse has to be on the track for its owner to break even.

First, let's look at a typical high-end yearling purchase, say for $250,000. That's not the top of the market, but it's a lot more than I tend to carry around in my wallet for impulse purchases.

On top of the $250,000 puchase price, we need to add about 5% for a commission to the bloodstock agent; you wouldn't buy a horse at that level without expert advice. That's $12,500. Throw in another $7,500 for sale expenses, including vetting all the horses that you end up not buying. Then there's insurance, which you'd want on an expensive horse. Probably $45,000 to the end of its 4-year0old year, or about 6% of the insured value annually.

Then we send the horse to Florida for breaking and preliminary training, before sending him back north (let's say Saratoga) in the middle of his two-year-old year. That's another $20,000 for training and vet, plus about $4,000 for all the increasingly expensive van rides. So far, we're up to $339,000.

Now, let's add in training the horse at the track from August of its two-year-old year through the end of its four-year-old year. We'll hire a top-level trainer, at say $125 a day, and, even if we try to manage vet costs, they won't be less than $500 a month. So, training and vet costs to the end of the four-year-old season are another $125,000. All together, we've spent about $464,000 to get the horse that far.

So, how much does the horse need to earn on the track to break even? A lot more than $464,000. The trainer gets at least 10%, and, increasingly, more like 12% of earnings; the jockey gets on average another 7%, and, at least if you race in New York, another 3% or so goes for a variety of mandatory deductions. So we have to gross up the required earnings to get back to our net target of $464,000. In fact, we'd need to earn almost $600,000 in purses just to break even.

Sure, there's some possibility of residual stallion or broodmare value at this level, but in the current market, and discounting for the time value of whatever money might come in down the road, that isn't going to be much. If we're looking at making a profit on the race track, we need that $600,000. And how many horses earn that much?

Now let's take a more modest example. Say we buy a decent New York-bred yearling for $35,000. We won't bother with a bloodstock adviser, and we'll skip the insurance. And we'll probably be tougher on the vet expenses, and place the horse with a trainer whose day rate is more like $100 a day. Using those parameters, it'll cost us a total of $80,000, including the purchase price, to get our $35,000 yearling to the end of its two-year-old year, assuming we send it to the track in August, and another $88,000 for two years of training and vet bills. So, by the end of its four-year-old year, we've spent $168,000.

Applying the same formula to gross up the earnings for trainers' and jockeys' percentages, we'd need purse earnings of $215,000 to get even on our $35,000 yearling. I've had a few horses that did that well, but it's not an everyday occurrence. Look at the lifetime earnings for horses running in New York and you won't see that many above $200,000.

And all these projections don't include all the little extra costs that go with being an owner, from lunches for friends at the turf club to, one hopes, lots of win pictures, to stakes nominations, to donations to worthy race track charities.

So, why are we in this business? Because we love horses and have a terrific ability to see the future through the rosiest of rose-colored glasses. It's a great business to be in. Just don't expect to make money.

If Not For You

If not for you,
Winter would have no spring,
Couldn't hear the robin sing,
I just wouldn't have a clue,
Anyway it wouldn't ring true,
If not for you.

Bob Dylan, ©1970 Big Sky Music

I'm pretty sure the folks at Keeneland, shaken as they may be by the bottom falling out of the yearling market the past two days, nonetheless harbor thoughts similar to those of Bob Dylan about Dubai's Sheikh Mohammed bin Rashid Al Maktoum and his entourage. Of the 222 horses reported sold on the first two days of the annual Keeneland yearling sale, 50 of them were purchased by the Sheikh's bloodstock adviser, John Ferguson, or by entities associated with Dubai's royal family, including the Shadwell Estate Co., and Rabbah Bloodstock. That's an overwhelming 22.5% of the total number sold, and an even bigger percentage of the money paid over those two days. Gross receipts for the prestigious Book 1 horses sold at Keeneland this year were $58.8 million (a 48% drop from last year). And of that sharply reduced amount, the Dubai forces accounted for $18,305,000, or mre than 31% of the gross sales. If not for you, your Highness....

If we subtract the Dubai-associated purchases from the results, then here's what's left: 172 horses sold (of a total of 418 cataloged) for $40,451,000, an average of just over $235,000. Sure, we can assume that most of the horses purchased by the folks from Dubai would have sold even without their bids, but certainly at lower prices. In fact, it's not unreasonable to assume that the average for the sale would have been a lot closer to that $235,000 than to the actually reported average -- including Dubai -- of $265,000.

As compared to their equally visible activity at the boutique Fasig-Tipton Saratoga yearling sale last month, the Dubai forces at Keeneland put less emphasis on supporting their own sires -- Street Cry, Bernardini and Medaglia D'Oro, and more on acquiring superior racing and breeding prospects at what, for them, must have seemed like bargain prices. Only 16 of the 50 horses bought by Ferguson, Shadwell and Rabbah were sired by their own stallions, compared with more than half of their Saratoga purchases.

(Shadwell and Rabbah were still somewhat active early on Wednesday, buying three of the first 50 horses to go through the ring on the first day of Book 2 of the sale, though there was little prospect for any more million-dollar-plus purchases by any of the Dubai buyers.)

With this year's purchases, the Sheikh and his associates are aquiring a lot of stellar American bloodlines. They bought yearlings, for example, by A P Indy, Storm Cat, Distorted Humor, Tapit (a new sire whose yearlings look great and who, I think, will make a name for himself quickly), Dynaformer, Ghostzapper, Kingmambo, Elusive Quality, Forestry, Rahy and Unbridled's Song, in addition to those by their own sires. They've also taken advantage of the price collapse to buy into some of the premier American female familes. With another year or two of such purchases, the Sheikh may have all the bloodstock he needs to breed the very best race horses in the world. If and when that time comes, and he cuts back on the volume of his purchases, the yearling market will be in for an even more serious shock.

If not for you....

Looking for a Good Horse at Keeneland

For the past several years, I've been part of a team that looks for horses at the Keeneland yearling sale, on behalf of cients with serious money and a serious desire to win graded-stakes races. Some "bloodstock agents" may claim to do it all themselves, and a lot of buyers just pick out a horse in the Keeneland walking ring minutes before its hip number is called for auction. But those of us --and there are many -- who are seriously trying to find the very best horses have no alternative but to put in a lot of hard work. For those who perhaps don't know the auction process, here's how it works.

Keeneland list some 5,000-plus yearlings for sale every September (though that number may, and should, shrink in response to the severe downturn in the thoroughbred market). The catalog is divided into "books," with each book containing horses that are, in general, a little worse than those in the earlier books, and a little better than those in the later books. The first two books, 1200 horses that are offered on the first four days of the sale, generally contain the horses with the fanciest pedigrees and the best appearance, as judged by the Keeneland staff. That's where the big money is, and where most of the million-dollar babies have been bought in the past.

Our group, and others like it, tries to look at every single horse in books 1 and 2, and as many as possible in Books 3 through 5, a part of the catalog that traitionally produces some of the best bargains in the sale and a good number of stakes winners. To do that, we need to work through the following steps:

First, someone looks at every horse and short-lists those that are worth a second look. Books 1 through 5 have a total of more than 3600 horses in them. That's a lot of looking, walking around Keeneland's 49 barns.

Second, the team leader looks at every horse in Book 1 and every horse that's been short-listed for Books 2 through 5. In addition, she checks with the consignors, just in case we've missed something.

Third, we do ultrasound heart scans on our short-short list, to measure the horses' cardiac function and eliminate those who dont have big enough or efficient enough hearts to sustain them at the very highest racing levels. The scans are analyzed against a database of thoroughbreds to see how they match up along the bell curve. All this can't be done while the horses are being shown to buyers, so, after an eight-hour day looking at yearlings, we start all over again at 4 pm, when showing winds down, and keep going until 10 pm or so doing the ultrasounds.

Fourth, we get a vet to review the records on those horses that have made in through the first three steps, checking the x-ray records on file in the Keeneland repository and, if necessary, scoping the horse to determine whether it's able to take in enough air to keep it running past sprint distances.

Finally, we have a very short list that we can take to the clients, the folks with money enough to buy the very best (well, the very best that Sheikh Mohammed and Coolmore aren't bidding on).

All this takes time, and that's where the problem is. With the exception of the Book 1 horses, most horses for sale are on the Keeneland grounds and available to be seen for only a day or two before they are sold. In that time frame, there often isn't the time to do all the steps described above. So some good horses fall by the wayside. If we can't have the time to do the scans and then to get the vet reports, then we can't recommend the horses to our clients, and potential bidders are lost.

Realistically, we can't wait until the morning that the horse goes on sale to ask the vet for a review; they have way too much to do. So, if we want to get the vet to look the day before, that means we have to do the cardio the night before that, i.e., two days before the horse sells. And to do that, the horse really should be on the grounds and available to be shown three days before the sale date. With 400 horses selling each day, and limited barn space, that simply isnt happening. And, because it's not, sales opportunities are being lost.

So, what could Keeneland do? (Or, what could the newly revived Fasig-Tipton do to challenge Keeneland?)

First, we need to have fewer horses per day. Maybe not the 200 per day that sell in Book 1, but perhaps 300 would be a happy medium. That would allow the next book's horses to move into the barns earlier and provide more time for buyers to see them.

Second, there needs to be more time for the vets to do their work. At present, Keeneland's repository opens at 8 am and closes when that day's sale is over. The vets are willing to work longer hours, so why not let them? Open up the repository at, say, 5 am, and keep it open as long as some workaholic vet needs it.

With all the money that Keeneland spends attracting foreign buyers to come to the sale, you'd think a little more to make the working conditions more conducive to selling wouldn't be such a stretch. It would surely help those of us who are trying to buy good horses, and isn't that what the sellers and auction houses want?

Inside the Inner Sanctum

This past Sunday, I attended my first Jockey Club Round Table, the annual event hosted by the racing world's aristocracy in Saratoga. By now, most of those interested in racing will have seen the press reports on the Round Table (here, for example), all of which focused on the call by Louis Romanet of France for the US to join the rest of the so-called civilized world and ban Lasix, at least in the more important stakes races.

But the bulk of the Round Table actually concentrated on less contentious issues: the necessary changes that need to be made to ensure a level, drug-free (except, of course, for Lasix) playing field, safer race tracks, and the assurance of retirement homes for horses once their racing careers are done. All these initiatives are necessary, minimum requirements to restore a little bit of public confidence in racing, and it's a good thing that the Jockey Club can use the influence of the 100 grandees who are its members to pull together industry initiatives, about which more later. But all these efforts, however noble, won't be sufficient to save the industry, and it's unlikely that leadership on the tough questions of downsizing and coordination will come from a group that's done so well with the status quo. As I recall, the Second Estate (the nobility) didn't do so well in the Revolution.

Not that I'm looking a gift horse in the mouth, or at least not entirely. It was nice of the Jockey Club to invite someone (me) who's a fairly persistent critic of industry self-satisfaction, and I particularly appreciate that Jockey Club President Alan Marzelli made a point of coming over and welcoming that persistent critic.

Nonetheless, the Round Table is most definitely not an occasion for an open, back-and-forth discussion of racing issues. Unlike many public programs, there is no opportunity to ask questions of, or debate with, the speakers. The meeting is carefully scripted, with speakers kept to their time limits, and the audience just that, an audience, even if it did consist of most of the important names in the racing business.

Now, for the details: the Round Table session was roughly divided between reports on race track safety and thoroughbred retirement, on the one hand, and drug testing and enforcement on the other. (a full transcipt of the Round Table is available on the Jockey Club web site.) And there is indeed a lot of incremental progress being made in these areas. For example, the Jockey Club itself has set up a free service to help people who may have acquired a retired thoroughbred research the tattoo number and identify the horse. And, as Diana Pikulski of theThoroughbred Retirement Foundation reported, the various retirement programs are expanding as fast as they can obtain more funding. The Jockey Club, which registers all new thoroughbred foals, has instituted a checkoff option so that breeders can contribute to a retirement fund when they apply for their foal papers. (Some race tracks, including NYRA, have set up their own voluntary funds, financed by the tracks and the owners, to provide additional retirement money.) All good initiatives, though they won't provide homes for the 1.3 million thoroughbreds living in North America (roughly 15% of all American horses are thoroughbreds.) As a lawyer, I found myself wondering whether it wouldn't be possible to use the emerging legal device of a "pet trust" (think Leona Helmsley, who left most of her money to her dog) as a vehicle for funding thoroughbred retirement. Though it probably wouldn't be such a good idea to entrust the funds in such a trust to the same people who've presided over the Jockey Club's and the Breeders Cup's recent investment losses.

The discussion of race track safety came, unfortunately, just before the release of the recent report on fatalities on synthetic tracks in California, and before theArlington Park accident that threatens to leave young jockey Michael Straight paralyzed -- the second such calamitous accident on Arlington's synthetic surface this year. Those development confirm what a lot ofus already knew; synthetic tracks aren't a panacea. What keeps breakdowns to a minimum is a combination of good track superintendents who have the resources to keep their surfaces well-maintained, and trainers who won't send out horses that are only marginally fit. Both those factors depend more on the economics of racing than on scientific studies.

The second half of the Round Table program, focusing on drug issues, raised a number of interesting questions, with all the participants substantially agreeing on a range of issues, except for Lasix. The Jockey Club showed some courage in inviting people who take a tougher stand than do most trainers and state regulators: Joe Gorajec, chair of the Indiana Racing Commission, Steve Crist of the Racing Form, and, of course, Monsieur Romanet, scion of a leading French racing family and chair of the International Federation of Horseracing Authorities. But, while urging tougher drug rules, including meanigful suspensions for trainers, and perhaps owners as well, and the banning of such commonly used meds as "bleeder adjuncts" like Amacar or Kentucky Red; non-steroidal anti-inflammatories like Bute and topical corticosteroids, all of which should probably be banned because they're either harmful to the horse, or mask conditions that could lead to serious injury on the track, or both.

The big issue that continues to defy agreement is Lasix. The recent South African study makes the point, as US horsemen are delighted to tell you, that Lasix does indeed have a therapeutic effect; it substantially reduces the incidence of bleeding in the lungs of horses when they're racing; horses without Laix were found to be three to four times more likely to show any evidence of bleeding than those treated with Lasix, and seven to 11 times more likely to have severe bleeding. No question; it's a drug that works.

But Lasix also is a huge performance enhancer. It's easy to understand why. For a start, the horse treated with Lasix will lose 12-14 pounds of water; that's equivalent to going from a 126-pound weight to a bug boy carrying 112 pounds. Some trainers also believe that Lasix can effectively mask the use of other drugs that may be prohibited; I understand that the better testing labs can "see" the other drugs through the Lasix, but we don't know for sure. And trainers of horses coming over to the US from Europe certainly aren't shy about adding Lasix, with good reason. Raven's Pass and Henrythenavigator looked pretty good on first-time Lasix at last year's Breeders Cup Classic, and just yesterday, Salve Germania, an Irish invader with, to be charitable, a mediocre record in Europe, came over to Saratoga and, on first-time Lasix, won the Grade II Ballston Spa Handicap at odds of 24-1, beating such established US fillies and mares as Rutherienne and Cocoa Beach.

Just as trainers have adjusted to the new ban on anabolic steroids in the US, they could adjust to a ban on Lasix, or rather a reestablishment of the ban that existed, in New York anyway, until just 15 years ago. But we've been breeding horses for two decades now that are more and more susceptible to bleeding, so the adjustment period would be difficult. Don't hold your breath waiting for the US to rejoin the rest of the world.

From my own perspective, a very interesting aspect of the Round Table was the agreement of all the US speakers on the drug issue that racing should stick to the self-regulation model (you know, the one that's worked so well to prevent fraud in the securities markets) and not, heaven forbid, have uniform federal regulation. The vehicle of choice seemed to be "interstate compacts" that would allow the various state racing authorities to adopt uniform rules without having to go back to their legislatures every time they wanted to change the rules. Now, anything that keeps racing out of the hands of the comically inept New York State legislature is probably a plus, but I wonder why there's such an aversion to unified, federal standards. Are the rules of the Food and Drug Administration, the Securities and Exchange Commission, or the Occupational Safety and Health Administration really so terrible? (Ah, I forget, to the "just say no to health care" crowd in the Republican Party, any rules that interfere with the ability of the rich to do what they want are terrible.) Racing is certainly an industry that impacts interstate commerce; why shouldn't it be subject to federal oversight?

I appreciate the opportunity to take a look inside the tent, and one must give credit for those initiatives that are underway on safety, drug and retirement issues. But oh so much more needs to be done. Can we structure a racing industry that's viable over the long term? Can we make the game attractive to new fans, and keep those we have from spending themselves out of action? OK, these questions weren't on the agenda for the Round Table, but I do think I saw a couple of very large gorillas lurking in the shadows of that conference room last Sunday.

Gotcha

Thanks to my friend Jeff Seder, of EQB, Inc., for bringing this to my attention:

The judge in the Magna Entertainment bankruptcy case has ruled that Magna Entertainment's creditors (which includes just about everybody in the racing industry) can pursue claims not only against Magna Entertainment itself, but also against its chairman, Frank Stronach, and against the Stronach-controlled company, MI Developments, that was the nominal parent of Magna Entertainment. The full story is here.

As readers of this blog already know, Magna Entertainment, which holds such major league racing properties as Santa Anita, Gulfstream, Laurel and Pimlico, filed for bankruptcy some months ago. For years, Magna Entertainment was propped up by a series of loans and equity ifusions from MI Developments (MID), often over the protests of minority shareholders in MID, who rightly accused Stronach of using that company to toss good money after bad to support Stronach's dreams of a thoroughbred racing empire.

Bankruptcy judge Mary Walrath, in Delaware, allowed the Magna Entertainment creditors committee to move forward with its effort to prove that some $125 million in MID injections into Magna Entertainment were, in the terms of the bankruptcy code, fraudulent transactions. Good news for the creditors, bad news for Frank and his compliant MID directors.

Much more is sure to emerge in the coming months.

Behind the Numbers at the Saratoga Sale

As everyone knows by now, the recently completed Fasig-Tipton select yearling sale at Saratoga was a welcome change from the past year's pattern of steady declines at all thoroughbred sales. The Saratoga sale's gross proceeds were $52,549,500, for 160 horses reported as sold, compared with $41,082,000 for 142 sold last year. The average and median prices, as already reported, were also up substantially.

A closer look at the details of this year's Saratoga sale, though, casts some doubt on the upbeat message that Fasig-Tipton and industry insiders tried to carry away from the sale. The following are only a few of the factors that suggest the market for thoroughbreds has a long way to go before it reaches bottom.

1. The Influence of Sheikh Mohammed

The Fasig-Tipton auction house was recently purchased by Synergy Investments Ltd., a Dubai-based company about which it's almost impossible to discover anything (see my report earlier this year). One presumes that the purchaser is, at least, closely linked to Dubai's ruler, Sheikh Mohammed. In any event, money from Dubai was responsible for major investments at Fasig-Tipton's Saratoga sales grounds, with fancy new wrought-iron fencing, a new outdoor walking ring, and the most spectacular bathroom ever seen at a horse sale. The new F-T also made a major effort to bring in high-end foreign buyers, offering assistance with travel and the financing of purchases, as well as a round of parties to loosen up the purchasers' wallets.

But the biggest single influence at this year's sale was the presence, and the purchasing, of Sheikh Mohammed himself -- appearing on the grounds for the first time in over 20 years. The Sheikh, acting through his main man, John Ferguson, and together with closely linked buyers Shadwell and Rabbah, bought a total of 22 yearlings, for $14.5 million, an average of $660,000. That was more than double the Sheikh's typical buying at Saratoga; in 2008 he and related entities bought 10 for $4.4 million, and in 2007 they bought nine for $5.5 million. So virtually all the increase in the sale's gross can be attributed to one man.

In addition, the pattern of Sheikh Mohammed's buying this year was significantly different this year. At previous sales, he'd actively sought out new sire lines and new female families to expand his holdings. This year, in contrast, more than half the Sheikh's purchases -- 13 out of 22 yearlings -- were by his own sires, Bernardini, Street Cry, Medaglia D'Oro, Singspiel and Henny Hughes. By purchasing yearlings from his own stallions, Sheikh Mohammed was not only propping up the Fasig-Tipton sale; he was also propping up prices with an eye to encouraging breeders to keep sending their mares to those sires.

2. Demi, Where Are You?

In contrast to the ubiquity of the Sheikh, John Ferguson and the rest of the Dubai entourage, the other major international player at the top of the market -- Ireland's Coolmore -- was a barely detectable presence in Saratoga. I did see their chief bloodstock agent, Demi O'Byrne, looking at a number of horses, but they bought only one, a Giant's Causeway colt for $425,000. It's probably no coincidence that Giant's Causeway stands at Coolmore's Ashford Stud in Kentucky.

Coolmore traditionally doesn't buy a lot at Saratoga; in 2007, they bought three yearlings for $1.5 million, and last year they bought only one, but that one was a $2 million Storm Cat colt. But this year, their presence was especially elusive.

3. Creative Accounting

Another change this year is that Fasig-Tipton is reporting as "sold" those horses that did not meet their reserve price in the ring, but were later sold while still on the grounds, provided that the sale was processed through the auction company. It's fairly common for sellers to make a private deal after a horse fails to meet its reserve, and often, those sales will be processed through the auction company, especially if the seller doesn't know the buyer and wants to have some assurance that the buyer will pay up (virtually all sales at the major auctions are made on credit, with payment not due until 15 days after the end of the sale).

This year, four Saratoga yearlings were listed as "post-sales" but still included in the statistics for horses sold. If the sale was reported in a manner consistent with previous years, there would have been only 156 horses sold, rather than the 160 that Fasig-Tipton reported. In turn, that would have meant that 66.4% of the horses listed in the sale catalog were sold -- exactly the same percentage as in 2007, although still somewhat higher than 2008's 62.6% I prefer to use the percentage of the catalog that's sold as a better indicator than the traditional "percent not sold," which counts only those horses that actually pass through the sale ring. In a bad sale, many horses will be scratched before they ever reach the ring, and that reduces the "not sold" percentage. But the consignors of the scratched horses will still be taking them home unsold, just like the consignors of the horses that failed to meet their reserve.

4. Where Were the Pinhookers?

In prior years, pinhookers looking for precocious and promising horses were a significant factor in the Saratoga sales. This year, they were conspicuous by their absence. For example, in 2007, purchasers whom I could identify as pinhookers bought 17 yearlings for $4 million, an average of $235,000. And last year, pinhookers bought 20 yearlings for $3.1 million, an average of $153,500. This year, pinhookers apparently bought only eight yearlings for a total of $1.7 million, and even that total is suspect, as it includes two expensive purchases by Mike Ryan, who buys both for pinhooker Niall Brennan and for "end user" racing clients. Without Ryan's purchases, the pinhooking numbers for 2009 would be six yearlings for $850,000, the lowest total in many years.

5. Vanishing Legends

Last year, Kenticky insider Olin Gentry put together the Thoroughbred Legends Racing Stable, self-described on its own website as aiming to become the most successful thoroughbred stable in America. As reported in the financial press, the goal was to raise $75 million and purchase horses over three years, beginning in 2008. The horses were to be placed with Hall of Fame trainers D. Wayne Lukas, Bob Baffert and Nick Zito. So far, the first Legends crop isn't exactly beating a path to the Breeders Cup; in four starts at Saratoga, they've finished 4th, 7th, 8th and 10th, with average earnings per start of $1,047 (the meet's leader among partnership operations as of today, by the way, is West Point Thoroughbreds, with average earnings per start, due to their stakes horses, of $31,489).

At the 2008 Saratoga yearling sale, Thoroughbred Legends bought nine yearlings for $3.3 million, an average of just over $360,000. In addition, the Legends trainers individually bought another two for similar prices. Legends then made a major attack at the Keeneland September yearling sale, buying 29 horses for just over $12 million.

This year, Legends didn't purchase a single Saratoga yearling, not one. Lukas, Baffert and Zito did combine to buy three at Saratoga, presumably for their own current or prospective owners, but one wonders whether the grand plan has come apart, and whether perhaps only a small fraction of the $75 million target was actually raised.

6. Ahmed Where Art Thou?

Also absent from this year's Saratoga sale purchase list was leading thoroughbred owner Ahmed Zayat. In 2007, Zayat had bought five Saratoga yearlings for $1.5 million, and then went on to Keeneland, where he bought 39 more for $8.6 million. Last year, he skipped Saratoga, but continued as a major buyer at Keeneland, with 30 yearlings for $6.7 million.

This year again, Zayat skipped the Saratoga sale.We'll know in a few weeks whether his support at the top of the market will be showing up at Keeneland.

7. New York-Bred prices collapse

While the Saratoga Select sale on Monday and Tuesday produced excellent gross numbers, the New York-bred yealing sale that followed, on Saturday and Sunday, was a disaster for breeders. The gross plunged by 20% from the already weak level of 2008, and more than half the horses in the NY-bred catalog (128 of the 235 catalogued) failed to find a buyer. Without the presence of Sheikh Mohammed and his entourage, and with the numerous foreign buyers who came for the Select sale, there was simply not enough money and too many horses.

New York thoroughbred breeding has clearly expanded beyond any rational level, spurred by a generous state-bred incentive program that rewards breeders and stallion owners whenever their foals earn purse money. That fund, like pretty much everything else in the New York state budget, is now feeling pressure, and its owner-incentive awards, for running NY-bred horses in open-company races, have been substantially cut back. That means buyers of NY-breds have reduced expectations for their horses' earnings, and those lower expectations translate directly into lower bids at the auction, or, as in the case of many horses at the NY-bred sale, into no bids at all (those horses were reported, though, as RNAs with the minimum $5,000 bid, another bit of creative accounting).

From the breeders' point of view, the only bright spot at the NY-bred sales was the reappearance of the pinhookers, who had been notably absent at the select sale earlier. Leading pinhookers, including Jim Crupi, Nick DeMeric Becky Thomas and Robert Harris, all made NY-bred purchases. There are no a good many NY-breds sired by fashionable Kentucky stallions, some of which apparently make good pinhook prospects.

Still, a few pinhook purchases won't do much for the majority of New York breeders, whose mares just don't have the quality, nor the catalog page, to support a high auction price.

So What Does It All Mean?

Fasig-Tipton, under its new, Dubai-based leadership, made a huge effort for Saratoga: new facilities, a spectacular catalog, loaded with high-quality black type, active courting of foreign buyers, and a personal appearance by Sheikh Mohammed and his money. And, for one brief shining moment, it all seemed to be working. If you were a breeder with a good-looking yearling with a fine pedigree, F-T could find a buyer for you.

But, for the reasons described above, the Saratoga sale's success masks some serious problems, and does nothing to address the weakness in the thoroughbred industry. As I'm sure we'll see at Keeneland, where 25 times as many horses will be on offer as were available at Saratoga, The US recession and financial collapse means that there aren't enough buyers for the horses that are out there. Breeders have begun to realize that; the projected 2010 foal crop is down to levels last seen in the 1970s, before Coolmore and the folks from Dubai began dueling at Keeneland and sent the industry into its first speculative bubble in the 1980s. But the likely 15% cut in the foal crop won't be nearly enough. A major restructuring is heading this way, and it's going to put a lot of breeders out of business. In the long run, that's probably a good thing; we have too much racing and too many horses now. But along the way, a lot of people, especially the smaller breeders who are in it because they love horses as much as they like profits, are going to get hurt.