News

What Is The Outlook For 2010 And Beyond

28th Sep 2009

Stallions - Graeme Kelly - Tuesday, 29 September 2009

The financial meltdown has resulted in a sharp decline around the world, in thoroughbred bloodstock prices and most stallion service fees. At this stage there is no conclusive indication of whether the stimulus packages initiated by United States President Barack Obama, Australia’s Prime Minister Kevin Rudd and other leaders, will be effective in the longer term.

STALLIONS, Graeme Kelly, spoke with a number of industry figures, and asked them under these circumstances what is the outlook for the thoroughbred industry in 2010 and beyond?

Vinery general manager Peter Orton:
“THESE are certainly worrying times for our industry as we see cash flows dry up in many sectors of the world economy, and I believe we have a way to go yet. We are in an industry that produces an end product that mostly attracts the luxury dollar, so it is understandably concerning where our returns will come from during such difficult times. The stimulus packages instigated by the United States and Australian governments are unlikely to have any significant benefits to our industry. In my view we will only see assistance coming from structural benefits such as taxation incentives to boost prizemoney, market development and business sustainability which will filter down to all levels of the industry.
“Nevertheless, I believe our industry in Australia has great depth and the momentum to reasonably sustain it for some time yet. Our depth of pedigrees, prizemoney levels, and the international interest in our market is still healthy where others have suffered. Furthermore, the racing end and therefore the breeding industry, is a strong part of our culture and a strong priority to many as a sporting interest with an even stronger passion for the racehorse itself, so demand will always be there.
“As far as the future is concerned there are positives to be taken from the correction we are seeing in our breeding industry at present, through the reduction of the excessive service fees and multi-million dollar yearling prices seen over the last few years. These are now coming back to levels that are more sustainable and more relevant to the market we have in Australia.
“We have also seen too many mares being over-bred with the hope of high returns in the sales ring and even mares that should not be bred at all continuing to be covered and the resultant progeny flooding into the market looking for unachievable returns.
“Our industry has changed and developed significantly over the past few years,controlled by cost of production and greater returns for the premium racehorse and pedigree. It is the high risk, speculative investors along with others trading low quality stock, who will be the most damaged - as it is in all businesses.”

Hong Kong Jockey Club Manager, International Races, Sales and Development Mark Player:
“CHANGES to the global economy through the financial meltdown witnessed in major economies has already had an impact on the thoroughbred industry throughout the world. This has seen prices fall at major sales held since September, with further falls seemingly inevitable. Aligned to this has been reductions in service fees for stallions with studs taking the necessary step of reducing their service fees in an attempt to support customers.

“In early 2010 the Australasian sales also seem likely to fall further. Looking back through sale statistics big declines in one year are more often than not followed by further, though smaller, declines the next year. This pattern is set to continue. This opens up two distinct possibilities for buyers. Firstly being able to buy the same quality horse at a lower price, or for some to take the opportunity to upgrade the quality they are purchasing at around the same price they have been paying.
“In terms of service fees the clear impression I get is that many buyers are becoming increasingly wary of first season sires. The commercial push towards these sires has been very strong for many years, and many buyers were prepared to take the punt that they could find a jewel among the first season sires. Increasingly though, as the financial impacts are being felt, buyers are turning to proven stallions to reduce the selection risk at sale time. In the years to come this will be viewed as a positive change as it will give buyers greater value in the sale ring. It also has the potential upside of having colts stay in training for longer with owners pursuing riches on the racetrack, as the stallion deals are reduced in value. Globally this would be a positive for the sport of racing, and in some countries it will be of great assistance in revitalising racing.
“From the Hong Kong perspective it is evident the impacts have not yet fully translated through the thoroughbred sector. However, the Club expects to see a further reduction at the major yearling sales around the world beginning with the Arqana sale at Deauville next month. Our reading of the global thoroughbred markets is that there will be further downwards pressure on prices, and that this pressure is likely to continue for another two or three years before there is slow growth in the medium term.”

Internationally successful businessman and Tori Park principal Alistair McFarlane:
“AS racing is heavily predicated by an owner’s disposable income, which is somewhat dependant on the stock market, our industry will undoubtedly be negatively affected. We have already seen a 25 to 40 per cent drop in the major sale averages, and a similar decrease in our early broodmare sales. Add to that the uncertainty of employment and a media that focuses on negative outcomes, and a correction in our industry is guaranteed. A similar drop in stallion fees has followed as studs recognise the new market reality. Cost cutting across the industry can be anticipated as everyone tries to adjust to new budget constraints.

“That’s the bad news. The good news is prizemoney has not dropped, and is in fact, increasing in many markets. Employment is currently around 94 to 95 per cent. Horse race fields are still high and traditional betting income streams are more threatened by corporate bookmakers than they are by the economic downturn. I hope the drop in prices across the board will encourage those committed to the industry to buy more and better quality horses, and that it will allow a lower entry level for new investors.
“Every time there has been a dramatic fluctuation in the economy in the past, some people made money and some lost. What is vital in our industry is that those involved adopt a business plan that enables them to make the most of the current and evolving market. As a breeder it is a safe bet our section of the industry will cut back the number of mares that are bred, while trying to improve the quality. This will most assuredly result in a shortage of yearlings in the 2012 sales year. When the economy recovers in the next two to three years those who now have the insight, capital and cash flow to increase their investment in quality and numbers, can be expected to prosper. They will also be able to fashion viable deals with studs and put themselves in the position to sell quality stock in a market short of product. If the economy doesn’t recover in that time, we will all have more serious challenges.
“Doing the same old things with the same type of mares is probably a guarantee we will not prosper. Ours is an industry that thrives on hope, and the challenge is to adopt a strategy to give us the best chance to succeed. It is essential every breeder who is attempting to be commercial takes a good look at what they have done in the last few years and then decide what will be the most likely strategy to succeed in the future.”

New Zealand Bloodstock managing director, bloodstock and finance Andrew Seabrook:

“I don’t think the outlook for the bloodstock industry for 2010 and beyond is all doom and gloom, as some people are predicting. Sure we have had a decent correction in prices being paid for horses, but that had to come anyway. We have seen a massive growth over the past few years, so the writing was on the wall that we would have to face a decline. It is significant that we saw a very strong clearance rate at our National Weanling & Broodmare Sale early in May. It was good to see healthy competition in the ring, and the majority of horses found a new home.
“Service fees have come back, which is a positive sign, but New Zealand fees have been pretty realistic anyway. A recent study showed most New Zealand stallions are performing extremely well when comparing stallion fees to returns in the auction ring. Prizemoney here, despite dropping a little, is still high on a New Zealand scale and the export market to Asia, which we rely on so much, is going well. China has started to buy thoroughbreds again and there are other markets up there getting stronger. We are confident that our Ready To Run sale will hold up again this year, which will add a lot of confidence to the industry.
“The important thing is that breeders must continue to breed and not forget the vital fact that a mare bred this year won’t have its progeny through the sale ring until 2012 - and hopefully the recession will be well and truly behind us by then.”

Blue Gum Farm proprietor Philip Campbell:

“IT really is crystal ball stuff. I must admit I don’t know quite what to expect. Obviously the major sales were all down yet the Melbourne Autumn Yearling Sale, which is traditionally a tough market, had a terrific clearance rate and an improvement in average - which were positives.
“I can tell you that interest and inquiry, with regard to the stallions we are standing this year, has been very, very good. We’ve had a lot of inquiries about what the stallions are standing for, and people have been indicating they are keen to arrange matings for their mares. There is talk, as we know, about a reduced number of mares going to stud this year as a result of the current economic conditions. That is a probability, but at the same time we don’t know that will become a fact. If people aren’t breeding this year they won’t have anything to race or sell three years down the track. We don’t know what conditions are going to be like at that time, but I believe we have every right to think they will be easier than they are now.
“Our prizemoney levels are still very, very good. If you have a horse that can compete at a reasonable level the rewards are there - there is no doubt about that. Also the thrill of breeding a horse and the thrill of racing a horse can’t be underestimated. It is a great feeling to be associated with a success story in those fields and there a number of people out there who feel the same way, and I am sure that they will be striving to achieve that success in the future.
“It is also worth noting that this year people will be able to produce a product for less than it has probably cost in the past. The face of the Australian breeding industry has definitely changed in recent times with service fee structures, huge discountings, foal shares, give-aways et cetera, et cetera.
“I was always taught that something that costs nothing to produce is not worth a whole lot more, but for those people trying to control their own destiny and control their own stock outright, they are going to be able to do that at a lesser cost this year with fees pretty much across the board, being down in line with current trends. That makes sense because it is all supply and demand. On that basis it is no good having a horse standing in a stallion barn not working, because he is over-priced. You have to set your fees in line with the current trends, and it is definitely going to cost folks less this year to produce a horse and yet prizemoney levels are, hopefully, not going to decrease. That presents a great opportunity for a greater profit margin, if you have the ability to continue to trade on.”

Pedigree Consultants managing partner Byron Rogers:
“NEXT year is going to be tough as far as the commercial side of the business is concerned. I think it will shake a few people out of the business, which might not be a bad thing as they may have been making poor decisions in the first place.
“There are certainly going to be less stallions shuttling to Australia or standing at stud, which is not a great prospect. We need more stallions and more choice, but the barriers to entry (standing a stallion) are high as the bigger farms can outmuscle the smaller operators at the moment. I am not sure how we arrest that issue, but we should have well over 1000 stallions at stud in Australia for the size of the brood mare population.
“As far as Australia, and for that matter the world, is concerned, we need to make sure the financial fundamentals of the racing side of it make sense. The prizemoney in Australia is good, but we need to make sure it remains so. Thus it is vital the current legislation (concerning wagering) that is in the courts, is resolved in a positive fashion for the industry, and that we are able to move forward.
“I would love to see us (Australia) nationalise the sport of racing. We are competing against the National Rugby League, the Australian Football League and other national sports for interest and for the wagering/gaming dollar. Yet these other sports are operating on a national level with national bodies with teeth. Against that, racing is operating on a state level where we are each trying to carve one another up. If we got rid of the state administrative bodies, amalgamated some race clubs, created one tote pool - on a national level - owned our own vision for television, and then had a completely integrated national stakes racing schedule and supporting races, we would make a product that would be able to really attack these other sports.
“It would also have the advantage of making racing relevant to a new generation. We would certainly have a lot more money to return to owners! We have a great advantage here in Australia in that the Melbourne Cup has a national focus, but everything else we do is too parochial.”