Wealthy horse owners also feeling economic crunch

Updated: December 11, 2008, 7:02 PM ET
Associated Press

LEXINGTON, Ky. -- Horse racing has long been a sport for the rich, but lately even those who can spend more on a horse than most people spend on a house have been struggling with the bottom line.

Racehorses are selling at auction for a fraction of what they did a year ago, if at all. Breeding operations are slashing thousands of dollars off the fees they charge to mate with their top stallions. A volatile market for mares saw one sell for a record $14 million last month while others were discounted by as much as 50 percent.

"We're just going to have to slug our way through it and wait for better times," said Robert Clay, owner of Three Chimneys Farm, a major stallion operation in Lexington.

Three Chimneys paid a sum believed to be about $50 million in May for the breeding rights to Big Brown, the Kentucky Derby and Preakness winner who faltered at Belmont to end hopes of a Triple Crown.

Last month, during a complicated ownership dispute, reigning Horse of the Year Curlin, the richest North American racehorse ever, was appraised at $20 million. Most thoroughbred experts consider his value as a stallion equal to or even greater than Big Brown's.

What changed? The calendar and the stock market, analysts say.

"Big Brown was done in May, when the world was a totally different world," said Geoffrey Russell, Keeneland's director of sales. "Now you're talking about trying to sell or syndicate a horse when there is no cash."

The Kentucky Equine Education Project, a horse industry advocacy group, says horses are the biggest segment of the state's agriculture business, representing a $4 billion economic impact. KEEP says the industry has directly or indirectly generated at least 80,000 jobs in Kentucky.

Richard Wilcke, director of the University of Louisville's equine business program, said the economics of the horse industry aren't as closely tracked the way they are in other businesses. Yet all indications are it has taken a hit in the past year.

Each November, Keeneland is host to one of the nation's premier breeding stock auctions, usually a good barometer of where things stand in the thoroughbred industry.

In the 1990s, Keeneland reported eight straight years when its November sale did better than the year before. The prices have varied in this decade, but the general trend has been upward. This November, receipts have not just dropped, but plummeted more than 40 percent from last November.

Yes, buyers with the deepest pockets, such as Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai, still put up millions of dollars for the cream of the crop.

And at a sale across town at Fasig-Tipton, Southern Equine's Michael Moreno -- who already owned 70 percent of broodmare-of-the-year Better Than Honour -- bought out his former partner in a bid that set her price at a record $14 million.

"Obviously we've been through difficult times, but good quality should still always sell well," said John Ferguson, the buyer for Sheikh Mohammed.

Yet Russell believes even the top-end horses would have done better in another year. And the horses that ranked just a notch below the top found few takers, despite low prices.

Dixiana Farm, a medium-sized broodmare operation in Lexington, was an unlikely buyer to rank second behind the sheikh in money spent at Keeneland. The farm's owner, Bill Shively, decided the bargains were just too good to pass up.

He bought 40 mares, the most expensive being Capeside Lady, who went through the ring for $500,000 just one year after she fetched a bid of $1.1 million but didn't sell because the minimum asking price was higher. Her first foal is a weanling that has yet to see a racetrack, so the mare's value couldn't have been driven down by anything other than the sagging economy, said Terry Arnold, Dixiana's farm manager.

"In the past, when you looked at a mare and asked what she should bring she brought double," Arnold said. "This year, they brought about what we thought they were worth."

Alex Waldrop, president of the National Thoroughbred Racing Association, said the silver lining is that some horses may be more affordable to new buyers because of the declining market. But Waldrop acknowledged it has been extremely tough for breeders.

"Breeders have invested a lot of money in the stock, and it is not a good thing for them, especially the commercial breeders, to see that value decline," Waldrop said. "People make investments based on a certain return, and when they don't get that, it can become financially unfeasible. What's good for the owner might not always be good for the breeder."

Owners of mares aren't the only ones hurting in the thoroughbred breeding business. Owners of stallions, who charge thousands of dollars in stud fees for each mating, have had to slash those fees or reduce the number of mares on the calendar.

Lane's End Farm will stand Curlin next year for $75,000. Will Farish, a former U.S. ambassador to Britain who owns the Versailles, Ky., farm, says the horse could have gotten as much as twice that in last year's economy.

Even the nation's top sire, A.P. Indy, saw his stud fee cut from $300,000 to $250,000. That is half what the recently retired Storm Cat received at stud in 2007.

During the bloodstock boom of the 1980s, Big Brown's grandsire, the late Northern Dancer, stood for a record $1 million. Those days appear to be long gone, Farish said.

"In this day and time, that's asking a lot," he said.

All this at a time when NTRA reported that handle was down for the third quarter nationally by 10 percent.

Three Chimneys lowered most of its stud fees but raised one and kept two others stagnant. Clay said the farm has booked about 25 percent of next year's appointments with its 12 stallions, which he says is slightly ahead of the pace at this time last year.

Despite that, he acknowledges there has been plenty of penny-pinching in an industry whose key players aren't accustomed to that.

"The normal thing to say is that nothing affects those people," Clay said, "but most everybody's balance sheet has been affected in this economy."

Copyright 2008 by The Associated Press

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