to a Horse Sale
Do yearlings offer good
ust about everyone in racing, and certainly millions of
Americans who are not racing fans, now know the story of Real Quiet. A $17,000
Keeneland September yearling sale purchase, this former ugly duckling very
nearly won the Triple Crown and now is worth millions as a stallion
Still, an underlying question remains: Do
yearling purchases offer good investment value, particularly with sale prices
moving upward annually in lock step with the stock market? Is the underlying
asset worth the investment risk?
The authors were
asked this question on an investment segment of CNBC Television. The
conclusion: Yes, if you do it right. Doing it right means having a business
plan and a suitable group of professional advisers.
The following are the items that should be covered if
you want to buy smart in the yearling market.
- Review the catalogs and prepare an A list and a B list based on
pedigrees or horses you were familiar with when they raced;
- Assemble a team, which should include a veterinarian, a trainer
and a pedigree expert;
- Physically examine the horses and talk to the consignors. A
note of caution here. The horses that you are inspecting have been fussed over
for weeks leading up to the sale, and they probably will not look as good for a
long, long time - perhaps until they win a Grade 1 stakes. Expect the pre-sale
glow to dissipate as the youngster grows and matures into a racehorse. It is a
normal process, as is asking yourself, "Did I pay too much?" Buyer's remorse is
a part of the game and, indeed, you should be questioning yourself - reasonably
- through the sale process;
- Have your veterinarian go to the veterinary repository (if
available in your state) and review the records; and
- Establish a budget of what you want to spend.
Have a business conference
At this business
conference, narrow down your A list and B list and classify the horses from one
to ten based on pedigree and physical appearance. Next, estimate the selling
price of the horses and decide on your strategy.
Look for opportunities
Inspect the catalog and
anticipate soft spots in the sale. Very often these soft spots occur at the
beginning or end of a sale, after a very expensive yearling is sold, when the
offspring of a less-accomplished stallion is in the ring, or even during normal
Understand reserve prices
Many people have
questioned why sales companies allow reserves and why those minimum sale prices
are not posted publicly. The short answer is that the process is fair to the
seller and ultimately to the buyer. Every person who sells a horse has the
right to a fair shot at making a profit, and the seller should not be forced to
accept a low-ball price.
As a buyer, you can and
should figure out what costs the seller has incurred, such as stud fees,
investment in the broodmare and other costs. You then should add into these
numbers a fair return on investment for the expenses and risks that the seller
Also, from the statistics that are
available, such as the Thoroughbred Times Buyer's Guide, you can
ascertain if the horses were pin-hooked - that is, bought at a previous sale
and placed into the current sale for resale. If so, you should anticipate that
if someone bought a horse for $40,000 with plans to resell it, that person is
not going to take $20,000 unless something drastic has occurred.
As a prospective buyer,
you should have applied to the auction company for a line of credit well before
the sale. This means you must decide on just how much you are going to spend
and, once it is decided, the decision should not be changed significantly in
the heat of bidding.
Insure your purchases
Once the hammer falls
and you are the highest bidder, you own the horse. If the horse runs off
through the sales ring or gets injured in the stall, that horse is yours and
your problem. To protect your investment, is is important to arrange with an
insurance agent for mortality and other coverage for your purchase or
purchases. The worst thing you can do is wait two or three days to get the
insurance coverage. Catastrophes happen in seconds, and your investment can
disappear just as quickly.
Also remember that, if
you purchase a horse, the horse has to be transported somewhere. Usually by the
day after the sale, the sales company expects you to have the horse removed
from the sales grounds. In short, you must know which van company will ship
your yearling, and you must have a place to send it. To help with the first
part of the transportation, van companies have representatives in the sales
Evaluate potential value
Several articles have
been written about sales prices and these analyses conclude that the strongest
part of the current market is the upper end, where the best pedigrees and
conformation are found.
From the viewpoint of
prices, that conclusion is indisputable. But racehorses are not judged by their
prices, and value can be found at lower levels. Softness in prices around the
median price or below is not necessarily a bad thing for buyers looking for
Here are some tried-and-true strategies for
finding value below the sales toppers:
- What flaws can you and your trainer live with? Some physical
attributes may not be aesthetically pleasing but will not hinder the horse from
performing well. Real Quiet, known as "The Fish" for his narrow chest, is a
- Learn something about what the yearling's sire and/or dam
looked like. Which does the yearling most resemble? Is this good or bad?
- Consider the age of the horse. Horses change so much as they
grow. Therefore, inspecting these young horses, you have to factor in the
tremendous growth that occurs in four or five months.
- Analyze the type of horse you want. For example, a two-year-old
sprinter is much different from a horse that will run over classic distances or
on the grass at three.
- Does the yearling have residual value for breeding? If you are
involved in breeding, you may be willing to accept a well-bred filly which may
not have all the conformation traits you are looking for.
Now that you have made
your evaluation and gotten your hit list down and graded it, it is time to make
the biggest decision of all. That decision is how much to bid for each horse.
Remember, you have made a game plan and decided how much money you are going to
allocate and how many horses you are going to purchase. Also remember that your
number one horse rarely is the first horse to come up in the sale to buy.
Remember that if you do not get one horse, there is always another horse. Also,
there are other sales.
There is nothing that says
that you must buy a horse at every sale, no matter how much time and effort you
spend on preparations. The key is to buy the best horse you can with the best
conformation and pedigree for the amount of dollars you have allocated. Having
said all that, our operation allots a 10 percent overage factor - meaning that
we will bid up to 110 percent of the target price if a horse makes the highest
Year in and year out,
people can and do make money buying yearlings, and some even land catches like
"The Fish," Real Quiet. But this lightning usually strikes based on careful
preparation and practice - attending the sales and learning what works and what
does not for your stable or operation. This is a very satisfying sport and
business for those who are properly prepared.
Thanks to Leonard Green, CPA, and Jon Green,
partners of Thoroughbred Profitability Consultants, for permission to reprint
this article. They may be reached at (732) 634-5100 or e-mail
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