The Horse Biz Shows A Little Lather

It ain't the '80s, but Thoroughbreds are out of the dog days

Electricity was in the warm air of the Keeneland yearling auction on July 15-16 in Lexington, Ky., with millionaire breeders sharing knowing smiles. As the average price for Kentucky's most prized Thoroughbreds jumped to a six-year high amid predictions of a resurgence in the long-beleaguered industry, tuxedoed auctioneer Tom Caldwell sealed a one million-dollar bid by giddily blurting out what many others were no doubt thinking: "This is almost like the '80s, isn't it?"

Well, not quite.

True, the $349,880 average sale price marks an unexpectedly vigorous 41.6% increase over 1995. But it's far from the halcyon days of the '80s, when favorable tax laws stoked a speculative fever that lured many novices to invest and drove the average Thoroughbred price to more than a half-million dollars by the middle of the decade. "In those days, people bought horses like stocks," says Irish breeder John Magnier. The resulting glut of horseflesh and the Tax Reform Act of 1986 sent the market into a wrenching contraction. The bankrupt Calumet Farm went from a symbol of Kentucky's horse-racing tradition to a symbol of the industry's malaise.

SUPPLY AND DEMAND. While the prices of the '80s are unlikely to be seen again anytime soon, many say the industry is back--healthier and well-positioned for sustainable growth. The downturn drove most of the speculators out of the market, says David L. Switzer, executive director of the Kentucky Thoroughbred Racing Assn., adding: "Today, we're playing with real dollars."

Another reason for the recent uptick is the relative dearth of quality horses. The supply-demand curve has finally turned in the breeders' favor. Even though the number of horses going under the hammer at Keeneland dropped from 188 a year ago to 167, the gross jumped more than 25%, from $46.4 million to $58.4 million. Four horses topped the $1 million mark--the most since 1991--including sale champ Storm Cat, at $1.7 million. "More money chasing fewer horses is a sign of strength [in the industry]," says Henryk De Kwiatkowski, the Polish-born entrepreneur who became a Bluegrass hero by saving Calumet from shopping-mall developers.

Even more significant is the trend toward globalization. The U.S. horse- racing market reached maturity years ago, and competition from other forms of gambling are slowly whittling away at its base. However, elsewhere in the world, especially in Asia and the Persian Gulf, the sport is wildly popular, and purses dwarf those of America. So demand outside the U.S. for racing and breeding stock keeps rising.

Japanese investors, who spent nearly one-third of the dollars dropped at Keeneland, have become the most important new component in the U.S. market. Until recently, Japanese racing was restricted to domestic equines. But relaxed rules and tired bloodlines have the Japanese flocking to Lexington. "The best stock comes from Kentucky, so we come to Kentucky," says Tony Yoshida, who represents various Japanese interests.

While the Japanese emerge as key players in the comeback of the American Thoroughbred market, some Kentucky breeders see a worrisome parallel between today and the years after World War II. For generations, British blood stock was considered the world's best, but Americans invested heavily and were able to supplant the British. "They're taking our blood, and I worry about the day that [the Japanese] don't have to come back," says Robert Clay, whose Three Chimneys Farm in Lexington is home to Triple Crown winner Seattle Slew.


The exporting of Kentucky blood may be troubling to some, but breeders are clearly pinning their hopes on overseas markets. New tracks and breeding farms are springing up around the world, particularly in South America, China, and Eastern Europe. "Eastern Europe is the next wave," predicts De Kwiatkowski. "In time, they will be a factor [in the Kentucky sales]."

Japanese. Eastern Europeans. Sure, they're all increasingly important to the Thoroughbred industry. But romance and status are still what make the sport of kings run. Breeders talk at every turn about "selling dreams," and only in Kentucky are the dreams so fraught with history and the blood of champions. Says CEO Fusao Sekiguchi of Japan's Meitec Corp., who spent $5.75 million on seven yearlings: "Racing gives romance to the man, it gives dreams to the man." And spenders like Sekiguchi give hope to America's horse business.