A Bankroll in the Hay

Kevin Conley, whose new book dissects the horse-breeding industry, explains why $500,000 is a fair fee for a date with the right stallion

Horse racing, long dubbed the sport of kings, takes center stage on May 4 with the running of the 128th Kentucky Derby at Louisville's Churchill Downs. Author Kevin Conley's new book, Stud, Adventures in Breeding (Bloomsbury, 209 pages), takes readers into this exciting world, which spans lush farms in the Bluegrass State, expansive California ranches, and semiferal pony harems in Pennsylvania. It's an entertaining, solidly reported explanation of the economics of the horse-breeding industry (indeed, that's what it's called, as if horses came out of factories).

Breeding is dominated by big-money players, such as the legendary Coolmore Stud in Ireland and the sheiks of Dubai's ruling family. Yet, while the smaller breeders don't often grab headlines, they're nonetheless important to the industry, Conley explains. The author recently spoke with BusinessWeek's Karin Pekarchik . Here are edited excerpts from their conversation:

Q: What kind of economic impact does a Derby win have on a mare's value or a stallion's stud fee?


Last year's Derby winner, Monarchos, was sired by a bargain stud, Maria's Mon, whose stud fee was $7,500 at the time. After Monarchos won the Derby, the price of a date with Maria's Mon shot up to $35,000. And, undoubtedly, his appointment book is now full with mares of higher quality, which begins the breeding business' version of the virtuous circle: The better mares have better progeny, whose winning records attract even better mares at higher stud fees.

That's the ideal world. The problem in the breeding business, as one CPA told me, is that your principal assets have a tendency to die.

Q: How big is the thoroughbred industry? Who are the star stallions and mares this year?


Thoroughbreds are the No. 1 legal agricultural export of Kentucky -- ahead of tobacco and behind marijuana, the No. 1 export overall. According to a Lexington Chamber of Commerce report, the horse industry employs 75,000 people and is responsible for 7.5% of the state's gross business revenue, or $5 billion.

You're right to ask about the hot stallions -- the breeding industry is very influenced by fashions, and folks always want to breed to the stud who sired the latest big winner. Right now, Thunder Gulch, who sired last year's Horse of the Year, Point Given, is the hot commodity.

Mares don't really go in and out of fashion the way studs do because of their biological limits. A mare can have only one product a year so her value is never so spectacular, but it does tend to hold a bit more steady.

Q: Can you describe what a typical stud "live cover" is like?


In the Bluegrass State, the equine sexual act is a highly choreographed event. At the best operations, like Overbrook Farm, where Storm Cat stands, or Three Chimneys, where Point Given is beginning his stud career, there are usually about five or six people who play an active, hands-on role.

There's a man (or woman) holding the lead shank of the mare, and another applying a twitch (a loop of rope attached to a stick, and twisted on the mare's upper lip to create a diversionary pain). There's a "leg man," who holds one of the mare's front legs off the ground by means of a leather strap, so she can't easily kick the expensive stud. There's a "tail man," who pulls the mare's tail out of the way at the last second, so the stallion manager can guide the stud's principal business instrument home.

Everything happens as quickly as possible -- nobody wants to fool around with a rearing, half-ton, hormonally enraged animal trying to set a personal endurance record. Usually, the whole transaction is over in less than 30 seconds.

Q: Your book focuses a lot of attention on the stallion Storm Cat and his ability to produce winning foals. Is his fee -- $500,000 -- justified?


For a journalist used to calculations in the range of $1 or $2 a word, it's strange to report that Storm Cat's stud fee is, in fact, quite reasonable. There are several reasons. The short-term returns on a Storm Cat service are good. At the auctions last year, his 1-year olds sold for an average of $1.68 million -- a tidy profit on a two-year investment.

The long-term outlook is even better, largely because Storm Cat has the capacity to produce "useful sires," as they say in Kentucky. His sons not only win at the track, they also have a predisposition to "stamp their get" -- pass their winning ways onto their progeny. Two of this year's Derby favorites, Harlan's Holiday and Johannesberg, were sired by Storm Cat's sons. So if one of them wins, that stud's fees will rise.

Q: Within the industry, do breeders get proper recognition, or do the trainers get the glory?


Breeders rarely get the glory. They get the money instead.

Q: Overall, what are some differences or similarities between the standardbred and thoroughbred industries?


In order to be officially registered by the Jockey Club and compete in races, a thoroughbred has to be conceived by a certified sexual act or "live cover." The Jockey Club says that this requirement helps protect and preserve the diversity of the breed. That may be, although there are no studies to prove it. But the requirement certainly helps protect and preserve exorbitant stud fees by limiting the supply of semen.

In other breeds, like the standardbred [horses who pull sulkies in trotting races], artificial insemination is the standard practice. One sample from a stud can be divided as many as 10 or 15 times, and it's then FedEx'd to mares anywhere in the country. Top standardbred sires earn far less money, and they have a larger, cheaper foal crop.

Q: You visited some of the most venerable Kentucky farms and racetracks. Which did you most enjoy?


I visited farms with wildly different levels of solvency, from Storm Cat's manicured stallion complex at Overbrook, to the "feedlot" of Devil Begone, a New Mexico stud that operates out of a small pen on the dusty bottomland of the Rio Grande. Each place had its charms, and no matter where I went the horses were beautiful.

For sheer tasteful ostentation, it was hard to beat Ashford Stud, in Versailles, Ky., run by John Magnier, the Irish businessman who revolutionized the breeding business with an aggressive long-range buying plan.

Ashford Stud is designed to impress the broodmare owner who drives up in a horse van: It looks like a lordly estate, with stone walls and a colonnade of trees lining the long drive to the manor house. The barns have slate roofs and sky-blue doors and spires like the ones at Churchill Downs. Everywhere you turn, you hear the gentle horsemanlike murmur of Irish accents. Even the hay looked art-directed.

Q: Who's your money on for this year's Kentucky Derby? Do you think anyone is destined for a Triple Crown?


This year's Derby field is, by all accounts, the weakest in decades. I don't have a favorite horse because, after all my research, I've started following racing the way many breeders do -- I root for the progeny of my favorite studs. So I'd love to see either of the sons of Storm Cat come in first.

As for the Triple Crown, it's quite possible that with a moderate mustering of talent and a spell of good health, one horse could separate itself from the weak field and capture all three races. I hope so. I like reading about the horsey crowd.

Edited by Douglas Harbrecht

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