Racehorse Prices Stumble Out of the Gate

At last month's annual Keeneland yearling auction, the world's largest, the top price was $2.05 million for a colt named Storm 'n Indian. While that's a lot of money for an untried racehorse, if the sale had happened last year, the price might have been two or three times higher.

The sport of kings is becoming less regal. Like sales of other big-ticket luxury items such as yachts, sports cars, and private planes, those of race horses have dropped as wealthy consumers reined in their spending. Racehorse prices are in free fall, declining to levels not seen since 1998. Moreover, race track attendance is also down, and wagering on U.S. races from January through August dropped by 11.1%, to $8.8 billion, from the same period in 2008, according to Equibase. While it's unlikely there will be a taxpayer bailout for the horse racing industry, a sure sign that the economy is back on its feet will be when high-quality horseflesh once again begins to command a premium.

This year's 14-day Keeneland sale, considered to be the industry bellwether, was weak by most every measure. Only four yearlings sold for more than $1 million this year compared with 18 horses last year. Auction sales totaled $192 million, down 42% from a year ago. The median price for a yearling fell 41% to $22,000 this year. And total yearlings sold dropped to 3,159 from 3,605.

The Squeeze on BreedersThe thoroughbred industry saw a run-up in prices during the past decade as the booming housing and stock markets made owning a race horse more affordable, even for middle-class buyers. The crash in the thoroughbred market has pushed down values for horses at all price levels, including the very top segment, according to Duncan Taylor of Taylor Made Sales Agency, a horse brokerage firm in Lexington, Ky. "It starts at the top—when the best horses bring in a lot, it makes other ones sell also," Taylor says. "Now the top level is being hit."

Many breeders are taking an especially big hit, not just because of the oversupply of horses, but because they paid stud fees a couple years ago, when prices were peaking, to produce the current crop of yearlings. Making matters worse, they often borrowed to pay the fees, which can reach into the hundreds of thousands of dollars. "What we're seeing is the economy having an effect across the board," says Don Clippinger, editorial director for the Thoroughbred Times in Lexington. "It's victimizing everybody."

Overbrook Farm, one of Lexington's biggest thoroughbred breeders, sold 48 horses at the auction for $6.664 million as it began the complete dispersal of its stock by the end of this year. The farm, home of Storm 'n Indian's sire, Storm Cat, sold the horses without setting a minimum acceptable bid, and might have collected a few million dollars more a year or two ago, says Ric Waldman, an industry consultant who counts Overbrook among his clients. "Overbrook had to accept what the market was handing to it," he says. "The fact that [prices] declined to what they were, it was a tougher pill to swallow."

A Bargain for Sheikh MohammedRon Mitchell, online managing editor for Bloodhorse.com, a weekly racing publication, says he could sense hesitation among buyers at this year's auction. "There was not so much of a depressed state among participants as much as an acknoweldgement this day was going to come," Mitchell says. "But, perhaps, they didn't know to the extent the market would be down. "

In the meantime, for those lucky sporting men and women whose net worth was largely unaffected by the global economic downturn, now is a great time to get a bargain on high-quality horseflesh. Which is just what Sheikh Mohammed bin Rashid Al Maktoum, Dubai's ruler and Prime Minister of the United Arab Emirates, is doing. The man who bought Storm 'n Indian, Sheikh Mohammed is the industry's most active buyer, but this year he didn't need to spend as much. In comparison, in 2006 at the peak of the market, he paid $11.7 million for a colt named Meydan City, the second-highest price ever paid for a yearling at public auction.