Stallion fees sink as financial crisis hits thoroughbred market

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Dubai Ruler HH Sheikh Mohammed has pared his spending at auctions the past two years as he boosted investment in his breeding operations.

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The global financial crisis is slowing demand for thoroughbreds at auctions in the US and Europe.

Chace predicts a 30 percent average stud fee drop for the 2009 season, which runs from February to July.

A sire can produce 100 foals or more in those months. That adds up to annual revenue of about $30m on the most expensive stallions, such as WinStar Farm LLC's Distorted Humor.

"WinStar is considering cutting fees on some of its five sires," Doug Cauthen, president of the Versailles-based farm, said in a telephone interview.

"It's too soon to say whether Distorted Humor's $300,000 fee will be lowered," said Cauthen, who forecasts an industrywide decline of up to 20 percent.

The sales slump halts a surge in the thoroughbred market that was driven in part by bidding wars between Sheikh Mohammed, the world's biggest buyer of racehorses, and his main rival, Irish breeder John Magnier.

Tussles between the two left several records: highest price for a yearling in two decades; highest price ever for a two- year-old; most ever paid for a broodmare.

Sheikh Mohammed has pared his spending at auctions the past two years as he boosted investment in his breeding operations. He spent an average of $18m at Keeneland's September sales in 2007 and 2008, down more than half from a $39m average over the previous four years.

"Sheikh Mohammed's retrenchment has helped make the ‘very top' of the market one of the weakest segments," said Olin Gentry, president of Gaines-Gentry Thoroughbreds, a Lexington-based company that owns about 100 broodmares and has minority stakes in more than 25 stallions.

Gentry said he'll breed fewer mares next year to sires with fees over $100,000, opting instead for mid-market stallions - those in the $20,000-to-$100,000 range.

The "very bottom,'' where small-scale breeders such as Squires often sell, has also been hard hit, Gentry said.

"There are some horses that should become pets,'' Gentry said in a telephone interview from Newmarket, England, where he was attending a sale at Tattersalls, the world's oldest thoroughbred auctioneer. "I don't know how they can be bred in the best of times. It's really impossible to make a return.''

It has been for Squires.

He said he needs to generate $600,000 a year to cover his costs. So far this year he's taken in just $20,000.

He's considering selling his best broodmare to pay down a credit line of almost $400,000 that he's maxed out. "Guys like me,'' Squires said, "are doomed.''

This article is courtesy of Bloomberg.

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