During a 15-day span in November of 2007, a total of 3,381 horses were sold at Keeneland, despite the fact that one-third to one-half of the horses consigned carried various liens. Within 30 days of that sale's conclusion, $340,877,200 in proceeds had been collected and all payments disbursed. Even more astounding was the fact that within that same time frame, virtually all liens had been settled, including those in which the proceeds from the sale did not cover the total sum of the lien obligations.
Keeneland's September Yearling Sale (held September 8-23 in 2008) and November Breeding Stock Sale (running November 3-17 in 2008) are the two largest Thoroughbred auctions in the world, but the November auction offers a greater variety (broodmares, weanlings, etc.) and an increased potential for lien encumbrances. Despite its official name, Keeneland's November sale is actually a mixed auction, with a record number of 5,709 horses consigned in 2008 - - just over half consisting of 2,893 weanlings, plus 2,267 broodmares (39.7 percent), 542 horses of racing age (9.5 percent), and seven stallions. Liens can be incurred for past-due boarding, or veterinary bills or any of the myriad expenses inherent in raising horses, but they also can result from collateral obligations or outstanding stud fees applying to the sires of weanlings or the sires of fetal foals being carried in-utero by broodmares.
In the last two-to-three years, as the stallion season market has become increasingly competitive and stud farms have devised creative ways to sell seasons, the number of liens applying to horses consigned to sales has grown exponentially. For Keeneland's 2008 November sale, Keeneland vice president Harvie Wilkinson (who joined Keeneland as director of finance in 2000) estimated that there are more than 1,300 outstanding liens on horses consigned to that sale, although this estimate includes some multiple liens on the same horses. Wilkinson indicated that virtually all the liens on horses that change hands will be resolved within the 30-day time frame from the conclusion of the sale on November 17. Courtroom settlements are extremely rare. As Wilkinson - - a former practicing attorney who specialized in commercial and equine law - - observed: "There are strong incentives (for consignors and lien-holders) to work with each other."
Those incentives derive from the fact that most disputes and obligations must be settled in order for payments to be disbursed. Published in the front portions of Keeneland's November sales catalogs are 23 pages describing 26 "Conditions of This Sale" that stipulate in the minutest detail the legal parameters for consigning and purchasing horses. The 17th condition concerns The Jockey Club registration certificates of horses sold: "The Registration Certificate for each horse sold must be furnished by the consignor prior to the sale. Keeneland will withhold settlement for all sales, until all Registration Certificates have been delivered to the sales company."
Further on in the 17th condition: "Keeneland will also withhold settlement of broodmares until the consignor delivers to Keeneland the stallion service certificate required by The Jockey Club in registering foals."
In other words, consignors must have clear title to sell - - as indicated by possession of registration certificates - - for sales settlements to finalized, and stud fees must be paid before stallion managers will issue stallion service certificates, without which Keeneland will withhold settlements to the consignors of pregnant broodmares.
From a buyer's perspective, Wilkinson pointed out the Kentucky statute stipulating that livestock sold at auction be deemed to be "free and clear" of any encumbrances to buyers, so that any "adjustments" regarding liens or obligations must be made from the sellers' side. A more recent requirement is disclosure of dual agencies, so that bloodstock agents representing buyers and sellers in the same transactions do so with full knowledge of both parties (real estate agents have operated under that standard for decades).
Following the conclusion of Keeneland's latest fall yearling sale on September 23, Wilkinson was contacted by Scott McCauley of National City Bank, which is the largest lender by far - - with about eight percent of the market - - in the Central Kentucky equine industry. Because of the growing number of liens on horses being sold at auction, McCauley urged that a meeting be convened of the various principals in the equine auction markets so that - - in Wilkinson's words - - everyone would realize that they "were all in it [the lien market] together."
The meeting was held at Keeneland on Tuesday, October 14 and hosted about 90 attendees, including representatives from major stud farms, bloodstock agents, and most of the local banks. "One important takeaway from the meeting," observed Wilkinson, "was that everyone was urged to make a concerted effort to get all [lien] information [for consigned horses] in [to sales officials] early to allow for more time to settle."
Inferring from the nine-page handout distributed at the October 14 meeting, there appears to have been minimal concern about consensual bank liens, even though disclosure of that information to the sales company (Keeneland) prior to selling would be necessary. Instead, the handout focused on three types of statutory liens relating to: 1) unpaid accounts for care and board; 2) (stud) fees for stallion services, some of which are not contractually due until the resulting foal stands and nurses ("live foal" in breeding terminology); and 3) unpaid veterinarian bills.
According to Wilkinson, most "live foal, stands and nurses" stallion contracts stipulate that stud fees immediately become due if the resulting pregnant broodmares are sold, but as previously indicated, Keeneland can withhold settlement on broodmares until consignors deliver stallion service certificates, which are issued upon payment of those stud fees. Using a broodmare's value and producing potential as collateral, a breeder might borrow from a bank for an early-due stud fee, but the ensuing lien on the resulting foal or on the pregnant broodmare is a consensual bank lien.
No matter how lien obligations are settled after sales ownership status of consigned horses are of no concern to potential buyers, so the "growing lien" phenomenon is unlikely to diminish purchasing enthusiasm. This appears to be another "self-enforcing" mechanism in equine auctions, the overall health of which, according to Wilkinson, is increasingly tied to emerging markets in places like Eastern Europe, Russia, Georgia, South Korea, the Philippines, Chile, Argentina, Mexico, and Western Canada. In many areas over the past few years, the equine industry has adjusted in jumps and jolts. The emerging lien phenomenon is yet another example.