It's anybody's guess what sort of role current global economic forces will play in the gold standard of the Thoroughbred trade, the Keeneland September Sale of Yearlings. High energy prices, fear-stressed financial systems and declines in and among trading partners have combined to slow growth to a sluggish crawl in many of the world's major economies. When the world economy takes a tumble, the racehorse market has been known to stumble right behind it.
Like art, antiques or fine wines, Thoroughbreds are expensive speculative luxury items purchased more on the basis of pedigree then performance. And the patrons of this particular sales event do tend to function far above the fray of worldly economic ebb and flow. Whether the '08 sale breaks records, merely treads water or mirrors global economic decline depends on how today's economic conditions are influencing the appetite for risk among the deep-pocketed.
One thing is certain as Keeneland's Director of Sales Geoffrey Russell prepares to kick things off on September 8: "The September Sale is the marketplace for the Thoroughbred industry. The other sales that have taken place give us some indicators, but the September Sale defines the Thoroughbred marketplace."
In fact, the September Sale in Lexington accounts for well over half of the global market in Thoroughbreds, and in recent years, the market had been enjoying a rebound, encouraged by low interest rates, lower taxes and higher commodity prices. Last year's event was the second-highest grossing Thoroughbred auction in Keeneland's history, with sales of $385 million. With sales of $399 million, the 2006 Keeneland September Sale was the highest grossing Thoroughbred auction in the world. Thirty-two yearlings brought $1 million or more, including a Kingmambo colt that sold for $11.7 million, the second-highest price ever paid for a Thoroughbred yearling at public auction.
The annual Yearling Sale has occurred at various times during the fall since 1944, finding a permanent September spot on the calendar as of 1960. Keeneland's vast store of data from the event can serve as a reliable barometer for the mood of the world's super-wealthy, who flock to Lexington from nearly 50 nations to purchase the premium horseflesh of the Bluegrass region's world class breeding and racing industry.
In these times of widespread economic uncertainties, Russell and his colleagues, associate director of sales Tom Thornbury and sales marketing associate Chauncey Morris, have been on the road, taking measure of their market. "Tom, Chauncey and I have (recently) been to different parts of the country, the world. The attitude is, they all have the catalogues, they're all excited about coming to the sale. The question is, do you have $100,000 this year or is it $200,000? We don't know that."
Russell acknowledged, however, that the economic picture going into this year's sale bears little resemblance to that of only a year ago. "The whole market swings around, so we'll just have to see where it all aligns. Yeah, there are concerns, there's no mistake."
Unpredictability plays its role, as well. "The Thoroughbred industry does tend to run in five-year cycles," Russell noted. "It feeds off itself, and then all of a sudden, it goes down. In 2001, ... not just the 9-11 tragedy but also the MRLS (Mare Reproductive Loss Syndrome) situation here had a huge effect, and it took two years or so to get over that."
Research into the MRLS scare has led scientists to conclude that mares had ingested unusually high levels of cyanide related to cherry trees and eastern tent caterpillars. The resulting deaths of hundreds of foals sent chills through the Kentucky breeding industry, which leads the nation in the increasingly competitive production of foals. The impact on the breeding industry was estimated as high as $250 million.
Those conditions, explained Thornberry, opened the floodgates to speculators. "You had, in the past, a great deal more people who bred to race. Now you have people who have been encouraged by that significant increase in the market to become speculative sellers rather than racing. They want to sell and move on."
And as a result of that behavior, Russell acknowledged, supply has outpaced demand. "That's where we probably are at the moment. There is an overproduction. The estimated foal crop for next year will be a thousand less foals than this year. But even added to that, it's the percentage of that foal crop that are going through commercial sales companies, and that has increased dramatically over the last 10 years. Because of the bull market, everybody wants a piece of the action."
But for Russell, who arrived in Kentucky from Ireland in 1982, the Bluegrass holds many advantages for those involved in the Thoroughbred business, during both good and bad economic times.
"The magical thing about central Kentucky is the ancillary services the Thoroughbred industry has. There is so much premier expertise in this area that you cannot find anywhere else," Russell said.
"Consider that Cleveland only has one clinic and there's only one Johns Hopkins in Baltimore. We have the two finest equine medical hospitals in the world right here in central Kentucky," added Morris. "People aspire to come here. If you're in the horse business in the 64 countries around the world where horse racing exists, you aspire to be a part of this place. And you aspire to buy your horses at Keeneland."
The vast wealth and international characters drawn to the September Sales have for decades brought to Lexington the very diversity of cultures and languages so anxiously anticipated for the World Equestrian Games in 2010. Morris suggested that anyone interested in getting a taste of what will be coming in 2010 should make a trip out to Keeneland between September 8 and September 23 and see for themselves. "Rarely do you get to see the entire world pass you by in central Kentucky, and you can do that in those two weeks in September," he said.
Lexington has grown to anticipate the sight of a pair of customized, truncated Boeing 747s parked at Blue Grass Airport, a signal that a major player has arrived. The jets belong to the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, owner of the Keeneland sales rival Fasig-Tipton, as well as Darley, Jonabell, Gainsborough, Dubai Millennium, Raceland and the recently purchased Stonerside farms all here in central Kentucky, and his brother, Sheikh Hamdan. Other luminaries include Ireland's John Magnier of Coolmore Stud/Ashford Stud.
Former Soviet Bloc countries are beginning to emerge, among them the Republic of Azerbaijan.
"There's a gentleman there (businessman Mamet Gusseynov) who's just purchased a farm here in central Kentucky (Shadwell) and purchased the sales topper from our April sale," Morris offered. "This gentleman also has developed a racetrack in Baku, the capital city there in the Republic of Azerbaijan. In that area of the world, they have a very good tradition of the horse."
And that, Thornberry said, explains another important element of the attraction of central Kentucky. "If you are a breeder from another country and you want to develop a farm of your own in your country, where better than Kentucky to come to find a blueprint for the perfect breeding farm? If you're a veterinarian and you want to establish a veterinary clinic in a country, where better than central Kentucky to find a perfect blueprint for a veterinary care center? If you want to create a racetrack, as our client in Azerbaijan is re-establishing racing in Baku, where better than Keeneland to come for the perfect blueprint?"
"They're here for eight to nine hours in the day, but they're in the community, too," added Russell. "Our restaurants and our hotels fill up. We are very lucky that the major hotels and restaurants understand the importance of the Thoroughbred industry to central Kentucky and welcome these people back and treat them with great respect. And it's not just the guys who spend hundreds of thousands of dollars; it's all the way down. We get comments from our clients who say, 'I've never been welcomed so much anywhere.'"