ECONOMIC theory

THE British bloodstock business is seeking answers to its ills, but essentially it all comes back to supply and demand

THE LAW OF SUPPLY AND DEMAND is a first concept taught in economics… that the two sides of commerce are in a continual flux trying to find balance with price acting as the pivotal point and the mechanic to bring the two in line.

When demand outstrips supply then prices rise, producers see a high price and enter the market, when there is a glut on the market or demand has dropped away for any reason, then price falls and suppliers start to leave the market.

Conversely, it seems that both effects are currently in evidence in the British bloodstock industry – the bloodstock sales industry recording round after round of endless record prices that should bring in many more producers attracted by the great returns that could be made in the sale ring, but yet according to the Thoroughbred Breeders Association’s Third Breeding Industry Economic Impact Study, smaller scale Britishbased suppliers of yearlings are leaving the industry having made loss after loss after loss when selling their annual yearling produce.

It is perhaps reflective of a two-tier bloodstock and racing industry, the report also stating that, as has been well known and seen anecdotally the market is highly polarised with the progeny by certain higher-priced stallions i.e. the ones who are deemed to be “good”, achieving higher prices at the sales. That number of stallions, who are deemed to have a fashionable status, has also become far more concentrated to just a few.

This has happened across both codes – Flat breeders with progeny by those few stallions and with pedigrees appealing to the international market are often highly rewarded.

And the trend was even more evident at the winter’s British and Irish NH sales when generally only foals by a handful of stallions were in demand by the buyers. This was perhaps also reflective of the strength of the pinhooking market as foal buyers can not risk purchasing stock by sires who are not likely to be of interest to end users by the time they sell.

Although some 6,000-odd yearlings are catalogued for sale each year in Europe, nearly 2,100 alone at the Tattersalls October Sale, the top sector horse, the horse who can satisfy the demands of buyers purchasing for the global bloodstock industry, is still a rarity.

That horse, to coin a well-worn phrase, “who ticks all the boxes”, who could become a globally important stallion and so attractive to the stallion farms for purchase, or could take its racing owners to the biggest day’s racing, is in strong demand from a wealthy clientele.

That British-bred horse, if by the likes of Dubawi, Frankel or Kingman, will continue to be in demand and will continue to create a strong price; the global racing industry seemingly on an upward curve with strong industries abroad and people wanting to own racehorses in the Middle East and Australia and the US.

And, of course, the large stallion farms are massively important in the market either through supporting its own sires via buying his progeny, buying unraced prospects who might achieve a roster place, or picking fillies as future mates for stallions already on those rosters.

All breeders, whatever scale they are producing, have horses who, for whatever reason, do not make that top tier category, and by the law of averages those with fewer mares, and those with lesser mares, will miss the mark more frequently or not at all.

If you don’t hit that top sector (which by all accounts is a fairly thin market reliant on a handful of people), that ticks-all-the-boxes Book 1 or commercial Book 2-type horse, or Land Rover or Derby Sale NH store, then where is the demand?

“We have fallen down the cliff face” is an oft-quoted phrase at the sales by sellers who find themselves without a market for their oh-so-cared-for and expensively produced individual possibly by a stallion who, though at the height of fashion when the foal conceived, has crashed since, or out of a mare whose previous progeny may not have converted racecourse hopes to racecourse success. There is no buyer there for that sort of horse s anymore.

And that is a comment frequently heard at commercial middle sector yearling sales, let alone at lesser levels or the early year NH sales where the market can be just flat.

We can go all around the houses in this industry to try and find the reasons as to why breeders are not making money, to try and find out why smaller breeders have been exiting the industry and why the industry has been contracting and concentrating, but there is essentially one single reason that needs addressing – a fall in demand.

And that fall in demand is singularly a reduction of buyers, a fall in the number of future owners who are interested in purchasing yearlings and store horses.

Why is there a lack of domestic demand?

It can be laid to a certain extent at racing’s door and the lack of collaboration between the two facets of this industry, bloodstock and racing, seemingly failing to work hand in hand.

There is no point anymore in a British-based owner or trainer buying a Flat yearling who does not have a respectable chance in their view (judging by the individual’s physique and pedigree) of achieving a rating at least in the 80s. Of course, many fail to do just that, but in the first place any owner, or his or her advisor, trainer or agent, can not head to the Flat market with that objective.

In the NH sphere, many buyers are only really looking for horses capable of getting to The Festival, for various reasons there is little interest in success further down the pecking order.

Second, trainers do not buy on spec to a great degree any more, and while many can’t afford to buy the “commercial” grade yearling circa £50,000+, they also realise there is no point in buying a yearling who is unlikely to achieve that 80-odd mark quote above – if they get left with the horse (prospective owners aren’t always that easy to find) it is certainly not going to pay its way. Alternatively, if it can get to that sort of mark or has the prospect of doing so, then onwards sale abroad beckons, but said trainer can invest a lot of money in the search for such types.

For the 60-75 rated horse there is certainly not enough prize-money on offer at the level to support its keep, even if it is capable of winning races, very quickly, training fees and costs mount and create a valuation in excess of the value of the horse.

This is not an argument to push a load of prize-money to low-quality races, it is merely an observation that the sheer top quality British racing has in fact pushed that lower quality horse out of its sphere. Along with a possible decline in the ownership ranks due to training costs, and the need to invest such a lot of money in order to buy the desired “Saturday” horse, many of those types of buyers have left the bidders’ bench or have joined syndicates, which though a great way to keep people involved in the sport, obviously reduces individual sales ring buyers.

Add in the influence of Brexit and changes in the European racing profile, those buyers who might have turned up to provide a market place for the lower middle market yearling, are no longer around in such numbers as once before.

Do we even need the smaller-scale breeder ?

As an aside, and before we get any further, it would be interesting to understand in a little more depth more about the “two-mare breeder” who is being lost.

According to the Weatherbys Fact Book, 90 per cent of breeders own fewer than five mares, and the TBA’s own study reports that this is the greatest loss in the breeding rankings.

For future knowledge banks it would be good to know what something of the profile of mares owned by such entities, what stallions were being used, how many are in the business at a smaller scale size-wise but are pitching in high, and what their experience was. Also, were they just starting out and what were they wanting to achieve from breeding horses – was it to produce racehorses for themselves to compete or were they looking to develop a commercial enterprise.

A breeder trying to make a profit out of the production of racehorses needs successful days in the sale ring, he or she has to marry the quartet of fashion and pedigree and stallion power and confirmation, a very difficult achievement when demand has narrowed so much.

Some will argue that breeding racehorses is just a sport for kings, a rich man’s and woman’s hobby, and that such breeders are not really relevant.

They may argue that we should not even worry that smaller-scale and “starter” breeders, who are unable to use the fashionable stallions, and who maybe own mares who don’t have the pedigree profile demanded by the market, aren’t able to be involved.

But it does matter because these are the people whose early or mid-life involvement can lead to bigger and onward and inward involvement; if they find early forays into industry a strong and positive experience, it will do much to help them become aspirational in their bloodstock mission and create a desire to be involved in a bigger and better way.

They also make good use of ancillary business – vets, feed companies, farriers – and if they collect a few mares and have a good experience of breeding racehorses, will end up becoming an employer (if there is indeed any staff around to be employed).

The two-mare breeder is an important part of the rural economy and should not be ignored – as reported in the Impact Study the British bloodstock industry as a whole contributes £375m to the UK economy and directly employs 21,000 people and indirectly another 13,000. Obviously, much of the output and many of the jobs will be generated by the bigger farms, but the smaller operations, too, will be significant, especially if 90 per cent of breeders come into the “two-mare” category.

The bloodstock industry supports and provides the products for a world-class racing industry, and racing, if nothing else, provides various lucrative taxation sources for the government.

What is also frustrating is that horses can be perfectly a viable individuals as future racehorses, but who might just not be in “market” demand.

Racing has to extend the fashion remit in order that demand filters through from the sport to the sale ring – essentially racing industry needs to increase and diversify the demand for racehorses.

Let’s make a very simple analogy to women’s fashion. Now it is equally “trendy” to wear skinny jeans, and straight-legged jeans and flared jeans, smart jeans, daily jeans, black jeans and blue jeans… the trend for jeans has diversified and most women probably have various differing styles of wear on differing occasions.

And while we are certainly not experts in the world of fashion, I’d bet to an extent this has been engineered by the clothing companies themselves in order to grow its market and spread the risk.

The larger companies also produce cheaper products, or budget versions, so those with less cash still have an opportunity to buy a fashion item. This is often pitched at a younger audience so that the company can encourage brand loyalty (we all have our favs) from the very first days of consumer spending.

Alternatively, clothes companies often have a premier line made from higher quality materials in order to attract the higher-end purchaser. This will give the company a good margin on its product, and much, like the bloodstock auction houses, this is where the money is made for the year ... as long as perhaps the credit lines are not too long (Cue a winking emoji).

Again, the desire for that higher value product is probably engineered by a company’s slick marketing and promotion.

So a fashion house has a variety of avenues in which to sell its products, and does a pretty good job of creating the demand for itself.

The example offers a good indication as to what the bloodstock and racing industry needs to do and could co-ordinate in order to support the sport, the bloodstock industry and participants – drive its own demand.

The two sides are obviously mutually compatible and provide a supportive circle, however the obvious has been lost somewhere along the way.

Of course, there is certainly no god given right for anyone to be making a profit from selling bloodstock, but the industry does need to ensure that there are enough “basic” products on offer to encourage those who wish to buy racehorses the opportunity to become involved at the grass roots, and enough premium products to attract the uber rich. For its part, the racing industry need to ensure there are sporting opportunities for buyers of racehorses at all of levels. It is a virtuous circle.

Racing needs to be inventive – race programmes need to broaden the appeal in various ways from a more appealing race conditions to varying bonuses and enticements.

If you create them they will come… and this has already been identified by the various fillies’ schemes (see graphic left). If you programme races or bonus schemes, trainers identify pretty quickly new opportunities to win races and make a little extra cash for their owners, and so you create a market.

It becomes an easier sell for trainers who can market those opportunities to ordinary clients who might not top bracket budgets, or they could in fact own racehorses themselves and have a chance of keeping out of the red.

It also gives those breeders, who might not have not been able to sell at market or might not have gone to market at all, an opportunity to support their mares and race her progeny (one of the biggest sector of owners are breeders) with the hope of winning some extra money to pay for training fees or creating an in-training value that the market will see. By supporting their own stock there is then a greater chance of a growth in value of the later foals out of a mare.

The prize-money argument has been a long one, however, if there is money to be sourced, it needs to be used to provide a equine diversity in racing so that the bloodstock industry can see opportunities for a broader range of racehorse “products”.

With the British racing industry replanning and refocusing, now is the ideal time for bloodstock to really make its voice heard and for the details of this study to be used as a foundation for the future.

Finally, while the TBA’s Impact Study predicted a continuing fall in the size of the foal crop and a dramatic contraction of horses produced in the UK by 2030, the Weatherbys Fact Book published figures from the following year’s 2022 foal crop finding that, in spite of everything that has been thrown at all of us over the last few years, there was actually some growth. The arc of supply and demand and price as ever in a state of flux.