In 2020, the wealthy had excess funds to invest and spend on recreation. So, it was surprising to learn (via Wallethub’s great Kentucky Derby infographic) the sale of thoroughbred horses declined 26% YoY and that the price of yearlings was down 19.5% YoY. Total gross sales fell from $1,087,528,402 in 2019 to $803,543,967 last year, while the average price of yearlings sold slid from $83,317 to $67,026. With the 147th edition of the Run for the Roses set for tomorrow, we had conversations with a trio of horse racing insiders (NBC Sports analyst Randy Moss, Paulick Report editor and publisher Ray Paulick and racehorse owner Sol Kumin), who indicated that 2020 was likely an aberration tied to the pandemic—not the start of a major market correction.
Our Take: Historically speaking, bloodstock sales have tracked alongside the public markets. “If you were to go back and look over a 30- or 40-year period, in an up market the prices are usually up and in down market they are usually down,” Paulick said. “There were major [stock market] crashes in ’86 and ’08, and both times yearling and bloodstock prices fell.” So considering how healthy the market was in 2020, the decline in sale prices is noteworthy.
Looking at the context of the time, though, this appears to be the result of circumstance, not weakness in the market. WHO declared COVID-19 a global pandemic in March 2020, “Right when sales of two-year-olds in training (horses ready to go to the racetrack) begin,” Paulick said. That led to the cancellation (see: Saratoga yearling sale) and consolidation of sales—and ultimately 2,000 fewer horses being placed on the market (contributing to the decline in sales volume).
The inability or unwillingness to travel during the pandemic was another factor in the fall of sales and sale prices last year. “Buying a horse is not like buying a commodity. People want to see horses before they buy them,” Paulick explained. Moss echoed those thoughts, adding, “So much of picking out a young race horse and gauging his future ability has to do with these bloodstock agents—boots on the ground, examining the horses in person. A lot of times they can’t necessarily tell you what they’re looking for, but they know it when they see it. And the pandemic took away all of that in-person element.” As a result, many of those buyers opted to sit 2020 out.
There were several large Middle Eastern buyers (think: Godolphin, Shadwell) that also took a pass on the year (travel restrictions did not leave them much choice). “If you look at what those three or four were spending a year, it could be [as high] as $30 million to $40 million. They come in and basically buy at the top end. So when they don’t show, it changes the whole market. If, all of a sudden, million-dollar horses are being bought for 800 grand, everything [else] just gets pushed down,” said Kumin (co-owner of 2018 Triple Crown winner Justify and 2020 Kentucky Derby winner Authentic).
The uncertainty surrounding COVID-19, in terms of when restrictions would be lifted and racing might resume, throughout Q2 and Q3 of 2020 (when the bulk of the yearling crop is sold) contributed to the tempered sales figures. “Horse ownership is, by and large, a money-losing proposition,” Moss said. “And the reason why so many people enjoy owning racehorses is the experience that goes along with it—being able to go to the barn, watch your horse train in the morning, feed him peppermints, show up to the race in the afternoon, the excitement of the race with all your friends at the racetrack, maybe getting your picture made in the winner’s circle if your horse wins. All of that went away during the pandemic.” As Paulick asked, “If you can’t go see your horses, do you want to go buy more horses?”
In recent years, buyers who would have been major individual players have formed partnerships (think: Mike Repole and Vinnie Viola), resulting in a smaller pool of bidders, which could also be a factor in the price decline. “Instead of trying to compete with one another for the best horses, they are pooling resources together in an attempt to improve their odds at hitting a grand slam,” Paulik said. Kumin, who co-owns Authentic as a part of such a group, compared the approach to venture capital. “You’re trying to buy 20, 30, 50 [horses] for one to three good ones,” he said. “And they are going to pay for the whole group if they hit.” Buying two-year-olds, who are a bit further along in their careers [but still unraced], would be more like private equity. “You have more information, but they are not quite a public company yet,” he said. Horses that have raced would be akin to public companies in this analogy.
Despite the consolidation trend, both Paulick and Kumin expect 2021 to be a bounce-back year. Last week’s Ocala Breeders’ spring horse auction generated a record of nearly $74 million in sales. “People are starting to feel a lot better about [COVID-19], and they still have money,” Paulick said. Kumin agreed: “People are now dying to go do things. You’re going to see more people attending races once things open up, and I think that ends up with the market being strong.”