First Season Sires,Keynes and a little poetry

In this month’s international thoroughbred magazine I examined the profitability of first season compared to subsequent crops. The full text is shown below:

First season sire-watch the bidding go higher
Second season sire- will find a buyer,
Third season sire- results will be dire
Fourth season sire- playing with fire.

One of the mysteries of the bloodstock markets has to be the infatuation with first season sires. Inevitably 90% of new sires disappoint, yet buyers still covet to the next big thing. I analysed the commercial returns on the main UK and Irish stallions who retired to stud in 2006 and plotted the profitability of their first four crops. The results are shown in the table below and summarised in my above piece of doggerel. It may not appear in too many poetry anthologies but I think it gives some useful guidance to commercial breeders, when deciding on a mating.

Methodology and findings

My analysis was based on stallions who retired to stud in 2006 and who remained standing at stud in the UK and Ireland for the next four years. The averages for their yearlings sold at public auction were then plotted from 2008-2011. Stud fees and sales averages were converted to a common unit (in this cases UK guineas) and an amount of 7000 guineas was allowed for upkeep. The average sales price of each crop of yearlings was then divided by the production cost of those yearlings (stud fee+annual upkeep). The results show that the first crop of foals were the most profitable with an average sales price that was 1.42 times the productions cost and the third crop was the worse achieving only 1.07 times the production cost. The year three and four results are of course influenced by racecourse performance by the first two and three year olds for those stallions. In that respect it is no surprise to see Dubawi and Shamardal show positive results, as amongst the selected stallions they best fit into the 10% category of successful stallions.

Average vs production cost
Sire    1st crop    2nd crop    3rd crop    4th crop
Antonius pius    1.16    0.53    0.27    0.76
Arakan    0.93    0.63    0.55    0.27
Avonbridge    1.26    0.92    0.99    1.15
Azamour    1.85    2.17    2.11    1.60
Camacho    1.52    1.30    1.15    1.27
Chineur    0.70    0.81    0.83    0.63
Dubawi    2.03    1.72    2.67    4.52
Firebreak    0.94    2.89    0.71    1.77
Footstepsinthesand    1.38    1.42    1.16    1.03
Motivator    2.18    2.27    0.99    0.89
Oratorio    2.01    1.27    0.70    0.89
Pastoral pursuits    1.22    1.32    1.93    1.35
Rakti    1.17    0.53    0.48    0.23
Shamardal    2.15    2.03    1.77    2.99
trade fair    0.98    0.61    0.71    0.55
Whipper    1.66    0.92    0.35    0.65
Zafeen    0.95    1.36    0.75    0.30

Average    1.42    1.33    1.07    1.23

Weaknesses in Methodology
It is acknowledged that there are a number of weaknesses in the above analysis.
The sample size is quite small, but reflects the fact that some sires who started covering in 2006 either died, were sold or did not have enough sales representatives to provide four years results. In addition there was considerable movement in the euro/sterling exchange rate over the period and this had a significant impact on the results. Ideally an adjustment would also be made for the trend in the overall yearling markets in those particular years. The chosen upkeep cost of 7000 gns is also quite arbitrary and does not allow for the depreciation in the value of the mare. Finally it would perhaps be better to look at medians rather than averages to negate the possibility of associated parties paying very high prices for stallion offspring to achieve headline grabbing top prices that also increase averages.

Making sense of it all-Keynesian wisdom

As far as I know the economist John Maynard Keynes, never wrote about horse racing but had he done so he would surely have recognised some of his theories in operation in the bloodstock market. One of his concepts became known as the Keynesian beauty contest.  This described a fictional newspaper contest, in which entrants are asked to choose from a set of six photographs of women that are the “most beautiful”. Those who picked the most popular face are then eligible for a prize.
In terms of a winning strategy, Keynes wrote  “It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be”.

Commercial breeders are involved in such a game. They may not particularly like the first season sires they are using, but their own beliefs don’t matter, it is about trying to guess what everyone else thinks, everyone else will think. They are short term investors who exit before the fundamental value of the yearling (ie its racing merit) is known.  As Keynes also wrote “Successful investing is anticipating the anticipations of others” and when it comes to breeding it seems that people think, that people think it is worth paying more for the latest sires.
All of this irrational behaviour is possibly explained by the prejudices of trainers. As trainers handle more bad horses than good ones and one bad horse can turn them off a sire, then they are likely to dislike a lot of sires! With new sires, trainers have not had the chance to form such prejudices.

It’s not easy being a commercial breeder. Survival requires profit and that requires suitable stallion selection.  The statistics above can help in that stallion selection. If breeders are to be tempted to use third and fourth season sires then breeders should be looking for substantial discounts on the published fees before the use of such stallions becomes attractive. The use of unproven stallions will continue as long as it is profitable. I will leave the final word to the great Keynes, who had sage advice, relevant to any breeders thinking about challenging the madness of the markets preference for unproven sires when he wrote “the markets can stay irrational, longer than you can stay solvent”.

Live fast,die young, leave a good looking crop?

In this months international thoroughbred magazine I examined the impact of death on the values of his final crops. The full text is shown below:

Art collectors have been known to pop open the champagne on hearing of the death of an artist. The reason is not extreme misanthropy, but rather the likely increase in the value of their collections. Values for art, bloodstock or any other commodity are supposedly set at the interface of supply and demand. Death sees an end to supply, so economic theory would predict an increase in values. With this in mind I thought it would be interesting to see whether stallion mortality offers opportunity for profit within the bloodstock world. Do buyers pay a premium for stock of the recently deceased and is there a “death effect” that could be exploited by pinhookers or agents?


In attempting to quantify if there is an upsurge in prices, I needed to compare the prices in the years after death with the prices just prior to death. To do this I looked at their final five year’s yearling prices and expressed each year’s sales average as a percentage of that five year average. For example if a stallions sales average was €10,000 in 2011, €15,000 in 2010, €8,000 in 2009, 15,000 in 2008 and €12,000 in 2007, then the average for the five year period is €12,000 and the 2011 result is 83% of the five year average (€10,000/€12,000) with the 2010 result being 125% of the five year average (€15,000/€12,000). By expressing the results in this way we are able to compare the effect for stallions who stood at very different stud fees.

In selecting the stallions I looked at the list of leading sires from 2002 and selected those stallions who are now deceased and with no more yearlings to sell. Stallions with very small sales numbers were excluded as were stallions that were exported or standing outside of the UK and Ireland
The stallions died at various years from the late nineties up to the beginning of this decade and varied in age and stud fee when they died.

I also noted the year of birth of the stallion and the year in which his last crop were sold. This allowed for an assessment of whether the age of the stallion at the time of death had an impact on the result. Some caveats in relation to my findings include the fact that working from the leading sires list excluded less established or sires who had died very young and also my five year average figure was not a weighted average figure. The data-set generated is contained below

Summary of Findings

At first sight, the results do not support the hypothesis that there is a “death effect”. The final years sales results are only 95% of the five year average, the same figure as the penultimate year’s results. However this is an increase on the 87% figure for the third last crop sold, so you could argue that a slight bounce is evident.
The average age of the sires when the last crop was conceived was 17.8 years. To check if this was significant I went and compared the results for those sires who were aged under or over 18 at the time their last crop was conceived against the overall averages. Although there were variations they were not particularly significant, so the age at death does not seem material to the findings. I found this to be surprising as it is well known that the quality of a stallions book declines with age (even though a stallions ability to pass on his ability is not diminished with age). However lesser mares will mean lesser offspring and accordingly lesser prices and I would have expected this age related effect to be more noticeable in the statistics.


I could discern no obvious grim reaper premium but given that there was a slight bounce in the final two years figures, it is possible that there was a marginal effect. Against that one could speculate that once a stallion dies, he is less likely to receive support from his owners who may have purchased stock in the past to boost sales figures. Similarly stud owners are less likely to spend money advertising the successes of the deceased than the living, so this again may have a slight negative impact on sales prices.
It is not speculation to state that bloodstock is not art and horses don’t appreciate in value with age. However, bloodstock values are a matter of fashion and the last offspring of an old master have to compete with trendy first season sires for marketplace attention. I had expected an obituary notice to help in that regard but it seems that death cannot be described as a good career move for a stallion.

Predicting Sales Returns

The Keeneland sales are critical to the US bloodstock industry. When analysing the sales, industry experts often focus on the strength of the buying bench which depends on the presence or otherwise of European, Arab, Japanese and domestic buyers. The experts debate the impact of variables such as changes to exchange rates or tax charges, the size and perceived quality of the catalogue, or tinkering with the sales structure through select sessions. The presence of the offspring of star stallions or fashionable stallions may also be invoked as a way of explaining the likely sales outcome. These factors are real and do have an impact but the best indicator currently available is much more straightforward-The Dow Jones Index. I consider the issue in detail in the September edition of International Thoroughbred magazine. To read the article click here