Thursday, December 11, 2014

Field Size and Foal Count in Washington

The Issue of the Declining Foal Crop

The yearly Racetrack Industry Program ("RTIP") Symposium at the University of Arizona is something I always keep a close eye on this time of year because (1) I want to ignore the holidays and (2) a good portion of our industry leaders gather to discuss the pressing topics of the day. This year the main topic of discussion appears to be centering around the declining foal crop, the declining number of horses per race, and declines in handle based because of smaller numbers. As you know from my rantings on this blog, I put a huge emphasis on handle because it is the main economic  barometer of our industry overall. Increase handle leads to an increase in purses, which leads to increase in owners and horses, which leads to an increase in handle, which leads to increase purses ......The CIRCLE OF LIFE! 

Some statistics from the speakers at the symposium that are important for purposes of this discussion: 

*In the last 11 years, handle has dropped by 30 percent
*Over the past 25 years, field size has dropped from 9.0 horses per race to 7.9 horses per race today 
*Field sizes are expected to drop in the next few years because of the foal crop decline from the economic slowdown. 
*Handle could climb as much as 43 percent if we averaged 10 horses per race in the United States. 
*Based on analysis from Woodbine, it is better to add horses to short fields, rather than add horses to already large field (a diminishing returns theory). In other words, from the perspective of handle, it is more valuable to add a horse to a six horse field than a horse to a ten horse field. That is good news for our neck of the woods. 

The first three statistics are nothing new. The last two have been harder to quantify. 

Solutions Proposed 

Because I am not going to be negative without attempting to offer a solution (and I am not being negative, just presenting facts), here were the potential solutions that were proposed during the symposium discussion and proposed by turf writers*:

(1) Cut the number of race days and/or the number of races each day
(2) Changing the distribution of purses to allow some owners to get their money back if their horse runs 6th or worse. In other words, incentivize entries. 
(3) Re-distribution of horses to a variety of different trainers rather than a few. Jim Cassidy stated that 20% of the trainers make 80% of the money. If Todd Pletcher has four allowance-level horses to enter into an allowance race, he will likely enter two and wait on the other two. If those four horses are in the hands of four different trainers, they all get entered. 
(5) Coordinating schedules/conditions with "neighboring" racetracks - Don't have Hastings, Portland and Emerald running at the same time. 
(6) Focusing on the old customer - lowering takeout
(7) Focusing on the new customer - making the game 
(8) Start horses more often - races are getting spaced out more and more.  
(9) Increase the foal count

All of these have at least some merit, but they also have drawbacks. 

As a Board member of the WTBOA, I will focus on (9) because every other decision is currently out of my influence/control (See I learned something from all those self-help books: "Control only what is the 3 feet around you." blah.). Recently, I had an email discussion with one of Washington's industry leaders about the current situation and whether there was a way to incentivize the breeders in our state to take the mares that were out of commission because of the Great Recession and/or the current economics of raising a horse in Washington State. This is a question I continue to ponder. Most of the mares that were "taken out of production" during the Great Recession are likely not coming back into the breeding shed. However, the breeders who were taken out of production during the Great Recession may consider breeding one or two horses in the coming years considering the changes in Washington and the change in the overall economy. It is extremely important that we bring them back into the industry.  

Increasing the Foal Count versus The Cost of Raising Horses

Unfortunately, the cost of raising a horse for sale has become prohibitive. Take our WTBOA sale. Some numbers thrown around by the industry's brightest are that it costs $8,000 (plus stud fee) per horse to bring them to the sale.  That is $8,000 for someone who owns their own farm (rough estimate, you may have a different number).  However, it costs individuals like me without a farm me more than that to raise a foal. The biggest factors in this overall cost are (according the Brewer Thoroughbreds Excel Spreadsheets which I never want my financial advisor to see): 

(1) Boarding 
(2) Vet Bills  
(3) Stallion Fees 

There are other costs such as insurance, farrier, transportation, foaling and also nomination fees but those are less significant than the three above. 

So if you pay a $2,000 stud fee you are looking at needing $10,000 to break even assuming you have your own farm. If you don't, you probably need more like $12,000 to break even. The average at the 2014 WTBOA sale was $16,012 (that includes non-Washington-breds). So breeders are making money and should breed more horses right? Well, the $16,000 doesn't take into account the other empty mares at the farm, the foal that came out crooked and sold for $2,000, the foal that had bad x-rays and now is recovering before the horse is put in training by the breeder at $55 a day. Also, I am not including the cost of the MARE in all of this. This is not woe is me, it is just economic fact. I am willing to support this industry even if it impacts me negatively in the short term. 

So you can attack this economic issue in two ways: (a) increase the price you get for foals and (b) lower the costs for production. 

(a) Increase the Price you get for Foals

I have always said that we don't suffer from a lack of horses, we suffer from a lack of owners. If we have the owners, we will breed the horses. The more owners that we get wanting horses, the more the price of those foals increases (supply and demand). In the last year, we have been provided with a "Buy Here, Win Here" Bonus for horses going through our sale and, most importantly, the Emerald Racing Club created hundreds of potential new owners which should have a positive impact on our state for years to come. Every organization needs to sit down and think about how to drive owners to the sport and the breeders need to figure out ways to put foals on the ground. We need to take these new owners and mentor them. Make sure they meet the right people and make sure they get off to a good start in ownership. 

Another way to increase the price for our foals is to make them more appealing to buyers. So an important question that breeders have to ask every year is: What stallion in Washington right now is going to get you, on average, $12,000+ so that breeders are incentivized to add more mares? We had a good sale last year but the average for a Washington-bred yearling sold at auction was below $12,000 up until 2013 (according the 2014 Jockey Club Fact Book). I like some of our Washington stallions but I truly believe it is a priority to get more quality stallions to our state to give breeders a chance to succeed. Having higher quality stallions in Washington also helps lower cost (see below) because transportation expenses to Kentucky and California along with boarding for at least 60 days while your mare is visiting out of state is very costly. Plus, stud fees in Washington typically are less expensive. 

(b) Lower the Costs of Production

So the question is how do we go about reducing the costs of those three items listed above. Boarding and vet bills are hard. The cost of goods is going up so the cost of boarding will continue to go up. I don't see vet bills getting any cheaper (although I wish they would). I lack the economic intelligence to understand ways to decrease the price of goods for people who board horses. I simply need to understand it better. It appears that the only thing I can figure out, for now, is how to get better prices for your foal. 

As industry stakeholders, I would welcome any ideas. Could we have stallion owners incentivize broodmares that are "out of commission." Will breeders pretend their horse is "out of commission" to get incentivized? How do we cut down on vet bills? How do we cut down on boarding costs? How do we get together and bring new stallions to the state? I will put all the legal agreements together to bring a stallion here. I will research the pedigrees. I will recruit mares. I just think we need to work together to get done what we can get done.  

Solutions Proposed Redux 

After that quick detour into bookkeeping hell, let's get back to the issue of handle and solutions (1)-(8) that I discussed above. I lack the power to pass any of those solutions through regulation, track, etc. But I will offer a few thoughts. As a person who studies this industry and the behavior of "investors" for over 25 years, I can tell you I (and others) put an emphasis on the following when determining whether to invest: 

(1) Takeout Rate  
(2) Quality of Races - More consistency, better rides
(3) Quantity of Horses in a Race 
(4) Total Pool for Specific Investment (i.e., Pick 5 total pool) - Liquidity 

If I see a 5 horse field of low-level claiming horses I am going to skip the race and even a sequence (Pick 3,4, and 5) entirely. 2500N3L races simply don't appeal to me as a bettor. Sorry, but true. These horses are wildly inconsistent and not fun to watch. It also doesn't make good economic sense for me to invest in those type of races. We really need to focus not just on the quantity of horses in each race but the quality and the investability, for lack of a better (or bettor) term, of each race. 

*Some articles for your edification: 





Always Love Your Animals

Will 

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