First Year Stallions

One of the most difficult things to explain to a newcomer to thoroughbred racing is the phenomenon of the high prices paid for yearlings from first year stallions. In any rational market investors demand to get paid for taking on risk. However, in thoroughbred sales, buyers will usually pay a premium for the progeny of unproven first year stallions even though they are taking on the additional risk that the stallion will fail.

On average, the first yearlings of a stallion to go through the ring will be the most expensive yearlings the stallion will ever produce. Even though, it is also true that the stallion’s first yearlings will usually be out of the best group of mares that he will ever be bred to, there is no guarantee that these yearlings will prove to be a good value.

One of the reasons for the premiums buyers pay is the amount of media attention given to first year sires. Virtually every reporter spends an inordinate amount of time to covering the stallion’s progress and giving his opinion on what the future holds for said horses. This type of coverage creates a great deal of ‘buzz’ among industry professionals and amateurs alike. This ‘buzz’ attracts prospective buyers to look at foals by these stallions and eventually to purchase them.

Another reason for the premiums is the amount of advertising that farms do for their first year stallions. The goals of the stud farms is to fully recover their investment in stallions by the time the stallion’s first yearlings hit the track, in order to offset any risk to them. Therefore, they promote their stallions heavily in order to attract the largest group of mares possible during these first years. At the same time breeder’s flock to these stallions because they know that they will not find a better ROI than when selling foals by first time stallions, also at little additional risk to them.

The buyers of the yearlings end up taking on the risk of failure by racing the foals. This risk is compounded by the fact that they typically overpay for these horses. This was the case at the Fasig Tipton Select Sale earlier this year where the sale topper was a $1.6 Million Empire Maker filly, followed closely by the second most expensive foal, a $1.45 Million Mineshaft filly. Both these yearlings are by first year unproven stallions. Clearly the buyers of these horses are spending their money assuming that these stallions will be very successful. Why not wait and let the stallions prove their worth? Can anyone really justify spending these sums of money for unproven stock? Have the buyers of these yearlings forgotten Alysheba, Spectacular Bid or Dayjur, stallions that demanded high prices early in their careers and turned out to be failures at stud?

I do not mean, however, that there is no value to be found in purchasing yearlings by first year sires. Rather that value is more difficult to come by-especially at the top end of the market. Part of the problem is estimating the fair value in the progeny of unproven sires.

The most common method to value a new sire’s foals is to reference how those sire’s weanlings and short yearlings have been selling. This is the wrong approach because, as we have established, the market overvalues these prospects. The safer way to evaluate these yearlings is to carefully evaluate the conformation of the yearling and the quality and production history of its dam and give a value based on these two factors. Once a fair-value based on these two factors is established, a buyer should demand a discount that represents the additional risk she is taking on by purchasing stock of an unproven stallion. If this method is followed buyers can still find some value in first year stallions.

Thoughts on some of the new and more expensive Keeneland stallions for this year’s September sale:

Mineshaft ($100,000 fee) By AP Indy. He was a monster of a racehorse and he has all the right credentials to be a top stallion even at this price range. He represents the safest bet to stick around in the future. But at what price? Be leery about his early years at stud. Aptitude, also by AP Indy, has taken a couple of years for his progeny to show something at the track and Mineshaft is a good candidate to produce latter maturing foals. He did not win a stakes until his four year-old season. Next year or the year after would be a better time to buy yearlings by him, after his two year-olds show a lack of early ability.

Empire Maker ($100,000) by Unbridled. A very good three year old. This guy has been over hyped since the day he was born. His dam is the great mare Toussaud, he could not be better bred. Unbridled was a horse that could produce great horses but his overall numbers were not fantastic. This stallion is late maturing, without early turn of foot and his bottom half of the pedigree suggest distance and grass. His half brother Chester House died early and showed little at stud. With a weanling average of close to $900,000 everything has to go very right for him to be at that level in a couple of years.

Vindication ($60,000 fee) By Seattle Slew. Although this guy is no AP Indy, he was a very solid juvenile runner winning the Breeder’s Cup Juvenile. He is a well-built horse, although more refined and with less bone than AP Indy. Comes from a line that has produced great horses like Slew O’Gold, Seattle Song, Slew City Slew, Doneraile Court and Event of the Year but none of those were great in the breeding shed, AP Indy being the sole exception. With a yearling average expected in the $300,000 range, save your money and buy a nice something else by a proven sire.

Aldebaran ($40,000 fee) By Mr. Prospector. Hard to knock one by Mr. Prospector. Aldebaran was one of the best and most consistent sprinters of the past few years. But this horse was a late developer without early speed. It was not until his 5 year-old year that he won a grade 1 stakes. Of course, being by Mr. Prospector he should sire early and speedy foals but there is still a risk that they will be late maturing. It may be wiser to wait and see what kind of a sire he turns out to be. Having said that, at this fee level, some yearlings by him may still offer value.

Sky Mesa ($30,000 fee) By Pulpit. Great looking early maturing horse who won the Hopeful at 2. Injury prevented him from following up on his three year-old campaign. Better fee range can offer value at the sales but outstanding physical individuals by him will still demand high premiums. Interesting prospect.

Other prospects that stand for below $20,000 will be more likely to offer the best opportunities for buyers who want to invest in new Stallions. Stallions such as Harlan’s Holiday, Proud Citizen, Yankee Gentleman and Kafwain as well other regional stallions may provide value to daring buyers. But the best value a buyer can obtain will always come from proven sires!

Buyers should always demand a premium for taking on the risk for trying out these new stallions. The buyers are the ones that have the least to gain from making a success out of these first year sires and they are the ones that have the most to lose if these stallions prove to be failures.