Keeneland: What does it take to be a truly world class auction company?

The auction room is full of expectation as lot no 11 takes center stage. There is that palpable energy and excitement that makes you feel like anything could happen. The sale has been strong so far but few lots in the sale have the quality of this one. All the big buyers are present and ready to spend very large sums. A small man with white thinning hair in the aisle seat nervously folds his catalog in expectation of the most important moment of his life, he is, without a doubt, the consignor. The bidding starts at 1 Million and quickly climbs…2,5,8 and then reaches the final number … 11.2 Million, the crowd watches silently…the hammer falls…the man with the white hair looks down to his catalog…in disappointment!

That is not a scene from a Keeneland sale but rather this is what happened on May 2 at Christies in New York during the Impressionist Evening Sale. Christies is one of the leading auction houses in the world. This sale sold 50 lots in one evening for a total of 180,280,000 that is an average of more than $3,600,000 per lot. It took Keeneland two select books and close to 500 cataloged hip numbers to arrive at a similar gross figure (182,860,000). Sure, horses are not fine art paintings but more and more the prices demanded for the very best equine prospects approaches the type of prices fetched by the elite of the art world. With these kinds of prices, should buyers expect more from top sales companies like Keeneland?

Keeneland has been hailed as an innovating company. Indeed, it has introduced many improvements to both its sale and racing operations; from installing Polytrack to remodeling its auction pavilion. Keeneland is the unquestioned leader of horse auction companies. However, are the improvements they have made enough for such a large and important sale?

In order to fully answer that question we need to know what factors make an auction an efficient market. After all, the best service an auction house can provide is to establish a market place that will set the best possible price for a particular item for the seller. Auctions are important in economics because non-commodity or unique items (such as racehorses or art) do not have an inherent price but rather auctions perform the function of establishing markets to find prices that can ‘reveal’ an underlying economic value.

In 1874 economist Leon Walras established the paramount principle regarding auctions and markets. He established the Competitive, or Walrasian principle. This principle states that if you match supply and demand in an auction market with perfect competition, you establishing a market equilibrium that arrives at the best price to the seller for the goods. This important result depends upon the auction market meeting certain conditions.

First, if markets are ‘thin’, bidders have market power, and the competitive paradigm no longer applies. However, as the number of bidders grows large, the market approaches a true competitive equilibrium. The same issue arises with collusion in auctions; collusions have the effect of thinning the market by reducing the number of participants.

Second, Walrasian markets also require, complete information regarding the characteristics of the goods (in this case horses). If there is asymmetric information on the quality of the goods allocative decisions will no longer lead to efficient market outcomes. This is because only some buyers will have reliable information, allowing them to be the only ones that can adequately participate in the market.

Economics teaches us what the requirements are to have the most efficient market in an auction. Although, a perfectly Competitive or Walrasian result is unlikely, if not impossible, in practice, Keeneland and other auction companies can take the necessary steps to align their results to the Walrasian ideal by innovating in areas that will increase market participation and information dissemination .

Thin Markets and Innovation

Virtually every major auction house in the world today has looked for new and innovative ways to increase their pool of participants. Keeneland in particular has done a great job in promoting its sale at an international level with fantastic results. For instance, turn-up of international buyers have been a key factor in supporting the middle market, in both the September and November sales.

Keeneland’s efforts fall very short, however, when it comes to increasing the bidding options for buyers.

Christie’s, for instance, offers the following options to its vast array of international and domestic clients:

Live Bidding: Buyers who attend the auction can obviously bid live for the items the want to purchase.

Absentee Bidding: Buyers who cannot attend the auction can instruct Christies to bid on their behalf up to a certain pre-determined amount.

Lotfinder On-line Absentee Bidding: prospective buyers can fill out an online form to instruct Christies to bid on their behalf up to a certain pre-determined amount.

Telephone Bidding: A telephone bid is a bid made with a Christie's staff member who calls the buyer from the saleroom and relays the buyer’s bids to the auctioneer during the bidding on their lot.

Christies Live On-line Bidding: Christie's Live lets the buyer watch, hear and bid in a Christie's auction taking place in the saleroom from the comfort of his or her computer. This new feature brings to the buyers a virtual sales room wherever they are.

When asked why Keeneland does not offer more bidding options for clients; Keeneland personnel’s standard answer is that it is because they want the buyers to attend the live auction since the excitement of the live auction is what can increase the buyer’s bid amounts. They believe that if they allow buyers to stay at home, they will somehow bid less.

This statement is just ridiculous! That would be the equivalent of Keeneland’s racing office saying that they will not simulcast races because they believe that people bet more money when they actually attend the races live. The point is not just to increase the amount of individual bids but more importantly to increase the number of bidders in the market. In addition, anyone who has ever purchased an item from an auction house via the phone or the internet can tell you that they are just as likely to over-shoot their budgets in these types of bids as they would be at a live sale.

I cannot believe that these horse-sale companies can be so short-sited. It reminds me of the decisions made by the racing industry when they decided not to telecast their races on television for fear of losing on-track handle and what a disaster that decision turned out to be! Racetracks alienated a whole generation of horse racing fans. Every other non-horse auction-house in the world that I know of falls over backward to try to increase bidder participation at their sale. Some even run tandem live sales on sites like e-bay to try to add robustness to their bidder base.

I can speculate and find other reasons why some horse sale companies may be hesitant to offer these additional services.

First, auction companies may feel that they need to attract visitors to boost their local economies. Auctions in Lexington give the city a measurable economic boost and sales in places like Ocala cause an even larger impact on the local community.

Second, auction companies may feel loyalty to the bloodstock agents that have supported their auctions during the years. Allowing buyers to place their own bids through the company without the intervention of a bloodstock agent may reduce the role of the bloodstock agent to a mere evaluator/valuator of the stock. Without being privy to specific money and bidding information agents may be hard pressed to charge buyers the 5% commission rates that they currently charge. In addition, opening up bidding options to buyers may make it more difficult for agents to defraud their principles since they may not be certain if or how much a buyer will bid on a specific horse.

Both these fears are without merit. Serious buyers will still have incentive to attend the sales or to have someone inspect horses for them. Also, even if these options erode the power of bloodstock agents, they will do so to the benefit of the market and the sellers. In addition, a cleaner marketplace will enhance the comfort of buyers to participate in the market place. It must be remembered that an auction house’s obligation is to the seller, not to the agents of the buyers and providing a healthy market place should be their first priority.

Information and Innovation

In a survey done by Keeneland; buyers and sellers alike voiced their wish to have wireless access in the Pavilion and in the sale barns. Keeneland responded by implementing a wireless network that would be accessible by buyers and sellers alike. In my recent trip to Keeneland I was surprised that I did not see even one laptop in the vicinity of the sale.

The reason for that is simple; people will not use the powerful technology if the tools to take advantage of it are not available to them. The Keeneland website is in a bad state, it takes about five clicks to obtain a result and another five clicks to check out the pedigree of that same horse. Some of its search features are useful but there is nothing there that would make someone toss away their catalog and replace it with their computer.

However, providing quality information to the buyer on the characteristics of the lots that are for sale is of vital importance to increase the likelihood of a competitive or Walrasian result. The computer age provides new tools that should be given to buyers so that they can make the best decisions and participate in the market with added confidence.

First, Buyers should be able to access a virtual catalog that can be tailored to show the information that they consider relevant and print out a customized copy of that sale’s catalog. They should be able to create wish lists of horses they would like to consider for purchase and be able to sort them out by hip-number, barn number, consignor etc. to make it easy for them to look at the horses in the morning or bid on them in the afternoon.

Second, the information made available through the website should be more comprehensive than the information in the catalog. Sellers should be able to put additional information up regarding each hip-number on the sale’s company website. Important information such as reserve price, photos, videos and veterinary certificates could help buyers better determine whether a horse is in their budged and whether a horse is worth inspecting. This would facilitate a buyer’s work and increase his productivity at the sale. Most sellers are already willing to provide this information to buyers.

Third, sales companies could negotiate with third party information providers like Werk, Brisnet, DRF, Equine online etc. so that users can obtain that additional information for sale prospects at better prices.

In this way the sale’s company’s website will also serve as an informational depository of all relevant information, a true one stop shop for buyers.


The fact of the matter is that horses are under-valued items because, on average, their markets are not robust enough to provide for a competitive market place for each lot. The reason is that in horse sales participants do not have all necessary information for all lots and companies tend to provide very ‘thin’ markets.

Horse buyers must be interested in a particular horse and be present in the sale ring at the exact time the horse goes through the ring in order to bid on a particular individual. Therefore, there are usually only few individuals that are present with the intention of bidding on any one horse. Opportunity buyers, who could iron out the inefficiencies in the market, are virtually non-existent because they cannot obtain information quickly on a particular individual and must be always present at ringside.

The closer a company gets to provide the sellers with a robust, confident market place and providing buyers with relevant, easy to access information; the more competitive the prices will be for each and every lot in the sale and the more the market will assign a true price to the horses involved.