Commercial Market Moves Past Milestone

The North American Thoroughbred foal crop is officially a predominantly commercial product. Actually foals born in 2021 in the United States and Canada first claimed this distinction, with 51% being offered at least once in an auction for U.S. foals and 52% in Canada. Among some leading breeders and bloodstock agents, the reaction to reaching this milestone was universal. They thought North America had crossed this threshold a long time ago. “I think it is a meaningful statistic, but we have known that we were headed here for a long time. It is a little surprising that we just got here recently,” said Bill Farish with Lane’s End. “I’m guessing there are more breed-to-race places in the regional markets. I think most people in Kentucky breed for the commercial market.” John Sikura, with Hill ‘n’ Dale Farms at Xalapa, said he expected the percentage to be much higher. “It is not a surprise; that trend has grown steadily and exponentially over the years. If you had told me it was 75%, it would not have surprised me.” The percentage of foals bred in Kentucky that go to a sale is closer to Sikura’s estimate, with 71% of the foals born in 2021 and 2022 being offered at least once as a weanling, yearling, or 2-year-old. “You might see more in Europe, the traditional breed-to-race breeders, but America is a selling marketplace,” said Sikura. “When Kentucky breeders buy mares, they want to breed a good horse, but they are breeding a sales horse.” Many industry professionals point to economics as the key driver behind the shift toward breeding for the commercial market. “The true breed-to-race people today, there are only a handful,” said Headley Bell with Mill Ridge Farm and Nicoma Bloodstock. “You are seeing foundation breeding programs that are now sellers and that is because of the cost. The economics have driven us here.” Doug Cauthen, owner of Doug Cauthen Thoroughbred Management and vice chairman of Three Chimneys Farm’s board, said the potential cost of raising a horse and then determining whether it is a viable racehorse can soar into the hundreds of thousands of dollars. The financial burden can be substantial for an outfit breeding dozens of foals. “If it cost $10,000 to produce a horse and then another $10,000 to see if it is any good, then many more people would do it. But instead it can cost $50,000 at the low end and hundreds of thousands on the high end. Most could spend $50,000-$60,000 to see how good they are,” he said. “Thankfully we have the purses we have now because it gives people a hope of breaking even and maybe even be profitable,” he continued. “The best purses are in Kentucky and New York, and those are the best states to sell a horse in, too.” The shift toward a predominantly commercial breeding industry has attracted criticism. The trend has often been cited as one reason Thoroughbred racehorses are making few starts. The average starts per runner in North America was 9.21 in 1980, dropping to 7.94 by 1990, and was 5.87 in 2023. Since 2000, the average starts per runner averaged 6.29. The blame placed on the commercial breeding industry is that matings lean too heavily on first-year sires because of their market appeal and less on stallions that are proven sires of racehorses. Sikura said producing quality racehorses is the goal of serious commercial breeders. “I’ve heard the general critique that we are breeding to sell, not race. It’s a nice sound bite and like all fallacies it gets repeated enough that people see it as fact, but it has always been a puzzling statement to me,” he said. “Breeders want to sell every horse as good as they can and then they want them to go on to become successful racehorses. They want to enhance the value of the pedigrees and have them reflect well on the farm where they were raised. You are not trying to do one mutually exclusive of the other.” Ned Toffey, general manager of Spendthrift Farm, said the commercial market also has been unfairly cited as a contributing factor in catastrophic injuries at the track. “People mention an emphasis on racing 2-year-olds, an overemphasis on speed, and the influence of the commercial market. But those are also the three defining characteristics of the Australian racing market, which is thriving,” Toffey said. Prize money in Australia has increased 45% over the past five years and the average purse is now more than AU$50,000 for the first time, according to Aushorse, the marketing body for the country’s Thoroughbred racing industry. Additionally, Australia considers the AU$5 million Golden Slipper (G1) and AU$2 million Blue Diamond Stakes (G1) for 2-year-olds among its breed-shaping races. Speed also is highly prized in Australia, which claims to have produced 16 of the world’s best sprinters over the last 20 years, according to Aushorse. Many of these top horses came through a sale, as well, with 65% of Australian-bred group 1 winners in 2020-22 sold at auction as yearlings. “Obviously, I would love to see more breed-to-race people in the industry, the owners of major farms with substantial broodmare bands. I think it would be a good thing for the breed,” said Toffey. “I think the bigger influx in the industry, though, is with people involved in racing partnerships and taking smaller pieces of horses, like the MyRacehorse model. That is obviously going to drive the commercial market.” One unquestionably troubling trend from the commercial market shift is declining foal crops in the regional markets, defined as states other than Kentucky. The U.S. foal crop shrank 12% from 2019 to 2022 but was down 16% in all other states combined excluding Kentucky. “It’s concerning for sure. I mean the industry needs a healthy Florida, healthy New York, healthy California—everywhere,” said David O’Farrell, general manager of Ocala Stud near Ocala, Fla. “It’s all about earning potential and the earning potential in Kentucky is damn near double what it would be if the same foal was born in Florida,” continued Mike O’Farrell, with Ocala Stud and David’s father. “So I mean, why wouldn’t you foal them in Kentucky? When you go to sale, they have twice as much earning potential, so it stands to reason they’re probably going to bring twice as much. That’s just the way it is. And that’s hurting Maryland. It’s hurting New York, it’s hurting Florida, it’s hurting California. It’s hurting everybody.” Sikura said state-bred programs were once more robust due to alternate sources of revenue from casinos, slot machines, and card rooms but are now in decline because the underlying business never grew. “Once the states start depending on subsidized programs with restrictive races written that are captive to state programs, then they only survive because of those programs—they are not really advancing the business,” he said. “If you are selling in the open marketplace in Kentucky, the state-bred horses don’t have the same cachet.” Farish said it has become a priority among many industry leaders to find a better model for the regional markets. “We need to find a way to reverse the trend, particularly in the bigger racing states,” he said. “The statistics on how big of a part California is to the market are compelling. We cannot afford to see a state like California not succeed, when 20% of the wagering comes from California. A lot of programs have been tried and very few of them have worked. I think there are a lot of people searching for different answers because it is too important.”