As some of the sires that have traditionally occupied the top of the thoroughbred breed are getting older; a new group of sires has emerged to replace them. They are the new cream of the crop and will be stepping into the shoes of some of the current greats- Storm Cat, A.P. Indy, Kingmambo, Seeking the Gold, Gone West etc. These older stallions have upheld a tradition of excellence for Kentucky Sires that once included the likes of Northern Dancer, Mr. Prospector, Danzig, Nijinsky II, Nureyev, Bold Ruler, Princequillo, Buckpasser, Nasrullah, Blenheim II among many others.

The best new top sires that are most likely to lead Kentucky in the near future are the following (the year when they retired to stud in parenthesis):

DISTORTED HUMOR (1999) $300K
UNBRIDLED’S SONG (1997) $150K
AWESOME AGAIN (1999) $150K
SMART STRIKE (1997) $150K
GIANT’S CAUSEWAY (2001) $125K
MR. GREELEY (1996) $125K
FORESTRY (2000) $100K

But the question remains, are these sires up to the task? Are they worth their high stud fees? Can we realistically expect great things from a group that includes one sire with an Average Earning Index of only 1.53, another one that drags his mares down by more than 26% and yet another that can barely produce 5% stake winners from foals?

How did it come to be that our best sires are so, well… mediocre? Is it a sign of the times? Is the effect of the large books of mares bred to them? Or could it be that Kentucky’s position of a top class provider of thoroughbreds is coming to an end? In order to answer these questions we will briefly analyze the history of the Kentucky thoroughbred and some of the factors that may be contributing to this decline.

HISTORY

The rise of Kentucky as a commercial powerhouse was launched in the 80’s; when John Magnier and Robert Sangster decided to buy the very best yearlings in the hopes of making future stallions. At that time, private breeders had given way to commercial producers and top stock was available to the highest bidder.

Their business plan worked very well. Surrounded by the best advisors they selected the cream of each crop - yearlings by the best sires and the most distinguished female families. They knew that they needed to produce only a few top runners to make up for all their expenditures. And produce top runners they did. Under the care of the great Vincent O’Brian, Coolmore flourished producing such horses as The Minstrel, Danehill, El Gran Senor, Saddler’s Wells, Giant’s Causeway, Royal Academy among many others.

Even when the rulers of Dubai arrived at the scene, pushing the prices of top stock to unprecedented highs; the Coolmore business model worked. Year after year they were able to offset their expenses with the success of their race horses and sires.

Since that time, the Coolmore formula has been copied by many top buyers that enter the game. They threw away millions during the 90’s to obtain top racehorses, trying to win classic races and come up with the next top stallion. But in the world of today the same business model that propelled Coolmore to unprecedented success will undoubtedly fail.

The advantage that Coolmore had in the 80’s was that it purchased its stock only from a very select group of sires. These top stallions were able to produce stake winners at a 20% clip. In addition, by selecting the very best foals from the sire’s progeny they were able to tilt those numbers even more to their advantage. This level of success would be impossible with today’s top sires that can only turn out 6% stakes winners from foals.

Another advantage that Coolmore had in the 80’s was that there was a strong market for their second tier runners, those that were useful stakes performers but ranked just below classic quality. Today’s mega books make these second tier runners almost useless since breeders today have access to the top performers of each crop.

The difficulty and expense now associated to buying yearlings with the aim of turning them into stallions may be part of the explanation of why Darley has recently switched its strategy and stopped trying to create future sires from the bottom up. They have focused instead in buying the best runners from the racetrack. Their recent shopping spree includes Street Sense, Hard Spun, Authorized and Manduro. Although they spent a huge amount to secure these horses under the new market realities that expense was much less than trying to purchase yearlings in the hopes of coming up with these types of horses.

THE EFFECT OF THE MEGA BOOKS ON THE STALLION POPULATION

The turn of the century brought with it the age of the mega-books for stallions. Led by Coolmore itself, which wanted to increase its profit margins to finance their ever more expensive yearling purchases; they accepted an increasing number of mares to be bred to their stallions.

The move instantly revolutionized the industry. In a span of a few years stallions that were covering 40 mares a year were covering well over 200. It did not take long for other farms to follow suit and obtain larger profits from their stallions.

This trend was further enhanced by dual hemisphere breeding, where Stallions are shuttled to Austrailia, South America or South Africa where they continue to breed large books year round.

In practice, the effects of this trend of increasing the number of mares bred to a stallion has a huge impact on stallion values. On the one hand, it dramatically increased the value of good sires and top prospects. On the other, because the mare population has been relatively constant and more mares are now bred to popular sires; other sires are seeing their books dramatically reduced or have been relegated to regional markets. Every year the Jockey Club report of mares bred reports fewer and fewer sires in use. In addition, Southern Hemisphere markets where the second tier stallions often ended up are now getting the services of the prime sires exclusively.

Therefore, horses that are not among the best runners of their crop will no longer get a chance at stud. As Seth Hancock of Claiborne reminds us, in the current market place, Danzig would have never gotten a shot at stud. Can anyone imagine a breed without Danzig? Certainly not the Australians or the Europeans. How many great sires will we lose because no one will gave them a chance?

Another effect of the increase in book size still has not become evident. Economists tell us that when there is an increase in supply, there should be a decrease in price. So, shouldn’t it be that with an increase in number of seasons there should be a correlated decrease in stud fees? However, this has not happened, top sires that cover large books still command high six figure stud fees.

Four interrelated forces have contributed to fuel a rise in stud fees: a) the strength of the yearling market, b) the weakness of the dollar, c) the increase of participation of international buyers in the Kentucky market place and d) the psychological conditioning of buyers that have not re-evaluated their valuations given market realities.

There are signs that the effects of these forces are reaching their saturation point and that stud fees should be reduced in the near future.

First of all, even with the market at historical highs, breeders are experiencing a reduction in profitability across the board. A large part of the revenue obtained by breeders is being needed to pay for stud fees. Commercial breeders must pay less for stud fees and increase their profitability or be forced out of the market.

Secondly, we are experiencing a period of unprecedented volatility in the market. For next year alone, we have seen stud fees move wildly even for the proven sires. Giant’s Causeway was priced between $200k and $300k last year and now will stand for $125k, Storm Cat was reduced by $200k, Unbridled Song was reduced by 50k, Smart Strike increased by $75k, Mr. Greeley increase by 50k, Elusive Quality down 25k, Forestry down 25k, Distorted Humor up 75k. These are not small changes; farms are scrambling to find the right price for their sires as the realities of the new market settle in. They are banking on fashionable trends to extract the most value from recent performance and adjusting fees downward, sometimes heavily after a disappointment in the top of the yearling market. With the exception of Smart Strike who was heavily undervalued and had a breakout year there is no reason for the fees of proven sires to vary so widely. Is Unbridled Song really worth $50,000 less than last year? Did Mr. Greeley really improve to the tune of 33%? We don’t think so.

Third, economic forces have reached their peaks. The top of the yearling market showed an important slowdown this year. There were fewer yearlings sold for more than $1 Million and the median for the elite sires seems to be stuck in the $200-$300,000 range. Even the mighty Storm Cat saw his average decrease and his fee reduced by 40%.

Finally, buyers are being more realistic in the valuations for top stock. It seems that they understand that it makes little economic sense to spend more than $200-$300,000 for any horse regardless of quality. The reason for this is, of course, that modern top sires produce a much lower percentage of stakes winners than the sires of the past.

However, buyers are still overpaying for certain stock regardless of the overall numbers of that sire: a)for progeny of stallions that have proven to be able to sire a top stallion, the so called ‘sire of sires’, b) for horses that have recently produced one or more very good runners, or ‘fashionable sires’ c) first year sires.

A DECLINE IN QUALITY

There are a few theories that try to explain why the new top sires have low statistics when compared to the top sires of the past.

For all sires an increase in the book of mares also means that they will be servicing, on average, a lower quality of mare than they would if they were only serving a small select book. This must have an impact on the performance of their overall stock.

A second theory states that the quality of the sperm of the sire suffers when bred to a very large group of mares. We have found no evidence to support this theory and find it to be rather indefensible, at least scientifically speaking. The DNA of a horse does not change with the number of matings and microscopic tests show that sperm vitality does not seem to change dramatically with the current number of mounts.

Another interesting theory states that because the top sires have more products on the racetrack competing against each other it becomes more difficult for any one of them to dominate top races. Whereas in the past, there would be only a few elite horses by elite sires running against mostly mediocre competition, they used to win often, now they encounter situations in which every horse in the filed is by another good sire. Under this theory, because large books are a relatively new phenomenon, the statistics of top sires will continue to decrease and the pressure on stud fees will intensify.

Finally, some state that there is a fundamental change in the breed that has closed the gap between the very good runners and the average horse. Under this view, there would also be a reduction in the gap between top sires and average ones. Again if this is the case, the gap in fees between top sires and average sires should tighten as well.

IS KENTUCKY LOSING ITS EDGE?

The other obvious reason why the top sires are not performing as well as in the past could be because sires in Kentucky are not longer the elite in the world market and the new generation of sires are just not as good as those in other parts of the world.

In order to put the theory to the test we looked at some of the young top European sires and compared their percentage of stakes winners with those of their American peers. Our preliminary view is that the phenomenon of reduced performance by the new top sires is a global phenomenon and, at least in Europe we are also seeing much lower statistics for the next generation of top sires. For instance Danehill Dancer who stands for €125k has 5% stakes winners to foals; Montjeu also €125k has 6.9%; compare that to top older stallion Saddler’s Wells who has an astonishing 14.7% stake winners to foals! What a difference!!!

THE NEW TOP SIRES UNCOVERED

So who are the sires in Kentucky that will replace the great old guard? The following sires standing currently for more than $100,000 are the next wave of top stallions:

1. DISTORTED HUMOR (1999) $300,000: With an Average Earning Index of 2.56 and 10% Stakes Winners from foals, Distorted Humor is truly a fantastic sire. More incredibly many of these numbers were achieved with mares that were covered at a $10,000 stud fee. But is he worth the large stud fee? Compare him with Storm Cat, standing for the same fee, who is already a proven sire of sires, has an AEI of 3.40 and produces 14% stakes winners from foals. The $300,000 fee seems too ambitions for Distorted Humor, especially when his yearling median is also $300,000.

2. UNBRIDLED’S SONG (1997) $150,000: he stood for $200,000 last year and is now being reduced 25% despite selling a couple of very nice foals for more than seven figures. His AEI is a very low 1.98 and he drags his mare down quite a bit (CI 2.69). He does produce a very good percentage of stake winners (for modern standards) at 7%. However, his yearling median is only $220,000.

3. AWSOME AGAIN (1999) $150,000: We wrote about Awesome Again in a previous post and named him one of the most undervalued sires of 2006, when his yearling median was a paltry $46,000, less than 1/3 of his stud fee. An solid AEI of 2.67 but only produces 5% stakes winners from foals. It is difficult to justify paying so much for this horse.

4. SMART STRIKE (1997) $150,000: We also have written much about Smart Strike as a heavily undervalued sire and back in December of last year in an Article entitled ‘Best and Worst Stud Fee Values for 2007′, we predicted that his stud fee would “soon be in the over $100,000 range.” Well here we are, a year later at $150,000, doubling his 2007 fee! He has an AEI of 2.91 obtained with much cheaper mares as he has been undervalued for a long time and he has a very solid 9% stake winners from foals. However, his yearlings have been usually punished at the sales and he has never enjoyed a good level of commercial success with the physical types that he throws.

5. GIANT’S CAUSEWAY (2001) $125,000: He is another sire whose fees have varied widely. Last year he stood for a Private Fee and you could not get to him late in the season even if you were willing to pay $300,000 for him. Now a considerable reduction that makes you wonder about the lack of value for those who have bred to him in the past. He breeds a large group of mares in is usually overrepresented at the sales. He has an AEI of 2.04 but produces only 5% stakes winners from foals. He has shown that he can get the big horse and some of his best runners are also hitting the breeding shed led by Shamardal, First Samurai and Aragorn which can boast his reputation in a big way.

6. MR. GREELEY(1996) $125,000: The last time that Mr. Greeley gave value to breeder’s he was standing for $35,000. Since producing El Corredor and showing that he can get the big horse in Europe his sale numbers have skyrocketed. However, his AEI is only 1.53 which is a number that you would expect in a sire standing for less than $15,000 and the fact that he produces only 5% stakes winners is a red light that this horse is standing for much more than he is worth.

7. FORESTRY (2000) $100,000: is also standing at a reduced fee this year, down from $125,000. He has an AEI of only 1.86 and a more solid 7% stake winners are good numbers but still may be a high price to pay for this horse.