The Business of Breeding

One interesting angle about owning racehorses is the possibility of a productive career after their racing days are over.  An investment in a racehorse doesn’t necessarily end with your horse’s last race.  Successful colts can go on to careers as stallions and fillies can go on to be broodmares.

Fillies are especially interesting because it doesn’t take much to be a broodmare candidate.  As a matter of fact, no matter what your filly is like, there’s a good chance that there’s a stallion somewhere who can breed to her.  The breeding game is somewhat of a self-fulfilling prophecy…or another way of putting it is that it’s a catch 22.  What I mean by this is that the better mares are bred to the better stallions thereby increasing the likelihood of a better foal.  The reason is obvious.  The stallion owners need to produce the best possible offspring in order to justify high stud fees.  As such, the better stallion owners can and will be very selective in only accepting top quality mares for breeding.  So, the better your filly, the better chance you have in getting it to a good stallion.  Conversely, if you have a horse that is nothing more than a low-level claimer she’s not going to be seeing Storm Cat anytime soon…no matter how much money you’re willing to pay for the stud fee.

Breeding can be fun and often profitable.  The two Hibiscus Stables fillies are good examples to use for illustrations.  Salt Water Reign is a daughter of Salt Lake.  Salt Lake, son of the great Deputy Minister, is a multiple graded stakes winner including the Hopeful Stakes (G1). Salt Water Reign’s dam is a stakes winner and is G1-placed.  The fact that she’s G1-placed is significant.  We were told before she raced that, even if she got hurt and was unable to race, she would immediately have residual value as an unraced broodmare due to her pedigree.  The estimate was that she had early residual value of about $50,000.  Now that she’s won twice and appears to be a legitimate allowance level horse it’s expected that her value has been legitimized.  If she can take the next step forward and become stakes-placed or a stakes winner then naturally her value as a broodmare prospect will increase.

Our other filly, Sextant, is another good example.  Her sire is the young stallion Orientate.  Sextant is only from Orientate’s second crop but he’s already beginning to prove himself as a very capable stallion.  He’s a multiple graded stakes winning champion who won The Breeders Cup Sprint (G1).  He’s from the Mt. Livermore/Blushing Groom bloodlines.  Orientate is continually near the top of the national sire lists.  Sextant’s dam is a multiple stakes winner.  Sextant is only two-years-old however she won her debut and then took fourth in a stakes beaten only four lengths in her second career race before going to the sidelines.  She has every opportunity to move forward and establish substantial residual value for breeding purposes.

The costs of breeding are much lower than keeping a horse in training.  While the day rate for a horse at the track can be $85 per day or even more for high-profile trainers, the day rate for mares on a farm can be around $22 per day.  Once the mare gives birth the day rate for the foal is usually around $10 per day until it’s weaned, which will usually happen when it’s six months old, at which time it’s day rate will increase to $22 per day.  Veterinary care is usually less expensive on the farm, too, notwithstanding unexpected complications.  Factor in a monthly vet bill of around $200; more for the cost of actually birthing the foal.  The only other substantial cost is the stud fee you’ll pay for the stallion service.  That stud fee can range anywhere from a few thousand dollars to a few hundred thousand dollars and is usually payable if and when the foal stands and nurses.  Other minor expenses include vanning to and from the stallion and registration fees for the foal.  Mortality insurance for the mare and/or the foal is optional and is a matter of personal choice.

The final part of the equation is the decision whether to race or sell the offspring.  There are many sales throughout the country where the foal can be sold as a weanling, yearling, or even a two-year-old in training.  It’s the owner’s choice as to how long he or she wishes to carry the foal.  If the decision is to sell the foal then there will always be the standard consigner (5%) and sale company (5%) fees to consider.  The expectation, hope, and plan is that the foal will fetch enough at auction to cover and exceed its stud fee and associated carrying costs.  Statistically only four out of five breedings are successful so it should be planned that in one year out of every five something will go wrong (unsuccessful cover, miscarriage, foal death, etc.).

What some consider the best part of the financial equation is the breeder awards offered by many states to the breeders of horses foaled and registered in their respective states.  Kentucky, New York, California, and Pennsylvania are just a few that offer attractive breeder awards.  Once you are the breeder of a horse you are the registered breeder for life.  As such, any time a horse competes in and earns purse money in eligible races the breeder receives a bonus from a separate breeder award fund.  For instance, in New York, the breeder's awards are determined by covering stallion. If the New York-bred is by a registered New York-based stallion the award is up to 20% of purses earned from 1^st through 4^th positions. If the New York-bred is by an out-of-state stallion or non-registered stallion the award is up to 10% of purses earned from 1^st through 4^th positions. All Breeder awards are capped at $10,000 per horse, per race.  Incidentally, in New York there are also owner awards for New York-breds that compete and earn purse money in certain open company races within the state.  So it’s possible, if you’re the owner and breeder, to receive both bonuses on top of the standard purse money of the race.  Other states have similar programs.  So, if you have one good foal or more than one decent one, it’s possible that the ongoing breeder awards will act as a type of annuity producing income long after your foal is owned by someone else.

                                                                                  - Mike Oliveto, CEO Hibiscus Stables

Hey, You Never Know...

Hibiscus Partners know that owning a Thoroughbred racehorse is all about the experience: being in the paddock, hearing the strategies, gathering together for race day excitement and with a little luck, meeting in the winner's circle. But there is potential icing on this cake - a lottery ticket of sorts that we all carry in our pocket: the dream of owning the next great racehorse.

One such dream came true when a small group of owners purchased a two-year-old colt in 2004. He was foaled on May 9^th of 2002. His mother was unable to nurse him so he was hand-nursed (out of a Coor’s Light bottle) until he was 9 days old. He could have (should have) been racing’s 12^th Triple Crown winner. He’s now retired, but his story is illustrative of what can happen when people get together and purchase a horse for a modest price and the racing gods smile upon them.

The horse’s name? Afleet Alex.  His pedigree is chock-full of names that you’ve already heard: Mr. Prospector, Northern Dancer, Bold Ruler, Roberto and yes, way back on his dam's side, ManO’war.  He was bred and born in Florida by John Silvertand. Up in Pennsylvania, 5 friends got together and decided to form Cash Is King Stable. They went to the Fasig-Tipton Timonium sale in May of 2004 and, with the help of Tim Ritchey, purchased the Northern Afleet colt for $75,000.  He was named Afleet Alex as several of the partners had daughters named Alexandra.  Trained by Ritchey with jockey Jeremy Rose up, he won his first 2 races then captured the Sanford (G2) and Hopeful Stakes (G1) as a two-year-old.  He finished second in the Breeder’s Cup Juvenile (G1). As a  three-year-old he won the Arkansas Derby (G2) and was a favorite for the Kentucky Derby (G1). Stuck in traffic around the far turn he came up to finish third losing to Giacomo by less than 1 length.  His Preakness win was nothing short of spectacular when in the stretch he clipped heels with Scrappy T and was literally brought down onto his knees but recovered to run and win by 4 3/4 lengths. His Belmont victory was by 7 lengths. In July of 2005, it was discovered that he had a hairline fracture in his left canon bone which was immediately repaired. He was out for the year but would he race as a four-year-old? The group was offered between $25 million and $35 million for him but did not want to sell. They wanted to keep racing. However, late in November he was found to have avascular necrosis in the same area as the fracture (this was most likely the cause of the fracture) and he was retired. He now stands at Gainesway. His first foals sold as weanlings at Keeneland for six figure sums.

So, for $75,000 you can buy a horse that races 12 times and finishes in the money 11 times with winnings of close to $3 million. Not to mention that near miss of the Triple Crown!!! Add to that the Eclipse Award for Champion Three-Year-Old of 2005. Could Sextant or Iron Curtain become Hibiscus’ Afleet Alex? Hey, you never know. 

The Story Gets Better...

In a parallel story, a young girl named Alex Scott was born with neuroblastoma (a rare form of childhood cancer) in 1996. In 2000, she started a lemonade stand in her front yard to raise funds to fight childhood cancer. The Cash Is King connections significantly raised public awareness of Alex’s Lemonade stand and on Belmont Stakes Day there were “stands” set up at every track to raise funds. Also, the stable pledged some of Afleet Alex’s winnings to the cause raising over $2 million for the charity. In 2005 they received a special Eclipse Award of Merit for their work on behalf of childhood cancer. Sadly, Alex Scott lost her battle in 2004. Today Alex’s Lemonade Stand is still going strong www.alexslemonade.org.

                                                                              - Doris Ann Hayes, COO Hibiscus Stables

Portuguesemano’war’ Readies for Debut

Portuguesemano’war continues to work toward his debut.  There is still time for new partners to join Hibiscus Stables' Vintage 2007 or current partners can expand their holdings - find out more about available shares at  http://www.hibiscusstables.com/offerings.html.

Trivia - If It's Winter, this Must Be Aqueduct

It’s November and we’re back to winter racing at Aqueduct aka "The Big A". The only track that lies within NYC limits, it boasts 2 dirt tracks. The inner track was constructed in 1976 to facilitate winter racing. New York racing is conducted there from the last Wednesday in October through the first Sunday in May when the warmer weather sets up the return of racing to Belmont which does not have heated facilities..

See end of newsletter for answers.

Client Spotlight - Kevin Moss

Answers to Trivia: 

1.  Answer: B. The Big A made her racing debut on September 27, 1894. A new clubhouse and track were built in 1941, then again in 1959. (The first American racecourse was laid out on Long Island in 1665)

2.   Answer: D.  The Comely is a Grade 2. The Wood Memorial is considered a Derby Prep. BTW, The Belmont Stakes was held here from 1963-1967.

3.  Answer: A.  Secretariat took third in 1973.

4.  Answer: C.  1944 was when Brownie, Bossuet and Wait A Bit all hit the finish line simultaneously.

5.  Answer:  A.  The Display (Grade 3). It was called the NY Handicap prior to 1955.

6.  Answer: B.  He lost the Pacific Classic in 1996. He retired that year as the richest racehorse ever with close to $10 million in purse money. Alas, he proved to be infertile and was never bred.

 

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