Op/Ed: Is Overproduction The Real Problem?

'Those who cannot remember the past are condemned to repeat it' – George Santayana

We've been here before, haven't we? It was less than a decade ago that “overproduction” was one of the most talked-about subjects in the bloodstock industries in Great Britain and Ireland. The booming Celtic Tiger economy in Ireland had led to a substantial increase in the number of foals being produced. This had in turn led to supply overtaking demand in the foal and yearling markets, with greatly-increased numbers of horses at the lower end of the market failing to find a home at the sales. All sorts of regulation changes and measures were suggested to try and rein in this apparent overproduction, but ultimately none of them were needed, as drastic changes in the wider economic world were about to shake the bloodstock industry to its core.

History shows that the correction came in the shape of the worldwide financial crisis in 2007/08, which led to the foal crop in Ireland being reduced from a high of 12,633 in 2007 to 7,588 in 2010. The British breeding industry has historically not been as open to drastic production fluctuations as its Irish equivalent, but their foal numbers still dropped from a high of 5,920 in 2008 to 4,665 in 2010.

While it took most sectors of the economy many years to recover from the hammer blow of the recession, the bloodstock sector bounced back much faster than most. This was most likely because the correction in foal numbers was made so quickly once the crisis hit that it brought supply back in line with demand much faster than was possible in most other industries.

In the years following this vast correction, it seems to have been a case of “once bitten, twice shy” for British breeders with foal numbers remaining almost identical in 2016 to what they were in 2012. However, it has been a different story in Ireland, with foal numbers rebounding from a low of 7,546 in 2012 to 9,381 at the end of 2016. This increase in foal numbers have correlated with a decrease in clearance rates at many sales, particularly at the lower end of the foal and yearling markets, which has led to the reigniting of the same debates we were hearing a decade ago.

As was the case back then, the finger of blame is primarily being pointed at the breeders. The main accusation is that many of them are flooding the market with low-quality horses by breeding from mares of poor quality and supporting stallions of questionable merit. As was also the case over a decade ago, there have been calls to introduce quality-control measures or other restrictions in an effort to try to reduce this apparent poor practice, but I would suggest that such calls are very much ill-advised.

First and foremost, the bloodstock industry is a free market. Breeders are allowed to produce whatever they see fit and their horses will achieve the prices that the market dictates they are worth at the sales. If this means they are generally breeding horses at a loss, then that is their decision to make rather than anyone else's.

It also has to be remembered that the majority of breeders are not commercial operators. Indeed, perhaps the most readily overlooked statistic in the whole bloodstock industry is that over 90% of registered breeders in Great Britain and Ireland own four or fewer mares. The bloodstock industry is not dominated by a small number of big players as one may be led to believe, but rather it is built on a foundation of a vast number of small-scale and hobby breeders.

Many of these breeders do not expect to make a profit, but they hope to. They can't afford to buy well-bred and talented fillies off the track and send them to higher-end proven sires to give themselves the best chance at making a profit from the outset. Thus, they do the best they can within their budget and hope for some good fortune that will boost the value of their stock in the shape of producing a talented runner, the mare's pedigree getting a significant update or the stallion that they have used becoming suddenly fashionable.

While some commentators will continue to look down on this lower end of the breeding market, it shouldn't be underestimated just how important a role the lower-end breeder plays in the industry. It is the smaller breeder that essentially acts as the gold panner of the bloodstock world. They invest their time and money into breeding from less commercially attractive mares and using lesser stallions that higher-end breeders generally shun, often at a financial loss, in the hope of unearthing the occasional gold nugget amongst the waste.

Indeed, it is worth remembering that of the six stallions in Ireland with published covering fees currently standing for €50,000 or more, Invincible Spirit, Dark Angel, Kodiac and Exceed And Excel all started their stallion careers standing at fees of €10,000 or less. It is also worth remembering that the small breeders that played such a role in getting these stallions off and running did so with little scope for long-term gain, as once a stallion starts to succeed, they are soon priced well out of the range of the small breeders that used them when the bigger breeders weren't as willing to get involved.

Similarly, the world of breeding is full of examples of mares that had poor credentials when being retired to stud, but punched well above their weight as broodmares. A recent example is that of Galicuix (GB) (Galileo {Ire}), the dam of Galileo Gold (GB) (Paco Boy {Ire}). She finished stone last in her two starts on the racecourse and twice failed to reach her modest reserve at the breeding stock sales prior to being bought for just 8,000gns while carrying the foal that would become Galileo Gold. He is just one of multitudes of Group 1 winners that would never have come into existence had there been restrictions placed on broodmares only being allowed to breed after achieving a minimum level of racecourse performance, as has been suggested on numerous occasions as a solution to the “overproduction problem.”

In a nutshell, the small breeders play a major role in sorting the wheat from the chaff among unproven stallions and mares at the lower end of the market. This importance of this role to the industry shouldn't be underestimated and it would be a mistake to point the finger of blame at them for what is playing out in the bloodstock industry at present. Indeed, rather than the problem being overproduction as is widely concluded, I would suggest that under-demand at the lower end of the market is the real problem.

The racing programmes in Great Britain and Ireland are more than extensive enough to handle greater numbers of horses being produced. Indeed, British racing in particular is crying out for more horses in training given that the average field sizes have shrunk as the number of fixtures has increased. The problem is that there are simply not enough owners that are willing to buy and race horses in Great Britain and Ireland. Thus, rather than trying to find ways to reduce the number of horses being produced, perhaps we should be looking at ways to increase racehorse ownership for the greater good of the industry as a whole?

If the British and Irish racing authorities are looking for ideas as to how to achieve this, perhaps the best example to put forward is that of the enduring and substantial popularity of racehorse syndicates in Australia. While there are some excellent well-established syndication companies in Great Britain and Ireland such as Middleham Park Racing and the Supreme Racing Club, syndicates have not taken off in this part of the world to anything like the extent that they have in Australia and perhaps we should be asking why that is.

One of the biggest issues that syndicate members meet with in this part of the world is difficulties with raceday basics such as getting tickets and parade-ring access for all of the owners involved in a syndicate. In Australia, any syndicate member that holds a 5% or greater share in a horse is entitled to the same ownership benefits as a sole owner and that is the standard British and Irish tracks should be obliged to adhere to. Likewise, there is certainly scope for more trainers to embrace and encourage syndication than they currently do. The likes of Whatsapp make it very easy to keep large numbers of owners in the loop at the touch of a button and there is no excuse for any trainer to not be capable of providing such a service.

In terms of what the racing authorities can do, it should be clear that it is the lower end of the yearling market that needs a helping hand, so perhaps they can encourage investment at this level by introducing more auction maidens for horses that were purchased for lowly prices? High-class horses consistently emerge from the lower end of the yearling market every year, but that still doesn't make putting a cheaply-bought yearling into training an easy sell when they are likely to face well-bred and well-connected rivals when they reach the track. Offering more maiden opportunities confined to those purchased at a lower level can only serve to make ownership at that level more attractive.

If all the sectors of the industry can identify that an increase in foal production is much more of an opportunity than a threat if dealt with in the correct manner, they can all start pushing in the same direction in working towards an increase in new ownership which is of equal benefit to both the racing and bloodstock industries.

Feedback? Contact Gary King ([email protected]) or Kevin Blake.