Recent Trend in Stallion Deals

[Horsebagger]

The stallion deal for Outwork got me to thinking about the evolution of stallion deals is really helping the industry in many ways. Not sure everyone is recognizing the trend in stallion deals, and how it's been a contributor to keeping top horses in training longer. While Outwork is hardly the next great thing in the breeding shed or on the racetrack, it sounds to me like a similar structure to those made recently that race fans should be appreciative of.

Owners and stallion farms have always been faced with inherent risks on both sides that often resulted in owners taking the money when they can, and breeders getting the horses to the shed as soon as possible. Don't know who was the first to do it, but the American Pharoah deal is clearly the most obvious one about the change taking place. Zayat took the best deal he could get when it was offered as a 2yo, and Coolmore quantified it's stallion investment at a level they were comfortable with. The fact he could remain in training helped both sides under the structure. Owner keeps the purse money won, gets a cash kicker from the breeder for additional accomplishments on the racetrack which in turn help with the stallion fee the soon to be breeder can demand. Each side mitigates their risks, but still swallows some risk going forward that they may not have made the best deal when they did. I think Coolmore got the best of Ahmed on this one, but it could go either way in other deals, and regardless we get to see more racing from the top colts. I think the Liam's Map deal and Tonalist deals were likely structured similarly (and allowed them to stay in training, although it likely influenced what races they ran in), and I've heard the terms of another yet unannounced deal for a top 3 yo as well.

Perhaps the days of a stallion deal = retirement are behind us for the most part, or at least until the economic model of horse ownership changes again.

[Insane Crazy]

Thanks for highlighting this. I've definitely noticed the trend, and how it has the opportunity to keep horses in training longer, but I wouldn't have been able to put my finger on it.

I also, honestly, kind of like knowing where things stand earlier on. For example, knowing Pharaoh was going to race through the end of the year (because that was likely how the deal was structured to begin with) and also being aware of his final plans in advance was just nice, as a fan.

[Admin]

Hmm. I don't know that I see the difference, really. I can't think of when I first heard of breeding rights being sold mid-career, but quite a few were noted in 2007 with Hard Spun, Street Sense, and Any Given Saturday.

The contracts may still read that the horse is to retire at the end of the year, which would have the same impact as selling him at the end of the year. There's usually a timeframe for retirement built in (I've never heard of one that didn't, but never say never), and if you sell mid-career, you have to expect that. The only real way (outside of somehow not contracting a retirement timeframe) to totally control how long the horse races is to not sell his breeding rights until you're ready to retire the horse.

If anything, it seems contracting early has spelled out premature retirement rather than the opposite. You mentioned American Pharoah, and then there are the three aforementioned horses (particularly Hard Spun who I think most agreed had a lot of room to improve as an older horse). Which high profile stallion prospects do you think stayed in racing for another year's campaign due to the benefit of his breeding rights being sold?

[Horsebagger]

Hmm. I don't know that I see the difference, really. I can't think of when I first heard of breeding rights being sold mid-career, but quite a few were noted in 2007 with Hard Spun, Street Sense, and Any Given Saturday.

The contracts may still read that the horse is to retire at the end of the year, which would have the same impact as selling him at the end of the year. There's usually a timeframe for retirement built in (I've never heard of one that didn't, but never say never), and if you sell mid-career, you have to expect that. The only real way (outside of somehow not contracting a retirement timeframe) to totally control how long the horse races is to not sell his breeding rights until you're ready to retire the horse.

If anything, it seems contracting early has spelled out premature retirement rather than the opposite. You mentioned American Pharoah, and then there are the three aforementioned horses (particularly Hard Spun who I think most agreed had a lot of room to improve as an older horse). Which high profile stallion prospects do you think stayed in racing for another year's campaign due to the benefit of his breeding rights being sold?

I'm glad you chose to comment, as it's an area where I'm open to be educated by someone who is frequently involved in racing colts. We're only 10 years into expanding to the ownership side (from a lifetime in front of betting widows) and only 6-7 years into the breeding side. We race almost exclusively fillies and have since the beginning of the stable, and only wind up with colts by chance, or by whim when shopping sales. And have yet to race a successful colt to the point where stallion deals become something we need to deal with.

My naive understanding of stallions was like most fans of racing.....good colts generally are retired when stallion deals are made as the insurance to carry the racehorse was too prohibitive, and racing fans lament that 'breeding gets in the way of fans building interest because popular colts are swept away to the shed". Maybe that changed a decade ago, and I'm at the end of the line coming to realizing this change. certainly possible. But as we've gotten more involved and expanded our breeding involvement, i'm just more in tune with the business of breeding, but far from completely fluent. So if you can share when things changed from your experience, i'd be more informed for sure. But the premise i'm focused on is pretty narrow......owners get an upfront cash infusion when deal gets done, and still captures purse money and kickers thru a defined period. Breeder pays way in advance of initiation of breeding commencing, so they are out of pocket for an extended period before beginning to recapture their investment. Risks are mitigated for both sides, but not eliminated completely. When did that really become more prominent? Or has that been common than I am aware.

But still curious who foots the insurance costs, and who holds the insurance policy, owner or breeder?

[Admin]

Hmm. I don't know that I see the difference, really. I can't think of when I first heard of breeding rights being sold mid-career, but quite a few were noted in 2007 with Hard Spun, Street Sense, and Any Given Saturday.

The contracts may still read that the horse is to retire at the end of the year, which would have the same impact as selling him at the end of the year. There's usually a timeframe for retirement built in (I've never heard of one that didn't, but never say never), and if you sell mid-career, you have to expect that. The only real way (outside of somehow not contracting a retirement timeframe) to totally control how long the horse races is to not sell his breeding rights until you're ready to retire the horse.

If anything, it seems contracting early has spelled out premature retirement rather than the opposite. You mentioned American Pharoah, and then there are the three aforementioned horses (particularly Hard Spun who I think most agreed had a lot of room to improve as an older horse). Which high profile stallion prospects do you think stayed in racing for another year's campaign due to the benefit of his breeding rights being sold?

I'm glad you chose to comment, as it's an area where I'm open to be educated by someone who is frequently involved in racing colts. We're only 10 years into expanding to the ownership side (from a lifetime in front of betting widows) and only 6-7 years into the breeding side. We race almost exclusively fillies and have since the beginning of the stable, and only wind up with colts by chance, or by whim when shopping sales. And have yet to race a successful colt to the point where stallion deals become something we need to deal with.

My naive understanding of stallions was like most fans of racing.....good colts generally are retired when stallion deals are made as the insurance to carry the racehorse was too prohibitive, and racing fans lament that 'breeding gets in the way of fans building interest because popular colts are swept away to the shed". Maybe that changed a decade ago, and I'm at the end of the line coming to realizing this change. certainly possible. But as we've gotten more involved and expanded our breeding involvement, i'm just more in tune with the business of breeding, but far from completely fluent. So if you can share when things changed from your experience, i'd be more informed for sure. But the premise i'm focused on is pretty narrow......owners get an upfront cash infusion when deal gets done, and still captures purse money and kickers thru a defined period. Breeder pays way in advance of initiation of breeding commencing, so they are out of pocket for an extended period before beginning to recapture their investment. Risks are mitigated for both sides, but not eliminated completely. When did that really become more prominent? Or has that been common than I am aware.

But still curious who foots the insurance costs, and who holds the insurance policy, owner or breeder?

I guess I don't really know when buying in prior to retirement became prominent. We know that happened with Secretariat, so I guess he's the first one I heard of. And because Chenery sold, he ended up being retired prematurely because the contract called for his retirement at the end of his 3yo year.

That's what happened to us with Hard Spun. We very much wanted to run him at 4, and offered to do so in partnership with the Sheikh, but he declined. The Sheikh also wanted to run HS at 4, but only under the Godolphin banner and he was to be sent to Dubai, so despite being offered a large sum, we declined. So off to stud he went.

When a farm buys into the horse while racing, they're going to demand some control regarding retirement. It may be at the end of that year, the end of another year, or maybe if a set of conditions takes place that they see harming the horse's value, like finishing out of the money twice in a row in a graded stakes.

As for the insurance, it depends on the date of closing. You may contract for a future closing if it's beneficial (for example, you will definitely want to make sure you've owned the horse 2 years to avoid short-term capital gains), or you may close now. Once you've been paid for the horse's breeding rights, then you cancel the insurance and the farm would put insurance on the horse. I think overall, though, that if your horse is doing well, you won't mind paying the insurance. If you're horse has some physical issues or maybe not at the top of his game, then you can do the math and see how it makes sense to go ahead and sell.

I have no idea at all if I told you anything you don't know, or if this was even interesting in the least, but that's what I've got for now. Back out to the pool, ha!

[Treve]

I mean I have noticed it too but didn't feel it was unusual per se aside from the fact it seems to be happening a bit more while colts are still Juveniles (with Pharoah being the best example in recent memory, the deal was inked when he was still 2 I believe, but wasn't announced until around Preakness time, correct?). However in spite of the probable Sunset clause built in to Pharoah's contract as far as we know, I think maybe what made it different is that Zayat retained full ownership of the racing rights? I remember there were talks of the possibility he might race as a 4year old when the deal was initially announced (before he won the Triple Crown). So perhaps the 'new' difference in the trend is separating breeding ownership from racing rights more fully, with potentially having later/more flexible end dates to their careers, rather than always being automatically at the end of the year during which the colt's breeding rights were sold.

The one deal I did find rather interesting actually is the situation with California Chrome which seems very unusual in that a racing partnership was created with the breeder to be, meaning that because the breeder to be is now also co-owner, they have an incentive to run the horse not just to boost the resumé of their future stallion but because they actually start to get a return on their investment right away.

I could be very wrong since I'm not a professional based in the industry, but this is what I've observed in the last few years.