‘There’s less money swimming in the pool at the moment’
As we continue Trevor Marshallsea’s review of the Magic Millions Gold Coast Yearling Sale, key industry figures discuss the signs from the first auction of the season.
The thoroughbred industry needs to brace for restrictions on bookmaker advertising, hope interest rates drop, and maintain the size of Australia’s foal crop – including by rethinking service fees.
And breeders should prepare for soft markets at lower end sales, where buyers can expect a good supply of bargains.
Those were among the thoughts of some other key industry figures canvassed after the Magic Millions Gold Coast Yearling Sale, an auction that while far from a picture of doom and gloom, did ring several warning bells for the state and immediate future of the industry.
After Wednesday’s first part of our Gold Coast review centred on breeders and vendors, today we’ve focused on bloodstock buyers and syndicators to hear their take on the auction that largely sets the tone for the yearling sale season.
Sheamus Mills can speak from different perspectives, as a bloodstock buyer, but one with clients who sell yearlings as well. He’s worked on stud farms, and since October has sat on the committee of the Melbourne Racing Club, giving him another angle on the industry.
Some key markers at the Magic Millions sale showed little change from last year, with the average slightly down and the median static, leading Mills and others to surmise the sale wasn’t as bad as might have been feared.
However, a significant year-on-year drop came in the clearance rate – from 87.88 to 82.94 per cent, with 158 passed in compared with 113 – which was reflected most starkly in the tough sell that was the low to middle bracket of around $100,000 to $250,000.
These factors, coupled with the fact the average and clearance rates were also significantly down on the boom years of 2022 and ’23, have led Mills and others to conclude the industry is facing tough times, or that a bubble has burst.
“Those mad years of growth, where year-in, year-out, prize–money was going up, yearling prices were going up and everyone was having a great old time, I suppose that was like the 1980s stock market – it’s unsustainable,” Mills said.
“The bubble needs to burst a little bit in terms of yearling sale prices to correct itself. To a certain extent, what we’re seeing now probably is the burst bubble and hopefully next year is the start of a new cycle.
“But at the moment, it’s very tricky for breeders. You have to consider the lag time on their cost of production. They’ve paid a service fee in 2022 to get a 2025 yearling. The landscape now looks pretty different to when they paid the service fee.
“And now they’ve got to walk into a sale knowing in a lot of cases they’ve got to set a reserve at or below the cost of production. That’s not an easy pill for anyone to swallow.”
Mills, and others such as Triple Crown Syndications’ Chris Ward, said racing and breeding were, like most industries, feeling the pinch of a broader economic downturn, cost of living pressures, and high interest rates.
The industry needed to react and plan accordingly, Mills said, and respond to other factors particular to racing, such as looming curbs on bookmakers advertising and its likely impact on industry income.
“I’m not super worried, I just think we need to be aware,” he said. “Like any business you need to forecast, think about where you’re at, how you better service your clients.
“A slightly softer sale is a sign of what’s happening in the wider industry and the wider community. And I think it’s an important warning sign, for everybody in the industry.
“Our yearling sales have been strong because prize–money has been strong. Our prize–money’s strong because in the past we’ve had a great funding model with regard to betting turnover. If that funding model changes, and our prize–money suffers, then our yearling sales suffer.
“So I’d say this is a bit of a wake up call for the entire industry. As far as turnover goes, we’re all going to face the potential of advertising restrictions, and the effects on turnover that’s going to have.
“It’s a wider issue – but clearly all these things are pretty closely linked in terms of how we fund.”
Ward said syndicators were feeling the pinch as economic factors impinge on people’s capacity to spend money buying shares in racehorses.
“We [Triple Crown] haven’t been hurt so much,” he said. “Things are probably a little bit slower than the Covid years, but they’re still selling well and we’ve still got plenty of demand.
“But that is contrary to what I’ve heard around the place with other syndicators. We might just be in a fortunate position with our client base.”
Ward said the Gold Coast had shown “a little bit of depth is lacking, so people can afford to be more selective” in buying.
He added: “People who might in the past have been looking to buy four or five horses are now getting two or three.
“It just reflects the economy in general. People are more conscious and wary of where and how they’re spending their money. Naturally enough, that’s got to affect the horse world as well.
“I guess the main driver of 2022 was that interest rates were down, and people still had cash in their pockets after Covid and were looking to get involved in various things.
“Since then, interest rates have shot up. Hopefully they’ll start to turn around soon, and if they do turn around this year, I imagine that depth will come back into the buying market.
“For this year, I imagine Easter will hold up pretty well again, since they concentrate on the upper end. Where it will be interesting is around Classic and Premier.”
Proven Thoroughbreds’ Jamie Walter concurred. He suspects the Gold Coast’s clearance rate would have been even lower had vendors not reacted to early signs of softness.
“From my perspective, the middle to lower end of the market was a lot softer,” he said. “And because the clearance rate dropped from 87 to 82 per cent, I’d speculate that as the sale wore on more vendors were inclined to meet the market, which would’ve been arguably below their expectations before the sale.
“The average and median for Book 1 held up pretty well, but my perception was the lower middle and lower end of the market were pretty soft.
“I think the cost of living had an impact. That generally affects the smaller investors, and maybe a few of them weren’t there. Or trainers who buy at that end of the market weren’t active this year.
“It’ll be interesting to see how the year unfolds, but I suspect it’ll be a similar tale at most of the sales. The high end will take care of itself, the upper middle will be strong enough, and in the lower middle to low – there could be some bargains to be had.”
Bloodstock giant James Harron was more upbeat, but said the Gold Coast’s trends showed buyers had moved towards seeking fewer numbers and higher quality, whereas in 2022-23 they were perhaps more forgiving over what they were buying.
“Most people’s predictions would have been that the top end would be quite strong, which it was. That’s shown really good strength across the board, the mid to top end market,” Harron said.
“There was a little bit of a correction in the lesser priced horses. But I think to get the clearances we got and hold the averages and medians where they were, I think everyone could come away feeling like it’s a market they can have confidence to invest in, and I found it a very fair market across the board.
“So probably it was a little bit better than I expected, and it gives good confidence, in general, in the market place.”
Harron said vendors who brought “a nice, clean horse on the whole would have got well rewarded”, while any yearlings “with chinks in the armour were a bit more discounted this year”.
“Whether it be an out of favour stallion, or a mare who’s had a few goes, or a physical type that won’t stand up, that’s certainly become a lot stickier in the marketplace,” he said.
“Economically, cost of living factors have probably reduced the number of horses who may be syndicated this year.
“People are probably focusing themselves more on fewer horses and higher quality. That’s been a trend we’ve seen from breeders as well. Around the world, quality has been holding up really strongly. That was very evident at the Magics. Well-bred, higher end horses were in huge demand, and there was good depth in the marketplace for them.”
With many breeders suffering, Mills is among those who believe a correction on stallion fees is critically needed in the current climate, of which the Gold Coast was a reflection. And aside from elite stallions, he also thinks that correction will happen this year.
“The 2024 breeding season was the straw that broke the camel’s back for a lot of people,” he said. “I saw it in my own business with a lot of people not breeding their mares, or being prepared to sell them for next to nothing in order to not face another round of service fees.
“There was a lot of active discussion around service fees and where to pitch them in 2024, given the softening of the yearling market, and what sort of cash breeders would have, and appetite to go again. I think that will be the case in 2025 again.
“The stallions that routinely get full books will stay at their fees. But if a stallion can’t attract a full book, I think there’ll be a real correction on what fee they stand for.”
Mills said current fees and the Gold Coast’s results were worrying from the perspective of keeping breeders breeding.
“It’s highly important that we maintain our foal crop. A smaller foal crop equals smaller race fields, equals smaller turnover, equals smaller prize–money,” he said.
“Trying to keep breeders in the game, which is directly linked to how strong yearling sales are, is abundantly important for the future.”
Mills, Harron, Ward and Walter agreed the Inglis Easter sale would likely be immune from the downturn.
“Easter is an island. People aren’t as budget conscious there,” Mills said. “But the other sales, I think they’ll all suffer a little bit. We’ll see it right through 2025.
“I think we’ll see a lot of service fees come back in 2025 too. There’s less money swimming in the pool at the moment.”
Mills said this year’s Federal election would have an impact on the thoroughbred industry, including people’s capacity to buy horses.
“It will have a huge effect on the general state of a lot of employees and employers,” he said, “and until they start dropping interest rates I don’t see much changing.
“I think 2026 is the ray of sunshine we’re looking for.”