AS the Australian yearling sales caravan rolls on from Sydney to Melbourne next week, the thoroughbred marketplace has been aligned to the booming housing sector.
Against all general economic trends, the housing bubble refuses to burst with growth in Sydney (15%) and Melbourne (13%) in the last quarter. The Consumer Price index is running around 1.5%.
Try racehorses then, or yearlings that haven’t raced yet, but carry the hopes, dreams and expectations of a buyer who think they have just snared the next Winx or Black Caviar.
Last year there was 4241 yearlings sold in Australia at an average of $88,540 a 7.92% increase on the previous which was up a thumping 18.16% on the year prior. And there is no bust in sight.
The recently completed Inglis Classic Sale in Sydney saw a 25% increase on average ($71,593), surpassing the gains at Magic Millions where it costs on average $206,000 to buy a ticket in racing’s great lottery.
Coming up from Sunday week Inglis will sell 771 yearlings under the Premier banner at Oaklands Junction where last year’s average was $110,000.
Yet the true economics should be challenging to anyone outside of racing.
There were 76,767, or one in 310 Australians, racing a share in a horse last year but 4091 of those horses failed to earn a cent in returns while only 786 earned between $10,000 and $99,000. It’s a unique industry, and seemingly right now, quite unique to Australia.
The early selling season Australian growth wasn’t reflected though at Karaka in January-February where New Zealand Bloodstock’s premier yearling sale saw a fairly stagnant set of numbers, the average actually dropping with a majority of horses bought by international clients – Australian’s spending was up 18% with local Kiwis down 19%.
Trying to explain the Australian thoroughbred trading market and how it defies the broader economics of the world is an interesting discussion.
“I don’t think anyone was surprised by the results at Classic but sometimes you have to wonder where they come from,” said bloodstock agent Sheamus Mills.
“The horses were not of significantly better quality but clearly the strength of the Australian racing industry where prizemoney is so strong and incentive schemes so important, drives the market.”
Fellow agent, Damon Gabbedy from Belmont Bloodstock, was adamant prizemoney and return on investment underpins the inordinate growth in the trading market.
“We tend to be in a very unique industry. The general economy might be tough but there is a good reason people are paying money for horses, our prizemoney depth is incredible,” he said.
“Magic Millions runs on the back of a $10m race day. New South Wales prizemoney has set the benchmark and the BOBS Incentive scheme gives every one a chance of better returns. It is why new international investment from China and America is spurring the market on.”
Is it sustainable? “As long as racing stays positive and prizemoney continues as strong as it is, there is no reason to doubt the strength of the market,” Gabbedy said.
But both highlighted the plight of New Zealand, where prizemoney levels are poor in comparison.
“For years New Zealand was booming, but this is what happens whereby government support and investment starts to wane and you can’t keep up. It impacts on the entire industry,” Mills said.
But Mills said there had been much discussion that Victoria needed to match the prizemoney growth in New South Wales to ensure the industry’s strength here.
“It was definitely a big talking point at the bars around the (Classic) sale, the local parochials were certainly crowing about that in New South Wales. The one shining light in Victoria is the VOBIS and SuperVOBIS incentive schemes and perhaps many Victorian trainers have held back for Premier with that in mind,” he said.
Both dismissed suggestions the soaring yearling market squeezed out the smaller players.
“Syndication keeps the little players in,” said Gabbedy.
Mills agreed that “investors’ were happy to get in at various levels and syndication was an affordable option.
“We have seen syndicators looking after the mum and dad investors, they keep buying enough horses to keep them in play,” he said.
If there is a sign for concern in this hot market he said, it has been the weanling sales and the pin-hookers, many of whom he believed had taken a hit this year already.
“The weanling prices had gone through the roof in recent years and despite the yearling prices increases, the margins weren’t there, so in a market of 25% growth, you saw some pin-hookers not making any money. And all that means is you paid too much money for your product in the first place.
Mills was quick to praise the yearling sales companies, – Inglis, Magic Millions and New Zealand Bloodstock, -as another reason the market remain strong via credit terms to buyers.
Vendors are paid on 45 days, so Inglis will fund the $35m gross from Classic to their sellers at that point while waiting as long as 12 months themselves to be paid.
“The sales companies are very under-rated in how they keep the industry alive. If we are in a bubble – how much credit is given may be of concern, we don’t want a situation like the American housing market that goes bust eventually. To some extent the companies are controlling the bubble,” he said.
-Article originally published on g1x.com.au, and written by Bruce Clark.