THE RISKY BUSINESS OF OWNING A RACEHORSE BREEDING FARM

The late B. Wayne Hughes owned Spendthrift Farm in Lexington, Kentucky, until his death in August 2021.  The farm is now property of his daughter Tammy Gustavson.  Forbes recently valued the Spendthrift operation–on a Podcast–at $400 million.

Using expert guidance from two bloodstock agents (Chad Schumer and Peter Bradley), Forbes estimated that all of the farm’s horses in Kentucky and Australia are worth $360 million, of which the “hottest stallion in North America” Into Mischief accounts for $135 million, or 37.5%, of the total.  The 16-year-old horse stood for a stud fee of $225,000 in 2021, which is set for $250,000 in 2022.

Spendthrift stallion metrics were based on each stallion getting between 80% and 85% of mares bred in foal for a certain number of years in the future, with younger stallions having a longer time span to produce. 

Forbes employed information from Fayette County property records to conservatively value the Spendthrift farmland and buildings in Kentucky at $25 million.  The land and building assets in Australia were projected to be worth $15 million in United States dollars.

Predicting cash flows from stud fees is not a precise undertaking because advertised fees may be reduced in practice in order to attract mare bookings.  Moreover, a stallion’s fee and number of mares bred can rise or fall quickly, depending on how his foals look and later perform on the racetrack.  Into Mischief, for instance, stood for a fee of $7,500 in 2012.  In the earliest days of Storm Cat’s renowned stud career, his owner, William T. Young, phoned mare owners to sell them on breeding their mares to the unproven stallion.

Even with the limitations of accurately determining the monetary worth of a horse-breeding business, the Forbes calculations vividly demonstrate how valuations can depend heavily on one stallion.  In Spendthrift’s case, around 33.8% of the farm’s aggregate valuation ($135 million/$400 million) derives from the virility of Into Mischief, who at age 16 could die, not be able to breed a large number of mares, or become sterile. 

Family-owned farms like Spendthrift are often sold by heirs because they are not interested in the business of breeding and racing horses (e.g. the Mellons, Van Lenneps, and Youngs).  In other instances, heirs are interested but find the farm to be an unattractive investment and sell once a premier stallion like Into Mischief is gone from the breeding shed. 

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