EMPIRICAL EVIDENCE ON STALLION ECONOMICS BY ROBERT L. LOSEY

If you can book your first-year stallion to mares that will generate 50 foals at a $10,000 stud fee, or alternatively 100 foals at a $5,000 stud fee, which makes more sense? (I don’t suggest that these figures represent the usual trade-off, but this example provides a useful starting point for this analysis.)

At first blush, you might view these two approaches as equally desirable, as $500,000 is generated either way, though you may argue for the former approach given that it is easier on your stallion. But I contend that Ashford Stud proved some years ago that the second approach makes more sense economically. Four research studies I have conducted provide insight regarding this question.

A study commissioned by Dan Rosenberg in 2010 (see the reference at the end of this article) produced numerous findings that breeders may find useful. One result is not surprising to most observers; namely, that after adjusting for pedigree quality and the strength of stallions to which mares are bred, the quality of runners from broodmares is significantly correlated with the racing quality of the broodmares themselves. This suggests that, if the goal of a stallion manager is to generate the highest-quality runners, the stallion’s book should be limited to a group of high-quality mares.

A second study I spearheaded estimates average earning indices (AEIs) that are adjusted for the quality of mares to which a stallion has been bred. It finds that if we look at two groups of mares bred to the stallion–a low comparable earnings index (CEI) group of mares with, for instance, an average CEI of 1.25, and another group of mares with an average CEI one point higher at 2.25–the number of quality runners from the second group of mares will be approximately 17% higher. The surprise to most observers here is that the difference is not greater.

A third study I completed analyzed whether the sales averages and stud fees of stallions were more closely related to the average quality of runners produced by the stallion or, alternatively, to the total number of stakes winners produced by the stallion. It turns out that both factors are important, but I wonder if it surprises you that the number of quality runners is much more important in determining how a stallion’s foals do at sales than the average quality of the runners produced by the stallion.

In reviewing the quantitative relationships derived from these three studies, I am convinced of the following:

• If you limit your stallion to a select group of mares the average quality of runners produced will be higher;

• If you breed your stallion to a larger group of mares that results in lower quality mares on average, you will produce greater numbers of high-quality runners, though the number of high-quality runners will increase less than proportionately to the number of additional mares in the stallion book;

• Once a stallion’s runners hit the track, the foals from a stallion bred to a larger number of mares with lower average quality will usually sell for more than those from a similar quality stallion bred to a smaller number of higher quality mares.

I also published a fourth study that is relevant to all this in the former Thoroughbred Times. It showed that more than four out of five new stallions turn out to be either duds or near-duds when their runners had enough time to prove their worth or lack thereof.

So what is the lesson for an Equinomics 101 class? Because the number of quality runners your stallion produces is the most important determinant of how the market will assess your stallion, if financial rewards are your goal, it is imperative that you strive to breed large books in the early years of his career. The folks at the Jockey Club may applaud you for limiting your new stallion’s book size and “improving the breed,” but the market will pay you for producing larger numbers of quality runners–and that is more likely if you produce many foals. In the early years of a stallion’s career, generating large books may not be easy, all the more so under today’s difficult market conditions. But whether this means cutting stud fees, doing various types of deals, or both, it is important that the manager of a new stallion generates potential runners by the stallion by any reasonable means.

Robert L. Losey, Ph.D., teaches financial economics at Centre College of Kentucky and is a principal in the equine consulting firm, The Racing Resource Group (RacingResourceGroup.com). Dr. Losey can be contacted at RLLosey@gmail.com.

Copyright © 2013 Horse Racing Business

*Robert L. Losey, Erradame C. Morales, and Timothy Capps, “Identifying Broodmare Prospects for an Elite Broodmare Band,” 2010.  Read at: www.thoroughbredreview.com/documents/Rosenbergmarestudy.pdf

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