Pandemic Changes the World of Horse Auctions

Thoroughbred horses are always a bet on the future, whether you’re at the track and wagering on which one will win that day or an owner deciding which mares and sires will produce the best offspring — with no proof for years.

But the biggest speculators may be the people trying to divine which foals (under a year old), yearlings (older than a year) or 2-year-old horses are going to emerge as champions or be top breeding stock.

For the last couple of weeks, these speculators, known as pinhookers, have been taking their chances at the thoroughbred sale run by the auctioneer Keeneland in Lexington, Ky. And now they’re vying with online buyers who have a higher risk tolerance and don’t seem to have the same financial constraints. It’s a new phenomenon brought on by the pandemic.

Last season, the pandemic forced the traditional world of horse auctions to go online for the first time and dampened prices. This year, the 12-day Keeneland sale is on a record-setting pace: With two days remaining, it had netted almost $340 million, compared with a $248 million total last year. (The record is about $380 million.)

“There’s such a pent-up demand for racehorses,” said Shannon Bishop Arvin, the chief executive of Keeneland. “We have such a diversity of buyers this sale. Previously, we’d have fewer buyers buying more horses. Now, we have agents who are excitedly active for different buyers.”

Pinhookers like Eddie Woods, who bought a yearling for $1.2 million early in this year’s sale, are feeling pressure from the online buyers.

“You’ve got to remember a lot of people had spare money to spend that they weren’t going to invest it in other things,” Mr. Woods said. “So they bought themselves a hobby.”

The high prices are good for the sellers, but for the speculators, the question is what the resale market may look like. Early in their lives, horses are sold on a timeline, by their age, and that is a big determinant of price. (Later on, their price is determined by their success on the track.) Many yearlings bought in the past two weeks can be resold in February, just five months from now, as 2-year-olds, when their physical attributes become more apparent.

The other complicating factor — the growth in the number of online bidders — started only at last year’s sale because of Covid-19 restrictions. At this same sale in 2020, online buyers spent $12.1 million. This year, buyers spent $15.7 million online in just the first six days.

“Covid has desensitized us to online buying, where we used to be more compelled to be there in person,” Ms. Arvin said.

But buying exercise equipment or even a car online is very different from buying powerful, fast but remarkably fragile animals in the hope that by age 3 they will be winning big at the track. The higher prices only raise the stakes.

“The greater the risks, the greater the rewards,” Mr. Woods said. “When you have a top-end horse by a fashionable stallion, and he works well at the 2-year-old sale, it will most likely go very well for you. If it doesn’t go right, it’s going to cost you a lot of money.”

The best pinhookers look at horse buying as an investment like any other that requires a tremendous upfront outlay of capital. They start by trying to remove some of the romance, especially for novice investors flush with cash.

“Spread your risk as best you can,” said Nick de Meric, who owns de Meric Thoroughbred Sales with his wife, Jaqui. “We have several partners who take pieces of horses we buy. This gives us the opportunity to go after more expensive horses. It gives us the chance to buy a few of those.”

Mr. de Meric and others run syndicates, created for specific horses or structured as a broader pool. This is basic risk management.

“If a $300,000 yearling goes down to zero, that’s a hard one to swallow,” Mr. de Meric said. “But if you have only 20 percent of that horse, it’s easier to absorb.”

Returns vary widely. Mr. de Meric aims for an average return of 17 to 25 percent on the yearlings he buys, trains and sells, he said. A bad year is a 7 or 8 percent loss. His best year was a 43.5 percent return to investors after all expenses and fees. A horse costs about $30,000 to feed, insure, train and transport in the five months between the yearling and 2-year-old sales.

“You’ve got to understand, you’re going to swallow some lumps,” Mr. de Meric said. “It is a bit of a roller coaster. But the highs are so euphoric that we all forget about the lows.”

Tony Lacy, vice president of sales at Keeneland and a former trainer and jockey, said he saw horse breeders as essentially farmers. “They’re raising a crop,” he said. “Cash flow is important. It’s not an inexpensive activity to raise a horse. A lot of breeders depend on cash flow.”

Last year, sellers of yearlings had the ability to hold on to them and see if the market was better for 2-year-olds. It turned out the market for 2-year-olds was strong in the spring.

“It’s risk management,” said Ciaran Dunne, who owns Wavertree Stables with his wife, Amy. “The average breeder will have 10 to 15 horses. If they take the risk and go to the next level, they can turn a $200,000 yearling into more. But if they don’t take that money off the table and go for the big payoff, they take the risk that something untoward happens.”

Mr. Dunne bought a yearling last year for $50,000 and resold it for $1.2 million as a 2-year-old in the spring. (Across the board, pinhookers made over $36 million buying yearlings last September at Keeneland and selling them in the 2021 spring sales.)

Yet Mr. Dunne has had plenty of losses over the years, he said. “More horses don’t make the 2-year-old sales than the yearling sales because they have to do more to get there,” he said. “Athletic prowess is the differentiator. But it’s guesswork.”

Even with online buyers finding their way into the industry, it’s not as Wild West as it might sound. Many had agents assess the horses in person last year before buying. But as buyers got more used to the process this year, that wasn’t always the case. Some bought the horses online as they would buy a work of art at Sotheby’s or Christie’s.

“We’ve had horsemen doing things the same way for decades,” Ms. Arvin said. “It was getting them comfortable that this was good. A lot of sales, there was hustle and bustle. We were concerned to take it on the internet and lose that excitement. In the end, it’s the love of the horse and the environment.”

And since many of the horses stayed in Kentucky or at least the United States for training, she said, the people on the ground were probably going to advise the buyers, whether they were in person or online, about where to train the horse.

Whether that hobby pays off is still to be seen. After all, wealthy buyers have waded into an area of the horse market that has traditionally been risky.

“As pinhookers, we create a good commercial market in the beginning,” Mr. Wood said. “Then the buyer comes along and gets to see these horses trained and gets a better indication of what the horse will be on the racetrack. Be it good or bad, people can then decide if they’re going to spend a lot of money on a horse or if the horse they thought they liked isn’t that good.”

Those answers are a few years away.