KEENELAND’S DILEMMA

The Fasig-Tipton yearling sale in Saratoga Springs, New York, was once the premier Thoroughbred auction in the United States and arguably in the world. Man o’ War is its most famous graduate. However, during World War II, in 1943, the federal government restricted rail transportation and Kentucky breeders sold their yearlings at a Fasig-Tipton sale held in a tent on the grounds at Keeneland in Lexington, Kentucky. This fortuitous foothold allowed Keeneland to start its own auction company. Keeneland eventually supplanted Fasig-Tipton as the premier venue to sell Thoroughbreds and it has not relinquished that unofficial title. Factually, based on several performance criteria, Keeneland can legitimately claim to be uno numero.

Now, that claim is being challenged by a new sheriff in town, a high roller of immense proportions.

In 2008, Fasig-Tipton was sold to Dubai-based Synergy Investments. This company is headed by a close associate of Sheikh Mohammed bin Rashid Al Maktoum, the Prime Minister and Vice President of the United Arab Emirates and the Ruler of Dubai. Sheikh Mohammed of Darley Stud is one of the two leading Thoroughbred owners and breeders in the world, along with the John Magnier-owned Coolmore empire headquartered in County Tipperary Ireland. Sheikh Mohammed has spent astronomical sums for racing and breeding stock that have been purchased at public auction and privately. His ownership of farms spans several continents.

Executives of Synergy Investments have been quite open and adamant that Synergy will return the Fasig-Tipton Saratoga sale of select yearlings to its place as the foremost auction of its kind. Synergy has commenced to expand and remodel the auction facilities, is aggressively  promoting the sale, particularly to international buyers, and is recruiting higher quality yearlings.

Opening night at the 2009 Saratoga Selected Yearlings sale in August was more crowded than I have ever seen it and the environment was electric with Sheikh Mohammed himself in the crowd. In spite of the economic malaise that has driven down prices at Thoroughbred sales around the globe, the Saratoga auction’s gross revenue, average price and median price were up over 2008 by 45.6%, 11.1%, and 9.9%, respectively. The revenues and average figures were the second highest in the Saratoga sale’s storied history and the median was a record. The percentage of yearlings not sold fell from 25.6% in 2008 to 22%. Hall of Fame trainer D. Wayne Lukas commented that the overall quality at this year’s sales was the best he has seen at Saratoga.

John Ferguson, Sheikh Mohammed’s bloodstock agent, bought 12 yearlings that constituted 22.6% of the auction’s gross and included four of the sale’s five seven-figure yearlings. (Ferguson was also the leading buyer at Fasig-Tipton’s July 2009 select yearling auction in Lexington.) In addition, buyers closely aligned with Sheikh Mohammed, such as his brother Sheikh Hamdan, made significant purchases. International connections bought yearlings that accounted for 43.1% of the gross revenues, up from 20% in 2008. This may be indicative of how strongly Sheikh Mohammed will support Fasig-Tipton and of how well the company’s muscular sales and marketing strategy is working.

As corroboration of Fasig-Tipton’s already growing cachet, Forbes magazine’s special issue (October 19, 2009) on “The Richest People in America” cites the 2009 Fasig-Tipton Selected Yearling Sale (rather than a Keeneland sale) as a barometer of what Forbes calls “The Price of Ultraluxury.”  Forbes wrote:  “Our price index of luxury goods rose [since 2008] 1% versus a 1.5% drop in inflation.  Here are the items that have the largest percentage changes.”  Under “Biggest Percentage Increases,” were four items, including the aforementioned Fasig Tipton sale:  “With roots back to 1917, this auction had total proceeds soar 46% to $52 million.  That is the second highest in its history, behind the $62 million posted in 2001.”

The powers that be at Keeneland privately have to be looking at these developments with trepidation. Sheikh Mohammed, the best customer that Keeneland has ever had, is now part of a contingent that has openly declared its goal to have the Fasig-Tipton Saratoga Selected Yearling sale displace Keeneland as the leading venue to sell the most fashionable bloodstock. Fasig-Tipton in Lexington, long a second banana to Keeneland, will undoubtedly join the fray.

Keeneland’s dilemma: How does its management and sales force handle the nascent onslaught by a deep-deep-deep pocketed competitor that also happens to be its most important buyer ever? When the Keeneland people go out to recruit yearling sellers they will, as sales reps, have to persuade these sellers that Keeneland is a better choice than Fasig-Tipton. Keeneland may not explicitly comment negatively on Fasig-Tipton, at least not initially, but at some point it will have to do so when it tells sellers of the pros and cons of Keeneland vis-à-vis Fasig-Tipton. That is fundamental to personal selling 101.

A duopoly—a market dominated by two major players—can be as dog-eat-dog as any. Keeneland vs. Fasig-Tipton has the potential to be the Coca-Cola vs. Pepsi of Thoroughbred auction sales. When Fasig-Tipton begins to increase its market share of the most regarded yearlings, competition will naturally escalate accordingly.

Sheik Mohammed (and his friends and associates) will no doubt continue to patronize Keeneland for top-class yearlings. But he will also do a lot of business at Fasig-Tipton, and this should have a domino effect as shown by the dramatic increase in buying by international interests at the 2009 Saratoga select yearling sale. Fasig-Tipton has already begun to establish the reputation as being the “Sheikh’s sale.” This name recognition is a powerful magnet for global yearling sellers and buyers.

The winners in the upcoming Keeneland/Fasig-Tipton battle royal will be yearling sellers and buyers, who always benefit from strong competition for their business. Long-time loyalty to Keeneland or Fasig-Tipton will matter not, as sellers gravitate to where they can do the best business.

The folks at Keeneland are in close to a catch-22 situation in that they can’t win for losing. Businesses cater mightily to their best customers and forcefully battle their competitors. This is the prototype unless the best customer and the leading competitor happen to be one and the same. Keeneland and Fasig-Tipton may declare their intent for “cordial competition” but the devil will be in the details.

A day will come, sooner rather than later, when both groups covet an impeccably bred yearling with upper-seven-figures potential…and the gloves will come off.

Over the next several years, look for Keeneland’s market position to weaken and Fasig-Tipton’s to strengthen.  Then the two auction houses will settle in near parity like Christie’s and Sotheby’s in the fine art business. 

Copyright © 2009 Horse Racing Business

Comments

  1. Auction history has shown that credibility suffers when the auction house owners/managers participate at their own sales. While sometimes monolithic, Keeneland’s credibility has always been beyond reproach. They don’t shave commisssions for insiders, and buyers don’t have to worry about bidding against the house. Long-term, I’ll bet on the dinosaur.

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