Cover image courtesy of Newgate
With a range of key offerings in stallions set for sale at next week's Magic Millions Gold Coast National Broodmare Sale, TTR AusNZ delves into the intricacies of these investments with insights from industry experts Vin Cox, Henry Field, and Brett Howard.
The differences between breeding rights and shares
Understanding the distinctions between shares and breeding rights is crucial. Brett Howard of Randwick Bloodstock, with his extensive experience in trading stallion nominations, shares, and breeding rights, explains the key differences.
“A stallion share is an ownership share in the horse, whilst a breeding right entitles you to a service in the stallion.
“A stallion share is an ownership share in the horse, whilst a breeding right entitles you to a service in the stallion.” - Brett Howard
“If you own a share in the horse, you’re usually entitled to send one mare to that stallion free of charge each year plus you're also entitled to the possibility of returning a dividend in the income that the horse might generate.
“On the other hand, a breeding right will generally entitle you to one nomination per calendar year for the duration of the stallion’s working career, however, there is no dividend associated with this arrangement.”
Henry Field from Newgate Farm supplements this perspective, noting that the choice between a breeding right and a share structure hinges largely upon the stallion's profile.
Henry Field | Image courtesy of Ashlea Brennan
“We’ve sold breeding rights to several stallions. Typically they’re horses that come onto our roster at the lower end that we thought were proper Group 1 horses but didn't manage to win the Group 1 due to various reasons.
“We’ve sold breeding rights to several stallions. Typically they’re horses that come onto our roster at the lower end that we thought were proper Group 1 horses but didn't manage to win the Group 1 due to various reasons.” - Henry Field
“A prime example is Tassort who we thought was a very talented horse on the track. Now he is a leading first-season sire and those investors that took the risk and purchased a breeding right are sharing the upside with us”.
Unable to reach his true potential due to injury when raced by Godolphin, Tassort commenced his stud career in 2020 at an introductory rate of $11,000 (inc GST). Breeding rights were granted to breeders who sent their mares to Tassort during his first two seasons, totalling $22,000 (inc GST), with a cap of one per breeder.
Fast forward a few years, and with just six progeny on the track, he has produced the G1 Sires Produce S. winner Manaal and two other stakes performers. This success has prompted a fee hike to $38,500 for the upcoming season, proving to be a shrewd move for initial investors.
Tassort will stand for $38,500 inc GST in 2024 | Standing at Newgate Farm
Alternatively, expensive acquisitions such as Newgate’s G1 Golden Slipper winner and Champion 2-year-old Stay Inside are often syndicated into shares.
“High profile stallion prospects like Stay Inside generally are syndicated into very select syndicate sized partnerships as opposed to breeding right structures,” said Field.
“Shareholders are entitled to one nomination for life and any pooled income on a pro rata basis. However, we often give a bonus on the first three or four seasons, one reason being to add value to those that are buying shares and two being to ensure the stallion gains a robust book of mares to help set them up for the future”.
Valuations and historical trends
Placing a monetary value on breeding rights and shares is a multifaceted and subjective process, influenced by various factors.
Vin Cox emphasises the importance of assessing a stallion's long-term potential and commercial viability.
"It's quite subjective, but it essentially comes down to the longevity of the breeding right. When assessing a young stallion, the key consideration is whether the horse has a promising and enduring future.
“To some degree, it involves a multiple of the service fee. 25 years ago, breeding rights were valued at about three times the service fee; now, it’s more like four times, but it is very subjective at the end of the day.”
“To some degree, it (value of a breeding right) involves a multiple of the service fee. 25 years ago, breeding rights were valued at about three times the service fee; now, it’s more like four times, but it is very subjective...” - Vin Cox
"When considering breeding options, it's essential to evaluate personal risk tolerance and various factors, including the stallion's age. Ultimately, individuals must determine how long they anticipate the horse's lifespan to be. Additionally, they need to assess the horse's commercial viability over the next three to five seasons, as well as its fertility."
Vin Cox | Image courtesy of Inglis
Brett Howard concurs, stressing the significance of timing and stallion performance when making such investments.
"Factors such as age, fertility, the number of breeding rights or shares in the horse, and timing all play a crucial role.
Over the past five years, 19 stallion shares offered at the Inglis Chairman’s Sale and Magic Millions National Broodmare Sale fetched prices averaging three times the current season service fee. Shares in both well proven stallions and those yet-to-have-runners often brought the highest returns.
In the same period, only four breeding rights were offered, also fetching an average of three times the stallion's service fee at the time.
Brett Howard | Image courtesy of The Image Is Everything
Another observation is that in auctions where multiple shares or breeding rights in the same stallion are presented, the second offering typically sells for less than the initial one.
As Brett Howard puts it, “It’s a psychological game. Investors may prefer to enter early, so the second offering often experiences reduced demand, potentially leading to a drop in price. However, if several interested parties remain, there's a chance for the second offering to exceed the first.”
The role of timing
At the recent Inglis Chairman’s Sale, two breeding rights were offered in Yulong’s emerging first-season sire Pierata.
Represented by two first-crop Group 3 winners, he has subsequently gained a 50 per cent fee increase to $66,000 (inc GST) for the upcoming stud season. The breeding rights in question fetched $260,000 and $250,000 respectively or four times his current stud fee.
Pierata will stand for $66,000 inc GST in 2024 | Standing at Yulong
While the investors in this year’s offerings have embarked on an investment with potential huge upside, Howard emphasises the crucial role timing can play in such investments, having facilitated a sale of a breeding right in the same sire just months ago for a fraction of the price. Being a first-season sire, Pierata hadn't any runners at the time of the initial offering.
“We actually sold a lifetime breeding right in Pierata in August last year for $55,000. He was advertised at a fee of $44,000, and I actually struggled to sell it.”
“It’s obviously very speculative buying a breeding right in a stallion that is so close to having runners hit the track as it could go either way. But the fact that the horse was advertised at $44,000 looked like a good risk-reward scenario.
“It’s obviously very speculative buying a breeding right in a stallion that is so close to having runners hit the track as it could go either way.” - Brett Howard
“Some people couldn't see that, but in the end, some breeders in Victoria saw it, and they’re laughing all the way to the bank now. If they wanted to sell it, they could obviously make a very handy return.
“People are now feeling warm and fuzzy about the stallion. He stands for $66,000 this season, but he might be standing at $80,000 or $100,000 in years to come. So, therefore, $250,000 or $260,000 itself might be very cheap in years to come.”
High risk, high reward
Fertility is another crucial factor to consider when valuing breeding rights and shares. While stallion fertility can be a risky business, taking a chance on a sub-fertile stallion can pay dividends.
“We sold a breeding right in Extreme Choice for Craig Newitt just before his second season for around $30,000. It was a high-risk investment at the time, given the young sire had well-documented fertility issues following his first season of covering, which had him standing at a reduced fee of $22,000,” emphasised Howard.
Extreme Choice will stand for $275,000 inc GST in 2024 | Standing at Newgate Farm
Extreme Choice went on to produce three stakes-winning 2-year-olds in his first crop, including G1 Golden Slipper-winning Champion 2-year-old Stay Inside, G2 Sires' Produce S. winner Tiger Of Malay, and Listed Woodlands S. winner Xtremetime. This success led Newgate to make his fee private for the subsequent breeding season, before opening at $275,000 (inc GST), a whopping nine times what was paid for the breeding right back in 2018.
Speaking about the risks of investing in sub-fertile stallions, Howard emphasises, “It’s sort of like asking how long a piece of string is. Everyone knew that Extreme Choice was sub-fertile and he wasn't obviously standing for big dollars back then. A lot of people didn't find risking $30,000 appealing because of his fertility, but for those that took the punt, it paid off handsomely for them.”
Unlocking opportunities
Acquiring shares and breeding rights in stallions can yield huge dividends for broodmare owners, especially if they are willing to take a risk early on in the stallion's career. As Henry Field puts it, “our stallion market is one of the strongest in the world, especially in regards to our appetite for first-season sires and unproven stallions.
“I believe that broodmare owners gaining shares and breeding rights in stallions that align well with their needs can provide a significant advantage.
“It's essential to evaluate each stallion individually based on its merits. Questions like whether the stallion complements my broodmare band and if the economic aspects of the deal make sense should guide the decision-making process. If everything aligns, investing in a share or breeding right for that specific stallion makes complete sense and the rewards can be incredible.”
