Is it reckoning time for stallion service fees?

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Easter in Australia not only means elite racing and blueblood yearlings for auction, it’s also the time when stallion service fee announcements start to flow. What does history tell us we can expect in 2023?

The numbers don’t lie. The service fees of Australia’s most desired stallions have never been as high as those announced in 2022, when the average fee of the top 20 stallions (by fee) surged 26 per cent from the previous year, to $125,675.

Averages, as we know too well in the bloodstock game, can be distorted by individual anomalies, but the median fee of that top 20 cohort also supports how service fees have boomed.

The tenth most expensive sire on that top 20 list stood at $99,000 (all fees inc GST) compared to $77,000 the previous year. Of the top 20 from 2022, just one – Lonhro (Octagonal) – had a fee reduction, while nine had a fee increase.

It was reflective of the post-Covid bump in bloodstock investment, which saw averages, medians and aggregates at Australian yearling sales at record levels. With overall investment up 35 per cent on pre-Covid spend, confidence was sky high and Australia’s leading stud farms backed themselves in a bullish market.

In a much less certain global economic environment, the 2023 sales season has been more muted. Aggregate investment in the Australian yearling market to this point of the season has been down 7.9 per cent. Far from catastrophic, but certainly a change in trend from the heady recent years.

Only twice in the past 20 years in Australia has yearling investment dropped by more than 7.9 per cent year-on-year. It is perhaps in those examples, and in those numbers, that we might get an indication of what might be in store for this year.

The 2020 sales season was significantly impacted by the outbreak of Covid-19, which shut down the world midway through the yearling auction calendar. Overall spend on yearlings in Australia dropped 7.96 per cent in 2020, when compared to 2019, although the average actually rose as many vendors opted not to take all their stock to market.

What followed was a similar correction in service fees, many of which were announced in the middle of the first national lockdown in April. The average fee of the top 20 stallions was $86,350, a decrease of 9.8 per cent from 2019. The median fee of the top 20 fell back a peg as well; 14.3 per cent to $66,000. Looking at the whole stallion cohort, just 5.3 per cent of stallions had a fee rise, 30.8 per cent stayed the same and 63.9 per cent had their service fees decreased.   

In hindsight, given the uncertainty of a global pandemic, the service fees stood up quite well, as did overall investment. Both those metrics returned to substantial strength in 2021, with service fees for the top 20 stallions rising 15.6 per cent, while total yearling investment grew an extraordinary 31.5 per cent. Overall, 19.8 per cent of Australian-based stallions had a fee increase in 2021, 52.1 per cent stayed put and just 28 per cent fell.

  

	Average Service Fee of Top 20 stallions	Aggregate yearling spend
2022	$125,675	$622,853,000
2021	$99,825	$558,782,517
2020	$86,350	$424,930,198
2019	$95,700	$461,683,460
2018	$88,775	$462,913,850
2017	$81,950	$411,932,200
2016	$66,825	$375,674,750
2015	$60,775	$325,203,100
2014	$58,575	$342,420,700
2013	$77,275	$259,520,232
2012	$74,525	$234,071,700
2011	$70,263	$246,880,314
2010	$79,750	$256,088,752
2009	$78,925	$244,733,852
2008	$92,675	$372,003,961
2007	$81,510	$376,328,109
2006	$72,600	$304,816,100
2005	$64,175	$252,646,928
2004	$56,575	$221,019,673
	NB: Top 20 stallions by service fee

The other year (since 2004) where yearling investment dropped significantly was in 2009. With the Global Financial Crisis as a backdrop, that moment was seen as one of reckoning for a bloodstock market which had a bubble building for many years.

The burst of that bubble saw a drop of investment in the yearling market of 34.2 per cent, or in real terms, around $128 million. Average prices and medians also decreased significantly, indicating that the impacts were felt right through, from the top to the bottom of the market.

The response from the studs was emphatic. The average service fee of the top 20 stallions (by service fee) fell 14.8 per cent in 2009, from $92,765, to $78,925, with no sire within the top 20 earning a fee increase and 13 being handed a fee decrease.

In 2008, Australia’s leading stallions Redoute’s Choice (Danehill) and Encosta De Lago (Fairy King) both stood at record fees in excess of $300,000, but the following year their respective fees fell to $198,000 and $220,000.

This had nothing to do with the fortunes of their progeny on the track. Encosta De Lago was the reigning champion sire in 2008/09, closely tracked by Redoute’s Choice, but the brutal reality of the yearling market told both Coolmore and Arrowfield that they had to slash their fees in order to meet the downward trajectory of the market and provide incentive for future investment.

So, is there a chance service fees could fall in a similar way in 2023, as they did in 2009? The numbers do not suggest that. The bubble in the lead-up to 2009 was more sustained when it came to both service fees and yearling investment.

The average service fee for a top 20 stallion increased 63.8 per cent in the period from 2004 to 2008, while the average price of a yearling grew 52 per cent in the same time frame. The comparative growth in those two metrics from 2020 to 2022 was 45.5 per cent and 34.6 per cent.

In 2009, the bust was very real in trying economic circumstances, and while inflationary and financial pressures also characterise the current global malaise, the bloodstock industry looks poised for a softer landing this time around.

A more likely path would be the way 2020 evolved, where studs reacted with caution, particularly at the top end. Fees will moderate, but not fall through the floor.

Of course, the Inglis Easter yearling sale, historically the most important of the year for those top-end stallions and their studs, is yet to come. It will be seen as a sale that is instructive. Indications are that, as the 2023 sales season progresses, confidence is slipping away further.

It puts those setting the service fees and selling nominations in an interesting situation. Do they attempt to utilise the spotlight of Easter to get their marketing launched? Or do they wait and see what the market is telling them?