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Service Fees Dilemma Part II
By Tara Madgwick
Sunday, 5 June 2011


Mike O’Donnell of Fairhill Farm has received much feedback to his article last week on service fees and has a follow up piece that is a must read for all broodmare owners.

Mike O’Donnell - We are constantly told by stud farms that service fees have come down. Why is it that when a study is done on the top 100 stallions that stand in Australia for the years 2003 to 2011 a different picture emerges?

For 2002 the top stud fees ranged from $137,500 down to $8000. The average stallion service fee for the top 100 was $21,508. The yearlings for that year were sold in
2005

Average: $37,453 1.74 times service fee
Sold: 7290
Total: $273,037,000


For 2003 the top stud fees ranged from $132,000 down to $8250. The average stallion service fee for the top 100 was $23,878. The yearlings for that year were sold in
2006

Average: $41,687 1.75 times service fee
Sold: 7852
Total: $327,327,000

For 2004 the top stud fees ranged from $93,500 down to $8800. The average stallion service fee for the top 100 was $22,231. The yearlings for that year were sold in
2007

Average: $48,942 2.20 times service fee
Sold: 8320
Total: $407,200,300


For 2005 the top stud fees ranged from $220,000 down to $8800. The average stallion service fee was $26,523. The yearlings for that year were sold in
2008

Average: $52,070 1.96 times service fee
Sold: 7957
Total: $413,820,000


For 2006 the top stud fees ranged from $275,000 down to $11,000. The average stallion service fee was $30,303. The yearlings for that year were sold in
2009

Average: $33,997 1.12 times service fee
Sold: 7758
Total: $263,750,000


For 2007 the top stud fees ranged from $330,000 down to $9900. The average stallion service fee was $30779. The yearlings for that year were sold in
2010

Average: $39,161 1.27 times service fee
Sold: 6981
Total: $278,383,000

For 2008 the top 100 stud fees ranged from $330,000 down to $12,650. The average stallion service fee was $37,799. The yearlings for that year have been sold this year. For this year the figures below do not include MM June sale and there are 673 catalogued. Last year 66.5% of the catalogue sold at an average of $29,670. If the same percentage sold this year at the same average, there would be another 447 sold for $13,262,490.

Average: $40,100
Sold: 6508
Total: $260,987,800


Adjusted estimates for 2011 including MM June Yearling Sale
2011

Average: $39,430 1.04 times service fee
Sold: 6955
Total: $274,250,200

For the year 2009, the top 100 stud fees ranged from $220,000 down to $11,000. The average stallion service fee for that year was $31,545. The yearlings for that year are sold next year, 2012.
2012

To bring returns back to 2006 levels, breeders would need to average $55,203, an increase of 40% on this year.

NO CHANCE!


For the year 2010, the top 100 stud fees ranged from $176,000 down to $11,000, but the average service fee was up to $32,518. There was a blow out of the upper mid range fees!! The yearlings for services in 2010 will be sold in
2013 .

Average needs to be $56,900!!!!!!! NO CHANCE!


For 2011, the top 100 stud fees ranged from $137,500 down to $8,800 and the average service fee came down to $28.792.
2014

Average needs to be $50,386!!! NO CHANCE!

The average is still just 3% under the record levels of 2008 sales. It just cannot happen. Service fees are sending the breeder broke.

Add to that the costs of rearing at our nominal $25k for 2011 and take $1k off for every year prior and we have the following results. Remember that this does not include all costs

2005 $21,508 + $18000 = 39,508 costs/average sale price $37,453 = $2055 LOSS
2006 $23,878 + $19000 = 42,878 costs/average sale price $41,687 = $1191 LOSS
2007 $22,231 + $20,000= 42,231 costs/average sale price $48942 = $6711 Profit
2008 $26,523 + $21,000= 47,523 costs/average sale price $52,070= $4547 Profit
2009 $30,303 + $22,000= 52,303 costs/average sale price $33,997= $18,306 LOSS
2010 $30,779 + $23,000= 53,779 costs/average sale price $39,161= $14,618 LOSS
2011 $37,799 + $25,000= 62,779 costs/average sale price $39,403= $23,376 LOSS


When depreciation of the mare is added at a conservative 20% of service fee, and the sales companies commission is taken off the figures look like below…….

Year S/price Comm Costs depreciation Return/Loss R/in dollar

2005 $37,453 - $3745 - $39,508 - $4301 = -$10,101 79c
2006 $41,687 - $4169 - $42,878 - $4776 = -$10,136 80c
2007 $48,942 - $4894 - $42,231 - $4446 = -$ 2,629 95c
2008 $52,070 - $5207 - $47,523 - $5304 = -$ 5,964 89c
2009 $33,997 - $3400 - $52,303 - $6061 = -$27,767 55c
2010 $39,161 - $3916 - $53,779 - $6156 = -$24,690 61c
2011 $39,403 - $3040 - $62,779 - $7560 = -$33,976 53c

2011 gave the average breeder 53 cents back for every dollar spent.

NO allowance has been made in these results for yearlings that were passed or didn't make it to a sale.



Mike O’Donnell
Fairhill Farm


Comments from others to Part I

The game is now at the tipping point , the service fees are way over the top ,they have been supported by a compliant racing media, rorts at the yearling sales to justify massive fees, mega wealthy owners who don’t mind paying too much and the illusion of ‘increasing prizemoney’.
I think the industry has got to the point where if people don’t stand up there will be little left to argue over. When you think about it the industry has become quite bizarre, people like us queuing up to hand money to mega wealthy studs no questions asked !

Clearly the only way to solve the problem is to stop contributing to it , we all need to say no more often.


Nick Turnbull
Nemeris Lodge , Romsey
Victoria

Interesting stats and no doubt what most of us have been thinking for a while now. Maybe realism has hit home for those who have been living in the dream world. Why would stallion farms reduce fees if the stallions are filling their books.

Down here in Victoria we are not exposed to a wide range of commercial stallions that make our choices even more difficult. Sending mares north is an expensive exercise especially withexorbitant vet bills added. I do believe breeders have to be realistic and realise what their mare is actually worth and consider what they are spending on stallion fees. We all see every year somebreeders over breeding their mares in the hope they will make a major sale and get the pot of gold. If it was that easy we would all be the Bahamas for the winter. There are well priced stallions out there and yes there are plenty overpriced. All we have to do is work out what the mare is worth and what should be spent to achieve maximum return.

Steve Donnison
YARRAN Victoria

To put some positive input that could be achieved, we as a whole industry should take up the issue of the country racing prize money. If that was higher then the pond of owners and the possibility of a larger number of horses actually trying for the win must be maintained at a higher level.
The schism in NSW racing must be overcome. All must be pulled together so city trainers can drop horses down a class (satisfy the client) with the hope of winning or some income return. Country trainers would be better placed to seek and buy. Creating competition.

We expect the wonderful selection of Stallions presented each year and hope not to use overused coverings. All expect expert care and great service. It is costly and getting higher every year. Vet costs, because of new technology and skills, are rising exponentially. Trucking and etc.

Anyway we are all in the roasting of this goose. Just remember the bigger the pond the better the feed.

Jenny Stearn
Timor Creek Stud

Very interesting stats, very hard to see the sustainability in the market. Across much of the market the problem doesn’t lay in the price for the product sold at auction but the production and service fee costs. And the biggest problem there is the mare owners sending moderate mares to over priced horses. Stallion equity appears to me the only solution for mare owners who want to stay viable to my mind.

Paul Higgins
Baerami Stud