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McMahon Bloodstock Annual “Yearling to Two Year Old Pinhook” Partnership
Introduction:
The thoroughbred yearling is one of the most difficult assets to appraise. A young horse, like a college athlete “turning pro” is full of potential. Some athletes realize that potential and are drafted by pro teams, others kick around for years at the semi pro level. A yearling horse is no different. Some are purchased by racing stables at yearling sales, other horses however begin training and then are sold as more fully developed two year old prospects. Investing in yearlings for resale at the two year old market is commonly called “pinhooking”.
Eddie Woods is one of the best two year old trainers in the game. In 2006-2007 he purchased and sold (ie “pinhooked”) 2008 KY Derby and Preakness winner Big Brown. We have been in partnership with Eddie since 1999 when our first horse “Zillah the Hun” was purchased for $40,000 at the Fasig Tipton July Yearling Sale. That colt went on to sell for $120,000.00 – a very tidy return – and then he won a G3 stake to boot for his new owners!
After a 1 year hiatus McMahon/Woods purchased a few yearlings to pinhook. This time we were not as lucky, purchasing two horses, one of which we lost $70,000 on. The other named “Buy the Sport”, we sold nicely and she went on to win a Grade 1 stake for her new owners! Encouraged that we could find Graded Stakes horses, but having learned a few early lessons, the partnership swelled.
The business of selling two year old thoroughbreds:
The two year old auction is clearly a market which is bipolar. The buyer at the market is willing to pay premium on any horse which meets his criteria. The bar is higher now than ever, and fewer horses meet the criteria at any given sale. Selection of the correct horse at the yearling age, and placement of that horse in the ensuing sales season, has never been as important to the pinhooker as it is now. Horses failing to meet the standards are not just penalized in price, they often are just plain not saleable!
The premier auction in the country is the Fasig Tipton Miami two year old in training sale. Held at the Calder Race Course just west of Gulfstream Park, the sale has annually produced the cream of the crop offered at two year old in training sales. This market is dominated by several big spenders including Coolmore’s John Magnier, and Dubai’s ruling Monarch Sheik Mohammed bin Rashid Al Maktoum.
The primary locale for selling two year olds in the United States is Ocala, FL. Eddie Woods operates a fine facility there offering the discerning owner top rate facilities and training. Offering Sales in February, March, April and in June the OBS Sales Company is the primary venue for the auctions.
The business of buying yearling thoroughbreds
Contrary to the two year old market, he yearling market is often in a situation of over supply. McMahon and Woods focus on the Fasig Tipton sales, buying at the July and August markets. Additional horses are found at the mammoth Keeneland September Sale. All horses are inspected at each sale and the team “short lists” the desirable horses. These are inspected at least once more, before turning over the “shorter” list to the veterinarian Natanya McMahon DVM, who examines the yearling prospects for soundness of bone and wind. X Rays are available as needed in the Sale Repositories, but other shots may be required. Endoscopic exams are performed on all horses prior to sale.
In a five year study of sale results completed in 2006 The Bloodhorse listed McMahon Bloodstock as the purchaser of 8 stakes winners, who were purchased at yearling sales, tied for 11th among all North American buyers. These were purchased with an average price of $62,000.00. Only four other buyers active in the North American Yearling market purchased more stakes winners in the same period of time with less money spent per horse.
Saratoga Stable LLC
To facilitate the management of what was quickly becoming an ongoing concern, the partners (McMahon and Woods) developed an LLC for their clientele to invest in annually. Named Saratoga Stable, the partnership is managed by McMahon who receives a 2.5% commission on the purchase and sale price of each yearling. The partners invest in units of $50,000 which includes 80% budgeted for acquisitions of yearlings and 20% budgeted for ongoing costs.
Upon sale of a two year old, Woods takes a 5% commission and sends the proceeds to McMahon where the money is disbursed minus a 2.5% management commission. The Stable functions best when enough money is held to carry a horse that does not sell. In the history of the stable, only one horse has been owned into his three year old season – all others have been sold. Thus the partnership has an excellent record of moving the inventory of the company along quickly and effectively.
Rate of Return
The partnership is profitable when we buy the precocious yearling which develops into a top grade two year old. The average horse is held for only 8 months and thus expenses per horse (including purchase commissions and mortality insurance) rarely exceed $20,000 per horse. Often a fine line is walked between taking a chance on holding a horse and selling at a loss. The most important aspect of the partnership though is the selling of the best horse. A breakaway sale which far exceeds expectations will generate a windfall return for the partnership. A modest return on the sale of the partnership’s best horse will almost always preclude a modest ROR for the members of the LLC.
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Annual ROR |
3yr ROR |
5 yr ROR |
Lifetime ROR |
| Beginning Investment |
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| Zillah the Hun (1999-00) |
72.50% |
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72.50% |
| No Activity (2000-2001) |
0.00% |
72.50% |
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72.50% |
| Buy the Sport (2001-02) |
-25.60% |
-25.60% |
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28.33% |
| Saratoga Stable I (2002-03) |
14.89% |
-14.52% |
47.45% |
47.45% |
| Saratoga Stable II (2003-04) |
-2.44% |
12.09% |
-16.61% |
43.85% |
| Saratoga Stable IV (2004-05) |
-2.94% |
-5.31% |
-19.06% |
39.62% |
| Saratoga Stable V (2005-06) |
-8.23% |
-10.93% |
-0.16% |
28.13% |
| Saratoga Stable VI (2006-07) |
27.59% |
17.08% |
10.87% |
63.47% |
| Saratoga VII and Filly Partners (2007-08) |
5.83% |
35.02% |
20.26% |
73.00% |
| Saratoga VIII and VIII FLEX (2008-09) |
-10.53% |
-5.31% |
10.86% |
54.79% |
2010 Partnerships available for investment
McMahon Bloodstock is offering investment in "Saratoga Stable 2009, LLC" to "Accredited Investors". Saratoga Stable is made up of roughly 5 horses mostly colts. The Operating Agreement is available for the inspection of Accredited Investors by emailing mike@mcmahonbloodstock.com. The Operating Agreement spells out the formation, goals and particulars of the company.
Conclusion
Accredited Investors should consider joining Saratoga Stable with a minimum investment of $25,000. The 2009 buying season looks to be a situation of over supply, providing buyers with plenty of opportunity. While the economy is in recession, horse racing appears healthy in many jurisdictions, providing solid purses and in many cases, expanded gambling. The advent of poly tracks acceptance by two year old buyers has allowed two year old consignors to keep more horses in Ocala controlling the costs incurred by the partnership (shipping etc.)
An initial investment in Saratoga Stable of $50,000.00 in 2002 has now grown to an estimated $67,000.00. These figures are calculated by combining Saratoga and Saratoga FLEX in 2008, the first year FLEX was offered. Those with us since Zillah the Hun have seen there initial $60,000 investment grow to over $103,000.00.
Investment for Accredited Investors Only
We will be closing these partnership following the October Sales, but we will only purchase with money already invested. To facilitate planning and purchase please email with the subject line "Saratoga Stable 2009, LLC Accredited Investor" to make your investment prior to the conclusion of the September Yearling Sales.
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