The Keeneland September Yearling Sale in Lexington, Ky., has established a new record each of the past two years. It grossed an impressive $531.7 million, breaking pre-release sales records and generating excitement among the racing community. Over the course of several days, this event was notable for the sale of 56 yearlings each selling for at least $1 million. This staggering number far exceeded the old record of 40 yearlings sold, which was established in 2005. In addition, there were 120 buyers in the auction, competing against each other and each obliging to spend at least $1 million.
The sale’s success can be attributed to six important factors. Actionable insight #4 Not surprisingly, changes in tax regulations are giving huge advantages to buyers. In a typical year, the Keeneland September Sale would be returning staggering gross sales of $427.9 million. That’s right—this surge is just like the huge 2018 increase that came after the Tax Cuts and Jobs Act.
John Sikura was a key figure in this year’s success. His farm bred and consigned one of those Gun Runner colts, which sold for $3.3 million. Sikura praised the effect of recent tax code changes on the industry, saying,
“I think the tax code changes are just a great incentive for a highly speculative business where it’s not unfamiliar to have losses.”
The recent tax reforms have introduced a permanent provision allowing businesses to write off 100% of a racehorse purchase in the first year of ownership. This small change has motivated a tremendous number of buyers to buy higher, resulting in higher participation at the sale. Len Green, an accountant with 800 racing clients, called the event “stupendous.” Remarkably, fully half of those clients made it to this year’s sale.
Green noted that younger people have been increasingly interested in the sport and that ownership through partnerships is on the rise. He remarked,
“There’s a lot of younger people. There’s a lot more partnerships now than there were before. There’s a lot of people who have made money.”
He warned prospective buyers of the dangers lurking in this speculative market. As with any investment, not all will pay off big.
“There’s not going to be 56 stake winners in that group so a lot of people are going to lose an awful lot of money.”
It’s an evolving game, but I’m very encouraged about where the scene is headed,’ says Tony Lacy, vice president of sales at Keeneland. For starters, he notes that the sale’s record performance reflects deep investor confidence and underscores successful changes in investor tax structure.
Looking forward, Keeneland still has three more auctions scheduled between now and the end of November. These conferences provide unprecedented, hands-on experiences for would-be buyers and sellers to test the waters of this booming market.
We were blown away with participation and spending during this year’s sale. That reflects a continuing impressive market resilience and unmistakable hunger on the part of buyers to make hay while new tax conditions are favorable. A surge in buyer activity is driving expansion in this segment of the economy. In the background, the horse-racing mystique continues to provide allure.