“…if racing were simply commerce,
Karl Marx should’ve been its interpreter.”
The next few months at Summerhill will be characterised by plenty of reflection and some deep soul-searching. You may ask why, at the end of another great year, this team should be examining its business as critically as it is, when it’s operated off a winning formula for much of the past couple of decades. Despite it all, the one constant in our lives has been the reminder that you take nothing for granted. Besides horses, the thing that gets us up in the mornings is the memory that we’re in the luxury goods business, that nobody has to buy a racehorse when his mortgage is under threat, and that every customer, particularly in times like these, is a precious commodity. Breeding racehorses is a complex business, not only because of the structure of the racing industry as a whole and its attempt at being a sport on the one hand and a wagering business on the other, but especially because of the spectrum of its customers. In the first instance, there is an essentially democratic form to racing, which gives the little man the opportunity to level the playing fields. You couldn’t beat Harry Oppenheimer in the boardroom on Mondays, but you could certainly take him on at Turffontein on Saturdays. The other thing is that if you’re in the stallion game as well, your fellow breeders, your competitors at sales, are suddenly transformed into colleagues and customers in the breeding season, and so we all have to find a balance between competition and custom.
Besides, if racing were simply commerce, Karl Marx should’ve been its interpreter. As a financial proposition, it is about the redistribution of incomes. It is socialism in a form so subtle you hardly notice it. Hundreds of millions of rands are supplied each year by businessmen from Massachusetts to Mooi River, by surgeons and solicitors, gold miners and merchant bankers, and by tax avoiders from all over. The treasure they contribute is then redistributed slowly, little by little each month so it doesn’t look too obvious, to jockeys, trainers, vets and farriers, to clairvoyants, chiropractors and grooms, to bottlers of magic elixirs, feed merchants and float drivers. Eventually, the working classes have acquired most of the surplus income of the bourgeois. When the cycle starts, the horse people provide the experience and the owners the cash. When it’s complete, the horse people have the cash, and the owners have the experience.
And then we have the sales environment, where the dynamics playing themselves out in 2012 have been intriguing, to say the least. Just over a year ago, several leading commercial breeders in the Western Cape got together and formed Cape Thoroughbred Sales, the founding intent to centralize the country’s major sales in that region. The promise of a guaranteed early payment to breeders quickly captured something approaching 70% of the turnover in young horses in the country, and the death knell of the Thoroughbred Breeders Association’s sales arm, Bloodstock South Africa, seemed imminent. Indeed, the TBA’s financials at the end of their next reporting period looked especially precarious, and there was talk that if things did not improve, they had barely 18 months of reserves left. But more than three decades in this game tells us that there is something called “normal”, and that generally speaking, matters tend to gravitate in that direction with the passage of time. For those of us who believe that the broader market for racehorses resides largely in the vicinity of the commercial hub of the continent, Johannesburg, the thought that we may have no place to sell our horses outside of Cape Town and the knowledge that there are times of the year, when, because of the limitations imposed upon travel during the “horse sickness” period, many of us might not be able to get our products to any marketplace, was daunting.
The recognition ultimately, by both parties that there will always be a vibrant market in Johannesburg, came as a relief to those of us this side of the Hottentots Holland Mountains; there is room (and indeed a need) for both a Cape Premier Sale and a National Yearling Sale, and that is evident in the subscriptions for the 2013 sales programme, where a more even balance appears to have emerged. The performances of horses of the ilk of Soft Falling Rain (Cape graduate) at once handed the impetus to CTS, while the record success of BSA’s Emperors Palace Ready To Run and the “arrival” of a new star in Capetown Noir has reassured the market that there is still virtue in buying horses in Jo’burg.
If ever there were a statement that 2013 would bring hope to those who depend on this business for a living, it lay in the outcome of the Ready To Run, where our customers reminded us of their appreciation for the values we have in common: great quality, real dependability and excellent value, the things South Africans cherish most. The road forward may never be paved in gold, but for those who know and understand the people they serve, there is at least the promise of a future they can count on, and one which will keep them in business for as long as it takes for the fruits of prosperity to return to the national economy.
Having been there ourselves, we know what it is to be the underdog, we know the value of a handshake and the goodwill that accrues when you provide a good man in a pinch with some leeway rather than a visit from the sheriff. We have colleagues in this business who’ve mortgaged their farms in order to pay their stud fees, and if that’s not a sign of absolute dependability, then there isn’t one at all.
When we first started out in this business, stallion masters insisted upon payment of stud fees when a mare was tested in foal at 90 days. Quite apart from the risk of early foetal loss, the broodmare owner had to carry the cost of financing the service fee for close on 30 months, before seeing a return. Meanwhile, he had to repeat that dose twice more in the interim, and this was an undue burden. The notion of a “live foal” concession was nowhere in existence in those days, and it took this little Mooi River farm (as it was then) to invent the concept internationally. Today it’s pretty much the order of the day across the world, though it was years before the major producing countries of the Northern Hemisphere embraced the idea. Its effect was to transfer some of the risk from the broodmare owner to the stallion owner, and provide the former with a more equitable financial package. It still remains a burden however, and we guess the challenge now for stallion masters is to revisit this issue if we’re sincere in wishing prosperity on all of our colleagues as well. Traditionally, those of us who invest in stallion equity, employ a risk management template that seeks to return to the investor his capital outlay with the proceeds of three to four seasons in the breeding shed. It’s in every one of our interests to reduce the impact on the pockets of our customers, and to do that, we need to readdress the question of stud fees and the terms on which they’re paid. This may well demand a fresh look at the risk management profile adopted by stallion investors, and the transfer of a little more of the broodmare owner’s liability to the stallion owner, in an attempt to arrive at a more affordable balance.
That’s why we have a team of restless agitators here, always keen to shake up convention, and forever ready to take up the cudgels for the little fellows. In the end, Summerhill was built on the patronage of small breeders, and we haven’t forgotten.
Keep an eye on these columns; there’s more to come!