MarketWatch: American Pharoah's Stud Value

This is a Blood-Horse MarketWatch podcast with Lexington-based bloodstock consultant Byron Rogers. Originally from Sydney, Australia, Rogers served as stallion manager at Arrowfield Stud and Taylor Made Stallions before founding the nicking program TrueNicks and racehorse selection company Performance Genetics.

This week we learned that American Pharoah's breeding rights were bought by Coolmore and he will stand at Ashford Stud in Lexington when he retires. What do you expect his stud fee is going to be, and what do you think he's worth right now?

ROGERS: His initial fee—and obviously standing at Coolmore, they're fairly aggressive on their pricing but they do a very good job in their management—American Pharoah is probably going to be in the range, I would say, of about $75,000.

There's some basic metrics you can use in terms of working out the value from the service fee. You work out, over a four-year period, what's the average number of mares that that stallion's going to cover. Now, you've got the amount of mares he'll cover, you'll have mares that will slip and have dead foals and not get in foal, so they all have to be calculated into it. Over four years he might average out at 100 mares with live foals. Let's say the service fee is $75,000; it might get down in the fourth year to $60,000 or something like that. So if we that average that out, let's say $65,000, you're looking $6.5 million a year.

Now you've got some expenses. On average you're spending about $75,000-$100,000 on advertising and marketing—any commercial sire in North America. Those sorts of figures obviously come out off the top line; you've got your insurance costs, your mortality insurance and infertility insurance. Especially first-season infertility insurance is quite high; you're looking at about 9% or 10% on your value.

You've got to back all those expenses out, so over the four years he's at $6.3 million in net income per annum. Over a four-year period you're looking at him being worth somewhere around the $25 million range.

Is that typical for a farm to base it on a four-year payback?

Most of the commercial farms will look at a four-year payback in terms of pricing. Some will go to a five-year, but most try to get it back within four. If you have to stretch to go to a five-year—I think a lot of farms would do that when the market was very strong, but now that there has been a contraction in the stallion market, contraction in service fees, and contraction in the number of mares that are actually available, I think that stallion owners are a lot more conservative about how much they want to pay for stallions and how much they want to extend themselves.

Some people look at the stallion owners making a lot of money out of these stallions, but they have to put up the capital to start with. I think it is a risk venture. So many stallions can't produce themselves on the racetrack—take horses like Smarty Jones   or Big Brown   or any of these high-priced stallions that came off the track that haven't been able to consistently repeat their own genotype and have seen serious reductions from their initial service fees. It is a high-risk venture.

Do you think winning the Triple Crown would affect American Pharoah's value significantly?

I don't think it would change an awful lot to him. Obviously if he was a Triple Crown winner the fans will view him as an elite horse, but I think from the practical viewpoint of breeders he has already established himself as a superior runner. He has already established himself as the top of his generation. I don't think that for the people who are breeding mares day in and day out to stallions and are in the commercial market or breed-to-race market, I don't think the Belmont (Stakes, gr. I) and being a Triple Crown winner makes a huge difference. It's great that if he does win the Belmont, it would be a great thing for racing and a great thing for the industry at large, but if he was a Triple Crown winner it would have more effect on Pioneerof the Nile  's career in the fact that he has proven once again that he's got the capability of getting a classic horse.

I think that's where we get into this difficult point with stallions in terms of how we select on racehorses: We are the harshest critics on stallions. The bar to be a stallion to stand in Kentucky or in Newmarket or Scone in Australia—or wherever it is—is extraordinarily high. And it's probably too high. We select too harshly on stallions in my opinion. I think there are a lot of horses like Distorted Humor   who are grade II level horses that are perfectly capable of being good stallions.

What do you think the general commercial breeding strategies are going to be with a horse like this?

The bar for him is going to be set fairly high given his service fee and the hype around him, so if he doesn't come out with immediate runners early on in his career, the knives will be out very quickly with him. If I was doing the management of the horse, I'd probably look at taking a more early-maturing, speedier mare—at least a dozen or so mares that had early-maturing capabilities just to get some runs on the board early in his stud career.

But broadly speaking, a lot of the breeders that will be attracted to using him—they know what they're doing. The breeder—the person that's ringing you up—knows their mare and they know what they're trying to do. The really good, high-end breeders—and they're the ones that are going to use this horse because he is going to stand at a high service fee—the high-end commercial breeders and the high-end breed-to-race operations are invariably going to send the mares that they think best fit him.