Racehorse prices pull up in final stretch

At 9am on Thursday, the first of 167 thoroughbreds will be galloping along Newmarket's Rowley Mile racecourse hoping to catch the eyes of buyers. On Friday afternoon, the two-year-olds will be auctioned. The fear is they will be knocked down at knock-down prices. The credit crunch has finally caught up with racing and the bubble in horse prices has burst.

Blue Monday, an eight-year-old gelding, is entered to run in the Jockey Club Stakes over the Rowley Mile on Saturday. By then, however, the winner of last season's Dubai Duty-Free Arc Trial may have a new owner. He will be auctioned on Friday night after Tattersalls completes its scheduled Guineas Breeze Up sale.

Accountants from Deloittes were appointed as administrators of the stud at Hungerford in Berkshire after the construction and property business of the owner, Martin Myers, became a credit-crunch victim. Blue Monday and his stablemates will help to pay off creditors.

The going for the racing industry has changed from firm to soft since last year. Even at the Tattersalls yearling sales in October, prices were still strong. Despite other asset values falling, horses were selling at record prices in 2008. The average at last year's Newmarket Craven Breeze Up sale – the "breeze up" is the test run along the course – was 102,448 guineas or £107,570, some 40 per cent higher than the previous year's average.

The top price in last year's Craven sale was 470,000 guineas for a chestnut filly. Yet at this month's Craven sale, the average price was just 74,443 guineas, a 27 per cent reduction on last year, and this week's Guineas Breeze Up auction is expected to reflect a similar collapse in prices.

Tattersalls' chairman, Edmond Mahony, says: "We are fully aware that 2009 is likely to be testing, but in the context of the current economic conditions, we would have to be satisfied with the results of this year's Craven Breeze Up. Last year's sale took everyone by surprise, producing what could only be described as outlandish figures that would have been almost impossible to match, even without the dramatic downturn."

But racing is being hit on several fronts. Trainers complain that owners are not paying their bills. The Tote privatisation has been abandoned. Prize money is falling because of a cut in the contribution from the betting industry – though Mon Mome's 100-1 Grand National win could put an extra £20m into this year's prize pot because of the slice of profits that bookmakers pay to the Horserace Betting Levy Board.

However, as more firms go offshore to avoid tax, they are avoiding the levy too. Firms such as Victor Chandler sponsor races instead, but total prizes fell by 5 per cent last year.

Racecourse owners have partly compensated by increasing their proportion of prize money, but they are under financial pressures too, with attendances down and a steep fall in hospitality business. Great Leighs, the £40m all-weather course opened less than two years ago in Essex, went into administration this year.

And with little more than a month until this year's Derby meeting, the Epsom course has yet to find a sponsor to replace Vodafone. The managing director, Nick Blofeld, says several companies withdrew from negotiations because of the economic conditions. For the first time, Epsom is seeking separate sponsors for individual races, including the Oaks, but has still failed to find backers. Other courses report banks and building companies pulling out of long-held sponsorship deals and the BBC is planning to halve the number of days it televises racing.

Racing is an interface of commercialism and optimism. Companies such as Ladbrokes and Weatherbys, the industry's bank and keeper of its bloodstock records, are in it for the money but many owners are there to pursue a dream. Of the 20,000 runners at UK meetings last year, a third won nothing and another third earned less than £2,500. Of the third whose winnings exceeded that sum, fewer than 100 horses collected £100,000.

The return was only 22 per cent of the investment last year, according to the Racehorse Owners' Association. That is slightly less than in Ireland, but far below the 240 per cent return in the United Arab Emirates where prize money is much higher.

The fall in UK prices and prizes has sufficiently worried potential sellers that they have initiated a £500,000 bonus scheme to reward winners bought at the current breeze up sales. The first 40 winners at qualifying two-year-old races will receive £10,000 on top of the usual prize money and 20 races will carry a £5,000 bonus.

Some past winners are selling for under 1,000 guineas, such is the glut of racehorses. When prices were shooting upwards, owners were eager to breed and studs were busy; however, those foals are now turning two and three, ready to race just as the industry faces tough times.

Only belatedly is the supply being curbed to match falling demand. Tattersalls director Jimmy George says: "We'd expect fewer mares to be covered this spring than last spring."

Racehorse prices would have fallen even further if it were not for sterling's weakness, however. But although Ireland is benefiting from a strong euro, its recession has hit its own racing industry hard, keeping buyers away from English sales. Tattersalls is targeting buyers from mainland Europe and Japan, however.

Mr George says: "We're not immune: the market has experienced a downturn from the record prices of 2006-07 and early 2008, but in the context of what's going on worldwide, that's no surprise. Overseas demand has been encouraging. Those buying in euros or dollars are getting a huge saving on the foreign exchange."

He suggests many overseas buyers who have been priced out of the market in recent years can now afford to return. And Paul Roy, who now chairs the British Horseracing Authority, reckons it is a chance for UK owners to buy, too. "The major correction we're seeing in bloodstock prices means the opportunity to buy a quality horse at an attractive price has never been greater," he says.