Our team recently returned from the OBS March select two year sale

where we were able to purchase three excellent horses at value prices in a sale which saw record setting average and median numbers. How did we do that, and how does the process of selecting horses at a sale work?

We begin this blog post with the perspective of one of Kenwood’s partners who attended the sale with us.  Jack Czajkowski wrote a wonderfully detailed and comprehensive email in response to one of our co-owners who requested some information about the process of selecting horses at the sales. Jack’s email offers  a vivid picture from someone who was attending a sale for the first time; a nice introduction to the business of finding winning horses at public auction...

From Kenwood Partner Jack Czajkowski….

Not sure I can do the process I observed justice, but here goes.  The process starts well before the actual auction when the list of horses expected to be available is published.  Robb, Steve and Adam work as a team to identify horses they are interested in.  In the case of this auction, Adam attended the under tack running in person.  This is where all the horses in the auction are worked on the track for a short distance to show potential buyers how the horse runs.  These workouts are timed and published. The workout is also available for review on video.  For this auction, Steve and Robb looked at the videos.

In the few days prior to the actual auction, Robb, Steve and Adam visit the various barns to observe the horses they are interested in.  As they visit the barn, each horse is brought out individually.  Using their many years of experience, Robb, Steve and Adam look at the horse for physical appearance similar to successful racehorses they have seen in the past.  They are also looking for any subtle physical attributes that might be a problem.  The horse is walked to them and stands while they observe the horse from every angle.  They then ask the handler to walk the horse for them so they can observe the gait and manner in which the horse walks.  Again using their experience to look for anything that could be less than ideal.  No horse is perfect in every aspect, but they look for the best.

These horses were picked out of the entire list of horses available prior to this in person inspection so that time can be best spent.  For this sale over 400 horses were listed, but Robb culled that down to around 100 to observe, based on his knowledge of those horses he thought might fit in our price range and other factors.

Next, after viewing all the potential horses that "looked good on paper", in person, the list is further culled to those that looked most interesting.  That shorter list is then visited again with the same process to confirm the previous observations and make sure nothing was missed.  The videos may also be looked at again.  For us at this auction, the list here was about 60 horses.

After this final review, the horses were either eliminated from our list or put on a watch list or a bid list.  The "watch list" was the list of horses we really liked but that likely would be out of our price range.  The term "watch" because we would watch the bidding and if it happened to be in our price range, we might jump in.  The "bid list" were those horses that Robb, Steve and Adam all liked and met our criteria (keeping in mind that Steve might like one more than Robb, Adam might like another more than Steve, etc.) and that were thought to more likely fit in our price range.

This all takes a number of days (weeks?) of evaluation to get to auction day.

On auction day, all that work comes down to literally a couple of minutes for Robb to decide whether to bid on a given horse and how much.  The horses come out in sequential order and the auction begins for that horse.  Most horses are auctioned within a couple of minutes or so.

Obviously, Robb has final say and is the person that bids on a given horse.  He makes the decision on what he wants to bid on a given horse.

So for this auction, two of the horses bought came from our "bid list" and one from our "watch list".  We liked all the horses from both lists, all for their own specific reasons and attributes.  We would have been happy with one, and are ecstatic with 3.  After seeing the horses go for an "average" of $190,000, I am excited about the value we have here, recognizing there are no guarantees.  Remember, this was a select sale and these horses were all pre-selected to be in this sale.

I can say that for someone who never attended an auction before, I was exhausted after each day.

I can truly say I will never look at a racehorse the same way as I have in the past..............and that is a good thing.

Jack

Some additional follow-up to Jack’s excellent commentary….   Jack mentions it takes “a number of days (weeks?) of evaluation to get to auction day”. He’s right. The process begins by looking at every page in the sales catalog several weeks prior to the sale. Horses are divided into initial lists of “pedigree star”, “pedigree bad” and “pedigree too expensive”. That begins a very lengthy and detailed process. It’s important to note we (and all savvy horsemen) don’t select mostly by pedigree. Inexperienced people frequently do, but as the old saying goes “the catalog page doesn’t come out of the starting gate, the horse does”. In other words, while pedigree absolutely matters, there are other factors that come first. Remember, in a sale of 400+ plus horses, there simply isn’t time to physically inspect every one. As Jack can attest, it takes an entire 9-10 hour day (working as long as they will show horses, usually 7:30am-4:30pm) for our three person team to physically inspect about 60 individuals. In a two year old sale, how the horse moves is the first qualifier. If the horse doesn’t move well on the track (something that takes years to really see and comprehend), we don’t even look at it. It doesn’t have to have a fast workout time, although many un-informed owners look for that, it just needs efficient motion of head and legs and body all working together nicely. The difference between a work in 10.1 seconds and 10.4 seconds is usually the difference between a $50,000 sale and a $200,000+ sale. Logically a few 5ths of a second for an immature two year old going 1/8^th of a mile has very little to do with how fast it will be 6-12 months down the road going 6-10 times the distance, but numbers sell. That’s one way you can get a real bargain at a sale; ignoring common wisdom and employing common sense.

IF a horse passes muster on the movement, the next factor is the physical confirmation. A lot of horses can move well at short distances, but if they have major physical defects, they are unlikely to withstand the stress of high-performance training over the months and years (hopefully) to come. That’s where the physical inspection Jack mentions comes in. Extensive notes are made about each horse, and as Jack explains so well, the ones that make an initial cut are re-inspected the following day.

It is when we are down to a final “bid list” the pedigree comes into play. The most sophisticated buyers employ more than just the sales company catalog, there are additional private publications that show a lot more detail about the racing ability and soundness of the immediate family. “Auction Edge” from The Blood-Horse is perhaps the most common one. Once we have a final list of horses that move well on the track and pass physical muster, the pedigree helps decide how much we are willing to pay for the horses we judge as worth bidding on. On the final night before the sale, I hole up in my beautiful $89 a night hotel room and look at all our notes on each horse; movement, physical confirmation, pedigree, and several other lesser but still important factors, and decide upon a realistic price to bid given all the various attributes and negatives (in our case weighted by a private, proprietary method) for each horse. Keep in mind we are looking for bargains; we realize full well in a sale with a $190,000 average price we aren’t going to be able to buy most of the horses on our final bid lists for $40,000 - $90,000.  We are looking for one or two spots where for various reasons; slightly slower workout time, smaller horse (people like big horses, even though that too makes minimal difference), later foal, less sexy pedigree, etc. the horse falls through the cracks and we are able to buy a really nice horse at a really good price. If you do your homework it does happen, not often, but (usually) once or twice in a select sale of 400+ horses and a number of times in an ‘open’ sale of 1,200+ horses. You can find a top class horse at both open and select venues, each of which offers certain advantages and disadvantages to buyers.

Not everyone works a sale this way; a significant number of high profile trainers and billionaire owners with more $ and ego than common sense fly their private jets into the Ocala airport (literally across the street from the sales pavilion) the night before the sale, look at a few horses in the walking ring on sale day, and buy the ones with the best pedigree and fastest workout times. That’s one reason why you find so many unraced three year olds at Gulfstream every winter that sold at a sale the year before for $500,000 - $2,000,000 +.

What the extensive pre-sale process does more than anything else is eliminate bad horses that just aren’t going to be able to make it on the racetrack. It’s almost impossible to know which of the horses on your final bid list are going to be future stars (a select few), and which for one reason or another are going to be run of the mill claiming horses (a lot more). What we DO know is that a lot more of the horses who don’t make our final cut are going to end up unraced or with very short unproductive careers than the ones we like. 20 of the 21 two year olds Kenwood purchased at all the two year old sales over the last three years have made it to the winners circle at least once. Two have been bona fide stakes horses, and several others have gone on to win many races and over $100,000 with lengthy careers, all purchased for prices ranging from just $22,000 - $57,000. Meanwhile, about 25% of all the horses sold at these sales fail to win a race, many purchased for $200,000 - $2,000,000. Keep in mind we spend $300,000 - $400,000 total for the entire crop of 6-8 horses we purchase each year here.

We are hardly the only savvy horse people employing sophisticated analysis to purchase good horses at reasonable prices. Each serious team has their own methods and places more or less emphasis on the various criterion mentioned above, but among capable, businesslike people there is considerable overlap and we frequently land on many of the same horses at each sale.  Done correctly the process does work, but it offers no guarantees. If it was possible to know for sure who the future stars are going to be, a few billionaires would have all the great horses. Nobody can tell you in advance which horse has the unique combination of physical attributes, pedigree, talent and heart to be a top racehorse, it’s an educated guess. Otherwise we wouldn’t have bought stakes winner Michael With Us for $57,000 at the OBS March select sale, and people wouldn’t have been able to buy Kentucky Derby and Preakness winner I’ll Have Another for $35,000 at the OBS April (non-select) sale. It’s the unknown that makes this business so interesting and keeps savvy people with a limited budget in the game.