When the projected foal crop figure is released each year, analysts are quick to look at how it's trending compared to years past. For a very long time now, that number has been going down. The annual foal crop declined 53% from 1990 to 2019, and depending on who you ask, everyone has a different theory as to why that's happening.
Dr. Lauren Stiroh, managing director at NERA Economic Consulting, was brought in by The Jockey Club to analyze the issue from an outsider's perspective. Stiroh presented her findings at the 2022 Jockey Club Round Table conference in Saratoga Springs, N.Y., on Aug. 14.
Stiroh focused on the period from 1990 to 2020, although acknowledged many of the factors she looked at registered atypical results during the first year of the pandemic in 2020. While the foal crop declined 53% from 1990 to 2019, Stiroh found the number of individual breeders went down 56% although the number of foals registered per breeder only rose by 5%.
There were also changes in the location of those breeders. In 1990, Kentucky, California, Florida, Texas and Oklahoma combined to account for just over half the annual foal crop. Now, Kentucky accounts for about 43% of the total on its own.
Stiroh tested several different factors to see which was most strongly correlated with changes in foal crop. Auction prices for weanlings, yearlings, and 2-year-olds have remained largely steady through this time period. With the decrease in the crop, there has been a slight increase in the average earnings per runner. As the foal crop shrunk, advertised stud fees came down, but then they rose again as the shrinkage leveled off and didn't experience the same severity of drop as the foal crop. Average stud revenue followed a similar trend. Stiroh concluded there wasn't a clear cause on the revenue side of the equation.
She then looked at the costs side of the equation, presenting data from the producer price index of hay and hay seeds. A graph of hay prices showed them increasing significantly from the mid-2000s forward, but not necessarily in step with declines in the foal crop.
Predictably, the biggest dips in foal registration immediately followed national economic recessions, reiterating what the industry already knows — the horse industry is not immune to larger economic forces off the farm.
The number of races held each year has decreased as the foal crop has decreased, and the average field size has also shrunk (though not as drastically as the foal crop has); still, those did not seem to be strong predictors of the foal crop. When Stiroh got to parimutuel handle however, she found a really good predictor of foal crop changes. Parimutuel handle figures followed nearly exactly the same trends as foal crop, in terms of timing and severity. Using regression analysis, she found that data from parimutuel handle, number of races, gross domestic product, and average stud fee combined to create a very accurate prediction of foal crop changes.
So where does that leave us?
Stiroh pointed out many of the same issues already identified by the McKinsey and Company study commissioned by The Jockey Club in 2011 — if foal crop is directly correlated to changes in parimutuel handle, it would seem the way to grow the Thoroughbred industry is to increase handle. Racing faces far more legal competition for the gambling dollar in 2022 than it once did, and its popularity as a spectator sport has slipped considerably from its height in the 1950s or 1960s. An aging fan base has also limited racing's ability to compete with other sports or other gambling options.
Stiroh's takeaway: Racing needs to appeal to a younger audience and pursue revenue streams outside parimutuel handle — a suggestion the sport has heard several times before.
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