The Steward Rants About Stud Fees

Original article written by The Steward posted 9 years 3 weeks ago

After my convoluted rant on stud fees in the middle of an Edge article recently, I've had several people concerned about what I meant, whether I was singling them out, and a few even telling me I should be nicer to the common player, who appreciates low stud fees. So, for better or worse, here is how I feel about current stud fees and why I think they are not only incredibly important, but also a lot of the current problem in the game.

Note: I would like to say I'm sorry up front if I offend anyone with my examples, which is certainly not the point of this (the point will be to get you more money). And while the same principles apply, I don't know enough about Mixed Breed purses to be referring to them broadly, so this is an article aimed at the Thoroughbreds. Lastly, I have been known to be wrong about things more than once, so this is just my own personal opinion and the opinions of those quoted, rather than gospel.

I feel that this trend started to really escalate with a horse named War Daddy. I voiced my concerns about his $25,000 fee all the way back in an issue of the Year 29 Edge, where I said: "...he will get his fair share of incredible superstars, he has an owner who is very unlikely to move his fee too much if at all, and at that price he will see every dirt Thoroughbred mare, router or not, hoping to strike gold. He only has 14 juveniles, but has 40 yearlings and has a whopping 80 foals." War Daddy was pensioned with 757 foals, the majority of which were bred at $25,000. He did jump to $75,000 when the owner returned and realized what was going on, but that was "too little, too late."

Even with 697 runners, War Daddy's AVERAGE earnings per runner was $81,000. So even those people who did get in at $75,000 still probably saw a profit, while those who got in at $25,000 were laughing all the way to the bank. He has been pensioned for only two years but is already the dam sire of 14 stakes winners, including a Steward's Cup winner. If you had a War Daddy, you probably came out ahead.

And why shouldn't you? Why breed to East and Awake As I Am at $100,000 or Father's Day at $75,000 when you could breed to War Daddy at $25,000? War Daddy was a wow and scary-producing machine, maybe the original scary-producing machine when it comes to dirt routers (since we've had gallop comments). So let's say everyone has bred their mares to War Daddy. Since he's better than your average stallion, let's say half of them were wow and above (which is a little exaggerated, but only a little and this is just an example). Now there are 50 people with War Daddy "stakes" types, but they can't all win stakes because there's too darn many of them. Then why did we label them stakes types via the trainer? Because they're all really that good.

The difference between a wow that wins a stake and a wow that wins an allowance (or, more frustratingly, loses an allowance) is nothing, numbers wise. They are the same exact amount of "goodness"/speed. The difference is that one breaks its maiden first out while another runs mid pack (behind six other wow/scary types), then the one that breaks its maiden goes on to run in stakes, while the one that lost tries to break its maiden again. The owner gets frustrated and dumps the horse in claimers, because even though the trainer said the horse was good, the horse clearly isn't. In reality, the horse is fine, and given another set of circumstances is every bit as good as that horse in stakes, but the owner doesn't even want to try stakes because they have what has become known in the chat room as a "sad wow." But you can't just say "Forget the allowance!" and go run in stakes, because at this point your horse's confidence is pretty much shot.

I'm about to go off on a rant about stakes races - there are some VERY bad stakes races out there that could be won by those sad wows in allowances - but that's not the point of this particular article, so I will stop myself.

In his third year at stud, War Daddy saw 126 mares. At $25,000, that netted about $3.1 million for the owner. Now imagine that he was standing for the $75,000 he should have been. Even with a decrease in mares - maybe he sees 50 fewer mares, so that's only 75 outside mares - he still nets $5.6 million for the owner. And he produces 30 wows or better in this group, rather than 75. This is all so much more realistic! Stallion owner makes more, mare owners have to be choosy about sending nice mares to him, and less sad wows happen.

Who is the "loser" in this scenario? The average, every day breeder. But here is the thing: getting to breed to a super star stallion is a privilege, not a right. It shouldn't be EASY to breed to a superstar stallion. You should have to save money and really think about whether your mare is worth it before you pull the trigger. Then when you have a handful of non-sad wows, you should spend the time to really think about training them, getting the right equipment/spacing between races/etc.

Some people think we should just make stallions produce fewer good horses. Well, people are already not thrilled about the amount of "bad" horses they get from good nicks as it is. You PAY to find out if a mare will work with a stallion. As management, we can't just make it a better-than-likely percentage that your horse is actually going to be terrible. There's already enough of a chance that your horse is just average that we shouldn't code it to be even more skewed in that direction (at least that's how we feel).

Enough about War Daddy, let's move on to a more relevant situation.

Enter Held High and his superstar son War Lock. Held High is one of the best things to hit turf miling in a long time, while his son is maybe the best turf miler we've seen, at least since Silver Screen Star. Held High retired as a multiple grade 1 winning millionaire with a gorgeous pedigree, female family included. His stud fee was set at $26,000 when he retired, but steadily has marched upwards to $39,000. I personally feel this is too low, as he gets 50% winners, and his average earnings per runner are over $50,000. If you would pay $39,000 for this horse, wouldn't you pay $50,000 for this horse?

But here's the trickle down effect. When War Lock retires as one of the greatest we've ever seen, he CAN'T stand for more than $39,000. When you first think about it, of course you would pay $50,000 for War Lock - decent pedigree, superstar, if he nicks well it is a no brainer. But this is the only time being "proven" or not comes in. Why pay extra for the unproven commodity of War Lock when you can get his proven, almost equally brilliant sire for less? And really, why go to either of them at all when Eohippus, who has sired five millionaires and one horse $4,000 away, stands for $25,000? And why bother going to him, when you can get Silver Screen Star for $15,000, as he has 53% winners and more stakes winners than anyone mentioned? Suddenly, paying $50,000 for Held High seems crazy when you can get Silver Screen Star for $15,000. This is the effect of low pricing filtering down and affecting everyone in the division.

I had someone tell me they would rather raise the fee in a few years than have to lower it later. I probably should have asked "Why" but instead I will talk about Fusaichi Pegasus. The real-life Derby winner entered stud at $150,000 and saw 100 mares (15 millionish profit). Because he was a big flop as a sire, despite the race record and pedigree, he now stands for $7,500 and breeds 39 mares to the tune of $292,000. Do you think Coolmore is sad they got $15 million a year for a couple years? Uh... no.

To help illustrate more of these points, and since I just mentioned Coolmore, I turned to the "expert" when it comes to stud fees. He doesn't get the most winners per year, or even the most stakes winners, but there is no denying that Eric Nalbone churns out an army of terrifying youngsters every. single. year. He stated to me that his in-game goals are:

-Having a (many) horse(s) in the SC Juvie, Juvie Fillies, Distaff, Classic, and other SC races if possible every year
-Running one or more horses in the Triple Crown every year
-Retiring 5-10 blue hen broodmares into my band every year
-Being able to splurge on an eight-figure horse every year
-Being able to watch a half dozen potential superstars hit the track and run 80+ speed figures every year
-Retiring two or three stallion prospects every year to make sure that I've always got a number of "big horses" in the stud barn
-Being able to largely self-sustain my own breeding operations if necessary with high-quality stallions that I don't have to pay to access
-Funding almost any SIM "side project" I want to fund
-Being able to continue diversifying my broodmare band with absolutely top-notch talent from the Trial By Summer sale, rather than relying on mid-tier prospects

Sounds nice, right? Wouldn't we all like to accomplish the above? But how does he do it?

"Stud fees are my single biggest money-maker, and that's a result of my approach to setting them. Simply put, that approach is: set them as high as you can and still generate sufficient traffic."

He then goes on to explain in even finer detail where all his money comes from, and it isn't race earnings. "Since Y30, my racetrack earnings have been about $11.8 million per year. I probably spend in the range of 2.5 times my racetrack earnings each year and stud fees are the revenue driver there. If you're interested in 'stacking the deck' in your favor and creating a self-sustaining stable that gives you disposable income… then maximizing the resources you have (i.e. stallions) is important and your stud fees need to be at the highest level that they can be while still attracting outside support for your stallions (call it 20-30 outside mares a year for a younger stallion)."

Nalbone is talking about 20-30 outside mares! Not 100-200 mares. He finds more value in there being, say, 25 Just Victories running around (bred at $100,000 each) than 100 foals from another stallion standing for $10,000. Why? Read this closely, it is gold: "I don't *want* 100 mares to a stallion, because inevitably, 5 of them are going to be more successful than the other 95, and 95 customers are going to feel like they got a raw deal. The problem is made even worse when you have 200, 300+ from a single stallion in a single year. There are going to be SO MANY MORE failures than successes, but the successes are going to seem like they're all over the place. In reality, the proportion of successful horses isn't that high, and the owners of failures didn't get such a raw deal: they just had bad luck, or have bad mares (and when numbers get crazy, overwhelmingly it's the latter problem). That's a lot of people who won't consider my guy the next time they're figuring out what to do with an actual GOOD mare based on their bad experience. I'd much prefer five consecutive years of 30 well-chosen mares (well-chosen because the fee is high enough to make you stop and think before you wildly press buttons) than one year of 100 mares that tails off."

So how do you set a stud fee? Nalbone says, "My opinion is that a 'correct' stud fee is one that gets a stallion a reasonable number of outside mares; generally, I'd like ~30 but that's overly optimistic for most stallions. SIM stallions don't seem to follow a nice curve in my experience, where doubling the stud fee halves the mares, etc. The faucet is "on" at a certain stud fee, and more or less "off" at the next increment, and if you get your horse lost in the sea of cheap $2.5 - $10k horses, its hard to get them enough attention to get them out and make them a commodity."

But there is one instance in which he believes in lowering the fee. "It's with the steady, older stallions that I'm ok being generous. They're only going to see a couple mares anyway, so whether someone breeds to him at a fee that I think he's worth or at a severely cut-rate fee, its not going to be a big swinger for me either way. High fees are only helpful when the stallion is good enough & popular enough to get mares at that high fee!"

Laura Ferguson, another person who is able to regularly meet her own goals, once stood a stallion named Black Condor for $200,000. She also paid rabid attention to his book, going as far as approving mares and making plans to be online at certain times to get the approved mares bred. While not the most popular idea with some, because of her, Black Condor ended up with 82% winners, 32!!!% stakes winners, and 21!!! millionaires. But these days, Ferguson is just as affected by the way other people price their horses as the regular joe. "Pricing stallions is a balancing act, and it is one that is even more complicated because other players do price their stallions lower than they are probably worth. For example, I originally planned to stand The Opera Ghost and Gojira closer to $50,000, but since all of their contempories were priced between $25,000 to $35,000 range, I had to re-adjust. Both stallions ended up being priced in that range."

Like Nalbone, Ferguson prefers smaller crops, and this part is gold too: "My goal is to get a decent-sized crop, but preferably not a monster crop, so my stallions have a shot at getting some good mares, besides mine, and a fair opportunity to sire some good foals in their first crop. I believe if a good stallion is priced too cheap, then everyone sends any old mare to your stallion. Once all those foals start racing, the underachievers (and there's a lot more of them, because there were so many foals at the cheaper price, without a lot of thought put into many of those breedings beyond taking advantage of the discount) drag the stallion's stats down, and then people complain that you're standing the stallion at a price higher than his average earnings. So, you risk putting yourself in a vicious cycle that way, too low a price, you drag down the stats, and then it's hard to get mares if you raise the fee. You can set the price at a point where it maximizes revenue. I tend to set the price where I can hopefully get good foals in the beginning, and be able to continue to charge a good fee for my stallion for his entire career. If you care about your stallion's stats, you HAVE to care about the stud fee."

Ferguson, like many of the big-name stallion stations, prefers to set her stud fees one a year, and leave them be. "I like everyone having a shot at the same price, whether they bred the foal in Week 1 or Week 16. For example, if I paid $X earlier in the year, I'm not exactly thrilled when someone decides to make the price half that amount later in the year, whether it's for the rest of the year or a 24 hour special."

Ali Weasley is another person who thinks that having a major stallion is more important than having stakes winners on the track. Her horse Throne may have won $9 million on the track, but he earned her over $23 million in the shed. She has been looking for a horse like him ever since. "It is exciting to race a horse like You Are I Am, who has earned $6 million and wins Steward's Cups, but when he is retired, if he isn't bringing in regular cash for several years while I look for my next big horse, then he failed."

Just in case you weren't quite convinced, here is a word from Susie Rydell, who has a bit of a stallion station herself. "Bulk doesn't interest me much in a stallion's book. I'd much rather have high quality mares, and if erring on the side of charging more can get that, I'm all for it. I approach breeding my own mares the same way. The first thing I look at when I'm considering a stallion is average earnings per starter, followed by percentage of stakes winners. Both of those categories suffer dramatically if a stallion is receiving a lot of filler."

Rydell is another that doesn't play around with the fees too much, save for once, or in rare instances, twice a year. "I think if you take care to set your stud fees in a logical manner, there's rarely need to change them throughout the year, especially with established stallions. I tend to look at the beginning of the year, when the prior year's stats are final, and toward the end of the year to make sure I'm on the right track. Younger stallions will likely also be evaluated mid-year as their offspring start to run. I don't like changing fees often as I don't think it's terribly fair to others."

None of this means you shouldn't have fun with stud fees. Jon Xett is notorious for pricing his fees the way he sees fit, even if those numbers are $38,038 to $938. He is able to price his horses in a way that amuses him, while also only changing it once a year and seeing a mass amount of income from stud fees, rather than race earnings. Jon Xett regularly makes $10 million in stud fees each year, and whether he is having a year where he has $7 million in racetrack earnings or $3 million, he knows he can rely on that steady income in the background.

In the unlikely event that you have gotten this far and you are still thinking, "Well this is all fine but none of this applies to me because I'm an unknown player and people won't breed to my stallion because they don't know who he is," to you I say: You have to let your horse do the talking. If you have a well-bred horse who was good on the racetrack, you don't have to worry about your own identity. In the "good old days," people did whatever it took to amass a brilliant band of broodmares with just the right bloodlines to throw at their recently retired stallion, even if that meant buying/stealing/leasing in any way they could. If just for that one precious first crop, their stallion would look good with a large group of good horses in a small sample size. Now, breeders often employ a "Throw every possible mare at a stallion" technique.

Now, it's not that I think a great bump in stud fees is going to happen overnight (unless everyone magically came to an "All go bump fees by $5k!" agreement!), but don't forget that setting fees purposely low is driving bad breeding behavior. Paying $50,000 for one breeding is better than paying $45,000 for three breedings to another horse in the same division if the cross is right, the mare is worth it.

Nalbone added, "You should view an individual stud fee through the lens of how that fee applies to your mare. The two questions are 1) Is this the best pedigree fit? and 2) Is the mare worth paying the stud fee required to get that fit? If the answer to both questions is yes, it doesn't matter whether there's another stallion that doesn't fit as nicely but is priced better - long run, I believe you come out ahead making the right pedigree choice. If that means you run low on funds towards the end of your broodmare band and need to go find all those cheap 'oldies but goodies' to finish off your breedings, so be it ... but from a broodmare owner's perspective and trainer's perspective I'd rather 10 properly bred foals than 50 lottery tickets that don't match right pedigree-wise."

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