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Originally Posted by ELA
Without extraneous aspects, ego, companion stallions, and so on -- it's pretty simple (scientfically speaking vis a vis the economics) as to how to peg a stallion's alleged value. That doesn't mean that's what he's worth -- it's more a determining factor in what a farm may use as far as value and to then structure a deal to try and get him.
First, they would arrive at the stud fee. I'm sure there is much debate there. However, a farm would look at what they could sell shares, seasons, etc. for. That would help drive the stud fee as well. Second, if you are talking about syndicating, the farm would arrive at the # of mares they would like to, want to, think they could, etc. breed; and then formulate their share structure.
This may seem easy, but it's not. The farm has to know who their clientele is -- who are buying the shares, seasons, etc. This is not an issue for someone like Farish/Lane's End, or someone of the like. However, a farm would want people with quality mares who are going to use the breeding (not sell it or "pool" it -- if there is going to be a "pool"). In an ideal world, the farm wants every opportunity to "make the stallion" but at the same time maximize revenue if applicable.
The farm would figure out the # they want to limit the book to, the # of mares they want to breed, the share structure, etc. They would must also factor in all estimated expenses -- insurance (for the farm's portion, or the amount at risk, as the farm will not insure individual shares once sold), advertising, vet, and more. Depending on "fertility" -- unless there are issues -- I would think a farm may use a number like 70% or 80% (Chuck, do you think that's a fair number?).
Then comes the real magic -- how quickly do you want to "get out", LOL. Yes, the starting point always seems to be 3 years (gee, I wonder why, LOL). It's formulaic in nature. If you are using other people's money via syndication, there is room for varaibles and the scenario could change.
If we are talking about a non-commercial breeder, Darley/Shadwell/etc. -- then all bets are off, LOL.
It's not this simple of course, and it depends on the buyer, but the farms have this down to a science. Unfortunately, this is part of the problem that the industry faces.
Eric
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