By PHILIP RICHTER, HOLLOW BROOK WEALTH MANAGEMENT
Is the market for equestrian show jumpers correlated to global financial markets and, by extension, the broader economy? Is the market for show jumpers recession proof ? Are show horses overvalued?
I have recently been asking myself these kinds of questions given my love for the sport and my day job as the founder and president of a wealth management firm. Let’s dig in.
Not only has the stock market recently reached an all-time high, but so has the price of gold. Bond spreads remain tight and prices of residential real estate in America and other assets remain strong. Interestingly, the prices for high-end show jumpers are also bumping up against all-time highs. We are living in a uniquely complex moment in time from both a financial and investment perspective.
The complexity of today’s financial world has its roots in the Global Financial Crisis (GFC) of 2008, when central banks around the world cut interest rates to zero to save the global economy. What began as an emergency maneuver to stimulate growth evolved into a way of life that lasted for over a decade. As a result, for a prolonged period, central banks held interest rates below the growth rate of the economy. Easy money was the world’s financial status quo until quite recently. The long-term effects of over a decade of cheap money (negative interest rates in some countries) are still being felt today. Paper assets like stocks and bonds and real assets like art, rare cars, collectible watches and, yes, even horses, have witnessed a staggering rise in prices. However, this powerful trend of rising valuations has consequently increased the risk of the underlying assets.
The price of money does matter—even in the horse world. Following the GFC, interest rates were abnormally low, and inflation was benign, if non-existent. However, over the last 24 months, we now find ourselves in a notably different economic reality. Mortgages are up over six percent and corporate borrowing costs across the world have risen sharply. Companies with supply chains abroad seeking cheap alternatives are now focused on the certainty of supply—at any cost. There are ongoing wars in the Ukraine and Israel. Combined, these trends and events have put pressure on prices, sparked inflation and destabilized the economy.
The horse world has not been excluded from recent macro market trends. In many cases, prices for hunters, jumpers, and equitation horses have skyrocketed in a similar manner to stocks, bonds and collectibles over the last 12 years. The cost of competing and maintaining horses has also been significantly impacted by recent global macro trends. There has been a commensurate rise in fuel prices, entry fees, feed, veterinary care, and bedding. While inflation has recently cooled, there is a clear parallel path between the asset prices of horses and the asset inflation that markets have endured over the last decade. However, it is important to keep in mind that the segmentation of the horse market is complex and multi-faceted and there are many factors to consider within each subcategory.
Market Segmentation
A confirmation of horse price trends via proactive outreach to some of America’s top professionals and Olympic medalists was mostly consistent and highly revealing. Most professionals agreed on the definition and range of market segmentation as well as the current state of the equestrian show jumping market. Today, most professionals consider the lower end of the market to be where horses trade up to roughly $200,000. Approximately $500,000 has become the new middle market with the higher end approaching and exceeding $1 million. For the right Olympic prospect or turnkey 1.60 m Grand Prix competitor, prices can be well into seven figures.
The Low End of the Market
Research indicates that the lower end of the market is currently saturated with horses. Animals in this category may have soundness issues, stopping problems, or may not have enough experience. As one would expect, this lower-end range of the market is the most sensitive to the economy and interest rates. Equestrians in this segment have increasingly focused on leasing to mitigate the impact of the uncertain, changing, and volatile economic landscape.
The Rise of Leasing
Selling any horse is tough work. Particularly in the lower range, sales can be challenging. Many polled for this article agreed that the low end of the market are the hardest horses to sell. Even moving upmarket to the $200,000 range for hunters and equitation horses, leasing is becoming an increasingly popular option. Professionals agreed that the lower end of the market is seeing more leasing than sales. Leasing horses may not be a new industry development, but the magnitude of leasing vs. sales today represents a significant change.
Leasing has been on the rise for twenty years. Notwithstanding the risks of long-term veterinary bills and the cost of retirement, parents of juniors do not want to be “stuck” with a horse for the long term. Leasing allows the customer to keep their options open and possibly maintain more liquidity and flexibility. In a very real sense, leasing is the equivalent of paying tuition in the show jumping world. The lower end market is reflective of the current economic status quo. One professional we spoke with noted that even the current political environment can cause the lower and middle market to become cautious. This dynamic exists in corporate America when management teams often hold off on hiring and making capital expenditures until they feel comfortable with a given market.
Middle Market
According to my research, the middle market for show jumpers has also slowed down. Some professionals called it downright tough, with one stating that “right now, horses that trade in the $300,000 to $500,000 are not flying off the rack like they were two years ago.” Horses in this market are all luxury items like a collector car or a bespoke watch. Horses priced in this category are sometimes additional horses for a junior or amateur. During Covid, sales were robust, but like other luxury experiential extras, this has changed, and people are simply buying less.
The boat and plane markets are a good analogue—as these markets are also slowing significantly. Experience-based expenses are being discounted across many luxury markets. The psychology of “we only live once” was powerful as people bought the extra horse or bought the boat. However, now that we are in a new high-interest rate economic reality, it is apparent that there is a noticeable slowdown in the post Covid world.
Many professionals cited the cost of maintaining multiple horses as a reason for the market change in the middle market. Others mentioned that we are in the hangover stage from Covid. In certain circumstances, it still might be easy to sell a winning equitation horse or a good 1.45 m jumper, but in this market, it is very difficult to make a decent margin.
The High End
The higher end at $1 million or more remains robust. Five and six-year-olds with recognized bloodlines are selling for $500,000 in Europe. Very high-quality horses with 1.60 m potential are solidly now in the seven-figure range.
Lack of supply remains the primary driver of stratospheric prices. Today, if one is seeking to buy a top Grand Prix horse, there is a very limited supply. Everyone in this market segment has vast resources and everyone wants to participate at a high level. The demand has never been so high.
Additionally, it is a global market, and it is no longer just the developed Western world looking for Olympic prospects—there are wealthy families around the world today who are ready and able to step up and buy these high-end horses. There is a model emerging now, given the amount of prize money, whereby professionals can justify and subsidize expensive horses because of prize money and the volume of shows. As seen broadly in the global economy, there is strong demand for the best.
Foal Mania: Selling Hope
Most fascinating is that the young horse market continues to attract huge interest. As a result, prices are strong, and the high end of this market is robust. In Europe, it is not unusual for young horse sales at auctions to fetch over $500,000. Buyers are seeking great bloodlines—in effect, they are making a bet on hope, and they are buying the dream.
This is clearly a derivative market of the high competition segment. Some of those we spoke with made compelling cases that the young horse market is inflated because of the supply and demand dynamic coming out of the GFC in 2008. After the financial crisis, breeding dropped by around 30 percent, creating a shortage of foals for a prolonged period.
Today, this situation continues, as there are fewer foals available because the cost of developing young horses is too high. As a result of cost escalation, there are fewer horses on the market. The ripple effects of the 2008 breeding slowdown have kept supply in check and prices for attractive foals firm.
Also, innovations like YouTube and social media have made the entire foal market both instant and global. Videos can be shared at the stroke of a key, and create a hyper efficient market as eyeballs from all over the world become obsessed with finding the next Ermitage Kalone. The digital world brings with it broad and instant demand and this dynamic has contributed to distorting price discovery of foals.
To sum up: Across all market segments, prices remain high on the majority of show jumpers, but not all horses are selling. There are a lot of horses that are not trading, and the overall volume is not nearly as high as it was during and after Covid. If a dealer must buy at a high price, it makes it difficult to sell at an even higher price. This trend is impacting margins across the sport. Similar to past real estate manias, people are hearing about big transactions and putting a value on their horse that may not be justified. We are living in an age where everything feels overvalued.
The equity market is trading at the higher end of historical valuation. Like equity markets, there is always opportunity in the horse market. Sometimes a lucky find can emerge, or a deal can be had, but until the economic imbalances of large deficits and leverage work their way through the financial system, it might pay to be prudent and focus on value, just as one would in their investment portfolio.
