Arabian Gold Rush

The Rise and Fall of the Arab Market

(first appeared in The Equiery August 2011)

The April 29 seizure of 136 malnourished Polish Arabians from Canterbury breeding farm on the Eastern Shore of Maryland has brought an uncomfortable spotlight on not only the equine breeding business in general, but on the Arabian business in particular. Horse owners not familiar with the crazy 40-year rollercoaster ride of the Arabian market have scoffed at the estimated value of $30,000 for some of the horses, a figure tossed out by welfare and rescue organizations involved, as well as some breed enthusiasts.

For still others, an estimated value of $30,000 is not impressive. If anything, it is modest.

All of this speculation about the value of any individual Canterbury horse is just that: speculation. There is one foolproof way to determine the value of any horse at any given moment, and that is what someone is willing to pay for said horse at that given moment.

At The Equiery, as at all horse publications, we see horse owners and dealers play the “my horse is worth” or the “my horse will be worth” game every day.

“I bought my horse for $5,000 three years ago, but now he is worth $20,000 because I have three years of board, training and vet and farrier expense into him.”

“I bought my horse as a three-year-old for $2,500 four years ago, but now that he is seven and I have been riding him for four years, he is worth $15,000.”

“He has the potential to be a great XYZ…so he is easily worth $25,000.”

“When my horse has another three months of training on him, I should be able to get $35,000, so I will ask $35,000 for him now.”

Savvy brokers and trainers know that when they have a solid cash offer in hand, they take it. It does not matter if, after next week’s show, the horse could be worth double that, because there is equal chance that the horse could be injured the following week and worth even less.

Nevertheless, bloggers, tweeters, facebookers and chat room junkies all around the inter-world have asked where and how that $30,000 for a Canterbury Polish Arabian was calculated.

If we take a look at the rise and fall of the U.S. Arabian breeding and sales market over the last 40 years, it perhaps puts into context what seems to some to be crazy dollar figures. Perhaps it will also provide the framework for understanding a situation as seemingly absurd as the Canterbury situation appears to be on the surface…150 horses? Continuing to breed, despite the crash of the economy? Why would anyone do that?

The Arabian Emigrates to the U.S.
First imported to America in the mid-1800s, Arabian horses gained widespread attention during the 1893 Chicago World’s Fair, where Turkey exhibited 45 horses, two of which became the first and second entries in the first Arabian studbook in America.

Growth of the breed accelerated in 1906 when a gentleman named Homer Davenport imported 27 Arabians. Soon U.S. breeders formed the Arabian Horse Club. With 71 horses registered, the club was recognized by the United States Department of Agriculture as the official keepers of the Arabian studbook. In the late 1920s and early 1930s, W. K. Kellogg and Roger Selby imported horses from England’s Crabbet Stud and established breeding programs. Arabs were also being imported from Egypt, Spain and Poland.

During this period, Arabians were touted as the epitome of the cavalry mount, an opinion backed up by the breed’s dominance in the Cavalry Endurance rides. The U.S. Army began breeding them with donated animals and by 1943 had a sizeable Arabian herd (according to the Arabian Horse Association, the Army had more Arabians than any other breed; according to other sources the Arabians were the second largest breed category).

The U.S. Market Is Established
In the 1940s and 1950s, importations slowed as U.S. breeders established their own lines. Upon the dispersal of Crabbet Stud in 1957, imports picked up once again. This activity, combined with horses coming out of post-WWII Europe, began a new phase in Arabian breeding in the U.S.

The International Arabian Horse Association, separate from the Registry, was founded in 1950 to sanction horse shows, develop rules and license judges. They became an affiliate of American Horse Show Association (today the United States Equestrian Federation) and also purchased the Half- and Anglo-Arabian studbooks.

The 1960s were a good time for Arabians in the U.S. Crabbet-bred horses were hugely popular as show, performance and pleasure horses, with Marylander Bazy Tankersley of Al-Marah at the forefront. Ironically (and sadly), says former Arabian breeder Peggy Ingles, “these domestic Arabs would later be called “plain” or “coarse” by the people who created the marketing hype behind the more exotic and imported Polish, Russian and Egyptian horses. Only time has proved the value of these domestic mares’ contribution of soundness, sturdiness, athleticism and temperament to the resulting offspring.”

Shooting Stars
Just about every business model dreams about having just the right high-profile personality invest in its stock or purchase its product. Today, famous people make their money leveraging their fame via publicists who make endorsement deals.

But in the 1960s horse world, you just hoped that the right buyer, the right owner would come along that would propel your training business or breeding farm into the stratosphere.

In 1969, the Arabian world got that when singer Wayne Newton purchased his first Arabian, the imported Russian stallion *Naborr, for the then record sum of $150,000. Oscar-winning Hollywood director Mike Nichols started breeding Arabians in 1970.

And then suddenly, just like that, the Arabian market took off; a tipping point had been achieved, and Arabians were the hottest fad around, the must-have piece of art and status symbol for celebrities, the rich, the famous, and the wannabes.

In 1968, the top auction price for a top-quality Arabian was $25,000. In 1970, the average price was $30,000 and by 1985, the average price would jump to $478,000, and in between, numerous breeders tried to hitch their wagon to this shooting star.

Scottsdale: Studio 54 for the Arab Market
Centered around Scottsdale, Arizona, a town famous for its prestigious Arabian show and state-of-the-art breeding facilities, breeders such as the LeCroix family, owners of Lasma Arabian Stud, and a few others began conducting Arabian sales peddling their show and breeding stock to the public.

Arabians of Polish breeding were Lasma’s specialty. They were not only beautiful and correct, but incredible performance horses who dominated the English Pleasure (saddle seat) and Park Horse classes. It started with the importation in 1963 of *Bask, a Polish Arabian owned by Lasma and one of only a handful of stallions to later win National Championships in both halter and performance. His stud fee in 1963 was a modest $500, but rose to $10,000 by 1975. *Bask ultimately sired 1,046 horses, 194 of which were national winners.

At Lasma’s first sale in 1971, 27 horses sold for an average of $19,000 each, with a *Bask daughter topping the sale at $56,000. In 1973, Mike Nichols was high bidder of the sale with his purchase of another *Bask daughter for $117,000.

In the 1980s, there was a deliberate (and some say brilliant) marketing push to get new owners interested in Arabian horses as an investment. They were exotic, exquisite and rare–an attractive combination to the wealthy. The tax advantage of horse ownership was the icing on the cake.

These marketing strategies targeted the rich and famous, promoting the Arabian as “living art.” The tax laws during this period allowed for complete depreciation of the cost of a breeding horse within five years of ownership. Investors sought not only the tax advantages, but also the status symbol of Arabian horse ownership. Prospective buyers were wined and dined, attended seminars extolling the financial advantage of investing in Arabian horses, and treated like royalty. It was an exclusive club that was promoted as elite and elegant and it attracted buyers like flies to honey.

The auctions themselves were opulent affairs, with performances by famous musicians, such as Sammy Davis, Jr., Kenny Rogers, Olivia Newton John, the Beach Boys and the Pointer Sisters. The LeCroixs had created an atmosphere that others emulated, with fog machines, high-tech lighting, and plush arenas that showcased their beautiful horses. At the height of the buying fever, Lasma would award a brand-new Cadillac to the highest bidder at each sale. It is said that perhaps the high seller and its price was decided in advance, with shills in the audience helping to achieve this predetermined goal. In many instances, a mare would be sold as a three-in-one package: the mare with a foal at foot with another breeding or already pregnant, making her ridiculous cost look like a bargain.

Frequently, horses that were top sellers didn’t even change hands after the auction. These were scenarios known as “trading paper.” Deals were done this way to create excitement and encourage more bidding. Keeping up with the Joneses was definitely a driving force.

The farms holding the auctions got a 20% or better commission on each horse sold, plus they required that the horse be boarded, conditioned and trained for the three or four months prior to the sale at their facility. At some point during this unprecedented buying frenzy, banks became interested in the financing of these huge purchases, whereas before, sellers held the notes. This opened up a whole new aspect of the market whereby sellers received their money more quickly and buyers only needed 20% cash as a down payment.

Once they bought a big-name horse, the sellers were sure to get buyers’ photos with the horse in all of the newspapers and magazines. At the big shows, the owners were treated to parties, private viewing boxes and more photo ops. It was a heady time and these guys knew how to bring the fun coupled with the accolades.

In order to continue making a profit, a steady influx of new owners was necessary. Most were not horsemen, so this created a dependency on the trainers that continues today. Coupled with trainers becoming judges, a new dynamic wasformed. The marketing and publicity machines behind the sales encouraged prices to skyrocket as the newbies continued to pay exorbitant prices for the sellers’ other horses, assuming that was their true value.

Many celebrities were introduced to the Arabian horse via these breeders and trainers, and other owners such as Occidental Petroleum’s CEO Armand Hammer. People such as Merv Griffin, Buck Henry, Shirley McLaine, Jackie Onassis, Patrick Swayze and Candace Bergen found themselves caught up in all of the excitement. For noncelebrities, the attraction was to be able to rub elbows with the famous and participate in the exclusivity of owning these special horses.

At the height of the frenzy in 1984, a mare named NH Love Potion sold for $2.55 million. She was a “Triple Crown” winner in halter competition, meaning she had been named Champion at Scottsdale, U.S. Nationals, and Canadian Nationals. Unfortunately, that buyer defaulted on the loan, the mare was repossessed and resold. She only produced three foals in her lifetime.

Also during this time, the imported Russian-bred stallion *Padron was syndicated for a record-breaking $11 million by David Boggs and went on to be the sire of over 700 horses, many of them national winners. There were several *Bask sons that were syndicated for $75,000 to $250,000 per share. Moniet al Saharaf set a record for the highest Egyptian Arabian stallion syndication in 1986 at $10 million.

The prices being paid at the time didn’t necessarily reflect the actual value of these horses, as the trainers/promoters would roll marketing, breedings to their stallions, and training services into the ultimate price paid for the horse. This resulted in allegations of impropriety, inflated appraisals of value, shilling, and many lawsuits.

The Gold Rush
The skyrocketing auction prices Arabian horses brought had a Gold Rush-like effect on horse people or wannabe horse people, with everyone wanting to get in on the Arabian act, hoping to breed and sell the next $100,000 or million-dollar horse for themselves.

Between 1982 and 1986, over 100,000 purebred Arabians were registered in this country (more than had been registered from 1908 through 1973). The number of Americans owning registered Arabians went from 11,000 in 1965 to over 110,000 in 1986.

Like the other excesses of the 1970s and early 1980s, it was all about to come to a screeching halt.

Party Over/The Hangover
Perhaps it is coincidental, perhaps not, that after a January 13, 1986 article by E. M. Swift & J. E. Vader in Sports Illustrated revealed the excesses of the Arabian market, the horse industry in its entirety found itself caught up in and cut down by The Tax Reform Act of 1986.

It could be argued that this Sports Illustrated article played a role in convincing legislators to disallow the full value deprecation and expensing of horses, which in turn led to the collapse of not just the Arab market but the race horse breeding industry as well.

Certainly, the authors chided our elected officials when they wrote:
The greatest fool of all is probably Uncle Sam, whose loophole-filled tax code allows Arabians, like milk cows, to be depreciated for their full value in three to five years, depending on their age. The expense of keeping Arabians can be written off dollar for dollar, and any profit from their resale is taxed, not as income, but as a capital gain, provided one has owned a horse for at least two years.

For unlike any other investment of its kind…gold, fine art, real estate, diamonds or stocks,” reads the press release from Star World of Arabians, an offshoot of Lasma, “…The Arabian horse is a living creature that can reproduce in its own image…return affection and turn a profit.” Let’s see Merrill Lynch match that. Actually, the Wells Fargo Bank is willing to try. “Consult with our Arabian horse specialist…” reads Wells Fargo’s ad in Arabian Horse World…

The 1986 tax reform law discontinued the passive investment allowance that was so beneficial to horse owners and breeders. Many horse operations, large and small, lost millions of dollars over the next few years. With a down market coupled with an inventory at an all-time high, Arabian horses that had previously been selling for six figures were now being repossessed by banks, starved in fields or dumped at low-end auctions nationwide.

While hundreds jumped ship, there were nevertheless die-hard horsemen and passionate lovers of the Arabian breed who rode out the crash, refocusing their efforts and waiting for the rebound. Many horsemen saw the crash as a market correction and something, in the long run, that would be good for the breed. The new, smaller market allowed for the serious horseman to focus on breeding better horses and promoting the horses themselves, and not the financial advantages, to new buyers.

Naturally, breeding and registration slowed considerably. From 1986 to 1991, registrations dropped by more than 15,000 horses per annum.
The effects of our tax reform echoed in other countries as sales of foreign horses dropped dramatically. In 1988, Tersk Stud offered 87 horses but only 18 sold; the highest price was $36,000.

In the U.S., prices had plummeted to an average of $10,000-$25,000 by the end of the decade. Lasma liquidated its holdings in Arizona and Kentucky.

A Leveling of the Market
Throughout the 1990s, registrations held steady at around 12,000 per year, with a slow decline in the 2000s to a unprecedented low in 2010 of fewer than 5,000.

Also affecting the breed in the ‘90s was the difficulty of establishing purity of blood. The AHR took a stand in 1998 against accepting certain horses/studbooks into their own and splitting from the World Arabian Horse Association (WAHO). This put a strain on the importing and exporting of Arabians and semen to and from the U.S., until an agreement between the two organizations was reached in 2008.

In general, prices for horses in America rebounded when supply wasn’t meeting demand.

(It should be noted that, after the Arabian fad faded, Wayne Newton is one of the few celebrities to remain involved with Arabians and has bred more than 600 foals, several of whom have won national championships; he is well respected by Arabian enthusiasts for his serious involvement.)

The Arabian Market Today
Although the U.S. economy is still struggling, and likewise the equine industry, the Arabian market overseas, specifically in the Middle East, is strong. There are still reported sales of horses in the millions of dollars (with a record price in 2008 beating the 1985 record price) and stud fees of five figures, but these are the exception rather than the rule.

In looking at the programs offering prize money, there appear to be fewer people breeding on speculation, and more owners just breeding for themselves, which is a welcome change for many fans of the breed. That is not to say that there are not still plenty of speculators breeding ostensibly for sales, as the Canterbury case has illustrated.

A new market for amateur-friendly Arabians has gained momentum in the last ten years, especially in sporting disciplines such as eventing. Because of this growth, AHA instituted a Sport Horse National Championship Horse Show that features Arabians, Half-Arabians and Anglo-Arabians competing in dressage, working hunter, jumpers, conformation and carriage driving classes all judged by USEF- and USDF-carded judges. This is the only breed-specific sport horse show in the country.

This trend toward performance horses has also been a less expensive route for showing Arabians as it is not as dependent on professional trainers handling the horses in traditional Arabian venues. This gives owners and exhibitors a more economical means to both enjoy and compete at a regional or national level with their Arabian horses.

Today, despite the plummeting registry numbers, there are more Arabian horses in the U.S. than the rest of the world combined. Surprisingly, 67% are owned for recreational purposes.

As with any breed of horse, the elusive next great champion or next sale record-breaker leads to overbreeding, and with that comes the culling of the young stock that isn’t considered up to par. As with any breed registry, horse owners need to balance the competing needs of the registry (which usually is financially dependent upon increasing the number of registrations, which means encouraging more breeding) with what is ultimately in the best interest of the horse itself.

Despite the claims that horses from certain bloodlines are being valued at $30,000 or more, the average Arabian horse still sells in the $5,000 range; according to the Sports Illustrated article, even at the height of the ‘70s/‘80s Arab fad-frenzy, 80% of the Arabian horses in the U.S. sold for an average price of $5,000…so not that much has changed in terms of the average price.

Apparently the mind-set of the go-go ‘70s and ‘80s still also lingers in a few breeders, unable to shake off the belief that their horses are worth five, six–maybe seven figures. Like a gambler addicted to a high-stakes game of dice, the next roll could be the big one.

Seized Horses…The Story Continues
There is no justification, by Maryland law or by decent humane standards, for failure to ensure that every horse in one’s care and/or possession receives a certain minimum standard of care.

By no means does this review of the rise and fall of the Arab speculation market justify a failure to care for one’s animals. This review merely endeavors to put the monetary value claims associated with the Canterbury Arabians in context for those horse people not familiar with the 40-year rollercoaster ride of the Arab market, a boom market that created a Gold Rush mentality that still exists in certain pockets…or backwater creeks. No doubt that the Arab world was–and will remain–unique among the various horse markets, as no other breed has ever been so vigorously and aggressively collected as “living art,” rather than as an animal to be ridden or driven, for sport (including racing) or for pleasure.

It remains to be seen whether the owner of the Canterbury Arabians, Marsha Parkinson, pleads guilty or is found guilty of neglect. This is still the U.S., where we presume innocence until proven otherwise. Representatives for Parkinson have raised questions about whether or not all legal procedures and protocols were properly addressed prior to the seizure, as well as questioning the need at all for the seizure. Neglect charges have been filed, and a trial date has been set. The Equiery will continue to follow the case.

Fueling speculation about the motives behind the seizure are the early press releases that gave the appearance that seizure was an opportunity for rescue facilities to grandstand, and the seized horses were props for a massive fund-raising opportunity. Were these just poorly worded press releases by over-enthusiastic, under-monitored or poorly trained staffers? Or is there some justification to this speculation? The Equiery will continue to follow this story as well.

©The Equiery 2011