It is certainly not a cheap business in which to operate but, with the possibility of earning up to €25 million a year from a stallion, it may be worth the risk, writes Barry O'Halloran.
Profits earned from stallion stud fees have been tax free since 1969, but there has been growing pressure to remove this exemption. In his last Budget speech, the Minister for Finance, Mr McCreevy indicated that the Government would look at the matter but first ask the Revenue Commissioners to try and establish how much tax is foregone as a result of the tax break.
The amount is certainly substantial, given the stud-fee turnovers of some of the leading Irish stallions could be running at anything from €3 million to €8 million-plus a-year, while the Mr John Magnier-owned Sadler's Wells could have generated up to €24.5 million in 2003.
It is not surprising then that Mr Magnier and Manchester United manager Sir Alex Ferguson are heading for the High Court in a dispute over the ownership of another Coolmore stallion, Rock of Gibraltar, whose advertised stud fee is €65,000.
According to statistics from Weatherbys, the registrar of Irish and British thoroughbreds, Rock of Gibraltar was mated with (covered) 158 mares in 2003. These matings have an average success rate of 70 per cent and stallion owners are not paid when covered mares fail to produce live offspring. Assuming a 70 per cent success rate in Rock of Gibraltar's case, and on the basis of a €65,000 stud fee, he could have generated a turnover of €7.2 million this year.
Sadler's Wells' fees are not published, as they are negotiated between Coolmore and the breeders who own the mares that the stallions cover.
However, The Irish Times understands that he commands in the region of €250,000 a time. He covered 141 mares during 2003, and figures from 2002 show that he had a strike rate of just over 70 per cent. On that basis, he could have generated a turnover of €24.5 million in 2003.
The Irish National Stud's Indian Ridge has one of the highest advertised fees at €85,000. Weatherbys' statistics show that he covered 71 mares this year, giving him a turnover of €4.2 million.
One of Coolmore's more popular sires this year was Fasliyev, whose fees are €75,000, giving him a likely turnover of €8.7 million. Rathbarry Stud's leading sire, Barathea, has a fee of €25,000, giving him an estimated turnover of €2.5 million.
Breeders' returns to the Government show that 207 of the State's 356 stallions cost up to €952 per mare covered.
The top 50, half of whom are detailed in the table opposite, cost anything from €6,958-€250,000, with 48 of them in the €6,985-€33,648 band. The remaining eight charge more than this figure, and Coolmore stud stands six of these animals.
Stallions' fees are initially determined by their racing career and number of group one races - contests featuring the best bred and trained horses - they win. Only 1-2 per cent of all racehorses score at this level.
Once a stallion's progeny start selling as yearlings, three years after he has gone to stud, the price they fetch determines the fee. When they start racing a year later, it is their success on the track which determines the sire's fees.
Sadler's Wells won two group one races, but his sons and daughters have consistently outrun all other contenders at this level for the past 13 years, hence his price.
Last year, a yearling by Sadlers Wells fetched the highest price in Europe, £2 million sterling (€2.86 million). According to the Racing Post, his progeny sold for an average of around €300,000 in Ireland and the UK.
According to Mr John O'Connor, chairman of the Irish Thoroughbred Breeders' Association (ITBA) and manager of Ballylynch Stud, the cost of maintaining a stallion at stud is between €40,000 and €60,000 a year. On top of this, there is also insurance costs.
During a stallion's first year at stud, this comes to 12-15 per cent of his value, for a period it is then charged at 4-5 per cent, and increases as the horse ages and the risk of death increases to up to 30 per cent in his late teens. Stud farms generally spend between €50,000 and €100,000 advertising each animal every year.
Mr O'Connor says that the capital costs of buying or developing stallions run into the millions. Many of those standing here are bought by investors or syndicates of investors following a successful racing career.
Two of the new recruits to the Irish stallion ranks this year are Australian-bred Choisir, which Coolmore bought for £11 million sterling, and US-bred Traditionally, for which Ballylynch Stud and a number of Irish breeders paid somewhere under $10 million (€8.4 million).
Choisir has a fee of €15,000 so, if he covers 160 mares here in his first year, he will generate a turnover of about €1.7 million in 2004. His insurance will cost about €1.8 million in his first year, and fall to around €630,000 in his second year.
The other costs come to around €140,000 year. Assuming his fee holds, he could start generating a €1 million annual return next year.
The second route to stallion ownership is to purchase the right yearling, put them into training and race them to win group one contests.
This is the route that has been perfected by Mr Magnier and his main competitors, Dubai's ruling family, the Makhtoums, who own the British-based Godolphin racing and breeding outfit.
Going this way requires big spending at the sales of year-old (yearling) horses in Ireland, the US and UK. Last year, Mr Magnier spent close to €15 million on 18 of the top-priced yearlings in Europe. The odds are stacked against all of them being successful enough as racehorses to go go stud.
Either way, Mr O'Connor argues that the investment associated with getting a stallion to stud run into the millions.
He points out that, because stud fee profits are tax-free, stud farms cannot write off the capital and other costs associated with stallions against the income they generate from selling stock, and boarding and foaling broodmares, for which they charge an average of €5,000 per animal.
He also points out that many Irish studs are involved in the other side of the business, which is broodmare ownership, and breeding and selling horses. These activities are taxed and breeders also pay a levy for each live foal they produce. This is tied to the sire's fee and varies from €31.74 to €507.90, for each foal.
"The fact is that the bloodstock industry pays taxes, the only element that is tax-free is the profit from stallion fees," he says.
"If the industry is taxed, then it will have to be treated in the same way as any other industry and those capital costs will have to be allowed, that way you are asking the Exchequer to take the same risk as the people investing in them [the stallions\]," Mr O'Connor adds.
According to industry statistics, around 10 per cent of horses that make it to stud are successful stallions. The remaining 90 per cent do not make it, and are sold off at a loss by their owners.
Stallion owners generally aim to make as much as possible of their investment back in the four years between sending the horse to stud and the point at which his progeny start racing. However, this is not always possible.
Mr O'Connor argues that the stud business is a high-risk one, but that the tax exemption in the Republic has made this an attractive place for someone willing to take the risk.
