Risk and reward: the subtle art of pinhooking

As a fourth generation studmaster, not much fazes John Kelly. But in the aftermath of a Zoustar filly from Kelly’s Newhaven Park’s draft selling for $1.1 million at the recent Magic Millions Gold Coast Yearling Sale, there is a palpable sense of relief in his voice.

Seven months earlier at the same sales ring, Kelly had stuck his neck out for the filly, paying a sales-topping $750,000 for the then weanling, with a view to selling her back as a yearling the following year.

Kelly and Newhaven Park have dabbled in pinhooking, as it is called, before, but never at this level of risk. Given the strength of the yearling market, and the fillies’ market in particular, Kelly felt the filly out of stakes-winning mare Members’ Joy was too good an opportunity to miss.

“She was a pretty unique circumstance. You don’t get many fillies who are by a champion sire, out of a great racemare. she ticked all those boxes, so there was never a problem,” Kelly said.

What pinhookers are often counting on is upside, whether it be a pedigree update or the substantial development of the horse themselves. Kelly got that on both accounts with this filly. As she grew into the yearling he hoped she would, Zoustar progeny were growing the stallion’s already substantial reputation with five individual stakes winners, headed by Group One winner Zougotcha, in the intervening time.    

“She was a lovely filly and Zoustar has had a fantastic spring. He’s a very good stallion. She went forward from the weanling sale, she has turned up here and we are very pleased with the result,” Kelly said.

Banking on the star quality of Widden Stud’s Zoustar has proven a very successful strategy for a lot of pinhookers over the past five years. Across Australasia’s three premier yearling sales since 2017, there have been 32 Zoustar yearlings pinhooked, for an average profit of $196,000.

Kelly knew this first-hand having purchased a weanling colt by the stallion for $360,000 in 2021 and sold him for $900,000 at the 2022 Inglis Easter Yearling Sale.

When it came to the filly at the Gold Coast, Kelly would have taken the same price as he paid last May, a result which would have meant a loss given the costs of pinhooking. Getting a horse from the weanling sales to the yearling sales sits at between $25,000 and $30,000.   

“Our expectations were that she got sold. The market sets the price and we put her on the market at $750,000, which is what we paid for her. If she sold for that, we would have lost on the deal, but it turned out a good result,” he said.

“The Australian horse market is very strong at the moment, prize money levels are very good, and there is a lot of confidence about it.”

And that’s the third factor of pinhooking investment, the sense that the market will continue to grow from year to year, meaning a $200,000 horse one year will be worth $220,000 the next.

That theory has generally held over the past decade, but lessons were learned from the 2022 NZB Yearling Sale at Karaka. On that occasion, with international buyer participation muted by closed borders, 63 pinhooks were sold at an average loss of $11,000. The reward is not without risks.

Like so many aspects of the commercial breeding industry, pinhooking holds its roots in Kentucky. The term itself derives from the buying of young tobacco crops for trade, with the crops marked with a pin, and ‘hooked’ by the trader who holds rights through subsequent sale.

In a thoroughbred context, it can apply to a horse purchased as a foal and sold as yearling or bought as a yearling and offered through a breeze-up sale as an early two-year-old. Both are common in Australia and New Zealand, with Hong Kong superstar Golden Sixty – a graduate of both the Magic Millions Yearling Sale and the NZB Ready To Run Sale – one of the pinhook posterboys.

It was in Kentucky that New Zealand-born bloodstock and now Australian and French-based agent Dave Mee first came across pinhooking as a concept.

”When I was young I worked for Taylor Made Farms and they were pinhooking a lot of horses for their clients. I then worked a couple of sales for a very good pinhooker in England, John Troy,” Mee said.

“He was a gun and he taught me a lot, just working the sales. When I came back to Australia and was working here, it was a natural progression, and I was just keen to give it a go.”

So enthused was Mee by the pinhooking process, that when he came to set-up his business as a bloodstock agent in 2006, he named it Pinhook Bloodstock International.

Since then, he has bought and sold over 1,000 horses under the Pinhook Bloodstock banner, making the pinhooking aspect a key cornerstone of his business, working closely with clients to identify horses that are suitable for trade.

While upside can come in many ways in the trading business, the fundamental for Mee is the horse itself.

“You are just looking for an athlete and you need to find a horse that yearling buyers are going to want to buy,” he said. “The golden rules of pinhooking are who is going to buy it and where are you going to sell it?

“It’s about investing in a sector of the market that you believe is the best chance of you getting a result.”

While Kelly went with an all-in strategy on the Zoustar filly, it is much more common to see investors spread their risk across several horses. This allows them to look to capitalise on the opportunity in the market while mitigating the impacts of injury, mishap or bad x-rays, which may impact a horse’s saleability as a yearling, or even the chances of it getting to sale at all.

In many ways, pinhooking can be a rollercoaster, with fluctuations in fortune, but Mee said keeping that long-term view and sticking to the plan is key to success.  

“I worked for a ready to run guy called Eddie Woods in Florida and he told me that 25 per cent of them won’t work out, whether it be bad x-rays or that they don’t grow out, 50 per cent, you might get your margin, your 10 to 20 per cent upside after cost, and 25 per cent, you’ll hit the home run with,” he said.

“I’ve found that to be true, whether it be buying foals, or buying yearlings for ready to run or even buying mares in foal to sell those foals later on. It holds true in all those sectors in the market.”       

The entire pinhooking process may be subject to market fluctuations and fashion, but the one aspect pinhooker does have control of is what horses they buy, who they buy them off and how much they pay for them. That, for Mee, is crucial.

So too is having the right farm to then raise the horses from that foal to yearling stage and take them to sale. In terms of what they sell for as a yearling, that is largely up to the market.

The statistics since 2013 across the main three Australasian yearling sales tell us that while pinhooking has been profitable, the margins can be thin. Of the 1,096 horses sold as pinhooks through the premier books at Magic Millions, Inglis Easter and New Zealand Bloodstock since 2013, the average return on initial investment is $63,000.

When you factor in $30,000 of pinhooking costs, that takes that average profit to $33,000, or 27 per cent of the average price of those horses ($114,000). The median of those figures tell us that half of those 1,096 horses were traded either at a loss or at a profit of less than $50,000.

It’s also worth noting those figures don’t count the horses that were offered as pinhooks and were passed in, or the ones that didn’t make it to sale at all.

“If you can get that 25 per cent on your investment, then it’s a very good year.” Mee said. “When you compare it to investing in other asset classes, it can be a good return.”

But managing clients’ expectations and their investment is another major part of the role for an agent like Mee.

“It’s about what your appetite for risk is,” he said. “You learn from experience, you need to keep an inner circle. Getting new clients involved can be problematic, you need to have people that can trust and understand it.

“As an agent I’m obligated to tell them the risks. But it is about trust and I take spending other people’s money very seriously.”

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