Adams Talks... A Domain of Discourse

Dick Adams has been a very successful Breeder, Promoter, Marketer & Judge within the Arabian Horse Breed’s international community for thirty-five years. He was the managing Partner of the very successful Fame VF “sire-line” entity that for over two decades was a power-house force, dominating both the premier Breeding in Hand (Halter) and Performance (Western Pleasure & Hunter Pleasure) disciplines of the mid 1980s, through the 1990s & well into the 2000s.

“My purpose with the Adams Papers is to create a very insightful, stimulating & thoughtfully useful logic! I have been a very serious student of Tae Kwon Do (the Martial Art) and Kendo (the techniques of the Japanese Katana/longsword). One of the premier instructions/foundations of the Martial Arts is for the student to “understand the principle before he/she develops a technique”. If you understand the “principle”, the technique will then be adaptable. This concept carries over strongly to the Arabian Horse involvements. Most miscalculations are the result of a failure to thoroughly understand the important processes of the basics." - Dick Adams

PART ONE

A Domain of Discourse

Currently, the Arabian Horse Community is existing in a domain of discourse. We are in a demographic designed environment of various distinct entities with clearly varying discipline interests; segments or subgroups of the overall Arabian Horse population. Pragmatically… segmentation can be a positive to produce expansion, offering a broader platform of involvement… but, it also can present disruptions that interfere with desired prosperity. Unfortunately… in our current North American Arabian Horse community, the interferences of the unvested influences have been major disruptions to the growth of the economics of the Arabian Horse. Significantly… political influences have become the greatest deterrent to growth & prosperity.

From a historical perspective… the original segmentation, in the early 1980s, to a more specialized interest, was the result of an exceptionally strong, broad and energy driven Arabian Horse economy. But, that was only a part of the stimulus. When competition reaches its most popular level, the rewards are at their highest. To successfully compete at the highest level, many talented Trainers, Marketers and Promoters understood the need for and the rewards of maximizing the potential of their products. The realization of the need for excellence… was the primary stimulus for the various discipline segmentations. Segmentation, also, initiated the need to construct specific profiles that could be used to develop a marketing plan with strong marketing strategies. So, fragmentation was a result of the need for specialization, based on superior economic benefits. Its evolution… to a domain of discourse… was a clearly understandable, but, ignored consequence.

The market for the Arabian Horse and its various service related products allowed for an unlimited profit ceiling that had a vacuum quality that sucked even the average product into a profit capable position. Even the most unlikely… made money!

So, when the Arabian Horse market went up, more and more people jumped in, driving the price of horses even higher. At the apex of the industry’s economics, most Arabian Horses were significantly overvalued, not matching what the horses were actually worth. Soon the prices would have to go down, causing investors to lose money.

So… what happened?

The top was chopped off: With the 1986 Tax Reform Act’s affect on passive losses, the Arabian Horse, as a loss/write-off rescheduled the approach of breeding from loss advantage to profit necessity. No longer did the pure investor have the ability to deduct losses and pay less tax on money earned elsewhere. From that point, the ability to deduct losses depended on an entity’s active participation in the “business”. So… the “top” was “chopped off” causing many investors to reevaluate their involvement… and, for potential high end investors to not commit to initial involvement. The result over the next decade was to see an acute awareness of a shift from high dollar investment to a more clear profit necessary business… or, a “hobby” aspect.

The bottom fell out: While the “white-collar” investor was directly affected by the 1986 Tax Reform Act, the “blue-collar” investor was, also, gravely affected. Many working class people looked at the Arabian Horse “business” as an investment for their hard earned dollar. All… were the victims of the many collateral affects of the “top being chopped off”.

The most immediate response to the cessation of the high dollar “investor” involvement was the need for this type of investor to rethink their strategies. Unfortunately, most saw no positive market capabilities and were forced to either become more profit orientated or get out. The result most pure investors chose was to liquidate their equine and equine related assets as quickly as possible; understanding & accepting their probable losses. So, with no ultra high level market available, their Horses were populated to the lower value market. This in turn forced all grades of value to collapse to a lower level, creating the lowest and some medium levels to fall beneath the profit capability line; depending on their over-head costs. This… was the first result of the negative effect of gross over production. This condition took the energetic production of the 1970s & 1980s, based on a strong and driving market, to a condition of overpopulation where the existing market had very little capability to adjust to, and effectively satisfy all those involved.

The “bottom fell out” of the market as a result of an embarrassment of poor business strategies; gross overpopulation driven by an aggressive demand; no regulation of the supply to demand ratio; and a driving National economy that provided an impulsive and deficiently strategized use of investment money.

Along with this came a destructive internal societal movement to disparage the primary driving forces that had aggressively promoted the Arabian Horse as a product for a decade and a half. Litigation prevailed at the highest level of the Arabian Horse economics. Much of this as a result of the 1986 Tax Reform Act’s affect on passive losses. Someone had to be blamed for individual losses. This legal maneuvering, actually, established precedent case history that forced many of the “makers & shakers” to declare bankruptcy to avoid total economic implosion.

But… the most damaging was the failure of the Arabian Horse Registry’s and the IAHA’s leadership to develop tactically and strategically sound approaches to the ensuing and developing economic and image problems. Statistics & recorded fact… absolutely back this statement. Both the Registry and the IAHA, as the two primary parent entities of the United States’ Arabian Horse Breed, should have been aware of the possible impact the tax revisions would create. If… the Registry had cautioned Breeders to be thoughtful of their individual situations, the numbers of production could have been reduced. But, both the Registry and the IAHA, being quantitative, were more pleased with membership and registration fee income than the possibility of terminal solvency. The IAHA, in principle, made the decision to fall into a position of maintaining the lower and middle levels of the “industry” rather than support and reestablish the economics of the high end. The result was an immediate and significant drop in new registration numbers as evident with the 29,999 new registrations in 1986 (coincidental to the year of the Tax Reform Act) to the 12,992 registered in 1991. A five year period.. that had a total of a 17,000 new registration decline. Even more importantly… within these figures… we see the years’ 1986, 1987 & 1988 totals dropping only an average of 1,800 registrations per year. This would indicate that Breeders were STILL hopeful… or misled… and were still aggressively & hopefully breeding. From 1989 thru 1991… the drop went from an annual decline of 2,843 (1989) to 4,048 (1990) and then 4,683 (for 1991). A staggering total of 11,574 fewer new registrations from the 1988 total. The significance of this decline was the result of the “pure” investor’s absence from the breeding phase… and, the “business” oriented Breeder’s realization that they had to selectively reduce the number of annual foals produced. From 1991 (to the present) we have seen a very steady 7% to 8% annual decline average. And… the natural attrition relative to the death/birth ratio will not be balanced for a possible two decades.

With this… came a decline in consumer confidence. The Arabian Horse was a segregated entity with very little cross-over value that wasn’t within its own encapsulated constituency. In fact… during the “heyday” period… the more obvious “cross-over” occurring was by opportunistic trainers, service providers and vendors… coming to us… from other breeds. The National Show Horse and the Half Arabian Registry were closely franchised to the PureBred Arabian in North America, but, neither had the economic power to survive without the PureBred; yet, both, had the energy to compliment the PureBred’s economics.

So… here we have a very specific product that was unique to a very specific demographic… crippled by a market in recession. “Blue-Collars” could no longer sustain an involvement that offered a dangerous degree of economic risk… so, the foundation of its economics softened drastically and the “bottom fell out”! The inevitable happened: Economics put most “blue-collared” workers in a position where they could not take the risks necessary to continue breeding and showing.

And… a market recession… isn’t all about numbers. Emotions are a huge consideration. The fact is: If consumers are worried about the economics of Horse ownership, they won’t buy Horses and they won’t spend on horse related services. If prices of goods and services go up, and the dollar doesn't go as far as it used to, people save rather than spend. Inflation drove the cost of owning an Arabian Horse to an impossibility for a huge social strata that had been the “main-stay” outlet for non show quality Horses.

The dire economics of supply outpacing demand and overvalued bloodstock & services, would adversely become the controlling factors of the Arabian Horse’s business cycle.

The ultimate fact is: During the 25,000 to 30,000 foal production years, the Arabian Horse “community” had NO logical or realistic capability to provide a sustaining economical venue for its production. Desire… stimulated by the precedent “run” of well announced high profitability… caused the pyramid of economic & emotional failure to expand with a saturated base. A harsh reality… to be felt, painfully, for the next two decades.

How… could this have been avoided: The key… should have been to adapt to both tactical and strategical business plans; well aligned to innovative concepts that would separate the Arabian Horse and its product(s)… a standard above the competition. Basic “Growth Theory” concepts!

When the top was chopped off and the bottom fell out, many Breeders could not adapt. Of those who did adapt… many are still strong.

Enter the necessity to segment:

The adage that certain actions must be performed “for the benefit of the Breed” has become little more than a redundant, generalized and often disingenuous cliché, falling way behind the real motives of manipulation for personal interests. When the Breed began to fractionalize into more specific segmentation, a clear domain of discourse developed. The, then, existing market’s “pie” was now looked at from the survival perspective of the fragmented disciplines. Aggressive actions were taken to get the biggest piece of the pie that you could. No more the cliché that there was “plenty for everybody”.

Just think about this: The only common factor of the many diverse disciplines of the Arabian Breed is the simple fact that they are all commonly known as and registered as… Arabian Horses.

In fact… the majority of Arabian Division disciplines have a much more commonly distinctive relationship with the practical character of other performance breeds (American Saddlebred, Hackney, Morgan, Quarter Horse, Warmbloods etc.) or are under the guidance of specialty associations (reining, dressage, hunters & jumpers etc.) open to all breeds. The reality of this is… philosophically speaking… there is no need to specify the range of the relevant variables. They are already set. People have specific interests... and those interests will always over-ride those of others. To dictate specific interest… has been contrary to personal choice… and… in America… we are allowed this discretionary freedom; choice.

An example of this is the segregated use of three rings at the 2011 U.S. National Championship Show. Halter, Performance and Working Western all had their own designated rings. Elephants in one… lions & tigers in another… and, acrobats in the third. Three rings… each catering to the comforts & pleasures of their disciplines… and, all vying for the interest of the audience; many of whom had yet to decide which discipline they preferred. I, personally, believe that the AHA was very progressive with this approach… and… it led to an exciting conclusion to the tedious use of the Scoring System in the qualifying classes. Also, the Show developed an energy to the final three days, with the Breeding In Hand Championship Classes being brought to Main Ring. From my “center ring” viewpoint… the final three days of the Show were filled with great energy… in both the Performance and Halter classes.

The Effects of our National Recession:

To make matters worse, in 2007… just as the Arabian Show Horse’s supply/demand ratio indicated a more favorable need for new product… the decline in our National economic structure occurred.

It is probable to believe that if the current economic recession had not occurred, the Arabian Horse demand would have, already, cycled upward.

After 2 years of brutal recession, followed by another 3 years of slow recovery... the US economy has finally entered into an expansion stage. This “expansion stage” needs to be understood! It is an expansion from the “lowest curve of the economic cycle”. Not to be confused with any definition of prosperity! Things… are not and will probably never be as good as they were in the 70s, 80s & early 90s. But… this will represent a great opportunity for the Arabian Breeder who understands the economic cycle of high interest; over production; inflation because of over demand; deflation with surplus; reduced production because of slow product movement and, low interest… resulting in a need for stabilization. To understand and control relative numbers of production as to demand for a product and controlled supply... is the answer.

The Questions we should be asking: WHAT... number of PB Arabian Horses will we need to produce to fulfill the needs of our major Shows with quality Horses… and… HOW can we develop an environment of positive economic & emotional expansion? EVERYTHING... is in the NUMBERS!!!!!