From "No Cows?" to a

McMahon Thoroughbreds earns nationwide fame, but it's still a family farm — and a loyal Farm Credit customer

Joe and Anne McMahon remember the day back in the 1980s when a Farm Credit loan officer, substituting for his vacationing supervisor, helped the couple complete a loan application.

Back then, the area around Saratoga Springs was dairy country and most farmers owned cows.

The loan officer came to the line on the loan application that asked about cows. “So, Joe, how many cows do you have?” he asked.

“Zero,” Joe replied.

“Hmmmm . . .” the loan officer paused, allowing Joe to reconsider his response. “No cows?”

“No cows,” said Joe.

“Hmmmm . . . ,” the loan officer muttered. “Never seen that before.”

What Joe and Anne had back then was horses. Not too many, at the time, because their enterprise was still in an early stage of growth. And despite having no cows, they got their Farm Credit loan.

Today, Joe and Anne McMahon still have no cows. Just horses. In fact, when you stand in the front yard of their 200-year-old weathered brick farmhouse on Fitch Road in Saratoga Springs, horses — or signs of them — dominate the landscape.

And in June of this year, the biggest sign of all was a plain white bedsheet tacked to the side of a dark green barn adjacent to Fitch Road. The simple hand-lettered message read, in large block letters: “1st Home of Funny Cide — Derby Winner.”

Quest for the crown

Spring is a busy time of year at any thoroughbred breeding operation— it’s foaling season — but the spring of 2003 was unlike any other. That’s because three years earlier, Funny Cide, the horse that won this year’s Kentucky Derby and Preakness Stakes, was foaled and raised right here on Fitch Road.

Although the McMahons later sold Funny Cide at auction for $22,000 (and later Funny Cide was sold to its current owners, Sackatoga Stable, for $75,000), the family shared in all the excitement surrounding Funny Cide’s run for horse racing’s Triple Crown.

For six weeks this spring, Funny Cide captured the attention of the horse-racing world. In his run for the crown, Funny Cide turned in a game effort on the rain-soaked mile-and-a-half Belmont Stakes. He lost out to the highly regarded Empire Maker. For the 25th consecutive year, the Triple Crown went unclaimed.

For a good part of the spring, the national media turned its attention to the McMahons. After all, Funny Cide was the first New York-bred thoroughbred ever to win the Derby and he was born and raised right here on Fitch Road.

The quest for the crown marked a huge breakthrough for the McMahons, bringing the family widespread recognition in the general media for what experts in the race world already knew: the McMahons are among the best and most astute breeders in a highly competitive business.

And it also introduced the rest of the world to the fact that New York State’s equine industry — virtually nonexistent 30 years ago — is thriving to the tune of $1.7 billion, the estimated value of all of New York’s 168,000 horses (all breeds and categories). No longer does the upscale horse racing set dismiss New York-bred thoroughbreds. In fact, the emergence of New York’s thriving equine business is an agricultural success story in itself.

The business angle

Financial Partner magazine visited McMahon of Saratoga Thoroughbreds in late June. We didn’t want to retell the Funny Cide story, which has been captured in print and on video hundreds of times. Instead, we wanted the McMahons to share the story of their business success with other readers of F.P. magazine.

First, it’s important to understand that the McMahons are simply successful family farmers, not too different than you or your neighbor.

Joe and Anne have both had a lifelong love of horses. They shared a dream of owning a thoroughbred breeding operation and bought their farmhouse in 1972. At the time, most of the acreage was devoted to Christmas trees, which the McMahons sold off as they cleared their land. Their objective was to complete badly needed improvements on the barns and devote their time, energy and money to raising thoroughbreds.

Ultimately, the McMahons entered the horse business with two stalls, a broodmare and a racing prospect (purchased for $200 and $700, respectively), and set to work at the business of breeding and training thoroughbreds.

Cash flow drives a key decision

Early on, the couple made a key business decision that contributed significantly to their long-term growth. And, at the time, Farm Credit, a principal financier of the operation, did not initially agree with the strategy.

“Howard Ritchie, Farm Credit’s loan officer at the time had no horse accounts,” Joe says. “He told us that Farm Credit’s current loan policy was to lend to farmers who own the majority of their stock. I explained to him that horse ownership was a more risky business and that it was better to have 80 percent of the stock generating cash flow, which in this business means boarding horses owned by others. Howard agreed that I had a good point, and Farm Credit committed.”

Anne added, “This is a good example of how Farm Credit listens to its customers.”

In fact, Farm Credit’s Howard Ritchie became very interested in the McMahon’s business management methods. The McMahons subsequently became active in their local Farm Credit Customer Service Council (a commitment that continues to this day), and their input greatly influenced the way in which the local First Pioneer office has done business with the area’s horse businesses.

Joe McMahon noted, “Howard has been retired for many years and still stays in touch with us.”

With First Pioneer as its longtime partner, Saratoga Thoroughbreds has enjoyed a constant state of growth for virtually all of its 30-plus years in business. Today, the McMahons care for more than 250 horses at the farm on Fitch Road. They own a core of stallions and broodmares, but most of the horses are boarders, thus driving the solid cash flow to which the family committed in their startup years.

Expansion efforts have been impressive. In addition to the main farm on Fitch Road, the McMahons own the neighboring Meadow View Farm and lease three other farms in Saratoga County. Their son, John, and his wife, Kate, own nearby Old Saratoga Thoroughbreds. The family also owns or leases hundreds of acres for growing hay and straw, which they harvest for their own use, and they own several horses that train and board in Florida and Kentucky.

Keys to success

Joe and Anne identify a number of factors when asked to account for their journey from a two-horse operation into a business that was ranked number 30 in the United States last year by the Thoroughbred Times. But it’s their First Pioneer loan officer, Chris Truso, who articulated what he thinks is the biggest reason for the family’s achievements.

“The McMahon’s do an exceptional job of managing risk,” Chris says. “They always have a plan, they put in a lot of up-front thought before they make a major decision, and they very carefully weigh the potential risks against any rewards.”

Joe McMahon adds, “That’s right. We always balance the pluses against the minuses, and make sure that we have a way out. For example, we never project any decision based on the optimum price. Instead, we take care to look at the worst-case scenarios of what might happen. “We are not pessimists. We just never try to paint too rosy a picture of things.

“This is a business in which some people often make decisions on whatever is faddy or trendy. Keep in mind that, when you choose a mating for a mare to produce a sales yearling, you are investing in something that may or may not pay off in two years [when the resulting sales yearling is marketed]. A sire that is in vogue today may not be fashionable then.”

Despite their cautious approach, the couple concedes that perhaps their biggest mistake came about 20 years ago when they may have been too conservative. “I think we were too hesitant early on,” he says. “We could have been more aggressive. We did fine, but we missed out on the boom years of the early to mid-1980s.”

“That’s right,” Anne says. “But still, we had five kids to feed and we benefited from the fact that we weren’t overextended when the thoroughbred market took a downturn in the late ‘80s. We resisted the idea of the ‘big farm.’ We did what we could handle with family and a few employees, and when the kids started to return after college, that is what really fueled our growth.”

In fact, all five of Joe and Anne’s children have returned to contribute to the business, making this a true family farm in every sense of the word.

Kids, business potential and the future

Speaking of the children, Joe and Anne have some excellent advice for farm owners whose children are candidates to take over their businesses. Anne said, “Youth really invigorates a business, but you’ve got to make the jobs on the farm good enough for the kids to want to come back to the business. It shouldn’t be done out of loyalty, but because they see the business potential.”

Business potential? Look no further than the brick farmhouse on Fitch Road in Saratoga Springs for a case study in how to maximize business potential. It’s a story of how a family started with very little money and a couple of horses; mixed in a lot of hard work and plenty of patience with a solid risk-management strategy; and enjoyed a few strokes of luck. (And, of course, they had Farm Credit as a business partner.) It’s a story of how a young couple can grow a fledgling business into a thriving enterprise that, for six weeks in an otherwise gray and dreary spring of 2003, brought fame to a 200-year-old farm on Fitch Road.

The story, of course, will continue. Although nothing is certain in the horse business, it appears that the McMahon’s Funny Cide connection will attract more customers interested in investing in the high quality New York-bred thoroughbreds. It’s good for the McMahons, good for racing and good for New York agriculture.

And, of course, there are still . . . no cows.

This article first appeared in the Summer 2003 issue of Financial Partner magazine. You can receive this FREE publication by clicking here.

Contact us at info@firstpioneer.com for more information.

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