Association Between Racehorse Purchase Price and Earnings
Thoroughbred racehorses have to run a pretty fast race to keep up with the money spent to get them to the track, according to a new study by Australian researchers. But it turns out that, at least up to a certain point, buyers are getting the value they're paying for--although it's still a great risk.
As Melissa Jackson, BSc (Hon), lecturer of Equine Studies at the University of Melbourne's Faculty of Veterinary Science, has discovered, the more expensive racehorses are to buy as yearlings, the more likely they are to come close to earning back their purchase price and training expenses--so long as the purchase price stays under $100,000. But even then, she said, the chances of having a champion remain very low.
"Owners pay a premium to enter the sport of racing and an additional premium in the quest to own a champion horse," Jackson said, adding that this Australian trend is similar to that in the U.S. "This suggests that owners could be happy to pay the additional monies for the potential prestige associated with owning an expensive horse and then potentially owning a champion horse, or there may be a 'lottery' type effect: Owners are aware that they are taking a gamble, but the potential for future earnings from the small number that do well is great."
Jackson and her fellow researchers followed the early racing careers of 2,773 Australian racehorses sold at auction as yearlings in 2003 for a total price of AU$153.3 million (US$158.9 million). The team separated the horses into five purchase price categories: 1) under $10,000; 2) up to $20,000; 3) up to $50,000; 4) up to $100,000; and 5) greater than $100,000. They also estimated two years of training costs at a flat rate of $40,000.
The researchers found that the best "bet" for owners to get their full return on investment (purchase price plus training costs) within the first two years of racing was with a "category 4" horse--meaning one purchased for between $50,000 and $100,000, Jackson said. But even then, only 7% of the category 4 horses earned that full investment.
That 7% was a higher percentage than the other categories: 2.7% for category 1; 5% for category 2; 5.3% for category 3; and 5.7% for category 5.
Horses in the first category (under $10,000) were most likely to earn back just their purchase price (24.1% succeeded in winning back what their owners paid for them), and they were less and less likely to do so as their prices went up (16.3% for category 2; 12.9% for category 3; 11.2% for category 4; 6.3% for category 5).
Overall, 14.5% of the horses ended up winning back at least their purchase price, and 5.1% won back their purchase price and training fees within the first two years of their careers.
"Overall these factors would indicate that racing authorities need to ensure that the enjoyment value for those participating in racing as owners is worthy of the premium they pay and that the prestige and top value prize money for champion horses needs to be maintained and promoted," Jackson said.
The study, "Association between the purchase price of Thoroughbred yearlings and their performance during the 2- and 3-year-old racing seasons," appeared in the October 2011 issue of the Australian Veterinary Journal. The abstract is available online.
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