Shopping for a racehorse at auction? What does paying more money actually buy? With the two year old sales season right around the corner, here’s the economics in a nutshell. It’s a rough outline, exact numbers would be pages of data, but it’s a good picture of the basics.

Looking at the sales in total, people pay way too much for horses. If you look at the purses offered vs. the expenses of maintaining a horse in training at all tracks in the aggregate, the gross spent each year at all public auctions should be about 60% less than it is to make owning racehorses economically viable. Many horses that make it to the races are able to pay their training bills, but aren’t able to earn enough purse money to cover what people pay for them. Generally speaking, you can cover training costs with purse money, but not the purchase price.

You are buying an individual athlete when you attend a sale. No sensible person buys a horse just because the price is right, but you want to understand where the best values lie.  An important area of statistical analysis when buying at the sales is understanding where the “sweet spots” are; in other words, what purchase price points offer the best risk-reward ratio?

Owners intuitively assume that the most expensive horse has to be the best one. Here’s a dirty little industry secret for you, most syndicates specifically buy well-bred horses (even ones with poor confirmation less likely to make it on the track) because they know they are more salable to clients. In our case, we buy horses we like enough to invest our own $ in, but whenever Kenwood finds a well-bred horse we genuinely like, we know that group will sell faster than any other. A nice looking filly by a top sire has an advantage, and is worth real $ for breeding IF they ultimately are successful on the racetrack, but spending top $ on pedigree is NOT a guarantee of racing success. If it was, certain Sheiks in Dubai wouldn’t have spent a billion dollars over 30+ years trying to win the Kentucky Derby buying the most expensive horses at sale after sale without success.

Paying the very highest prices at a sale DOES buy more good horses, just not enough to be worth it. About 7% of the most expensive horses at elite sales costing $500,000- $3,000,000+ end up to be stakes winners vs. about 2% stakes winners for horses costing $30,000-$100,000. About 80% of these high-priced purchases end up to be claiming horses. Obviously, it makes no economic sense to pay 10-20 times as much to get 3-4 times the chance of coming up with a stake horse. The top of the market is where there is the most overpayment and offers by far the worst economic value because the people competing at that level are billionaires who are in it strictly for ego and don’t care how much money they lose. From an economic standpoint, there’s virtually no rationale for paying more than $150,000- $200,000 (and even that’s a stretch!) for any horse.

If paying the most money doesn’t produce the best financial results, then what about buying the cheapest ones? If only it were that simple. The bottom of the market isn’t a good value either, simply because horses that cost under $15,000 - $20,000 rarely are successful racehorses. Many of these are the horses who by virtue of the way they move on the track, physical confirmation, and to a lesser extent pedigree, end up never reaching the winner’s circle or having brief careers as lower level claimers. In other words, there are enough buyers at most sales looking for racehorses at all levels to step in and bid $15,000+ for any horse who has reasonable potential to be a runner. Occasionally one slips through the cracks, but the bottom of the market is not the place to shop.

The best economic value is generally found in the $25,000 - $100,000 range. You can get literally any kind of horse in that price range, the majority of graded stakes winners and even champions are purchased for those prices. As described above, you might occasionally have a horse with exceptional attributes worth paying over $100,000 for, or find a bargain priced runner for $12,000, but Kenwood and most of the other people treating this "hard to win" game as a business do the majority of their shopping in the $25,000 - $100,000 price range.

As mentioned at the beginning, people are most excited about the horses that cost the most and/or have the most impressive pedigrees because it intuitively feels to most people that if the horse cost more and is by a ‘name’ sire, it just HAS to be successful on the track. But 90% of all horses are either not going to reach the winner’s circle at all or be claiming horses, that’s just the facts of the business.  Just as with human athletes in high-performance sports, most horses just plain lack the talent and/or desire to compete at the top levels. The fact is most horses at all price ranges bought by even the most skilled people just don’t pan out.

What you DO get when you pay more for a nicely bred filly, IF they end up being successful racehorses? They will have legitimate residual breeding value when their racing days are over, and that can make a big difference. Titanium Jo won two allowance races and earned $100,000 on the track for Kenwood in 2015. Even without winning a stake, we were able to sell her for $95,000 at the end of her racing career, far more than her $77,000 purchase price. But, when horses purchased at that level don’t work out (let alone the ones people foolishly pay $500,000+ for), it’s a long way down the elevator, as trainer Steve DiMauro always liked to remind me when we attended the sales. When a well-bred filly purchased for $80,000- $100,000+ ends up to be a $25,000 claiming horse, she’ll be a total or near total loss economically. On the other hand, a colt (or filly) purchased for $25,000 - $50,000 who competes at the mid-priced claiming level can be nicely profitable. However, if that colt wins $300,000 and 5 stakes on the track, he’ll be worth absolutely nothing when he retires*. If the well-bred filly wins $300,000 and 5 stakes on the track, she’ll be worth several hundred thousand dollars as a broodmare. Even if she’s ‘just’ a good allowance horse, as with Titanium Jo above, you are likely to get most or all of her purchase price back when you sell her as a broodmare prospect.

When you look at which horses to buy in terms of what they cost at auction, the right way to think of it is the higher-priced horses DO have a somewhat better chance of being successful runners, AND with fillies, they are going to be worth a lot more in the end IF they are allowance or stakes quality (which happens about 10% of the time). The horses costing $25,000 - $50,000+/-, on the other hand, are going to give you better economic return when you end up with a decent claiming horse. Looking at Kenwood’s entire group of two year old purchases over the past 6 years, while it’s fairly close to equal in the various price ranges we buy in, the highest-priced horses as a group have (modestly) better numbers in terms of money invested and total returns than the lower-priced ones. If they didn’t, we would have stopped buying them long ago.

If you do your homework and know what you are looking for at a sale, a horse purchased anywhere within (or close to) the optimal $25,000 - $100,000 price range offers about as good an opportunity as you can get in a game where the economics are tough. Both ends of that range have their advantages and disadvantages, the key is to recognize you are far, far better off with ten $50,000 horses than one $500,000 horse for many reasons. In this game, you are looking for the occasional star horse, purchased at a value price, to make it all worthwhile.

*People don’t pay for male horses, even if they aren’t geldings, for breeding unless they are champions because one sire can produce 200 foals annually. You don’t need more than a handful of males as sires but fillies produce one foal a year so you need a lot more of them and almost any stakes winner is worth serious money as a broodmare prospect.