With the two year old sales in full swing amid another year of record setting prices and sales averages

it’s a perfect time to take a closer look at what your money really buys at thoroughbred sales. Racing is a tough game, it’s not easy to make money at any level, but we’ve long maintained (and the statistics clearly prove) that paying top dollar for the so-called elite horses at select sales is simply a fool’s errand, with virtually no chance of ever coming out ahead financially and not much more chance of owning a really great horse than purchasing far lower priced horses at the same or ‘open’ (non-select) venues. We decided to let some numbers do the talking, and talk they did!

We decided to look at how the highest priced horses at the major 2012 two year old sales actually performed on the racetrack. These horses are four years old now, enough time to have a pretty good idea of how they turned out. Yes, one or two might get really good down the road, but if you have a four year old maiden or $15,000 claiming horse at this point, it’s not likely to turn into a champion. We took the six major sales that collectively make up virtually the entire thoroughbred two year old auction market and looked up the racetrack results of the top 10 horses by sales price from each sale. Ten was a somewhat random number, we could easily have picked the top 15 or 20, but this is time consuming work and I doubt the results would have changed much. We felt 2012 would be a pretty representative year; the economy was still recovering from 2008 but was no longer in the depths of recession. You could go back to earlier years, again we didn’t want to invest the time to do it here, but it’s been done before and the results aren’t much different. It’s too early to say how the horses from 2013 will do, they are just three year olds now, but given the fact the auction prices rose sharply, especially for the highest priced horses, the economics should be worse (even more so in 2014 - prices have gone through the roof this year so far) since it costs more to buy the top horses and purses are about the same as they were in 2012.

So, how did the highest priced horses from the elite sales in Kentucky, California, Maryland and Florida perform on the racetrack? Remember, these are the ones with amazing pedigrees, excellent physical conformation and blazing fast workout times that were the subjects of intense bidding wars between domestic and international billionaires willing to pay almost anything in search of the next Triple Crown or Breeder’s Cup winner. The 10 highest priced horses from the 6 leading sales, how many of these 60 ‘cream of the cream of the crop’ sales stars lived up to their promise on the racetrack? Take a look….

Even at first glance it’s not hard to see the pattern, the numbers are pretty sobering. But let’s take a closer look…..

5 of the 60 – 8% earned more than their purchase price, NOT including any training expenses, conservatively $75,000 - $100,000 per horse, or the 10% of winning purses paid to the trainer and jockey. 3 of those 5 raced solely in Japan, where competition is severely restricted, purses are several times higher, and only Japanese citizens can stable a horse for almost all races. Effectively a closed market where any decent horse purchased overseas has a huge advantage that nobody in this country can take advantage of.

10 of the 60 – 16% are stakes winners (including those in Japan). Not a single one of these 60 horses won a Triple Crown, Breeder’s Cup or other truly famous race, or was anywhere the best of the year! In fact, just two of the 55 non-Japan based horses could be said to be successful at any level. Both were sold at OBS, one in the March select sale and one in the April open sale (the two sales widely known to be the best places to buy a two year old, where Kenwood does almost all of our buying just FYI). Hip #188, named (accurately!) Unlimited Budget cost $475,000 at the OBS March select sale and has earned $717,000 to date. 69^th in total earnings for 2013, a multiple graded stakes winner but by no means one of the best horses in training. Take her purse earnings minus 20% to trainer and jockey and about $100,000+ in training costs (Todd Pletcher trains her, one of the highest priced trainers in the country) and they are about break even now, but the horse did win graded stakes and is certainly worth a great deal as a future broodmare, so they came out very well. Hip #929, named Executive Privilege was the sales topper at the OBS April non select sale, she cost $650,000 and has earned $999,000 to date. Here too, taking purses minus trainer-jockey share and training costs (Bob Baffert, another famous high priced trainer trained her) they are about break even. She was 2^nd in the Breeder’s Cup Juvenile Fillies in 2012 when she ranked 25^th by earnings, she hasn’t done much as three or four year old. Overall a very good horse, the closest any of these elite sales horse came to winning a truly elite race, but here too while they came out well ahead including residual broodmare value, they didn’t win any of the races people are presumably looking to win when spending $650,000 for the sales topper.

The lowest sale price for the 60 horses was $200,000, the highest was $1,200,000, the average purchase price is about $600,000 per horse. Only 12 of the 60 – 20% earned over $100,000, and 5 of these were in Japan, meaning only 7 of 55 horses racing here, just under 13%, made $100,000 in purses, about what it cost just to keep them in training with one of the elite trainers during that time, let alone return any of the purchase price!

16 of the 60 – 27% have yet to win a single race

The two OBS sales, the March select and the April open had by far the most success by almost any metric (stakes winners, purses, return on investment), but even there the results with these elite horses were at best simply slightly less horrible than the other sales.

So, perhaps this simply means that buying race horses at any level is bound to be a losing game. What about the lower priced horses at the same sales, how did they perform?  As we’ve said many times, most horses simply aren’t profitable, but that doesn’t mean that horses selected by skilled people for more reasonable prices at the sale can’t do very well indeed. We aren’t going to take the time to compile the results for the nearly 3000 horses sold at these 6 sales in 2012, but we can give you some results we are quite familiar with. Kenwood Racing purchased 7 two year olds at public auction in 2012, all at one of the above mentioned sales. Not a huge sample, but enough to come to some basic conclusions perhaps. Take a look and judge for yourself.

6 of the 7 -  86% earned more than their purchase price

6 of the 7 – 86% have won at least a single race

3 of the 7 – 43% earned over $100,000

2 of the 7 – 28% are graded stakes placed winners

Total cost for 7 horses $246,000, The highest sale price for the group was $57,000 (stakes winner and graded stakes placed Michael With Us, the only horse purchased at a select sale). The lowest sale price for the group was $22,000 (Amelia Mar, winner of $105,000). Our average purchase price was $35,000 per horse.

Yes, we’re proud of our record, but there’s a larger point here. We are hardly the only group to purchase successful, profitable horses at these sales for reasonable prices. Kentucky Derby and Preakness winner I’ll Have Another was purchased at the OBS April (non select) sale for just $35,000. Trainer Eddie Plesa bought It’smyluckyday, 2^nd in the Preakness, graded stakes winner of $842,000 to date and one of the leading three year olds of last year for $110,000 at the OBS March select sale in 2012. (Just FYI, he was on our final bid list too, we stopped at $60,000, the highest our budget would allow, and bought Michael With Us for $57,000 at the same sale). Itsmyluckyday was by far and away a much better horse than any of the top ten horses by sales price at any sale that year, not even close. Michael With Us was better than all but two or three of them, purchased for less than 10% of the average price they paid. And these are hardly the only examples.

Looking at several decades of statistics, all horses sold for $500,000 – $2,000,000+ at two year old sales (the cream of the crop) won somewhere between two and three times as many stakes, graded stakes, and grade I stakes as all horses sold for between $50,000 and $100,000 at the same sales. In other words, paying 10 to 20 times as much buys you 2 or 3 times the chance of success at the highest levels. Would seem to be a no-brainer, even if you are looking only to compete and win at the highest level, to purchase 10 really nice $100,000 horses, rather than putting all your eggs in one basket with a single million dollar baby. But multi-billionaires with egos to match their wallets competing against each other to have their pictures in the trade papers as the buyer of the sales topper serve to make the thoroughbred market exceptionally inefficient. Personally, I’d rather have my picture in the paper as the buyer of a bargain priced $35,000 horse from a non-select sale winning the Derby, than as the buyer of 5 year old maiden Mr. Besilu (by classic sire A.P. Indy out of Grade I winner Balance), purchased for $4,200,000 at the Keeneland 2010 yearling sale. Mr. Besilu ran in the 6th race at Gulfstream Park on March 20th, coming into the race the earner of $7,353 from 5 lifetime starts. He finished 3rd, picking up another $4,290 in purse money, ahead of 6th and last place finisher Argyle, a 4 year old maiden purchased for a mere $650,000 from the Keeneland September 2011 yearling sale, who was making his lifetime debut in the same race.

If horses like these were rare anomalies and most of the classic winners were horses purchased for $500,000 - $5,000,000+, then paying these premiums might make sense on some level, but the stats above speak for themselves. Open the Daily Racing Form any day and look at maiden races from Gulfstream, Santa Anita, Belmont Park and Saratoga and you’ll find many other horses like Mr. Besilu and Argyle. Look at the horses competing in the featured stakes races on the same card, and you’ll see plenty of non-select bargains like I’ll Have Another. The fact is, fancy pedigrees for yearlings who have never seen a saddle, or fast workout times at 1/8th of a mile for two year olds who have never seen a starting gate do not get you into the winners circle in the big races, at least not nearly enough to justify their sales prices. In fact, a staggering number of horses at the two year old sales with the fastest workout times end up unraced or non-winners, most likely and logically because they are being pushed beyond their limits to show a “bullet work” on sale day, where the goal is attracting a billionaire buyer rather than getting to the winners circle.

It would be far healthier for our industry and better for our horses if sale prices were more rational and horses were prepared to be good racehorses down the road rather than good sales horses at elite auctions. Then again, if prices were more rational the richest people would win all the big races and savvy horsemen working with a budget wouldn’t end up in the winner’s circle in Grade I races every year.