This is an updated version of a blog that originally appeared on November 22, 2015, with a great deal of new information...

 By Robb Levinsky

I recently received a call from a gentleman interested in joining our Kenwood Racing co-ownership program who had previously owned racehorses with two well-known syndicates. He explained he was unhappy with his results stating “I had a share in two horses by the best sires in the world. One never ran and other ended up being a claiming horse. If you can’t get a good horse with these sires, you have no idea what you are doing”.

This is conventional wisdom and seems to make perfect sense. After all, there has to be a reason people pay $100,000 to $300,000 to breed to the top sires in the world. However, as is the case with much conventional wisdom, the facts are quite different than perception. The gentleman seemed stunned to hear me say that while we’d love to have his business and couldn’t comment on the two specific horses he’d owned a share of, there was nothing out of the ordinary in a leading sire producing a horse that never makes it to the races, or ends up as a claiming horse. A look at the numbers makes clear what breeding to a top sire actually buys. The Blood-Horse magazine regularly publishes a list of the leading sires, with # of foals, starters, winners, stakes horses, etc. You can find it here, but let’s start with a closer look at the top three sires in North America for 2015 just for some perspective…

Looking at the above, you can see that Tapit, the leading sire in North America, had about 56% of his 315 runners (175) make it to the winner’s circle. Just 19% (59) of his runners won more than one race. Just under 10% (31) were stakes winners. 5% (16) were graded stakes winners and about 1.5% (5) won a grade one stake in 2015. You can be sure many of those 31 stakes winners won small, ungraded stakes worth less than $100,000; not that winning a $75,000 stake at The Fairgrounds or Parx is a bad thing, but it’s not exactly a classic horse and not likely to come anywhere close to paying back the $300,000 stud fee (forget the cost of the mare, or the training bills!).

As you can see, the stats for the next two sires on the list, Medaglia d’Oro and Kitten’s Joy, are fairly similar. Now these are truly outstanding numbers for any sire. Tapit, leading sire in North America the last two years, is a true phenomenon. His results in the breeding shed to date indicate he may by the end of his career end up being as good a sire as Northern Dancer, Mr. Prospector and Seattle Slew, probably the three top sires of the last 50 years. Note that Tapit began with a very modest $15,000 stud fee, proof that it isn’t always the best racehorses or most promising stallion prospects that end up making the best sires, but that’s another story. The question is, does it makes sense to pay $300,000 to breed to him, or the $584,000 average price for his 2015 yearlings, or the $660,000 average price for his 2015 two year olds, knowing almost half his runners failed to win a single race in 2015 and less than 2% ended up to be Grade One stakes winners?

One part of the answer to that question is, what is the alternative to breeding to the top sire in North America and what does that buy you? If paying a $300,000 stud fee buys you 20 times the results you get when breeding to a $30,000 stallion then relatively at least, you are receiving excellent value. Let’s take a look at three highly ranked sires on the 2015 leading sires list, City Zip (#11), Hard Spun (#14) and Street Sense (#15) to see what the $40,000 - $45,000 stud fee they all stood for in 2015 bought?

The numbers for these three horses aren’t radically different than with Tapit. City Zip (in the opinion of many savvy people an excellent sire and an outstanding value in today’s market) actually has considerably better numbers in terms of winners and repeat winners. That said, the top three sires on the first list clearly do produce a higher percentage of grade one stakes winners than the three horses on the second list.  Collectively, the three sires on the first list had 10 individual grade one winners out of 863 total runners (just under 1.2%). The three sires on the second list had 7 individual grade one winners out of 770 runners (just over 0.9%). So, is it worth paying $100,000 - $300,000 stud fees for a 3/10ths of 1 percent (1.2% vs. 0.9%) higher chance of winning a grade one stake? Even if your only goal is winning grade one stakes (remember, the sires on the second list actually had the same or slightly higher percentages of runners, winners, and repeat winners), obviously you’d be far better off buying 7 City Zips (2015 yearling average $89,533), for about the same cost as 1 Tapit (2015 yearling average $584,634). Not only do you end up with a better chance of hitting the winner’s circle in a grade one race, but you don’t have all your eggs in one fragile basket. A single bad step with your one prize Tapit yearling and you have a $585,000 riding horse, while even with the City Zip yearlings that don’t end up to be grade one stakes winners, the above statistics show there’s a very good chance they will end up in the winner’s circle, several will probably be solid allowance runners and/or ungraded stakes winners.

None of this is to denigrate Tapit, who as mentioned above is one of the best sires of the last 25 years at a minimum. It’s simply to say that the thoroughbred market regularly misprices horses, overpaying for one or two top names while offering real value for sires a little further down the list with statistically almost as much chance of producing the really top runners everyone is looking for. Of course you need to know what you are doing, there are overpriced stallions on the leading sires list besides the top three detailed above, but sprinkled among the leading sires in North America every year there are real values to be found. I highlighted three here (City Zip, Hard Spun and Street Sense) who appear to offer excellent value, but I could just as easily have mentioned Exchange Rate, or Scat Daddy, or Curlin, or Lemon Drop Kid or Alfeet Alex. It’s up to the buyer to do the research and know where the real value lies.

Obviously there is some point down the list where the sires simply aren’t good enough to produce top quality horses, but with 20,000+ foals produced every year, there are plenty of horses to choose from at a wide range of yearling and two year old sales with more than enough pedigree power to give you a realistic shot coming up with a stakes winner. While the focus of this column is the relative value of sires, clearly there’s a lot more to coming up with a good racehorse. Many people don’t realize that the mare is actually more important than the sire in terms of producing a good racehorse because while sire and dam each contribute 50% of the genetic material, the foal lives inside its mother’s body for 11 months and she’s the one who nurses it and teaches it all the important early life lessons. Beyond pedigree is the all-important physical conformation of each individual horse, and how it moves on the track. Finally, just as with human athletes, there’s no way to know for certain which horse will possess the heart and determination and desire to succeed in a super-competitive sport.

Looking at the above statistics, it would be easy to conclude that there’s just no way to come out ahead in the thoroughbred business. If the absolute best sires in history produce at most about 10% stakes winners, and very good sires produce about 5-7% stakes winners, how does one earn a profit?   No doubt, it’s a tough, tough game, as I (among many others) have stated on more than one occasion. However, if you put ego aside and look at the numbers, there is a (narrow!) path to success. The key is first not to overpay for the horses you purchase. Given the current level of purses and training expenses at even the higher-end racetracks, economics don't support paying more than $200,000 - $250,000 maximum for any horse, and that would be for the few horses so royally bred to retain significant residual breeding value even if they fail to win a stake in their racing careers. For the most part, the 'sweet spot' in term of what it makes economic sense to pay for a horse is $25,000 - 100,000. Those sales prices would in turn dictate a maximum stud fee of perhaps $50,000 - $60,000 for a stellar leading sire like Tapit. Of course, the big Kentucky stud farms and sales companies aren't about to let you on the secret that you are paying a premium so high for the product they offer as to make it incredibly difficult for anyone to actually come out ahead in the racing end of the business. This game is built on an ever more shaky foundation of hype and dreams, rather than being rooted in real numbers. Perhaps a few billionaires can afford to toss away millions every year for the fun of the chase, but even for the affluent owners who would like to participate, the current economics are difficult at best. That said, since the handful of billionaires that hold up the sales averages at the elite auctions almost all concentrate on a few of the best-pedigreed prospects by the top 3 or 4 current sires, you frequently end up with a mispriced market where a horse that catches the attention of the 'right' people brings 600,000 (or a lot more), and one with 95% as much chance of winning a graded stake with just a little less pedigree or a fraction of a section slower workout time in the under tack show brings $60,000. That offers a narrow opening for the experienced buyer armed with a reasonable budget, a team that does their homework at the sales, and the mental toughness not to get caught up in the hype and not to overpay; whether for stud fees, yearlings, two year olds, broodmares, or active racehorses. Experienced and skilled horsemen-women are able to increase the odds by weeding out a lot of horses at sales that may have the pedigree, but lack the physical attributes to make it on the track. If you pay $60,000 for a nice City Zip colt that turns out to be solid allowance horse, you stand a realistic shot to come out ahead of the game. Even if it turns out to be a decent $25,000 claiming horse, you are probably going to come out with a good part of your investment back.  If you paid $600,000 + for the prestige and name recognition of a Tapit and it turns out to be one of the 98%+ that are not grade one stakes winners, you are most likely out a lot of money! Every year, people buy a number of horses for $25,000 - $125,000 at public auction that win graded stakes and are highly profitable. It's a numbers game, and you need to let the numbers work for you.