Racing Economics: Horse Tales

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Purchasing a racehorse is a risky investment in which the odds of hitting it big for most owners are about as long as getting an entry into this weekend’s Belmont Stakes.

Even for the high rollers who pump millions of dollars into the sport, the sheer enjoyment of competing often outweighs grandiose visions of handsome paydays, said Dan Metzger, president of the Thoroughbred Owners & Breeders Association in Lexington, Ky.

“They want lightning in a bottle, but they also have realistic expectations,” he explained. “It’s a speculative business. Most just want to break even.”

Ric Waldman, consultant to Overbrook Farm which owns about 250 horses at its Lexington stables, concurred.

“The odds are long,” he said. “However, to hit it big with one big horse, it can be quite a windfall.”

Any stroke of luck can extend beyond race winnings to include stud fees, sometimes quite exorbitant, when owners retire their male horses as stallions.

The average race purse, including the small- and mid-size tracks, is about $20,000, although they can range from as little as a few thousand dollars to as large as a few million, Metzger said.

The June 10 running of the Belmont in New York pays a million-dollar purse, even without the injured Barbaro and no-show Bernardini, only the third time in 36 years neither the Kentucky Derby nor Preakness winners, respectively, will be competing. Editor’s Note: ABC will focus on Barbaro’s story at the beginning of their coverage of the Belmont Stakes on June 10. ESPN will also be airing details of Barbaro’s surgery, recovery updates and the medical advancements which have played a significant role in his care, during eight-hours of Belmont Stakes programming over a three-day period. Consult your local TV listings for more information.

While the three races comprising the Triple Crown Series capture much of the general public’s attention, the fact is, there are roughly 55,000 thoroughbred races on more than 100 tracks in the United States every year.

The investment in the horses running those races varies as much as the purses. The average price of a yearling is about $50,000; A 2-year-old typically will bring about $60,000. The Kentucky Derby, for instance, features 3-year-olds.

Most owners will not race their male horses beyond that age because they can make more money putting them out to pasture as stallions, Metzger said. A cheap stud fee to breed a mare might range from $250 to $500, and the average cost is about $25,000.

But in rare instances the fee can hit $500,000. That’s the price people pay for the offspring of Storm Cat, a 23-year-old stallion owned by Overbrook Farm, who has sired more than 125 stakes winners worldwide.

Because his racing days are over, Barbaro likely will follow in Storm Cat’s footsteps as a stallion, although Metzger said his injured hind leg needs to be strong enough to breed.

Barbaro, thought by many to be a serious contender for the Triple Crown, was diagnosed with a fracture above and below his ankle after galloping a few hundred yards in the Preakness.

Surgery to repair the injuries cost $100,000, but none of the procedures were covered by insurance, according to Kevin Lavin, president of Lavin Insurance in Louisville, a leading equine insurance company.

Unlike human health insurance, there is no coverage for medical treatment. The two most common types of equine coverage are mortality insurance and liability insurance. Mortality insurance pays a claim in the event a horse dies or needs to be humanly destroyed.

“It is life insurance on a horse,” Lavin said. “Recovery care and recovery costs would not be covered by mortality insurance. There is no major-medical coverage for racehorses.”

For a single racehorse, premiums for mortality insurance cost up to 6.5 percent of the amount insured. The rate is mainly based upon the amount of coverage and the purchase price, Lavin said.

Liability insurance covers the owner in the event a horse causes property damage or physical damage for which the owner is liable. The coverage costs about $100 annually per horse for $1 million of coverage.

Each state requires trainers to have worker’s compensation coverage, and each state has different guidelines that must be met before their horses can run at the tracks. Premiums are based on the size of a trainer’s payroll.

Training costs can run $100 a day, not including veterinarian bills that can run $10,000 a year. The daily fee includes what a trainer would charge based on his expenses to fund a groom, exercise riders, hot walkers, feed, insurance and other necessities.

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