21st century trends in North American (USA, Canada, and Puerto Rico) pari-mutuel handle, purses, and auction prices for yearlings have not been closely linked, as shown by their lukewarm or negative correlation coefficients for the years 2000-2012 (a correlation coefficient is a measure of the strength and direction of the linear relationship between two variables that ranges from plus one to minus one):

Pari-Mutuel Handle and Gross Purses, .306

Pari-Mutuel Handle and Yearling Average Auction Prices, .403

Pari-Mutuel Handle and Yearling Median Auction Prices, -.333

Gross Purses and Yearling Average Auction Price s, .364

Gross Purses and Yearling Median Auction Prices, .365

The relatively low co-variance between handle and purses is not surprising. Although wagering on horse racing has been declining, subsidies from video lottery terminals have supported purses. Were VLT allocations to be reduced or withdrawn by governors and legislatures, purses would more precisely track the flagging fortunes of pari-mutuel wagering; this is the main vulnerability of American racing.

The average auction price for yearlings is moderately correlated with pari-mutuel handle; but the linkage would be much stronger if horse racing were a purely economically-motivated pursuit, rather than a sport/business. Similarly, average and median yearling auction prices generally move in the same direction as gross purses, but the degree of congruence is modest.

Auction buyers are acutely aware of adverse business-related factors in the racing industry, yet they are also inspired by the sporting challenge of winning races. Knowledgeable buyers do not enter into retail racing partnerships, for example, with the primary objective of making a profit. This may explain the negative correlation between handle and median yearling auction prices, depicting that median prices have held steady in spite of the persistent decrease in wagering on horse racing.

The scale of the American bloodstock enterprise ultimately hinges largely on whether the negative trend in pari-mutuel wagering can be reversed. But noneconomic elements having to do with sport are also important to attracting and retaining owners.

Originally published in the Blood-Horse. Used with permission.