DISCONNECT BETWEEN RACING RETAILER AND RACING PRODUCER

The Fasig-Tipton 2022 Saratoga auction of selected yearlings is being held on August 8 and 9.  Last year, 135 yearlings were sold for an average price of $488,556 and a median price of $350,000.

In 2021, the average yearling auction price in the United States was $80,145, with a median price of $30,000.  To some extent, price levels for yearling purchases depend on how robust the racing industry is at a particular time, as reflected in pari-mutuel handle and purses paid.

From 2000 through 2021, the correlation between the annual growth in U. S. pari-mutuel handle (positive and negative) and the percentage increase or decrease in average auction prices for yearlings was 0.489.  This is a modest relationship at most and demonstrates a disconnect or gap between the economics of racing at the retail level and racing at the bloodstock level.

In the twenty-first century, comparing the change in the annual growth rate of gross purses offered at American racetracks and the percentage increase or decrease in average auction prices for yearlings yielded a correlation of 0.6573.  Auction prices were more closely related to purse levels than to the ups and downs of pari-mutuel handle.

Metrics indicate that neither pari-mutuel handle nor purses justify the prices buyers pay for yearlings. The explanation lies in the historical fact that horse racing is not a purely economic activity and therefore is unlike most conventional businesses and industries. That is the way it has always been.

For many racehorse owners, at least the owners who pay top dollar for yearlings, racing is a sporting venture rather than an investment with the expectations of profits.  They buy yearlings for the challenge and the thrill of the chase. 

The economic peril for horse racing is that the correlation or association between pari-mutuel handle and gross purses is not particularly strong, 0.615 for the years 2000-2021.  Absent supplements from video lottery terminal revenue and state breeding incentive programs, the correlation between the growth in pari-mutuel handle and increases/decreases in gross purses would rise to 1.0.

Even if handle and purses plunged, many sporting-motivated owners would continue to pay premium prices for bloodstock, just like owners of sport and show horses do, notwithstanding the relatively small financial incentives. However, the racing industry would downsize considerably because owners of claiming-type horses could not afford to stay in the game.

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