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Yale Study of Racing Biz: Areas of “Surprising Strength” Amid Sharp Declines

Every summer, the New York Thoroughbred Horsemen's Association (NYTHA) takes in a small gaggle of college-age interns–what for many of them proves a baptism of the turf.

This year's batch–three Yale undergrads studying economics, electrical engineering and political science–were tasked with a data-driven analysis of the economics of the national horse racing biz over the past 20 years.

Harboring no previous relationship with the industry, the three undergrads came in free of prejudice and preconceptions.

The result is a 33-page paper weaving piercing and worrying insights into the state of racehorse ownership, racetrack management and training in the country alongside findings that give tentative cause for optimism.

It's also the sort of detailed analysis of horse racing's economic foundation stones that's done all too infrequently for an industry of this size and scope.

“We've been a sport that traditionally makes decisions either around general 'chat around the pub,' or just whatever the richest guy in the room thinks,” said Joe Appelbaum, NYTHA president and an advisor on the study.

“Neither is usually a good one to make good economic decisions from,” he added.

Among the areas the three researchers focused in on were owner, trainer and horse participation; purse and handle trends; the bloodstock market; along with a side-by-side economic analysis of horse racing and other national sports.

They break their key findings down the following way:

That the 2008 global financial meltdown significantly hastened the decline in trainer numbers, owner interest numbers and participating racehorses.

That two areas–bloodstock prices and per-capita purse distribution–showed surprising resilience during that time.

More pointedly, with fewer horses competing for increased purses per race, individual owner entities have generally been doing slightly better financially over the last 20 years.

Despite areas of improved economic value for owners, costs remain high while the entertainment value of the sport appears to be declining due in part to horses racing less and working more.

The economic divide between the bigger and smaller trainers remained unchanged over the past 20 years. That said, such a divide is a characteristic of other national professional sports.

A consolidation of quality horses among fewer and fewer of the nation's largest stables has also triggered growing inequality among the top trainers.

At the end of the day, the not-for-profit model of certain racetracks coupled with the “capitalist nature” of Kentucky's breeding market could serve as models for other areas of the industry.

The detailed analysis warrants a much closer look at some of the statistics woven through it, several of which mirror the TDN's own prior dives into similar topics.

PARTICIPATION

The past 20 years has seen a decrease of nearly 40% in total horses that raced, a decrease of nearly 55% in total trainers that had at least one horse make a start, and a decrease of just over 42% in the number of owners who owned at least one horse.

Interestingly, the sharp drop in trainer numbers has been reflected in the TDN's own examination of California's trainer colony. Between 2007 and 2020, California witnessed a 46.4% decrease in the number of individual trainers making at least one start: from 573 in 2007 to 307 in 2020.

Hastening the speed of these declines was the 2008 global financial meltdown.

As the researchers write, “it accelerated the declines among horses and owners, and although trainers were already leaving the industry at a significant rate prior to the recession, trainers were still impacted by the economic crisis as they rely on owners to give them their horses.”

Since the COVID-19 pandemic, however, there have been tentative signs of plateauing declines in the number of participating owner interests and competing horses.

In what will prove a surprise to no careful observer of the sport, the last 20 years has also witnessed a 37% drop in the number of races run nationally, and a 45% drop in the number of individual starts.

“The landscape of the horse racing industry has changed a lot over the past 20 years as it has lost close to half its existing participants and 37% of its total races,” the researchers write.

“As the number of races, owners, and trainers continues to decrease across the country,” they warn, “the survival of horse racing is threatened.”

PURSE DISTRIBUTION

An inflation-adjusted look at purse levels show that total purses declined by nearly 25% between 2003 and 2023.

However, declines in the number of overall races run nationally over that same period has led to a situation of improved per-race, per-start economics for owners and trainers.

Indeed, inflation-adjusted purse-per-race numbers increased nearly 18% during that time, while inflation-adjusted purse-per-start numbers increased nearly 30%.

In another similarly themed section, the researchers took a stab at quantifying the cost of owning a horse, using numbers shared by one of the nation's “leading racing operations,” which remained unnamed.

Calculating typical training costs, the average days a horse is in training, farm costs, predicted jockey fees, and stable fees, the researchers estimated that the average annual earnings by a horse required to break even for its owner in 2022 was around $66,500.

In 2003, a horse had to win more than $41,810 for the owner to profit, they found.

The findings suggest that the number of horses “breaking even” for their owners over the past 20 years grew from below 8% in 2003 to over 11% in 2022.

Unsurprisingly, there were precipitous drops in the numbers of “breaking even” horses during the 2008 economic collapse and during the worst impacts from COVID-19.

The reason for this overall increase, the researchers write, is twofold.

“There are fewer horses racing, which is an effect of the decrease in the supply of foal crop,” they wrote. “And there is a higher amount of money available due to the alternative revenue provided through the casinos at the tracks.”

FOAL CROP AND SALES

The sales rings provided the researchers with another area for optimism.

“As the economy in general and horse racing in particular emerged from the Great Recession,” they write, “one area of clear strength has been the increasing value of bloodstock at all levels.”

Indeed, the inflation-adjusted average price of weanlings, yearlings and 2-year-olds increased over the past 20 years by just over $14,500. The same goes for median prices.

Since a recession-led low back in 2009, the median sales price increased 48% to a level of $30,000 in 2022.

“This upward trend in the median price indicates that a wide range of bloodstock assets, not only just the high-end ones, have experienced value appreciation,” the researchers write.

Why is this? The researchers contend that simple supply and demand is at play as the national foal crop has declined nearly 50% over the past 20 years.

“As the supply of horses eligible to be auctioned decreased due to the lower foal crop, breeders and sellers found themselves with fewer horses. Notably, the demand for these horses remained relatively constant, or in some cases, may even have increased,” the researchers write.

The combination of reduced supply and stable demand has led to an “upward pressure on prices,” they add.

SUPER TRAINERS

The researchers also tackle one of the bete-noirs of the industry–the issue of so-called “super trainers.”

Over the last 20 years, the industry has lost nearly 55% of its trainers. Most have been “micro-trainers” and “midsize” trainers–in other words, those with between 1-10 discreet horses, and between 11-40 discreet horses respectively.

Fewer races, horses, and owners invariably lead to fewer trainers, the researchers reasonably deduce. At the same time, existing stables have consolidated size.

The average horse-per-trainer ratio has grown from 8.2 horses per trainer in 2003 to 11.1 in 2022.

“With owners preferring trainers with more horses, the micro-trainers are losing out on potential clients and struggling to maintain a sustainable business,” the researchers warn. “Many of them may have decided to exit the industry altogether due to the diminishing demand for their services.”

At the opposite end of the scale are “super trainers” who operate stables with 80 or more horses.

The number of super trainers has stayed relatively constant in the midst of declining trainer numbers. In 2003 there were 123 super trainers, and in 2022 there were 114.

These findings mirror the TDN's own analysis of the training colony in California. While the number of active trainers in California almost halved between 2007 and 2020, the number of trainers with 100-plus horses making starts stayed fairly constant.

At the same time, the Yale researchers found that the nation's super trainers have significantly increased their percentage share of total available winnings over 20 years, from 27% in 2003 to 41% in 2022.

This means that last year, 114 “super trainers”–just 3% of the total number of active trainers–accrued 41% of the total available winnings.

Intriguingly, the researchers argue that this yawning disparity between racing's select few top-tier trainers and the rest is mirrored in other professional sports, like golf and football.

“Horse racing is a unique sport as it does not have many similarities to popular sports in the country, but so is golf, and despite being unique, they are both sports that have similar issues that must be overcome to participate,” the researchers write.

“Neither is easy to stay in, especially if you are not in the top percent,” they add. “It is hard to win, hard to profit, and hard to compete, but that is exactly what makes them both sports in the first place.”

WHAT TO DO?

The report has other intriguing findings, including how the income disparity seen among trainers is reflected between racetracks, with only a select few tracks thriving and offering competitive purses.

Ultimately, said Appelbaum, the report could and perhaps should trigger a couple of key industry responses.

One would be to decrease the regulatory burden “as much as possible,” especially when it comes to the Horseracing Integrity and Safety Act and to sports wagering.

“The current regulatory regime both in New York and around the country is really a bit redundant and not in step with the current sports wagering environment,” he said.

The other would be to regionalize circuits of racing to provide for “better planning of races between tracks and jurisdictions,” he said.

At the end of the day, the report should also spur more of these in-depth analyses into the economic building blocks of the sport.

“Why is it three college-age interns are doing this?” Appelbaum added. “Why aren't we doing more of this ourselves?”

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This Side Up: Billion Dollar Babies are Here

It's a long time now, some 40 years or so, since Nelson Bunker Hunt's notorious observation that “a billion dollars isn't what it used to be”. Which presumably means that today it's no longer even quite what it was, back when it wasn't what it used to be. After all, we've just seen the dispersal of a single art collection–assembled by the late Paul Allen, co-founder of Microsoft–realize $1.5 billion. Nonetheless it feels as though the transatlantic yearling market, in 2022, has reached a pretty historic landmark in tipping 10 figures for the first time.

Though a couple of minor catalogues remain to be processed in Europe, the overall value of yearling trade in North America and Europe has already advanced $63,996,667 (6.8%) on the 2021 tally of $937,533,161 to smash a symbolic barrier at $1,001,529,828.

Even in a marketplace currently inuring us to records, with one auction after another achieving new high-water marks, it's pretty staggering to register a first-ever crop of “billion dollar babies”.

This figure, moreover, crushes very strong internal growth in the European market under the weight of a dollar that has been leaning heavily on other currencies in general, and sterling in particular.

That's perfectly valid, in that the upper tier of the European market is dominated by international rather than domestic investment. For those who count their wealth in dollars–the kind of people buying Mr. Allen's Klimts and Cezannes–the quaint old “guinea” has proved an especially congenial means of conducting business this year.

So while turnover and averages at Tattersalls and elsewhere have been soaring giddily, year on year, dollar conversion actually confines the value of the European market to a degree that would astonish its indigenous participants. In those terms, it has actually shed 2.4% this year, down to $391,241,817 from $400,981,400 in 2021. While we naturally pass over the COVID-warped turnover of 2020 (weighed in at $328,852,326), the European market this year was virtually identical to 2019, at the prevailing dollar rate, and down 4.8% on $410,789,647 in 2018. That's a chastening correction of perspective, for any Europeans attributing a booming export market to the sheer quality of their product.

Consider Europe's premier yearling catalogue through the prism of a fluctuating exchange rate. In October 2014, when £1 would get you $1.59, the average Book I yearling at Tattersalls realized $393,893. After the Brexit referendum in 2016, sterling having slumped to $1.22, the same book averaged $292,168. And this year, with sterling bumping along the floor at $1.12, a “record” average for the sale converted to just $280,080. So while the average guinea cost of a Book I yearling has gained 26.6% since 2014, the average dollar cost has meanwhile come down by 28.9%. (Jolly well done, Brexit supporters!)

Of course, the pinhooker who buys and sells within the European market, or the breeder who pays a covering fee there, will also buy their bread and milk in the same currency. So their sense that business is booming is perfectly legitimate, and its suppression within these figures–unprecedented as they are–only goes to show how remarkably potent is the current bull run in international bloodstock.

The flattening of European growth by dollar conversion leaves the average cost of a 2022 yearling, either side of the Atlantic, virtually unchanged at $94,851. In North America, however, we have reached a landmark every bit as stunning as the $1-billion overall market. In 2022, the average American yearling broke six figures, up from $98,558 last year to $106,806.

Once again, then, we renew our perplexity about this market's peculiar immunity to rampant geopolitical and economic maladies out there in the real world. We know that its most affluent contributors were never asked to furl the cash umbrellas they were issued after the banking crisis, and many have now separated themselves altogether from the exposure being experienced by the rest of society. Yet after a decade of spending stimulus, interest rates have finally been dusted off to tackle such forgotten inflationary horrors as plague and invasion. And somehow this market is still humming along.

The demand is real. Forget aggregate turnover, look at the astounding clearance rate. This has historically been less robust in America, but whereas 75% of those entering the ring here in 2018 found a new home–and that was a better clip than in the three preceding years–in the last two years the tally has climbed to 83 and 82% respectively. In Europe, similarly, the 2018 clearance of 78% has been moved up to as high as 86 and 85%.

Fasig-Tipton photo

So how does this all hold together? The stallion farms certainly appear to be taking their cue. Some of their fees for next spring arguably (and understandably) claim a piece of the action. Several elite stallions are getting steep hikes, on both sides of the water, in some cases at a time of life when their quality has been long established. But the organic connection between yearling values and covering fees entitles farm accountants to seize the day.

Over the past week, moreover, we have also seen how some unusually glamorous new stallions are stimulating demand for the most eligible mares. And while the gentleman who gave $4.6 million for 2.5% of Flightline can comfort himself that the underbidders set standards in the astute calculation of bloodstock values, this horse has reminded us–despite the notorious brevity of his first career–of the economic potential of sheer fan power.

That's significant, because for now there's limited crossover between those spending at Keeneland this week, and those spending in the same ring back in September. It's heartening that so many people want to buy racehorses; and especially that many are doing so because viability on the track, in some parts of the country, feels increasingly feasible. But the circle still needs to be completed. If demand is so high, then why is supply diminishing? Why is the North American foal crop still to revive after its post-2008 collapse?

After the banking crisis, we soaked up four consecutive crop drops between 5.9 % and 12.7%. There followed three years of stability before numbers began to ebb again, down 4.4% in 2018 even as the market was booming. Obviously we've since had a big COVID-shaped punch to the belly, but the projected crop for 2023 is again down.

As we know, the racing program–notably its black-type tier–has not sufficiently matched that contraction to remain competitive, and therefore stimulating to handicappers. The legal wagering menu is expanding all the time, and our own demographic is ageing.

Demand is high, but foal crops are decreasing | Eclipse Sportswire

It is true that crop sizes little different from today (c.18,000) serviced the American sport adequately in the era when it still retained a mass following. And the huge leap in the Thoroughbred population actually came after that heyday, from the mid-1960s to the mid-1980s, instead being driven by a revolution in the commercial breeding environment.

In this latest cycle of demand, however, we see no corresponding rise in supply. We've had a bull run for several years now, even riding out the pandemic with surprising resilience, yet the foal crop has meanwhile stagnated at best.

Doubtless there are many different reasons for that. But one big difference between now and the couple of decades leading to the peak of 1986 (over North American 50,000 foals) is the failure of the export market. Those years of revolution owed significant impetus to European stables. (And rightly so, as things turned out: the result was a game-changing regeneration of the European Thoroughbred.)

Now I'm not going bother with an umpteenth rebuke for the disastrous modern schism between the two gene pools, and therefore the two markets. Nowadays, after all, I consider that more of an opportunity than a problem: if I'm right, then those who share my views will cash in; and if I'm wrong, then there's no need to gnash any teeth.

Nonetheless one or two collective responsibilities do need to be embraced. How, for instance, to retrieve that European faith? Many of the prejudices that have stifled investment are actually thoroughly misguided. Nonetheless reconciliation could be a valuable incidental benefit from the earnest embrace of HISA.

In the domestic market, meanwhile, how do we excite all these people buying racehorses with the idea of breeding them? As things stand, this buoyancy at the sales ring does not yet fit any coherently virtuous circle of engagement.

You couldn't say that Californian racing is thriving simply because it has produced nearly all the recent champions most likely to engage new fans: Zenyatta, California Chrome, American Pharoah, Justify, Flightline. Yet while other local barometers remain dispiriting, notably purses and fields, at least its leaders have made the tough decisions necessary to secure a more sustainable footing for any other progress that can be made. They have started from the ground up, literally, with their racing surfaces–and have done such a good job that they might yet prove able to turn round some of their other issues.

By the same token, just because horsemen elsewhere are making plenty of dough, whether in the ring or on the track, that doesn't mean they can be complacent that everything else is in place. For a time, remember, the price of silver told Bunker Hunt that he had just about nailed his attempt to corner the market. Let's be cautious, then, before deciding that all the glister on our Thoroughbreds must be gold.

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Sioux Nation Busiest Flat Stallion; Foal Crop Rises

Coolmore's Sioux Nation topped the charts of the busiest Flat stallions in Britain and Ireland in 2022, with 255 mares covered, just head of Tally-Ho Stud's new recruit Starman (GB) on 254.

Weatherbys' recently published Return of Mares shows that Starman's stable-mate Mehmas (Ire) was sent 249 mares, the same number as Coolmore resident Wootton Bassett (GB), while the most active sire in Britain was Overbury Stud's Ardad (Ire), who covered 205. The only other British-based stallion in the top ten on numbers was the champion sire Frankel (GB), who was sent 188 mares.

The number of foals born in Britain and Ireland in 2022 has again risen slightly, according to figures published by Weatherbys including returns to September 30. The number of live foals registered to that date is 13,275, compared to 12,920 in 2021 and 12,778 in 2020.

That figure breaks down to 4,518 foals born in Britain, which is a rise of 6% from 4,282 in 2021. Ten years ago the British crop had dropped to 4,227, but it had climbed gradually to a recent high of 4,726 in 2018.

In Ireland, 8,757 foals were registered, a 1% rise from 8,638 last year, from a 2017 high point of 9,044.

The number of broodmares at stud rose accordingly, with 22,832 registered in 2022. In Britain, 6,610 mares were covered (82% of those reported at stud), while in Ireland that number was 11,398 (77%).

The numbers of stallions standing in Ireland has remained constant at 187, while in Britain there were 14 fewer in 2022, with a total of 125 at stud. Some of the National Hunt brigade traditionally cover large books and the busiest stallion overall was the Whytemount Stud resident Affinisea (Ire), a Sea The Stars (Ire) half-brother to Soldier Of Fortune (Ire), who covered 374 mares. Another son of Sea The Stars standing under the National Hunt banner, Crystal Ocean (GB), covered 338.

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The 2022 Foal Crop Dips Again, by 2.2%

The Jockey Club (TJC) announced Wednesday that breedings in 2021 have resulted in 18,609 live foals of 2022. At this same time last year, The Jockey Club reported that the breedings had resulted in 19,021 live foals, which marks a year-over-year decline of 2.2%. The foal crop has declined every year since 2015 and was at 35,274 as recently as 2008.

The Jockey Club estimated that the number of live foals reported so far is 85-90% complete.

In total, 1,303 stallions covered 29,065 mares, according to statistics compiled through Oct. 6. The number of stallions declined from the 1,447 that were active in the preceding year, a drop of 10%, and the number of mares bred declined by 2.1%.

Kentucky was once again the runaway leader when it comes to Thoroughbred breeding activity, accounting for 57.8% of the mares reported to be bred in North America and 61.6 % of the live foals. A total of 16,796 mares were bred to 207 different Kentucky-based stallions, producing 11,460 live foals, for a 0.7% decrease over figures from the previous year. However, the number of mares bred to Kentucky stallions showed a slight increase of 1.9%.

Among the 10 states and provinces that were among the top 10 in terms of mares covered, four–California, Ontario, Oklahoma and Indiana–produced more live foals in 2022 than in 2021. Indiana had the biggest gain, with the number of live foals reported going up by 20.3%.

Outside of Kentucky, California was the leader in number of mares bred with 1,939. Florida was next with 1,617.

The Coolmore stallion Practical Joke (Into Mischief) led all stallions in the category of mares bred. He was bred to 231 mares. Second on the list was Goldencents (Into Mischief) at 230. Showing the popularity of sons of Into Mischief, Authentic (Into Mischief), in what will be his first crop, was next at 229 mares. Vekoma (Candy Ride {Arg}), also a first-crop sire, came in fourth, having been bred to 222 mares. Maclean's Music (Distorted Humor) was next at 221, making a remarkable jump after being bred to 57 mares the prior year.

Still another son of Into Mischief (Honest Mischief) led the way in the category of non-Kentucky-based sires. Standing in New York, he was bred to 127 mares.

Twelve stallions were bred to 200 or more mares and 43 were bred to 140 or mares, which exceeds the cap The Jockey Club had attempted to impose to encourage diversity in the breed.

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