Horses Go Fast, Like the Money

The South African accent of track announcer Trevor Denman blasts through the grandstands, announcing the winner of the race as fans--from the beer guzzlers in the infield to the three-piece-suit Turf Club crowd--stand and applaud in appreciation.

You rush to the winner’s circle. The jockey climbs down from the horse and you exchange high-fives. You hug the jockey. You hug the steward. You hug the trainer.

You hug the horse--your horse.

But, alas, it’s nothing more than a “Dallas”-esque dream. Racing thoroughbreds is for Arab sheiks, not hard-working folks. Right?

Look again. It’s not such a far-fetched fantasy.

The “sport of kings” is becoming more accessible to non-royalty. Horse racing still isn’t cheap, but it’s no longer the exclusive realm of multimillionaires like San Diegans Gene Klein and John Mabee.

Prices for thoroughbreds have dropped “from 20 to 25% to as much as 50% . . . over the past 2 1/2 years,” according to Mark Harmon of the Arcadia-based California Thoroughbred Sales Inc., a subsidiary of the California Thoroughbred Breeders Assn.

Certainly the lure of the sport crosses all economic boundaries.

Nothing Like a Winner

“There’s nothing like the sense of seeing your horse cross under the finish line first,” said Point Loma’s Kris Robillard. “I like standing in the winner’s circle. I can’t describe the feeling. It’s unbelievable.”

The rewards for crossing the finish line first have skyrocketed in the past five years.

“It used to be that a $100,000 race was a big deal,” said horse owner and syndicated handicapper Jeff Siegel. “Now it’s just another race. In the ‘70s only a handful of horses could earn a million dollars. Now it is almost an everyday occurrence.”

This dramatic increase in prize money, coupled with the drop in horse prices, has changed the focus of the thoroughbred industry. Racing, not breeding, is the primary goal for most new thoroughbred owners these days--enticing owners with a (slim) chance to make big money very quickly on a relatively minor investment.

Until 1985, when a glut of thoroughbreds sent prices plummeting, it was not unusual for horses to be prematurely retired from racing to begin their family chores. For those small-time owners who could afford to maintain a horse for a few years, breeding was a safety net. If a filly didn’t run well, it could still have earning potential as a broodmare. (In the minds of breeders, colts always have to prove their breeding worthiness on the track.)

Feverish Bidding Blamed

But the average price for horses has dropped considerably in three years. Industry sources attribute the dip to over-inflated prices caused by exorbitant bidding in the early 1980s by European and Arab interests attempting to build bloodlines.

Inspired by the huge amounts paid for unproven yearlings, breeders went into overdrive. Within a year it was easy to find a yearling with decent bloodlines for sale.

Some view the drop in price as a natural correction after the extreme bidding of a few years ago.

“It got out of hand and prices had to come down,” said bloodstock agent Jim Sacco. “The major European and Arab buyers went through a crash course to replenish their stocks.”

Whatever the cause, “now it is definitely a buyer’s market,” said Harmon of California Thoroughbred Sales Inc.

While the drop in prices may be a boon for not-so-wealthy types interested in buying horses, it has made breeding less than practical for the small operator.

It costs anywhere from $15,000 to $25,000 a year to house, feed and train a thoroughbred. With solid yearlings selling for as little as $5,000 to $10,000 (or even less), there is little chance of reward for a breeder with only a few horses.

The only alternative is to win races.

Competition among race tracks and the successful Breeder’s Cup series of races have helped make race purses increasingly tantalizing to horse owners. The general popularity of the sport has also helped, since purses are usually affected by the amount of money bet (the “handle”). Innovations like Pick Six wagering and satellite wagering, which allows bettors at other locations to bet on races, also have boosted the handle and, subsequently, the purses.

Any Horse Has a Chance

“There are so many races offering good purses that you don’t have to be that good to win money anymore,” Siegel said.

The huge purses have added color to the rags to riches fantasies of small-time horse owners. “The rate of return can be phenomenal if you get lucky,” said 37-year-old San Diego lawyer Mike Padilla, part owner of nine horses. “It only takes one horse to develop into a top class stakes horse.”

The backstretch is full of amazing success stories.

John Henry, a gelding purchased at one time for $1,100, went on to win more money than any horse in history. Early in his life, 1977 Triple Crown winner Seattle Slew sold for $17,000.

Earlier this year, handicapper Siegel formed Clover Racing Stables with 11 partners. The stable paid $250,000 for a 3-year-old English filly named Lizzy Hare. In only its second race in the United States, Lizzy Hare won the $104,000 Del Mar Oaks.

“She’s probably already worth twice what we paid,” said 36-year-old Siegel, who is part of several different horse-owning entities that control more than 50 horses. He said partnership shares usually sell anywhere from $12,500 to $30,000, including maintenance costs.

“A lot of people can’t afford to do it alone,” said Siegel. “You can get the same enjoyment owning part of a horse as doing it alone.”

Partnerships also help dampen the tremendous risks of investments in thoroughbreds, which are considered even greater these days because of the weak breeding market.

Losses Not Deductible

The new tax laws also increase the risk, since losses are not necessarily deductible any more.

“In the past you could deduct losses in a limited partnership,” said Al Tarkington, an Encinitas CPA with clients in the horse business. “Under the new rules, you cannot deduct losses unless you have similar income to offset the losses.”

The losses can add up quickly. Siegel’s first horse, a yearling filly purchased for $2,500, was hurt before it ever ran a race and, after two years of stable costs, eventually sold for $500.

“The percentage of foals that actually make it to races is somewhere around 10,” said bloodstock agent and insurance broker Sacco, who trained horses for the late Lloyd Schunemann, co-founder of Jack in the Box and the Price Club.

Kris Robillard, Schunemann’s daughter, need only look at a small plaque on the wall commemorating a stakes race win, her only tangible reward from racing, to remind herself of the pitfalls of racing.

“My $2-million plaque,” she jokes.

The 30-year-old Robillard, full or part owner of 25 horses, has been hit by an incredible string of bad luck--the type of racing luck that is not really uncommon. She had one promising horse die of colic. Another horse drowned in a freak accident. Two other horses broke down on the track.

Amazing Things Happen

“It’s amazing all the things that can happen,” she said. “They’re delicate animals. They need a lot of attention.”

Padilla described his racing history as “very humble.” The San Diego attorney is part of four partnerships--along with his partners in the law firm of Thorsnes, Bartolotta, McGuire & Padilla and a few other San Diegans--which control a total of nine horses.

Padilla and his partners purchased their first horse, Sultan’s Pleasure, a $75,000 daughter of Kentucky Derby winner Foolish Pleasure, in 1981. She never won a race but she did produce three foals.

One of the horses owned by a Padilla partnership did win two races, though, for earnings of about $35,000, and another horse earned about the same with one victory and two second-place finishes.

A Padilla partnership sold a yearling for the first time last month. A daughter of Sultan’s Pleasure sold for $18,000 at the Keeneland sale in Kentucky.

“What we did for $100,000 can probably be done for $25,000 now,” Padilla said.

There are indications, though, that the market is going through another transition. At the Keeneland fall sale just three weeks ago, perhaps the most important sale of its kind in the country, prices for yearlings were actually up 20% to 25% from the year before.

“I do think the picture has changed in the last few days,” said Edward Bowen, editor in chief of the Kentucky-based Blood Horse magazine. “The sense of optimism was increased by the reality of the sale.”

At a recent sale conducted by California Thoroughbred Sales at Bay Meadows Racetrack near San Francisco, prices were up almost 30% from a year ago.

“Things seem to be improving,” Harmon said, “but (prices) were down so much last year that it’s easy to be up.”

The real market hasn’t changed that much, experts say. The expensive horses got more expensive and the cheap horses got cheaper, but “a good race horse is as valuable a commodity as ever,” Sacco said.

And there apparently are plenty of people ready to buy them. Horse racing has an allure that appears to transcend more practical investments.

“It’s a tremendous amount of fun,” Padilla said. “It’s thrilling. It’s alive. It’s right there.”