Out of the Money

A growing number of horse-racing fans are indulging their fantasies about owning a thoroughbred, or just a piece of one.

As many use new riches gained from stocks and bonds in recent years, they are driving up prices for racehorses, even though the four-legged investments rarely return a profit.

“We’ve got a lot of guys who’ve made money in the stock market,” said Barry Irwin, who sells partnerships in horses through his Team Valor stable in Pasadena. “They’ve convinced their wives that they can have a toy.”

Thoroughbred auction prices set a fourth consecutive record last year, with the average sale at almost $39,000, up 87% from 1993, according to Blood-Horse, an industry magazine.

It’s a different tale at the track, however. Crowds are dwindling as new casinos lure away gamblers. Profits for horse owners are becoming more elusive. But that doesn’t seem to matter to them.

As U.S. stock prices have doubled in the past three years, some of the new millionaires who spent their salad days watching from the bleachers now want to see their own horses finish first. Making a profit isn’t top priority.

“These people would be thrilled if they never made a dollar and they just had the attention” of participating in a Triple Crown race, Irwin said.

Irwin delivered on that wish last year, when Captain Bodgit, a Team Valor thoroughbred, finished second in the Kentucky Derby.

But Irwin estimates that only half of the 150 horses he has managed since 1992 ever finished second or better in a “stakes race,” one that offers at least $25,000 in prize money.

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While Silver Charm won $700,000 by finishing first in the Kentucky Derby, run of-the-mill victories don’t usually cover training costs, which can run $2,000 a month.

The increased demand for racehorses makes it harder than ever to make ends meet. “It seems there’s always a premium on the horses you like,” said Rob Murphy, who runs M375 Inc. (If read upside-down, the stable’s moniker spells Slew, as in the famed horse, Seattle Slew.)

Murphy, a former pitcher for the Cincinnati Reds, said he was once outbid by representatives of John Kluge, the billionaire investor and chairman of Metromedia International Group. Murphy said he tries to avoid overpaying, but still needs to stock his stable.

Rising prices reflect some investors’ expectations that plans for televising more big races nationally will increase betting, Murphy said.

Either way, horse prices aren’t likely to fall anytime soon, according to Blood-Horse. Last year ended “with stout bidding at nearly every auction on the schedule and with no end in sight for the five-year-long rally,” a recent issue reported.

Investors bought $693.8 million of horses at auction in 1997 vs. $610.8 million in 1996.

Gains were less robust at the track. The Jockey Club, an industry group with offices in New York and Lexington, Ky., estimates gamblers bet about $850 million at the track in 1997, an increase of 6.9% from the year before, the biggest jump in a decade.

Casino gambling, on the other hand, has increased an average of 11% a year for the past 15 years, according to International Gaming.

“Racing is having a hard time,” said W. Cothran “Cott” Campbell, who runs the Dogwood Stable in Aiken, South Carolina, the oldest racing partnership. “The competition for the gambling dollar is intense.”

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Racing’s share of U.S. gambling revenue fell to 7.8%, from 28% in the past 25 years, according to International Gaming & Wagering Business magazine

Campbell said he tells investors to be realistic about their prospects for profits. “It’s something that might make money,” he said, though “chances are it won’t.” He estimates 30 out of 100 horses recover their costs. Horse owners can take tax deductions if they lose money.

Many owners say they satisfied with just the thrill of seeing their horses take laps around the stable on weekends and for the few times a year they can cheer their steeds on at the track.

“When your horse races, it’s something special, and when it wins, there’s nothing better in the world,” said Steve Rubell, a clothing manufacturer in New York, who owns shares in two horses.

Rubell said his horses made enough money in 1997 to pay for stable fees for the next year. It has been a bumpy ride, though. One horse is recovering from a career-threatening muscle pull. “One bad step and the horse can be finished for life,” Rubell said.

Steve Duncker, head of bond sales and trading at Goldman Sachs & Co. in New York, has owned horses on and off for almost two decades. Although the horses have been unprofitable investments, he says he is drawn to the sport because it’s the closest he’ll ever get to owning a professional sports team. “If there’s a bear market, it’s the first thing to go,” he said.