Race for the Triple Crown: The Economics of Horse Racing
Americans know California Chrome for his speed, agility, and potential to win the final contest -- the Belmont Stakes, taking place this weekend -- in the race for the Triple Crown.
But what many might not know are the numbers behind an iconic American industry so well known for its chiseled horses and small-statured riders.
At a cost of about $10,000, California Chrome was bred for life as a race horse. It sounds like a hefty sum for a four-legged animal that comes with absolutely no guarantee of a successful racing career, let alone a winning one. But Andy Schweigardt, director of industry relations and development at the Thoroughbred Owners and Breeders Association, says that’s only the tip of the iceberg compared to what some are willing to spend.
What happened with California Chrome is why a lot of us try ownership: Because a good horse can come from anywhere.
“Costs run the full spectrum from $1,000 to well over $1 million (per horse),” he said. “The cheapest part (of owning a race horse) is the initial purchase price because the upkeep and training is quite expensive.”
He said in New York State, known for having one of the best racing circuits in the nation because of its competitions like the Belmont Stakes and high-class racing facilities like Saratoga Raceway, the cost to own and condition a thoroughbred race horse runs about $46,000. And that’s just a breakeven price for one year.
That cost includes a trainer’s day rate, which covers the cost per day to train at a barn or race track. It also covers costs for barn staff, feed, veterinary care, farriering (the process of putting horse shoes on the hoofs), and fees associated with shipping the animal from one race track to another for competition.
The most recent and comprehensive data on the industry was compiled by the American Horse Council in 2005. But its findings are significant, showing that one in every 63 Americans is, in one way or another, involved with horses. The industry as a whole contributed $101.5 billion to U.S. GDP, while racing, showing, and recreational components contributed between $10.5 billion and $12 billion to the total goods and services produced by the industry.
On the ground level, the employment picture for the industry looks like this: According to the data, the industry overall employs 701,946 people directly with about 453,612 of those full-time. It also supports a total of 1.4 million full-time equivalent jobs across the nation, and contributes about $1.9 billion to federal, state, and local governments through taxes.
The Economic Breakdown
To understand the economics behind the sport, you have to start at the beginning. Though a horse can be bought at any stage of life, Schweigardt said there are three times race horses typically exchange hands: From the weanling stage, or when the horse is between 6-8 months old and taken off of its mother; the yearling stage; or at two-years old.
“The general view is the earlier you buy, the more risk you take on,” he said. “A lot can happen from the time you buy a yearling to the time it makes it to the races.”
Horses are typically bought and sold at public auctions or claiming races -- contests in which a potential owner can bid on a horse before a race and claim it at the end -- and the attributes buyers look for run the gamut. Essentially, it all comes down to a matter of personal performance preference. But one thing’s for sure: Everyone is looking for a winner.
“What happened with California Chrome is why a lot of us try ownership: Because a good horse can come from anywhere,” Schweigardt said.
So, what happens when a potential owner doesn’t find exactly what they’re looking for at auction? They’re not out of luck; instead, they can turn to a kind of custom breeding: Matching up their choice of female with their male pick to breed their ideal version of the perfect race horse.
Dan Rosenberg, owner of Rosenberg Thoroughbred Consulting, said when it comes to “customization,” buyers have many options, and it comes down to what they want to spend.
Keeping California Chrome’s $10,000 price tag in mind, everyone might be looking for a winner, but not everyone can necessarily afford the guarantee of a winning bloodline or genetic combination.
The AHC’s 2005 study showed the horse industry was made up of a diverse population. About 34% of horse owners had a household income of less than $50,000, while just 28% earned more than $100,000 annually. The rest had yearly earnings that totaled between $25,000 and $75,000.
“What’s a horse worth? Part of it is the sizzle,” Rosenberg said. “Part of it is what you might hope for in purses and earnings, but the other part is what the pedigree looks like, what the horse might be worth as a stallion or broodmare, and if the (owner or buyer) wants to race or sell offspring.”
Data on Thoroughbred auction sales in North America compiled by The Jockey Club shows of 1,163 weanlings sold in 2013 for an average price of $53,020. And to Schweigardt’s point, the older the horse, the higher the price. The average cost for yearlings was slightly more than $60,000 while broodmares sold for a whopping $81,937 on average.
An Entry Point for Any Pocketbook
While the sometimes sky-high price all begins with the breed and the bloodlines, the competition component of race-horse ownership is also an attractive part of the puzzle that can help make the money spent up front worth the hassle.
“There’s an entry point for any size pocketbook,” Schweigardt said.
When it comes to training a horse to be the next Triple Crown winner, the amount of cash you lay down all depends on the tracks where the animals are trained and raced and the area of the country.
The larger tracks, generally speaking, are more expensive than the smaller tracks to utilize, and that’s because of the purse structure.
“You can look at some of the smaller race tracks, some that don’t have alternative gaming like slot machines or a lottery to support their purse structures, and the purses can go for less than $10,000,” Schweigardt said.
In fact, in 2012, according to the International Federation of Horseracing Authorities, a total of $1, 042,641,516 was awarded in total prize money for the year.
For prestigious races like the Belmont Stakes, the purses take on much more significance. According to the Belmont Stakes official website, this year, the total purse value is $1,000,000, and will be allocated like this: The winner takes home 62% of the total purse, or $620,000, while the fifth place finisher nets $30,000, or 3% of the total. Horses placing second through fourth will also take home a portion of the total at the end of the race.
So how is the award money determined?
Traditionally, purses are comprised from a portion of the wagering at the racetrack. So, for every dollar bet on the day of the race, there’s a takeout that goes toward the purse. Essentially, the more horses that enter the race, the higher the purse. But for some races like those associated with the New York Racing Association, there’s a set purse amount, regardless of the number of race participants. The purse is generally distributed to horses that place in the top five positions. Among those who receive purse money, the owner keeps about 60%, while the trainer and the jockey take home about 20% each.
Schweigardt said there’s an even more complex breakdown: The total purse is split 50/50 between the top five winners and the track. Of the money that goes back to the house for the purse, a portion is given to the winning betters, and there’s a small portion taken out for state taxes and regulatory fees.
The money associated with horse racing doesn’t just end at the race track, though.
Even when a race horse’s career comes to an end, there’s still plenty of opportunity to cash out. Some become breading stock – and the moneymaking scale is determined by how successful the horse’s racing career was. If a race horse isn’t used for future breading, they can also be used for pleasure, adopted out, or re-trained for other equine disciplines.