Lecture Notes: The Economics of Thoroughbred Ownership

Opening Remarks

• Location: Woodbine and Woodbine Mohawk Park RAC tracks, Ontario, Canada
• Notable Events: Pepsi North America Cup (Summer Classic), Woodbine Thoroughbred (King's Plate)
• Horse Racing Highlights: Elite Power's performance in the Breeders Cup

Wealth Management Introduction

• Importance of understanding clients' needs and decision-making for the next generation
• Emphasis on personalized service and becoming trusted advisors
• Quote from Henry David Thoreau on perspective: “It’s not what you look at that matters, it’s what you see.”
• Overview of managing wealth: involves taxes, trusts, bonds, family meetings

Economic Panel Introduction

• Host: Gary Falter, The Jockey Club
• Series: Fifth online Zoom panel out of ten for the year
• Focus: Economics of Thoroughbred ownership
• Sponsors: The Green Group, Bessemer Trust, Stoll Keenon Ogden, Darley, Woodbine Race Track, West Point Thoroughbreds
• Speakers Introduced:
  • Everett Dobson: Owner of Cheyenne Stable and Candy Meadow Farm
  • Tom Rooney: President and CEO of NTWAB, former US Representative
  • Marshall Gramm: Professor of Economics, founder of Ten Strike Racing

Full Crop and Industry Trends

• Historical Trend: Peak in 1980s (51,000 foals), consistent 35-37k foals (1991-2007), decline to 17,200 foals (2023)
• Races and Starters: Decline in number of races and starters
• Purses: Increased from $714 million (1990) to nearly $1.4 billion (2023)
• Economic Impact: Fewer horses and races but higher purses
• Perspectives:
  • Tom Rooney: Influence of alternative gaming and sports betting on horse racing
  • Everett Dobson: Location-based purse support through alternative gaming
  • Marshall Gramm: Concern over increased reliance on gaming

Auction Data and Breeding Economics

• Auction Trends (1991 to 2023):
  • Increased yearling sales value: Average $87,500 (2023), Median $30,000
  • Inflation adjustments show real-term changes
• Breeding to Race vs. Breeding to Sell:
  • Shifts in percentage of foals sold at auction (up to 42%)
  • Discussion on commerciality of stallions and economic incentives

Cost of Ownership

• Ownership Costs (per year): Estimated at $40,000 to $60,000
• Ownership Expectations: Balancing costs with earnings on horses
• Example P&L Scenario: Best case for an allowance horse
  • Annual costs: ~$60,000
  • Potential earnings: ~$240,000 over several years
  • Various strategies on managing investment

State Breeding Programs

• State-level Data (1991 vs. 2021):
  • Significant declines in foal crops, except for Kentucky
  • Need for collaboration and best practices among state programs
• Incentives: Encouraging breeding within state programs through rewards

Safety, Healthcare, and Aftercare

• Major improvements in health and safety standards within the industry
• Benefits and increasing importance of aftercare programs
• Continuous emphasis on the welfare of horses and jockeys

Legislative Updates

• Taxation: Upcoming tax bill, potential changes to depreciation
• Fractional Ownership: Race Act to streamline approval processes

Audience Q&A Highlights

• Cost of Breeding: Lack of comprehensive data on modern costs
• Small Market Tracks: Concerns about sustainability and potential solutions
• Global Trends: Similar challenges across other countries
• Fixed Odds Betting: Potential integration into mainstream betting apps as an entry point for new enthusiasts

Closing Remarks

• Importance of owners and breeders to the industry
• Encouragement for future participation in thoroughbred ownership and breeding

Sponsors and Thanks

• Recognition of Q&A sponsor: West Point Thoroughbreds
• Appreciation extended to all sponsors and participants for their support and efforts.