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Bargain Hunters Go Off to the Races
Behind the Champagne and floppy hats of Saturday’s Kentucky Derby, ultra-wealthy horse owners are competing in a much longer race: to become the new kings of a Thoroughbred industry wracked by crisis and falling prices.
In September, health-care tycoon Benjamin Leon Jr. made the winning $4.2 million bid for a prized colt at the Keeneland September Yearling Sale. To him, it was a steal. “That same horse would have cost me more than $11 million in 2006,” he says. “Fortunately for me, I am getting into this business during a time of crisis. Otherwise, I might not have gotten in.”
Low prices are relative in the rarified world of Thoroughbred horses. Yet with the titans of the business pulling back, and with prices down by more than 30% from their peak, the Sport of Kings is seeing a changing of the guard, from big spenders to bargain shoppers.
Average prices are still 30% to 40% below 2006 levels, according to auctioneers. Sales volumes are also down by a third or more. Keeneland, whose autumn yearling sales are the largest of their kind in the world, raked in close to $400 million in 2006, but only $198 million in 2010. Like yachts, private jets and other trophies of the super-rich, racehorses have yet to recover from their recessionary slump.
One reason is the drop in mega-buyers. The former giants of the business— Sheik Mohammed bin Rashid Al Maktoum, the ruler of Dubai, and John Magnier, the Irish horse tycoon and financier—are now buying far fewer horses in the U.S. than they did in the mid-2000s, according to sellers and buyers. In 2007, Sheik Mohammed and his representatives spent more than $20 million on Thoroughbred yearlings (horses that are one year old), but they spent less than half that in 2010, according to auction data. Mr. Magnier and his representatives spent more than $19 million in 2007, but less than $2 million in 2010, according to the data.
Sheik Mohammed is working to turn around his debt-laden business empire, while Mr. Magnier is buying more horses in Europe because of the higher quality of horses there, according to industry experts. Both declined to comment. Another mega-buyer, wine magnate Jess Jackson, died last month at the age of 81.
The famous bidding wars between Sheik Mohammed and Mr. Magnier, which would regularly send prices up to $6 million or $8 million, are largely gone. “They were like incredible throwdowns,” says Bobby Flay, the celebrity chef who also buys and breeds racehorses. “Sheik Mo and Magnier would lock on a horse and just go crazy. It was great to watch. We just don’t see that now.”
Today’s buyers are more likely to be business-minded value seekers looking to break into the game at low prices. Rather than bragging rights, they’re interested in long-term returns and value—to the degree that either is possible for a multimillion-dollar investment that can break a leg a day after auction.
Mr. Leon is getting into the business to breed and sell horses, not just to race them. The Cuban émigré, who founded a chain of health-care centers in Florida, has for more than 20 years raised Paso Fino show horses, a breed known for its endurance. But he didn’t have the cash to buy top Thoroughbreds.
“Thoroughbreds are a big boys’ game,” he says.
In 2007, he sold one of his health-care businesses for more than $300 million. The cash, along with falling prices, allowed him to make his debut with the $4.2 million colt, an offspring of the famed horse A.P. Indy. A similar horse, with a shared bloodline, went for more than $11 million in 2007. Mr. Leon, who studies genetics, says success in the horse business is based largely on pedigree, so “I’ll pay top price for quality” rather than go for quantity.
For Michael Repole, quantity has its appeal. The Queens, N.Y., native, who sold Energy Brands Inc., the maker of Glaceau Vitaminwater, for $4.1 billion in 2007, has also stormed into the Thoroughbred market. He’s spending more than $3 million a year on horses, but he prefers to buy larger numbers of cheaper horses. As a teenager, he used to bet on horses at Aqueduct and Belmont. Now, his dream is winning races. “For $2 million or $3 million, I’d rather have 80 legs than four,” he says. “It’s just better odds.”
Mr. Repole admits, however, that the business of buying and racing horses is mostly luck. He hoped to have two entries in Saturday’s Kentucky Derby, Uncle Mo and Stay Thirsty. Yet Mr. Repole pulled Uncle Mo, a race favorite, from the Derby Friday due to illness. Stay Thirsty was still expected to run. “Ninety-five percent of the people in this business lose money, and the other 5% are lying,” he says. “That doesn’t mean I can’t look at it as a business.”
Mr. Repole said many of the newly rich buyers who came into the market in the mid-2000s vanished after overpaying for mediocre horses. “You’d have these CEOs or guys who would have $10 million for horses and two years later it’s gone and they’re saying, ‘What the heck happened?’ ”
Mr. Flay, who buys two or three horses a year, each for $800,000 or more, says his business plan calls for buying more expensive fillies that are “proven entities” and can generate income for breeding if they don’t win races. “These are long-term investments,” he says, “like a majestic building or piece of real estate.”
Prices are inching higher again as the fortunes and confidence of the rich rebound. Yet buyers and sellers say it will take years before prices get back to 2006 levels—if they return at all.
“I don’t think it will ever get back to where it was,” Mr. Repole says. “Before, if people wanted something and they could afford it, they didn’t care about price. Now it’s more about living within their means. No one needs a racehorse.”
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