Monday, July 14, 2008

The Economics of Owning a Race Horse in New York

I've been wanting for some time to write about the economics of racing from the owners' and trainers' point of view. And the quarterly ritual of preparing financial statements for my Castle Village Farm partnerships has finally provided both the motivation and the data to get started. So, this post will look at racing from an owner's point of view. I'll follow up later with a look at the economics of being a trainer.

In both cases, I'll be focusing on the New York racing scene, that is, as an owner or a trainer stabled at Aqueduct or Belmont, and making an annual pilgrimage to Saratoga. New York has the best purses around -- they'll average over $700,000 a day at the upcoming Saratoga meet -- but it also has very high expenses. So, even with the kind of horses that most of us are satisfied to have -- solid, hard-working thoroughbreds -- not a stakes horse, but not a $4,000 Finger Lakes claimer either -- it's not easy to come out ahead -- even when your horse starts, say, 10 times a year, which is the number of starts that most owners and trainers consider the optimum.

Let's begin with Owner Basics. A typical day rate -- what the trainer charges just to keep your horse in the stall, feed and exercise it -- is now about $90 at the NYRA tracks. (The big names, such as Pletcher, Mott, etc., charge much more.) Then there are the extras. An increasing number of trainers now charge a race-day fee -- say $100 -- to cover the costs of sending a groom to NYRA's detention barn with your horse. If your horse runs 10 times in a year, that's another $1,000. And these days it's becoming normal to see an additional item or two on the bill, for, say, "tack and supplies" or a separate charge for your pro-rata share of the trainer's workers' compensation premium. Let's say $150 a month per horse for those extras. So, before the horse wins any purse money, your bill from the trainer is on the order of $36,000 a year.

And the costs don't stop there. Don't forget the van bills up to Saratoga and back -- say at least $800 with current fuel costs. You'll need the farrier to come at least once a month, at $150 a pop, even without Ian MacKinlay's fancy glue-on horseshoes. And then there's the vet! It's impossible to predict what vet bills will be, but it's hard to get them under $300 a month in New York, and they can go MUCH higher. A little Bute, a little Winstrol or Adequan (at least until those steroids are banned), some joint injections, perhaps some acupuncture -- and that's just what New York vets use on a routine basis for horses who don't need anything special. So let's add another $6,000 a year for all those items.

Now we're at just about $43,000 for the year, before the horse has set foot on the track in the afternoon. How do we pay it? From the purses? Don't we wish. Even when the horse does finish in the money, the owner doesn't get all of it. First, the trainer gets 10% off the top. In addition, many trainers take another 1-3% for their barn help. The jockey gets 10% of the win purse, 5% of place and 7.5% of the show purse (don't ask; the numbers are mired in history). For losing mounts -- finishing fourth or worse -- we pay a jockey fee of a flat $100. And don't forget the $23 a start for the outrider pony and $20 for a lasix shot. Wait, there's more. In New York, the Jockey Club gets $2.50 a start. (New York is the only state where the Jockey Club still has a role in registering stable names and colors.) And the backstretch health program gets $12.50. The New York Thoroughbred Horsemen's Association gets 2% of the purse, most of which goes to backstretch benevolence programs and to support better drug testing. The backstretch pension fund for grooms and hot walkers gets 1%, and the Jockey Injury Compensation Fund, which provides insurance coverage for jockeys and exercise riders, gets 0.7%. (Click this link for a good description of how the JICF functions.) I don't begrudge any of that money; it's all for good causes. For some of them, I wish we could afford to pay a lot more. But it does eat into the bottom line.

So, let's say you win a $50,000 allowance. First, you haven't won $50,000; the win purse is only 60% of that. (From the purse, 20% goes to second place, 10% to third, 5% to fourth, 3% to fifth and the remaining the last 2% is split equally among the other starters.) So, as the winner, your share is already only $30,000, and it's going to end up even lower, because, after paying all the costs I've been describing here, not to mention the charges for the win pictures and the donuts for the barn, you are unlikely to take home more than 75% of that $30,000, or about $22,500. Not bad, but a lot less than it looks like if you just look at the gross earnings. (And don't even think about the consequences of finishing out of the money. If you finish worse than 5th, there's no way you won't lose money, especially once you've paid for the jockey, the outrider pony, the lasix, etc.)

What this all means is that, to cover that $43,000 that we mentioned earlier as a (very conservative) cost of keeping a horse in training so he can run 10 races a year, the horse actually has to earn about $57,000 in gross purses for the year. In more practical terms, that means the average allowance horse or mid-level claimer has to win at least two of his races each year, or a 20% win percentage for our hypothetical 10-start racer. Obviously, the average horse doesn't win 20% of the time, as we don't -- yet -- have five-horse fields all the time.

And these numbers are for horses that are healthy, at the track and running regularly, which probably describes only a very small minority of race horses; most will need something extra most of the time. This overview doesn't cover the costs of the horses that get injured or a little out of sorts, so they can't run 10 times a year, or the ones that need $5,000 surgeries, and several months of recuperation, because they poked an eye on something in their stall (yes, that happened to one of ours last year). To say nothing of the ones that never make it to the track at all. (Only two-thirds of thoroughbreds actually start even one race, and only half of all thoroughbreds ever win a race.)

In 2006, the last year for which I have complete numbers, horses on the NYRA circuit made 18,371 starts in 2250 races (an average field size of just over 8), and earned gross purses of just over $113 million. (I'm grateful to NYRA and the New York Thoroughbred Horsemen's Association for supplying those statistics.) That was an average purse per race of a little over $50,000 (considerably skewed, of course, by the big stakes races). And it meant that the average earnings per start were $6,170. Looks like the average horse, if it ran 10 times, could just cover its expenses. So far, so good.

But, there are two problems with that analysis. First, the average earnings per start is vastly inflated by the high purses dedicated to stakes races. Second, most thoroughbreds don't, in fact, start 10 times a year. The national average is more like 7 starts a year, and there's no reason to think that New York is different.

So let's correct for the stakes bias. If we exclude races worth $100,000 and up, the number of starts drops to 17,336 (in 2107 races), but the gross purse amount drops to $83.5 million (or just under $40,000 per race). That means the average starter in a non-$100,000 race earned $4,816. Add one more correction, reflecting the fact that the average thoroughbred probably makes only seven starts, and that brings the expected gross earnings for a typical journeyman horse in New York to no more than $33,000 a year. That's a long way from covering the bills, which, as we said, are going to be more like $43,000. And an even longer way from the $57,000 in gross purses that we estimated a horse has to earn in order to take home $43,000.

And that's just for upkeep; it doesn't include what you paid for the horse to begin with. Whether you claimed it out of a race or bought it as a young, unraced horse, there's no guarantee you'll be able to sell it for anything near what you paid.

So is there a lesson in all this? The moral I take from it is that we'd all better be in this game for the thrills, the excitement, and the beauty of thoroughbreds, and be willing to pay a bit for the privilege of being associated with them. If we're looking at race horse ownership to pay the rent, we're in the wrong business. If we're even hoping our horses will pay for themselves, we're probably dreaming. Yes, that highly unusual, very good horse -- the one we all hope to have every time we look at those two-year-olds in the Fasig-Tipton sales barns -- will more than pay its own way. But most won't -- and we'll all be in a better, more pleasant frame of mind if we can remember that.

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