Thursday, August 27, 2020

Can a Good Bloodstock Agent Help an Owner Make a Profit?

         Here's my most recent column, posted on on August 26, 2020:

Many of my columns at this year have pointed out how hard it is for a thoroughbred owner to make money. Yearlings and two-year-olds, especially those with good pedigrees or fast breezes, sell for much more than it’s likely they will earn on the race track; training and vet expenses keep going up; and purses, even when supplemented by casino revenues, haven’t even kept up with inflation. For some owners, that doesn’t matter. They have more money than they know what to do with (well, I suppose they could pay a lot more in taxes, but that’s for another column); what they want is a good horse, a Kentucky Derby or Breeders Cup runner.

         Lots of owners, though, just love horses and racing and are willing to lose a bit of money to be involved in the game. And some owners actually hope, against all the evidence, to make a profit. But for both these groups, the idea of losing millions a year for decades has limited appeal. They might not need racing to pay their mortgages, but they’d prefer not to lose too much. Is there anything a current or aspiring owner like that can do to improve their odds of success?

         Most buyers who are looking for a stakes-level horse buy at the major yearling and two-year-old sales, and most use a bloodstock agent either to buy for them or to advise on their purchases. Sometimes an agent will work for a single client, like Demi O’Byrne for Coolmore or John Ferguson for Sheikh Mohammed’s Godolphin empire. More often, a bloodstock agent will work for a variety of clients, somehow balancing their interests as the agent evaluates thoroughbred prospects. Some agents are good people who’ve spent their lives in the racing world and who have an eye for a promising horse. Others are more skilled at verbally romancing clients than at picking out good horses. And sometimes they’re just thieves, agents who take kickbacks from consignors in exchange for bidding on a horse, or who collude with the seller to bid up the price of a horse far beyond its actual value. To protect from lawsuits, I won’t name these bad actors here, but we know who you are.

         So, lesson 1 for the aspiring buyer: avoid the bad agents. But even if you can find a good, honest agent, can you have a decent chance of at least breaking even? Perhaps surprisingly, the answer is yes.

         For nearly 20 years, I’ve been friends with, and occasionally worked with, Jeff Seder and Patti Miller, who operate as EQB, Inc., evaluating and buying young horses at all the major US thoroughbred auctions. I’ve owned a few horses in partnership with them, and my NY-bred stakes winner Introspect spent a winter vacation at their Pennsylvania farm. Jeff has spent many years developing sophisticated evaluation tools, including a heart-scan database for comparing prospects to known winners, and slow-motion video for seeing how those two-year-olds breeze. By marrying those tools with Patti’s eye for a good horse and her expertise in administering heart scans, EQB has managed the unthinkable: horses they’ve bought for their clients, in the aggregate, actually make money.

         At my request, Jeff put together two spreadsheets. One shows the results for every horse EQB bought in 2016 – horses that are now five and six years old, so we can have a reasonable idea of how they turned out. The other shows all their results for the horses they bought for Ahmed Zayat in the years before American Pharoah’s Triple Crown. These data show that, when you include both racetrack earnings and the amounts that owners received when selling the horses as broodmare or stallion prospects, it’s possible to come out ahead.

         In 2016, EQB bought 65 horses, at prices ranging from $10,000 to $675,000, for a total of $9,478,500, an average of just under $146,000, with none of those million-dollar disappointments that prominent owners often purchase. Six of those 65 horses never raced. The remaining 59 have, so far, made a total of 735 starts and earned a total of $7,011,536, an average of $120,889. Among the 2016 cohort were multiple graded stakes winners Keeper of the Stars (Zayat) and Jersey Justice (Maggi Moss). Altogether, 13 of the 59 horses that made it to the race track were stakes winners or graded-stakes placed. Even if those horses weren’t profitable – and most of them were – Those owners would have been pretty satisfied to have raced and won at high levels. And those were just the 2016 purchases; taking a longer view, EQB has bought more than 40 graded-stakes winners over the past decade.

         While the $7 million those horses earned on the track doesn’t recoup the $9 million-plus that went to buy them, especially taking into account an estimated $3.5 million in training expenses, the owners did come out ahead because their income didn’t end there. For good horses, resale proceeds are a major source of income. Some horses were claimed away, for a total of $420,000, and many others were sold at auction or privately, as breeding prospects. In total, claiming and resale proceeds were $10,033,200. Add that to the race track earnings, subtract the estimated expenses, and the owners as a group come out more than $4 million ahead.

         The Zayat data show similar results. In the years 2005 through 2009, EQB bought 129 yearlings and two-year-olds for Zayat, spending a total of $31,647,000 (average of just over $145,000). Those four years’ purchases included graded-stakes winners Point Ashley, Baroness Thatcher, Z Fortune, Maimonides Zensational, Eskendereya, Nehro, Justin Philip and Pioneer of the Nile. (American Pharoah was a Zayat homebred that Jeff convinced Zayat not to let go at the sales, so the Triple Crown winner’s figures aren’t included in the totals, though EQB did buy American Pharoah’s dam for Zayat.) In total, the horses earned $13,279,506 on the track, a far cry from what they cost, and even further from the total their owners spent after adding in an estimated $9,900,000 in training and other costs. But the horses turned out to be high-class thoroughbreds that brought big prices when sold at breeding-stock sales. Half a dozen of the horses sold for more than $1 million, and a number became stallions, producing ongoing income for Zayat and, more recently, his creditors. Even without including that ongoing stallion value, Zayat appears to have realized over $41 million from the resale of those EQB horses once they came off the race track. Add all those numbers up and it appears that Zayat realized an overall profit of at least $12 million on those $31 million in purchases, a profit of some 30% after accounting for the expenses of racing the horses. Zayat also used agents other than EQB to buy horses; suffice it to say those purchases didn’t turn out so well.

         [If anyone wants the spreadsheets underlying these figures, feel from to DM me on Twitter, at @cvfpartnerships, and I can email them to you.]

         So, will you make money in horse racing? Probably not. But can you? Yes, especially with the help of an honest and accomplished agent buying the horses for you. As the EQB figures show, those agents are out there, but caveat emptor.

Tuesday, August 11, 2020

Midway Through the Saratoga Meet - By the Numbers

          We’re midway through this year’s Saratoga-without-fans race meet. Eighteen days of racing in the book, 21 scheduled in the final four weeks of the meet. At this same point in last year’s meet, we’d had 17 ½ days of racing. So, while it’s not a perfect comparison – for example, the Travers Stakes fell into the first half of the meet this year, instead of its usual position on the penultimate weekend – there’s enough similarity so that comparing numbers from last year and this can yield some tentative conclusions.

         First, the good news. Total betting handle through the first four weeks of the meet this year is just under $354 million, compared to $314 million at the same point last year. That’s a 12.8% increase from one year to the next, ignoring the paltry 1% inflation over the past 12 months. But that’s also with some advantages that last year’s Saratoga meet didn’t have: national television coverage on Fox Sports every day; a roughly $6 million boost in handle from this past Sunday’s mandatory distribution of the Jackpot Pick 6 pool; the shift of the Travers to the first half of the meet – though this year’s Travers Day handle was $39.47 million, a 24% decline from the $52.14 million wagered on the 2019 edition of the race; and the luck of having less damage from the cancellation this year of a  Wednesday card, compared to last year, when  the weather required that a full Saturday card plus most of a Thursday card had to be cancelled. Making some very rough adjustments for these differences would cut the increase in handle from 2019 to 2020 from $40 million to something more like $10 million, or only about 3% of last year’s adjusted number. That’s better than falling short, but it’s not spectacular. [Note: all handle figures have been calculated from Equibase race charts, available online.]

         Now for the not-so-good news. Last year 20% of the Saratoga handle was bet on-track or through NYRA’s own ADW operation, NYRABets. This year, with no fans at the race track, only 9% of total handle is coming through NYRABets, despite NYRA publicity about thousands of new online accounts being opened. Here’s why that matters: NYRA’s blended on-track takeout rate is about 20% (yes, we all know that’s too high, but that’s a story for another day). But NYRA receives only somewhere between 6% and 8% of the money bet off-track through outlets other than its own NYRABets. So, if everything else had been the same, each dollar that was bet through, say, TVG or Twin Spires by someone who last year bet that same dollar in person at Saratoga would return 12 cents less to NYRA and to the horsemen’s purse account.

         Now everything isn’t the same, so maybe the damage isn’t quite as serious as it might look at first glance. I don’t have access to NYRA’s contracts with its off-track betting partners (NYRA no longer appears to consider itself a New York State agency, which would have made it subject to the state’s open-records laws). But let’s say that, as one of the country’s premier race tracks, it’s able to get an average of 7% of what’s bet through non-NYRA outlets.

So, we can calculate, using the above numbers, that this year NYRA and the horsemen have so far earned about $6.34 million from NYRABets wagering and $22.56 million from the 90%-plus of the handle that’s bet elsewhere, for a total of $28.9 million. Last year, when total handle (not counting any adjustments) was a good deal less at this point in the meet, NYRA and the horsemen had received $11.56 million from the (much larger) share of total handle that was bet on-track, and $17.92 million from bets made at other locations, for a total of $29.5 million. In other words, the nearly 13% jump in total handle to date at this year’s Saratoga meet has actually resulted in less money available for NYRA operations and for the purse account. And that’s not counting the loss in ticket sales and concession income from the 20,000-plus fans who went to the races on an average day last year.

         Perhaps that’s not so bad. NYRA’s operating costs are surely lower this year (again, we don’t know, since NYRA no longer releases financial reports), and purses have been cut some, in anticipation of lower revenue. And the lingering mystique of Saratoga probably means that a stay-at-home Saratoga-at-Belmont meet would have handled substantially less money. But, while NYRA itself saved money, compared to last year, that wasn’t the case for the owners and trainers who sent their horses and their grooms and hotwalkers up to Saratoga to run for purses that aren’t as good as last year’s. A number of trainers have told me their daily costs are 10-20% higher at Saratoga than at Belmont.

         Looking beyond Saratoga, then, long-term omens are not optimistic. The Blood-Horse reports that total US thoroughbred handle through July this year was $6.15 billion, a 7% decline from last year. Of course, there are lots of reasons for that difference: among them the lockdown of racing in March and April and the shift of the Kentucky Oaks and Derby to September. But racing was the only gambling game in town, indeed the only major televised sport, for quite a while in the first half of the year, and one might have expected it to capture some of the dollars that couldn’t be bet on other sports. Now, with at least some of those sports and sports books coming back, it’s hard to see where more betting handle will come from.

         Twenty years ago, total handle on US thoroughbred races was $13.7 billion, of which 17% was bet on-track. Last year, the total was $11.0 billion, of which only 8% was on-track wagering. In nominal, non-inflation-adjusted dollars, that’s nearly a 20% decline in two decades. When you factor in inflation, the decline is nearly 50%. Looks, sadly, an awful lot like the buggy-whip industry in 1900-1920.