Keeneland, the big Kentucky thoroughbred auction house, says horse prices fell sharply at its latest auction. Total receipts of $185 million were down 45% from last year. The average price paid per house, $61,000, was down about 40% from last year.
It’s not all due to the financial crisis, though that’s a big part of it. The auction house also sites overproduction and the strong dollar (a lot of the folks who throw money around on this stuff are foreign). And in a way, it’s not all bad news. $185 million was spent on horses during a 15-day period, and 19 horses sold for $1 million more.
Any reader of the New York times might have seen the horse bust coming. A year ago, the paper ran a story on how a growing number of middle class New Yorkers were buying small shares in racehorses. No wonder there was overproduction of horses — even the middle class was getting into the sport of kings! In retrospect, that stood out as a big red flag, though at the time, it might’ve been hard to see.
As an aside, we’ll relay an idea we had a while ago for a thoroughbred hedge fund. Our guess was that horses that consistently won big races were overvalued — since their owners prized the vanity angle — and that horses which steadily came in 2nd or 3rd (place or show), were undervalued, since there was no glamor there. But it’s not true. The research out there suggests that prices are pretty efficient. That’s not to say there aren’t interesting opportunities, but a successful strategy would require more depth than our simple idea.
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