With the two year old auction market's bellwhether sales recently concluded for 2105 after bosting record numbers at several major venues, we thought it might be a good time to take a look at what paying top dollar gets you, compared to purchasing ‘bargain priced’ two year olds at the same sales. As a benchmark, let’s start with some averages the last couple of years at three venues that collectively comprise about 70% of the total two year old auction market;

At the OBS March Select sale the average price was $190,997 in 2014, up 22.7% from 2013’s record $155,643. The median was $137,500 in 2014 and $125,000 in 2013.

At the OBS April sale the average price was $74,357 in 2014, up 24.3% over 2013’s record $59,825. The median was $47,000 in 2014 and $35,000 in 2013.

At the Fasig-Tipton Midlantic May sale the average was $59,578 in 2014 and $66,968 in 2013. The median was $31,000 in 2014 and $40,000 in 2013

So, how to compare the top of the market with horses that sell for less than the sales averages – medians? Our stable, Kenwood Racing, is known as value buyers on a strict budget, so we’ll start with our record purchasing horses at these sales the last few years. We know our own stats best (and we’re proud to showcase them!) so that’s our starting point, but if you look at the stats of other savvy buyers known for seeking out value priced horses, the comparisons between buying value and buying at the top of the market remain fairly consistent.

Kenwood  purchased a total of 27 horses at these sales from 2011 – 2014, spending almost exactly $1,000,000 ($999,800), an average of $37,000 per horse. We spent significantly less than the sales averages at every venue. So, what did this buy us, and how does that compare to paying top dollar for horses? Let’s begin with a look at the purchase prices, earnings, race records and number of starts of our purchases to date as of June 1, 2015 (remember many are still racing, last year’s horses just turned three and presumably have their peak earning years still ahead of them).

Totals (all as of 6-1-15)

Number of horses purchased; 27

Starters; 27

Winners; 26

Allowance winners; 12

Stakes horses; 2

Graded stakes horses; 2

Number earning more than their purchase price; 20 (most  of the others are newly turned three year olds on the verge of doing so).

Purchase price for group; $999,800

Earnings for group; $2,300,000+

Collectively our horses have already earned more than double their purchase price in purses. The percentages of starters, winners, allowance winners and graded stakes horses all blow away the overall averages in these categories at any of the sales we’ve attended. This is not to say that these horses were collectively profitable. It costs us about $2,500 a month to keep a horse in training. If you figure the above group (with many of them just turned 3 or 4 so not in training too long) have on average been in training about 20 months, that would equate to $1,350,000 in expenses ($2,500 x 20 months x 27 horses). That leaves about 950,000 more in earnings than expenses, but the trainer typically gets 10% of 1^st – 3^rd, while the jockey typically gets 10% of wins. Take out say $250,000 for that and you are left with $700,000 in income to date, against the $999,800 paid to purchase the horses. Of course, many of the 27 are still racing and are worth money as active racehorses. They will continue to earn money (and run up expenses), so the final results are yet to come. Some of those whose racing careers are over had residual value as broodmares (not many), which adds a little to the income. Kenwood hasn’t owned all these horses for their entire racing careers, many were claimed from us or sold privately at some point, and obviously we can’t know exactly what training costs were for other owners. What we paid and what the horses have earned are hard numbers; the costs and the bottom line are educated guesses.

Clearly the horses we’ve purchased at the sales the last 4 years have performed exceptionally well compared to sales averages or other metrics, yet as a group it appears they will end up being around break even, probably modestly profitable. Nobody ever said this was an easy game, you need a true “home run” horse to make serious money. Given that we had a lot of singles, doubles, and a couple of triples but no home runs with these horses, we did really well. In our racing program with our trainers at least we know they were well cared for and properly managed, but beyond care and management a large part of these results came from buying underpriced bargains at the sales instead of letting ego get in the way and overpaying for fancy pedigrees and fast sale workouts as many buyers do.

So what happens if you take the opposite route; skip the bargain runners and pay what it takes to buy the best? A blog we did last year titled “The economics behind buying horses at auction” (http://kenwoodracing.com/blog/economics-behind-buying-horses-auction) looked at how the highest priced horses at the major 2012 two year old sales actually performed on the racetrack. We took the six major sales that collectively made up virtually the entire thoroughbred two year old auction market and looked up the racetrack results of the top 10 horses by sales price from each sale. Ten was a somewhat random number, we could easily have picked the top 15 or 20, but it was time consuming work and the results wouldn’t have changed much. We felt 2012 would be a pretty representative year; the economy was still recovering from 2008 but was no longer in the depths of recession. You could go back to earlier years; we didn’t invest the time to do it because it’s been done before and the results weren’t much different. Remember these were the 10 most expensive horses at each sale, the cream of the crop. If any group of horses should have racetrack success, it was these! However, just 5 of the 60 – 8% earned more than their purchase price, 3 of those 5 raced solely in Japan, where competition is severely restricted, purses are several times higher, and only Japanese citizens can stable a horse for almost all races. Effectively a closed market where any decent horse purchased overseas has a huge advantage that nobody in this country can take advantage of.

10 of the 60 – 16% were stakes winners (including those in Japan), that’s better but note that not a single one of these 60 horses won a Triple Crown, Breeder’s Cup or other truly famous race, or was anywhere the best of the year. Amazingly, just two of the 55 non-Japan based horses could be said to be truly successful at any level. Unlimited Budget cost $475,000 at the OBS March select sale and had earned $717,000 at the time of the report. Executive Privilege, the sales topper at the OBS April sale, cost $650,000 and had earned $999,000. The lowest sale price for the 60 horses in the report was $200,000, the highest was $1,200,000, the average purchase price was about $600,000 per horse. Only 12 of the 60 horses – 20% earned over $100,000, and 5 of these were in Japan, meaning only 7 of 55 horses racing here, just under 13%, made $100,000 in purses. 8 of our 27 horses, about 30%, have already that, and they cost an average of just $37,000. 16 of the 60 sales toppers – 27% had yet to win a single race at the time of the report, compared to 4 of the 27 horses we purchased, about 15%.

Clearly there is no way to do a perfect comparison, but the numbers are too dramatic to ignore. Even if you “gerrymander” the results to favor higher priced horses by picking the better results from various sales, it’s hard to come up with a scenario where it pays on any level to spend top dollar for unraced youngsters at public auction.

Decades of statistics show that horses sold for $500,000 – $2,000,000+ at two year old sales (the cream of the crop) win about three times as many stakes, graded stakes, and grade I stakes as all horses sold for between $50,000 and $100,000 at the same sales. In other words, paying 10 to 20 times as much buys you about 3 times the chance of success at the highest levels. Would seem to be a no-brainer to buy 10 really nice $100,000 horses as opposed to a single million dollar baby, even if you are looking only to win graded races. But multi-billionaires with egos to match their wallets looking to have their pictures in the trade papers as the buyer of the sales topper serve to make the thoroughbred market exceptionally inefficient. Personally, I’d rather have my picture taken as the buyer of the bargain priced $35,000 horse (OBS April 2011) named I’ll Have Another who won the Derby and Preakness, than as the buyer of Mr. Besilu (by classic sire A.P. Indy out of Grade I winner Balance), purchased for $4,200,000 at the Keeneland 2010 yearling sale, who ended his career as a five year old maiden with lifetime earnings of $11,943, but that’s just me. If horses like Mr. Besilu were anomalies and most of the classic winners were horses purchased for $500,000 - $5,000,000+, then paying these premiums might make sense on some level, but the stats over many decades speak for themselves. Open the Daily Racing Form any day and look at maiden races from Gulfstream, Santa Anita, Belmont Park and Saratoga and you’ll find many other horses like Mr. Besilu. Look at the horses competing in the featured stakes races on the same card, and you’ll see plenty of non-select bargains like I’ll Have Another.

The fact is, fancy pedigrees for yearlings who have never seen a saddle, or fast workout times at 1/8th of a mile for two year olds who have never seen a starting gate do not get you into the winners circle in the big races, at least not nearly enough to justify their sales prices. In fact, a staggering number of horses at the two year old sales with the fastest workout times end up unraced or non-winners, most likely and logically because they are being pushed beyond their limits to show a “bullet work” on sale day, where the goal is attracting a billionaire buyer rather than getting to the winners circle. To date 27 of 27 horses Kenwood purchased for an average of just $37,000 have started, 23 are winners, 12 have won allowance races and 8 have earned over $100,000 (and counting, many of the rest are 3 year olds just starting their careers). We are not the only people who have done well buying value at these sales. If you analyzed the two year old purchases of trainers Jerry Hollandorfer, Eddie Plesa and Ben Perkins, to name just three out of a number of savvy people we see regularly at the sales doing their homework and looking at a lot of the same horses we do, it will be clear that you are far better off spending a million dollars buying 10-15 carefully selected two year olds with less fancy pedigrees and slightly slower workout times for half the sales average, then spending it on one or two sales toppers for $500,000 - $1,000,000+.