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#1
11-12-2007, 02:01 PM
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Determining the value of a horse
I'm rather curious what the mathematics are behind determining the value of a horse. For example, I just read where Curlin is believed to be worth $60-70 million. How is that number reached? Is it based upon probable number of mares to be bred, race record, breeding? A little of everything?
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#2
11-12-2007, 02:10 PM
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The figure is usually arrived at my determining the maximum stud fee would supply a full book and then doing a series of calculations. I'm not exactly what they are but it would have to involve depreciation, anticipated years at stud etc. It is based not nessessarily on how many races he won, but what the breeeding market will bear, considering his race record, pedigree etc.
Two stallions with identical race records could have very different fees because of their own pedigrees. Obviously once a stallion has foals on the ground, his can can change immensely, usually for the worse (Point Give) but somethimes for the better(Distorted Humor).
__________________
RIP Monroe.
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#3
11-12-2007, 06:47 PM
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$60 to 70 million is a pipedream.
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#5
11-12-2007, 06:55 PM
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#6
11-12-2007, 09:04 PM
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Without extraneous aspects, ego, companion stallions, and so on -- it's pretty simple (scientfically speaking vis a vis the economics) as to how to peg a stallion's alleged value. That doesn't mean that's what he's worth -- it's more a determining factor in what a farm may use as far as value and to then structure a deal to try and get him.
First, they would arrive at the stud fee. I'm sure there is much debate there. However, a farm would look at what they could sell shares, seasons, etc. for. That would help drive the stud fee as well. Second, if you are talking about syndicating, the farm would arrive at the # of mares they would like to, want to, think they could, etc. breed; and then formulate their share structure. This may seem easy, but it's not. The farm has to know who their clientele is -- who are buying the shares, seasons, etc. This is not an issue for someone like Farish/Lane's End, or someone of the like. However, a farm would want people with quality mares who are going to use the breeding (not sell it or "pool" it -- if there is going to be a "pool"). In an ideal world, the farm wants every opportunity to "make the stallion" but at the same time maximize revenue if applicable. The farm would figure out the # they want to limit the book to, the # of mares they want to breed, the share structure, etc. They would must also factor in all estimated expenses -- insurance (for the farm's portion, or the amount at risk, as the farm will not insure individual shares once sold), advertising, vet, and more. Depending on "fertility" -- unless there are issues -- I would think a farm may use a number like 70% or 80% (Chuck, do you think that's a fair number?). Then comes the real magic -- how quickly do you want to "get out", LOL. Yes, the starting point always seems to be 3 years (gee, I wonder why, LOL). It's formulaic in nature. If you are using other people's money via syndication, there is room for varaibles and the scenario could change. If we are talking about a non-commercial breeder, Darley/Shadwell/etc. -- then all bets are off, LOL. It's not this simple of course, and it depends on the buyer, but the farms have this down to a science. Unfortunately, this is part of the problem that the industry faces. Eric
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#7
11-12-2007, 09:22 PM
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__________________
 Seek respect, not attention.
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#8
11-13-2007, 09:00 AM
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Very interesting stuff!
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#10
11-13-2007, 10:00 AM
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Nice call on the Superderby Travis, just watched it.
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#11
11-13-2007, 10:21 AM
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You can toss "science" when greed and fear enter into the equation. If you are affraid your competition is going to get something you desparately think you need to be competitive, then you pay a premium and the science becomes WEIRD science. Then marketing takes over to spin your Stallion. A colt like Smarty Jones sold for at least a 15 to 20% premium to the what a like colt would have sold for without the Hoppla. SJ wasn't particularly gorgeous to look at, wasn't the fastest horse we have ever seen, and his page while ok and somewhat cool with the In Reality up close was hardly REGAL. Yet he syndicated very well..
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#12
11-13-2007, 11:31 AM
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Most today are based on 60 shares. Simple math from there. Let's suppose $50k for Curlin.
The prospective buyers would be offered shares with the idea that for the first four years they would get two seasons. They need to pay $100k per year for four years. Most would pay the fees the first year and get the payback for there shares covering the next years fees for the next three years, assuming he stays booked full. So, that would amount to $400k per share X 60 shares = $ 24 M. So, I think it is pretty easy to see how $60-70 million is probably too high. However, you can see how it might be a good investment for those close enough to the farm to get the chance to buy a share. You'd nearly own the share outright for just $100k by the time his first runners get to the track. As long as he is promoted enough and sells reasonably, after a few years its all profit. That is how the stud business works. However, investing in a few different stallions will spread your risk. Putting all your eggs in one basket can be risky.
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#13
11-13-2007, 01:52 PM
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#14
11-13-2007, 01:54 PM
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I guess my big and ultimate question is at what point does the lack of racing earnings start to outweigh the need to retire for stud profits. In other words, when does the bubble burst?
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#15
11-13-2007, 02:02 PM
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too many variables to have one answer....ego, greed, ability to pay insurance premuims, laws of supply and demand, they start to lose....just a couple of the factors that go into deciding when to retire.
__________________
Seek respect, not attention.
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#16
11-13-2007, 03:22 PM
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You could figure out the value of him based on what Sanan sold his interest for. Let's say he owner 25% of him and got $15M for that 25% than the horse would be valued at $60M. Highly unlikey that happened though. I heard it was $10M for 20%, which would make him worth $50M. That is just rumor though. I heard the rumors when he was initially sold in the $2M-$3.5M range. One guy who knows the deal pretty well told me it was $3.5M.
The value of a horse is really whatever an insurance company is willing to insure it for or whatever a purchaser will pay. I am sure if they were willing to pay an insurance company would insure him for $60M. Nobody is going to pay that much for him though if he was sold in full.
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#17
11-13-2007, 04:26 PM
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The word "value" has very little meaning in the breeding industry anymore.
__________________
Avatar ~ Nicky Whelan  and now we murderers because we kill time
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#18
11-13-2007, 05:50 PM
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#19
11-13-2007, 10:22 PM
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Insurance on an in training horse is very high. The biz is small and once figures like $10m, $30m, $50m etc get bandied about the insurance company rep calls to tell you that your rates just went up, even if you have not closed any deals. If you get offered $20m for your colt and are taking time to decide, race him in the Cigar Mile, contemplate a 4yo campaign etc, the insurance guy and you both know that that offer constitutes an (informal) assessment of his "value."
Depending on the rates, at some point it becomes to expensive to race. if he cannot be expected to make enough to cover costs (training, vet, shipping, insurance etc) it's better (business) to sell. OTOH, if racing is for you a labor of love, something you want to do, maybe you bite the bullet and go on. If you are wealthy, your family taken care of and comfortable that the $20m wont change your life and you derive great pleasure from seating your beat race, you go on. Mrs Valando should be an idol to all who rue the breeding tail wagging the racing dog. Last winter when her horse was the "buzz horse" she declined $17m for Nobiz. She LOVES seeing him race. She named him for her departed husband and by continuing to race him she honors his memory. For her, it's not about how much does this cost vs how much can I make. She loves the game.
__________________
RIP Monroe.
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#20
11-13-2007, 10:25 PM
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