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Original Issue

Playing the horse market

With the slump on Wall Street, some speculators are gambling in thoroughbred bloodstock, figuring that racehorses can be profitable

Anyone who has glanced at the dwindling Dow Jones these past months knows that the action is not on Wall Street. Investors have been looking elsewhere, and these days some of them consider—of all things—that racehorses are a good gamble. The buyers of thoroughbreds and the bettors have been plunging increasing sums on horseflesh, seemingly endorsing the economic theory that when times are bad in the stock market people would rather risk their money, one way or another, in racing.

Saratoga Springs (pop. 18,590) has been drawing an average of 18,000 race fans to its track every day, a phenomenal increase of almost 30% in both attendance and pari-mutuel handle over last year. The recently completed meeting at Detroit Race Course was up 7.5% and 7.7% in attendance and handle. And across the country this seems to be a trend.

The big investors in thoroughbreds these days are not, however, the nameless thousands lining up with cash in their fists at the country's pari-mutuel windows. Instead, they are people like platinum magnate Charles Engelhard, who in the past three weeks has spent $1.5 million for 20 yearlings, and Canadian oilman Frank McMahon, who in July bid $510,000 for the year-old full brother to his Derby winner, Majestic Prince.

The yearling sales at Keeneland in Kentucky and Saratoga are Tiffany and Cartier to horse buyers, for on sale are the jewels of each year's thoroughbred crop. At Keeneland last month the average price of a yearling was $30,152, and at Saratoga last week it was $26,790. In all, 481 untried and unbroken horses were sold for $13.7 million—and a cool 10% of that was Charles Engelhard's money.

Since he bought his first three yearlings at the 1960 Saratoga sales, saying he would just like to race a few horses and have a little fun, Engelhard has spent close to $10 million on thoroughbreds. Now he races on three continents. He is too savvy a businessman to find relaxation in a losing venture, and last week he admitted to close friends something that only his accountant knew for sure—that he was slightly ahead of the game. How good an investment have thoroughbreds been for Engelhard? The box opposite gives some indication of the risk, but also of the possible profit. Engelhard has gotten most of his return from the syndication of his stakes-winning racehorses as stallions. Last year alone he made more than $3 million selling breeding shares in Hawaii, Habitat and Ribocco. Now he has announced the syndication of his superchamp, undefeated (10 for 10) Nijinsky. The price: an alltime record for a thoroughbred, $5,440,000. This tops the $5 million given for Vaguely Noble and the syndication prices of Buckpasser ($4.8 million), Dr. Eager ($3.2 million), Arts and Letters ($3.1 million), Damascus ($2.56 million) and Graustark and Northern Dancer ($2.4 million each).

Engelhard purchased Nijinsky for $84,000 as a yearling; he has won $483,919 with the colt to date, and should the amazing son of Northern Dancer capture next month's St. Leger he will be the first horse in 35 years to win England's Triple Crown. A victory in the Prix de l'Arc de Triomphe on Oct. 4 would put Nijinsky among the thoroughbred greats.

Unfortunately for the racing public, which loves to see a 3-year-old champion come back and do it all over again at 4, the economics of racing (at least the Engelhard way) dictate that Nijinsky be put to stud as soon as possible. Besides realizing an immediate profit, syndication reduces the risk for owners like Engelhard of breeding too many of their own mares to an unproved stallion. If Engelhard sent every broodmare he owns to Nijinsky he might have a stable of world-beaters, but, then again, if the horse proved a flop as a sire the Engelhard racing stable would be badly hurt. Therefore, ownership of such a horse is usually divided into 32 shares. In Nijinsky's case, Engelhard will keep 12 shares and he has sold the remaining 20 at $170,000 apiece to prominent breeders. Sometime in November, after the colt has passed a fertility test, the syndicate members will be asked for a first payment of $50,000. Then, for the next three years, they will pay additional installments of $40,000. The owner of a share gets to breed one mare each year to Nijinsky, for as long as the horse stands at stud. The Internal Revenue Service permits such a horse, bought for breeding purposes, to be depreciated through the age of 16, so by 1984 the members of the Nijinsky syndicate will have written off their purchase.

Naturally, not everyone is in Engelhard's enviable position of being able to spend millions and manipulate his horse business in the grand manner. "Charlie has the money to buy what he wants, and there is no point in his settling for anything less," says one of his fellow Jockey Club members. "But at the same time, just like any other serious horseman, he wants to operate this business to make money if possible. He can't just be throwing money away."

There are some people who suggest that millionaire McMahon might just be doing that by paying more than half a million dollars for Majestic Prince's little brother. The blue-chip buyers know, for example, that only three percent of all horses win a stakes race during their careers. It is probable that no yearling is worth more than $50,000, but, as one optimistic horseman put it, "At Saratoga and Keeneland, where a high percent of potential stakes winners are being sold, you are taking a shot at buying a horse that could win $500,000." That is the way McMahon, no doubt, sees it. His new colt, whom he is thinking of naming Crown Prince, has potential, and no one could ask for anything more right now.

Since the Federal Government moved to tax the thoroughbred industry more heavily, the purchase at public auction of such high-priced animals is considered by some racing men as decidedly unwise. What if the tax-conscious legislators read about the wild spending at a time when horsemen are moaning about the tax squeeze? "I don't know why everyone is griping about McMahon paying that $510,000 for my colt." declares Leslie Combs, who put the chestnut up at auction. "All this talk about the sale upsetting the economy is absurd. The woman who was bidding $400,000 for the colt was Lady Beaverbrook. That was English money. And McMahon's winning bid is Canadian money. So what's all the fuss? People are wasting too much time knocking one another in this game instead of pulling together."

McMahon, wanting no more dissension, has suddenly decided that instead of sending the half-million-dollar colt out to California to John Longden to train, he will ship him to England to race. There he will be trained by Bernard van Cutsem. "There is nothing personal against Longden in this." insists the Canadian millionaire. "John will still have about 15 horses for me out West, but Longden is a California trainer and likes to stay there, which is understandable. Lately the tracks in California have been knocking the hell out of our horses, and I want this colt to have every chance. He will be properly paced. He will run infrequently at 2 and point for the classics at 3. That is the decision I have made and I think it is the right one." Since Engelhard has had such extraordinary success sending American-bred yearlings to Europe to race, it is understandable that McMahon might come to think this was the best approach.

In spite of the free spending these past weeks, it would be a distortion of the truth to view the spectacular spiral of prices at the selective Keeneland and Saratoga sales as an industry-wide indicator of good times. It is only with quality stock that horsemen are gambling, paying high prices in the hope of turning a handsome profit. The colts sold at Saratoga and Keeneland are only 12% of the 3,900 yearlings sold annually at public auction in this country. The other 88% will average closer to $3,500 apiece at the sales. The people hurting the most in the Wall Street slump are the little investors. And the same seems to hold true in the thoroughbred stock market. The small speculator—the man with the $3,500 horse—is in trouble. But the Charles Engelhards have yet to feel the pinch.