When the Saratoga Yearling Sales begin Tuesday night many buyers and sellers will be thinking that the world has gone mad. Even millionaires will be shaking their heads in disbelief at the prices commanded by year-old thoroughbreds who have never seen a race track.
The cost of yearlings has been climbing every year, but it reached the stratosphere last month. In two Kentucky sales, the average price for a yearling was about $160,000 and five individuals sold for more than $1 million. Considering that only two dozen horses in the entire history of the sport have earned $1 million racing, the prices seem insane.
Yet the people who buy yearlings are not insane. They are either successful capitalists or the heirs of old-line wealth, in either case they are people who are not likely to throw away $1 million on a whim. So why are they paying such prices for untested horses?
They are doing it for the same reason that sensible men are paying $200,000 for modest houses in Washington or $300 for an ounce of gold. In times of inflation, investors want to use their money to buy goods. And horses have great appeal as investment commodities.
They are inflation-proof. They are not subject to tariff barriers. They offer tremendous tax advantages. And they have one special quality that other investment don't.
"Besides offering the hope of making real money and the certainty of saving taxes, horses provide pleasure," said John Finney, president of Fasig-Tipton Co., which conducts the Saratoga sales. "This is the world's most exotic product. Horses are a masculinity symbol for the men, a sex symbol for the women, a teddy bear for the kids. And buying them involves personal taste and judgment. There's a sense of participation you don't get buying gold."
There is one other, less romantic factor that has stimulated the great boom in yearling prices: the decline of the dollar.
In the 20 years after World War II, when America had the strongest currency in the world, this country's breeders cornered the best bloodstock in the world. We had the horses everybody envied and wanted - but couldnt afford. Americans like Charles Englehard dominated the Keeneland and Saratoga sales, bought the high-priced yearlings, raced them in America and sent them to stud here.
As the dollar eroded buyers with stronger currencies than ours invaded the yearling sales. Now they dominate the market. When a $1.6 million colt was sold at Keeneland last month, two Japanese businessmen outbid a British sysndicate to get him. Americans could only watch the action. The colt was a lot cheaper in terms of yen than he was in dollars.
The foreign buyers have brought with them some new standards for the value of a thoroughbred. "Once the value of an American horse was pegged to his earnings on the track," Finney said. "When Citation became the first horse to earn $1 million, no horse had ever been syndicated at stud for that much. But now the function of racing is to prove a horse's value at stud. When Affirmed became the first horse to earn $2 million, he was worth more than $14 million at stud.
"The buyers now, who know what inflation does, take the theory that the present value of horse is the future fully discounted." In other words, when they buy a one-year-old horse they are looking well into the future and bidding on his potential future value at stud.
A horse who proves himself on the track - even if his earnings are insignificant - can return his owner an enormous bonanza as a stallion. But a well-bred thoroughbred who disappoints as a racehorse can still turn out to be a profitable investment. This was the discovery that has made Robert Sangster the most free-spending and most successful buyer of yearlings in the world.
Sangster made a fortune operating the English football pools, and when he started seeking ways to invest his money, he decided that thoroughbreds offered the best opportunities.
He started buying yearlings at all the major sales in the world. He was the leading buyer at Keeneland last month, and he will probably be the leading buyer at Saratoga this week.
"Horseflesh is an international currency," Sangster said. "If you have an English Derby winner, you'll get bids for him from American, Japan, France, even the Arabs."
But even when his high-price yearlings haven't won the English Derby or anything like it, Sangster has found the there is such a strong worldwide demand for bloodstock that he can always find a market for his horses. He can sell them as stallion prospects in New Zealand or Tasmania, or other places that are hungering for first-class bloodlines.
Because of the international scope of his operation, Sangster said, "I would estimate we make a profit on 90 percent of our horses."
Maybe spending $1 million for a yearling isn't so crazy after all.