An innocent who deals with the sharpies in the throughbred-breeding industry is usually in the position of a lamb dealing with a wolf.

But 30-year-old Michael Kay and the other owners of Lord Avie made history when they confronted the Kentucky horse establishment this year. They fashioned an unprecedented type of contract that will set the colt's value at somewhere between $10 million and $20 million when he goes to stud. And the transaction now looks like a rare triumph for the lamb over the wolf. Spendthrift Farm, one of the great, powerful Kentucky breeding establishments, may have made a laughable deal, while Kay and the other members of his family will be laughing all the way to the bank.

Only in his wildest dreams could Kay have imagined owning one of the most prominent racehorses in America. Born into a family that controls the Prime Motor Inns, his passion was never the motel business. "I was more like a racetrack bum," he said. "When I was 16 I was cutting classes to go to Aqueduct."

Kay took a brief stab at respectability when he came to Florida and enrolled in law school, but decided that he was not cut out to wear three-piece suits and started spending much of his time at the track. In 1978 he persuaded three other members of his family to ante up $8,000 apiece to buy a couple of cheap horses, and the S.K.S. Stable was born.

The stable operated on a modest scale and enjoyed some modest successes until one of its horses contracted a fever and died. That animal had been insured for $40,000, and the owners took that money to a sale of 2-year-olds last year. There, for $37,000, they acquired Lord Avie.

As the colt recorded the successes that would bring him the 2-year-old championship, Kay's life was changed. "The races for me were always a place where you could go and get away from the outside world," he said. "But this has become an awesome burden. Last year when Lord Avie ran second in the Arlington-Washington Futurity we made $80,000 and had a party. This year with all the media buildup we're in a position where we can only win."

It is in the nature of all horse owners to be optimistic. People who have a broken-down claiming horses may still dream of winning the Kentucky Derby; people who own genuine Derby contenders usually become megalomanical, losing all objectivity.

But when breeding farms started expressing interest in Lord Avie, Kay attempted to look at his own pride and joy with dispassion. "I consider Lord Avie a great horse," he said, "but I don't think he's a freak of nature.He's not a Seattle Slew." So when he started hearing some stratospheric figures quoted as his horse's value, he was interested.

Representatives of the S.K.S. Stable and Spendthrift Farm sat down together at two long bargaining sessions and shaped an agreement that had the racing world buzzing. Lord Avie would go to stud at the end of his 3-year-old season, but he would syndicated into 40 shares. S.K.S. would retain half, while the syndicate members would pay at least $250,000 per share.

But the price could go up, depending on the colt's accomplishments this year. If Lord Avie won the Kentucky Derby, the price per share would go up $100,000 and the cost of a share could rise to as high as $500,000. Thus, with 40 shares, Lord Avie's value would be as low as $10 million or as high as $20 million.

The top figure would make him almost as expensive as Spectacular Bid, who was a genuine superstar (which Lord Avie wasn't) and also had excellent bloodlines (which Lord Avie doesn't.) But the bottom figure was what suprised Kay. In all the discussions, he said, "One subject was never raised. What was the downside. What if he were an awful 3-year-old?" The fact that the owners would be richly compensated if Lord Avie were a failure made Kay conclude, "The deal was fantastic."

It now looks even more fantastic. Lord Avie won his first start of the year in a desperate photo finish over a nonentity, and then finished third against a moderate field in the Fountain of Youth Stakes at Gulfstream Park. His credentials have been tarnished, and that $10-to-20 million price tag might prove to be a like a joke. But this time, for once, the joke would be on the Kentucky sharpies.