The cliquish little world of thoroughbred breeders is populated mainly by people who were born into the Kentucky aristocracy and have horses in their blood. So it is a bit surprising to find in their midst a PhD economist who used to be a professor at the University of Illinois.
And it was positively stunning when that ex-professor did something that all the Kentucky professionals dream of. He sold a colt at last month's Keeneland Yearling Sales for the world-record price of $4.25 million.
The only exposure Mike Rosenthal had to horses in his youth came when his father took him on occasional outings to Arlington Park in suburban Chicago. He never owned a thoroughbred before 1976. But with his understanding of economics and an ability to anticipate the changing fashions of the thoroughbred marketplace, he was able to rank as the leading seller at the most elite horse sale in the world.
After getting his doctorate at Illinois Institute of Technology and entering the academic world, Rosenthal was always more interested in practical (i.e., money-making) applications of his knowledge. What interested him first was the commodities market. He and another economist worked on a computerized model to analyze and anticipate the movement of prices for pork bellies. "It was like clockwork," Rosenthal said. "It worked all the time."
When President Nixon attempted to impose controls on hog prices in 1973, the market went wild and Rosenthal made a big score. By 1976 he had enough money to start buying horses, and spent $25,000 for his first acquisition. "People said you couldn't really make money in the horse business," he said, "but I wanted to."
He concluded (as most people have) that the surest way to make money was to buy mares and sell their offspring at yearling sales. He took a long-range view of the market: "I thought that as more and more horses came on the market, the bottom part of it was going to get worse and the top was going to get better. To insure your place at the top you have to have outstanding mares."
The one trouble with this strategy, of course, is that everyone wants such mares and they are very expensive. So Rosenthal and his partner Mort Levy, a commodities broker, concentrated on buying good mares who had trouble getting pregnant and thus sold for a discount price; then they relied on the expertise of the manager of their Glencoe Farm who Rosenthal says "is really expert at getting mares in foal."
Rosenthal also tried to watch closely the changing tastes in stallions, noting what bloodlines the principal yearling buyers seemed to like. Although he was a relative neophyte, a former associate said, "He had a great instinct for where the market was going."
In 1978 Rosenthal and Levy bought a mare named Spearfish; she had an outstanding producing record, but she was old, she didn't look especially good and she was not in foal, so they were able to acquire her for a modest $265,000. Rosenthal also bought a share in the stallion Nijinsky for $510,000, figuring that the enthusiasm for sons of Northern Dancer was sure to grow.
The colt who was the product of the Nijinsky-Spearfish mating attracted plenty of attention before the Keeneland sale. Representatives of Robert Sangster, the world's No. 1 buyer of yearlings, made four trips to the farm to inspect him. Representatives of an Arab buyer brought veterinarians and took 24 X-rays of the colt, one of which disclosed a slight nick underneath his eye where he had brushed against a fence several months earlier.
That was the only knock anybody could find against the Nijinsky-Spearfish colt. On that fateful afternoon at Keeneland, Rosenthal watched as the bidding moved slowly to $1 million, then to $2 million, then skyrocketed to the unimaginable $4.25 million figure as Sangster outbid the Arabs for the animal. Afterward, Rosenthal celebrated by throwing a pizza party.
Having temporarily reached the zenith of his profession, Rosenthal knows he must try to keep anticipating what will happen in the market, yet knows that is becoming almost impossible. "After 1973 the hog-belly market started getting so wild that our model didn't work any more. The thoroughbred market is so volatile now that exactly the same thing is happening."
As a commodity trader, Rosenthal knows that no market rises indefinitely, and he said, "We could have a decline in this market that wipes out the weak people who have been paying exorbitant prices. We could see stallion shares lose 40 percent of their value. So we're being very restrictive in what we buy." If this scenario does materialize, Rosenthal will at least have $4.25 million to tide him over.