The yearling son of Alleged who came into the auction ring here Tuesday night was the type who permits his seller to dream that he might hit a jackpot. The colt had excellent conformation; his sire, a great European champion, has accounted for many high-priced yearlings.

But even before the bidding began, owner Jim Smith sensed he would be lucky to recover his $200,000 investment in the colt. The buyers who can create astronomical yearling prices, Robert Sangster and the Arabs, in particular, had not been looking at the son of Alleged with much interest.

The bidding proceeded slowly to the $200,000 level, where the auctioneer exhorted potential customers, "Let's not overlook this one at this price!" His pleas were in vain. The colt was finally sold for $205,000.

"This is a fickle business," Smith said.

A few minutes later, a son of the stallion Riverman was led into the ring. He looked good physically, but the breeding on his dam's side was not exceptional. Even so, Robert Sangster was interested in this one. His associate, John Magnier, had taken a position in the balcony where he could signal the bid-spotter inconspicuously. But from his location he could not see a silver-haired gentleman standing directly behind the bid-spotter. This was Col. Richard Warden, representing Sheik Mohammed al Maktoum.

Every time Magnier bid, Warden tapped the bid-spotter on the back with his sales catalogue to indicate he was upping the price. The two men countered each other's moves without hesitation, until Warden tapped out a $675,000 bid. Magnier turned and walked away, and another well-bred yearling had been bought by the Arabs.

Those two transactions epitomized the volatile, unpredictable nature of the modern thoroughbred business. The Alleged colt and the Riverman colt had appeared to be prospects of roughly equal quality. In fact, the editors of the industry newsletter Racing Update had estimated that the Alleged colt would sell for the greater price. Yet the Riverman colt sold for $460,000 more, for one reason: the right two big-money buyers were interested in him.

Yearling prices have always been dictated, to some extent, by the tastes and whims of a relatively small number of people. But the industry has never seen anything like this. At the record-setting Keeneland sale last month, 51 percent of the money was spent by four interests--Sangster, two Arab groups and the British Bloodstock Agency (England), which represents Stavros Niarchos.

If two of them like your horse, the sky is the limit. If none of them likes him, you're in trouble. It is no surprise that John Finney, who runs the Saratoga Sales, says, "The business has never been riskier."

Despite the astronomical yearling prices that have been produced by the Sangster-Arab bidding duels, and the tremendous profits that some breeders have made, many people in the industry wonder if this is, in the long run, a healthy thing.

"If the prices this year don't cause an earthquake in the industry," said Bill Oppenheim, the editor of Racing Update, "they'll at least cause tremors for years to come. People who think they're going to breed and sell a $10 million yearling are going to go for piles of money on broodmares and stallion seasons."

Those people will find out just how dangerous a business it is to depend on only four major customers.

"The breeders on the cutting edge," Finney said, "are the ones who are breeding for the heavy hitters. If they spend $300,000 to breed a $600,000 mare to Northern Dancer, they've got to get $1 million to get an adequate return. They're really vulnerable."

Oppenheim thinks that it is not only the breeders of fancy yearlings who can get hurt in this unpredictable market. The excitement generated by the sale of a handful of the 40,000 thoroughbreds born each year in North America is pushing up prices for broodmares, stallion seasons and yearlings across the board.

"The cost of getting into the game is jumping to God knows where," he said. "Three years ago, you could justify a speculative investment in horses. Now you've got to be 'round the bend to play this game."