GOLD COAST, AUSTRALIA -- Second of two articles

In 1993, the $3 million Breeders' Cup Classic may no longer be able to bill itself as the world's richest horse race. If Carl Waugh has his way, it will be surpassed by a sprint at a small track in a Australian beach town called Surfers Paradise.

This might seem implausible, but Waugh already has revolutionized the economics of the thoroughbred business. The race he conceived, the Magic Millions Classic, already is the second-richest event in the world for 2-year-olds, with a purse of $1.2 million. It has spawned imitations in many other countries. It has been vociferously denounced by purists within the racing industry. But even the critics can't resist playing the new game that Waugh invented.

Waugh bred and sold horses at auctions in Brisbane for many years, but his results were so mediocre that he concluded he could run a sale better himself. He thought the Gold Coast -- the beach-resort area in the state of Queensland -- would be an ideal location to attract buyers and sellers. And he had an incentive to offer these buyers and sellers.

Exactly one year later, at the Gold Coast Turf Club, he would present a special stakes race open only to horses who had been entered in the sale. This was a modest venture at first -- the race offered a purse of $24,000 -- but it was so successful that Waugh concluded he could stage an "incentive sale" on a grand scale.

He created the Magic Millions with these conditions: The seller would pay $2,400 to enter a yearling in the auction and the buyer would pay $2,400 to keep him eligible for the next year's race. Four hundred horses would be allowed in the sale (thus generating $1.4 million in fees), and only these horses would be eligible for the $1.2 million Magic Millions race that would be held in conjunction with the next year's sale.

The response was overwhelming. Ten thousand people tried to jam into the circus tent that was the site for the first Magic Millions sale. "People would have walked over broken bottles to have a chance to buy these horses," Waugh boasted. "A lot of people had said I was crazy -- but we got the money."

The success of the Magic Millions spawned imitators in England, France, South Africa and every state of Australia. The leading yearling sale in Sydney tried to compete by offering an $800,000 race for colts and an $800,000 race for fillies. Waugh thinks he can boost the fees for the Magic Millions and offer a $3.2 million purse two years hence.

With the proliferation of huge purses at incentive sales came an avalanche of criticism from thoughtful people within the industry.

It is a travesty, these critics said, to offer the biggest prizes in the sport to horses on the basis of the place they were sold -- horses who might not be especially talented. And it is wrong, many Australians argued, to put such a strong emphasis on breeding quick 2-year-olds instead of horses who will mature into distance runners.

But the gravest argument against events such as the Magic Millions is their effect on the animals themselves. Too many horses are being geared up for rich stakes before they are mature enough to withstand the stress. "You shouldn't try to make the horse fit the race," said Colin Hayes, Australia's all-time leading trainer. "Horses shouldn't be pushed when they're not ready to be pushed."

Waugh responds to such criticisms by saying he is not jamming the Magic Millions down anybody's throat: "If I wanted to be a martyr and, say, had only horses in the sale who weren't going to run till they were 3, no bugger would come here. It's a trait of humans: They're greedy."

Waugh understands the horse business in Australia, and it may be a bit harsh to say it is based on greed. Better to say that it is grounded in economic reality. People here weigh risks and potential rewards when they buy a horse, and the price of yearlings is closely related to their earning potential. There is little of the irrationality here that existed during the American boom years when yearling prices soared as high as $13 million.

Other contrasts between Australian and American racing are striking. Anyone in the United States who wants to buy a top young prospect has to be prepared to make a formidable investment. Even rich Americans can barely afford to compete with international buyers at the top U.S. sales (where an average yearling might cost $300,000), but for $100,000 a buyer might acquire a horse with a pedigree and conformation good enough to win the Kentucky Derby.

He would have to budget training expenses to support the horse through his 3-year-old season, which might add another $40,000 to the investment. Middle-class citizens can't afford to take such an expensive, long-shot gamble.

By contrast, the Magic Millions sale offered some of the best yearlings available in Australia, and with the market hit hard by the country's severe recession, the average price of a yearling was $24,000.

Because the sale features horses bred for success as 2-year-olds, a buyer needs to plan on one year of expenses to get his horse to the races. Moreover, training costs are cheap here -- only about $8,000 a year. So average citizens can form small syndicates and take a shot at winning some of the most lucrative thoroughbred races in the world.

Purists may rightly object to the the overemphasis on 2-year-old racing in Australia and the gimmickry of Waugh's race, in particular. But it is hard to be too critical of a country in which people who buy horses have a better chance to make money than anywhere else in the world.