Breeding Bubbles

It’s the economy, stupid.
In the first few hours after Eight Belles’s breakdown in the Derby, just as in the first few hours after Barbaro’s collapse two years ago in the Preakness, we’ve seen dozens of explanations, from the well- and not-so-well-informed. The track was too hard. The horses had been raced too much too young. Fillies shouldn’t be running against the boys. It’s the drugs. Oh, we’re breeding unsound horses.
Yes, it’s probably all of those. But especially the last. There’s no question that racehorses today are less sound, more prone to injury, than those of the 1950s and ’60s, or even of a decade or two ago. Horses today race only half as many times as they did 30 years ago. And the reason is the market. Like other unregulated markets — remember the mortgage-securities collapse, anyone? — the thoroughbred breeding market is subject to that old economics chestnut, Gresham’s Law. Bad money (or in this case, bad breeding) drives out good.
Although thoroughbreds have always been bought and sold, the real explosion in the auction market, and the bubble(s) in prices, date from the late 1970s and early 1980s. Fueled by money from Europe and the Middle East, auction prices for the best Kentucky-bred yearlings rose faster in the early ’80s even than U.S. home prices did earlier in this decade. The frenzy reached its first peak with the 1985 purchase of Seattle Dancer for $13.1 million. Seattle Dancer ran five times, winning twice, and earning $150,000, and then failed as a stallion.
Excesses like these led to a market collapse in the late 1980s, but the whole cycle started up again the next decade, and continues today. The Green Monkey is, so far, the top of this price bubble, fetching $16 million at the 2006 2-year-old sale, then running three times without a win before being retired.
What made the market develop as it did was the influx of new money. That money came both from those who wanted to win races — the Maktoum family of Dubai being the prime example — and, more importantly, from those who were looking to make a profit not from racing, but from breeding and selling.
* continued at Breakdowns and Dollars

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