The Sport of Kings, or The Sport of Fools? Thoroughbred racing is considered by many to be the pinnacle of horse competition with the potential for earning considerable amounts of money and peer recognition. An analysis of your chances to actually succeed in this lofty goal suggests that a great percentage of “Kings” might be blessed with more money than brains.
Melissa Jackson from the University of Melbourne in Australia conducted an analysis of 2773 race horses sold at auction in Australia to see how many actually gave their owners a return on investment. Analysts divided the 2773 horses into five different groups based on their purchase price at auction. Group 1) under $10,000: 2) up to $20,000: 3) up to $50,000: 4) up to $100,000 and 5) more than $100,000. All horses were assigned the same training costs for their first 2 years of $40,000 each.
If you are considering investing in a thoroughbred race horse the researchers found your best bet for you getting all your purchase price and input costs back within 2 years lies in buying a horse that costs between $50,000 and $100,000. The important (and sad) part of the analysis is that while category 4 was your best bet, you still only have a 7% chance of making money. No other category even came close. Your chances of making money with a group 1 horse is 2.7%, a group 2 horse 1.5%, group 3 is 5.3% and group 5, the most expensive group was 5.7%.
If your goal is simply to earn back the money you paid and you consider the training etc to be the cost of your hobby the horses in group 1 were the most likely to get your money back with 24.1% paying for themselves. As the purchase price goes up, your chances of getting your investment back drops. 16.3% for group 2, 12.9% for group 3, 11.2% for group 4 and 6.3% for group 5.
The net result according to the study is that only 14.5% of horses win back their purchase price within 2 years and only 5.1% make their purchase price and other input costs back within 2 years. The bottom line : race horses are not a good RRSP investment and you better really like what you are doing!