With the close of the 2019 sales season, one thing is clear: most yearlings lose money and therefore most breeders lose money. Likewise, losing is the key to horse racing because in any field of eight, seven are going to lose. Yet despite the prevalence of loss in our game, nobody wants to.
Losing and its effect on profit is at the apex of risk, and there is a 2019 book on the subject that offered some interesting material for anyone negotiating risk, especially anyone in the horse business.
As a group, books on economics are not known for their lively titles; so Allison Schrager’s new volume, An Economist Walks Into a Brothel (and Other Unexpected Places to Understand Risk), is immediately at the head of the pack for that alone.
This 204-page investigation of risk is so thoroughly broad-minded in its approach and specific in its analysis, however, that readers from many different fields – certainly not economics alone – will find value and interest in its chapters.
In this book, Schrager assesses how risk works in real businesses or economic activities, and she addresses the nature of risk in situations as diverse as the legal brothel of the title, movie-making in Hollywood, paparazzi photography, and breeding Thoroughbred racehorses.
The thematic thread linking these and other endeavors covered in Schrager’s book is risk, that odious goblin of business and professional life that nearly everyone fears.
Schrager not only defines risk but also sets forth the “rules of risk” that she sees being actively used by people, as well as those frequently being ignored. Most of us understand some of these rules, perhaps even practice them, but few of us understand them all. Even fewer, I expect, have thought through the process of risk and reward, plus the psychological requirements for managing them.
One example is the search for a lower-calorie cinnamon roll that Cinnabon won by keeping its original recipe and reducing the size of the bun to create a 350-calorie MiniBon. Sales rose. This was a lower-risk change to the cinnamon roll business than trying a diet pastry with different ingredients and likely different taste.
The most dangerous choice is following the risk-free path of doing nothing at all. This is also the norm for much of human activity because, for the most part, we are a risk-averse species. Or so economists thought until Amos Tversky and Daniel Kahneman introduced prospect theory, which “says when we weigh different options, the value we place on them depends on how much money we have when we start and if there is the possibility of loss. Humans aren’t risk-averse; they hate losing anything.” Anything.
Especially true for racing and breeding?
Risk avoidance in breeding has brought us to the point that only stallions who are “first-year or proven” are in demand as the sire of weanlings or yearlings. This moderates somewhat at the sales of horses in training, when breeze time and radiographs tend to play a greater role. But what about all the stallions who fit in between those criteria?
Those horses are being forced out of the marketplace so quickly that some are being sold before they have runners, as we have just seen with the sale of California Chrome to Japan, or before they even have foals on the ground, as we saw a few years ago with the champion juvenile Hansen. As a result, there is a dearth of good to useful sires who get lots of sound racehorses and winners but not many (or any) superstars.
Schrager wrote that “We put a big weight on very likely or unlikely events and put almost no weight on anything that happens in between.” We, as horse breeders, veer strongly toward things that we perceive as very likely. For instance, we feel safer breeding to first-year sires because nobody has had a bad one. Yet.
In essence, we are so afraid of having our (and our expected buyers’) expectations dashed on the rocks of reality that we are putting ourselves in a corner, perhaps a corner that is untenable for the breed. If we as horsemen and breeders do not believe in our stock and support them with good mates, how is the breed to improve?
It won’t. At least not overall.
There are, however, some experienced breeders and horsemen who manage probability so well that they have consistent overall success. Two examples of this are Arthur Hancock and George Strawbridge.
Hancock was the co-breeder of Kentucky Derby winners Gato del Sol (by Cougar) and Fusaichi Pegasus (Mr. Prospector), as well as the co-owner of Kentucky Derby winner Sunday Silence. A critic might say the latter was luck, and it was. Hancock thought he was buying back the lanky near-black yearling when he bid him in for $17,000, but the breeder didn’t want the horse. But Hancock was not going out and throwing money – intentionally or otherwise – at a horse by Old Bupkis out of Something Thecats Draggedin. Sunday Silence was a select sale yearling by leading sire Halo out of a multiple stakes winner. Those are differences that matter, in the general and in the specific.
Strawbridge breeds and races elite racehorses around the world. He has had top-class sprinters, milers, classic horses, and winners at the Breeders’ Cup. This year, he also bred the colt most likely to be named Horse of the Year: Bricks and Mortar (Giant’s Causeway), who is unbeaten in 2019 and closed his career with a brave victory in the Breeders’ Cup Turf. No breeder, however, can afford to keep and race and breed them all, and Strawbridge realized that Bricks and Mortar was a quite nice young prospect and had him consigned to the Keeneland September yearling sale, where he brought a profitable $200,000. For owners Klaravich Stables and Bill Lawrence, Bricks and Mortar has done rather more, but the breeder was correct in seeing the colt as a very desirable prospect who would help to balance the books. That is a pragmatic decision in balancing probability and profitability.
This was a good practical decision. And in like fashion, a balance of probability, profitability, horsemanship, and knowledge should help breeders, sellers, buyers, and stable managers moderate risk and improve the chances of success in a business and sport that is all about risk.