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All the world's a stage for best in breed

As the 138th Westminster Kennel Club Dog Show gets under way in New York City, the Big Apple is, of course, going to the dogs. The show is like the Super Bowl of the dog world, with more than 2,800 dogs taking part. The dogs are divided into breeds, and how those breeds come to be and what place they have in the $55 billion pet industry makes for quite a ... um ... tale.

Throughout history, there basically have been two ways to make a dog breed. The first is the utilitarian method. Your dog is really good at herding sheep, and your neighbor's bitch (yes, it's okay to use that word in the dog world) is also really good at herding sheep. So the next time she's in heat, you put the two of them together with the idea that at least some of their puppies will also be really good at herding sheep. And they are.

You keep breeding all the good herding dogs with one another, and you eventually end up with a herding breed. And because you live in, say, the Alps or Anatolia or Australia or the Tatra Mountains, all these good herding dogs you have access to are in a relatively small geographic range, so the world eventually ends up with the Australian Shepherd and the Bouvier des Flandres and the Old English Sheepdog and the Pyrenean Shepherd and so on.

(Read more: Westminster dog show opens to—gasp!—mutts)

Australian shepherd
GK Hart | Vikki Hart | Stone | Getty Images
Australian shepherd

The same thing happened with hunting dogs, hounds and even dachshunds, whose short legs and narrow shape made them perfect for diving into badger holes.

The other way to make a breed is to mix a bunch of other breeds together until you get exactly what you want. That's how the Doberman pinscher, for example, came about. According to the Doberman Pinscher Club of America, in the 1890s Karl Friedrich Louis Dobermann of Apolda, Germany, is said to have combined the German pinscher, rottweiler, Weimaraner, Manchester terrier, and beaucheron to create Dobermann's Pinschers (a pinscher is a type of dog who jumps on and bites his quarry). Herr Dobermann was trying to make a police-soldier dog that was strong, smart, agile and quick. Obviously, with that many breeds going into the mix, that took a few generations of experimentation.

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It helps that dogs have enormous plasticity in their genetic makeup, so they can tolerate being squished down into Pomeranians, Chihuahuas and Yorkshire terriers and bred up into Scottish Deerhounds, Great Danes, and Komondor—and all still be dogs.

Portuguese Podengo Pequeno: C'mon down!
New breeds are continuously being created. In 2014 three breeds will make their WKC debut—the rat terrier, the Portuguese Podengo Pequeno and the Chinook. Interbreeding is how the Chinook came about. According to the Chinook Club of America, Arthur Treadwell Walden, a sled-dog driver, explorer and innkeeper in Wonalancet, N.H., created this American sled-dog breed in the early decades of the 1900s. He wanted a great running and pulling dog who would also be friendly and gentle. He started out with descendants of Admiral Robert Peary's Greenland husky lead dog, Polaris, which he bred to a mastiff-type farm dog. Treadwell ended up with a puppy he named Chinook, who became the foundation for the whole breed.

With so much variety among the dozens and dozens of breeds, when viewers watch the Group and Best in Show judging at Westminster, it might seem as if the judges are comparing apples to oranges to bananas. But not really.

According to the American Kennel Club (AKC), what the judge is really doing is comparing each dog against his or her own breed standard. The standard is a description of the perfect dog of that breed. It's written by the national breed club and includes specifications for appearance, structure, temperament and movement. The dog who most closely personifies the breed standard wins.

Historically, spaniels and terriers end up capturing most of the major awards, both at Westminster and other significant competitions. Wire fox terriers have won 13 Best in Show awards, followed by Scottish terriers (8) and English springer spaniels (6). For every breed, however, it's the moment in the ring that makes the difference.

"We want the judge to see that our dog is exactly what the breed is supposed to be," said veteran handler Ernesto Lara, who guided an affenpinscher named GCH Banana Joe V Tani Kazari to the 2013 Best in Show. "We work for years for the brief moment that the judge sees the dog."

(Read more: Champion dog handler's show-and-tell)

Puppy payoff?
For owners and breeders, the impact of that moment is lasting and—sometimes—profitable. Some breeds have seen a spike in interest and popularity after winning at Westminster. That's not always the case, however. The rarified air of purebred dogs can have some barriers to entry. After Best in Group wins for her Ibizan hound Ch. Luxor's Playmate of the Year, Wisconsin-based owner-breeder Wendy Anderson said, "Puppy inquiries certainly went up. But there just aren't that many Ibizan hound breeders, and when people found out they had to be on a waiting list to get a puppy, sometimes for a year, the ones who were just doing it on impulse dropped off."

The unusual breeds that make their national mark can also come with strings attached. In the case of a famous 1993 Working Group winner named Ch. Lajosmegyi Dahu Digal, those strings were the thick, corded, dreadlock-like hair of the komondor breed.

"With that coat he had, a lot of people were dissuaded from getting one," said Ann Quigley, a Washington breeder. "It's a major commitment keeping up that coat. Some people did buy these dogs because they saw them on TV. And he did inspire some people to come into the breed, because they thought they could get in on the demand. Most realized they didn't really want them, because there's nothing harder than having a bunch of seven-month-old komondor puppies [to care for]."

The AKC officially recognizes 178 breeds for competition in the dog shows it sanctions (including Westminster), plus 19 more that are on their way to full AKC recognition. The AKC also keeps the breeding and pedigree records for 45 rare breeds, such as Kooikerhondje, Drentsche Patrijshond, and American Leopard Hound, through its Foundation Stock Service. And there are a lot more breeds out there—the Fédération Cynologique Internationale, the governing body of European dog shows, recognizes 340 breeds.

(Read more: The simple truth about pet-ownership economics)

The number of breeds a registry like the AKC recognizes is important financially, because every time a litter of puppies is registered, every time an individual dog is registered, every time the owner of record of a dog changes, every time a kennel name is registered or changed, paperwork must be filed—along with a fee. The bottom line: It's a huge profit center.

by Beth Adelman and James Buckley Jr., Specials to CNBC.com

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