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Big Brown Has Big Insurance Policy

Kentucky Derby winner Big Brown was purchased in 2007 by Paul Pompa Jr. in April 2007 for $190,000. Later in the year, Pompa sold 75 percent of the horse to Michael Iavarone and Richard Schiavo of International Equine Acquisitions Holdings for $2.5 million.

After three victories in three races, Iavarone said that Big Brown was valued at $30 million to $40 million. Accordingly, the ownership group had the horse insured for $32.5 million at Saturday's Kentucky Derby. With the impressive win on Saturday, the horse will head to Pimlico for the Preakness as the most insured active horse at $50 million.

While that's a lot of money, that likely doesn't cover what someone will be willing to pay today for Big Brown's breeding rights. And if Big Brown wins the Preakness -- early word is that only one other Derby horse is even considering running -- they likely won't be able to get enough insurance to cover what the horse will be worth heading into the Belmont. There's simply not enough capacity to cover a $100 million horse, which is what Big Brown could be should he be the first horse in 30 years to win the Triple Crown. Ironically, International Equine Acquisitions Holdings is trying to raise $100 million to start a horse racing hedge fund of sorts.

Because Iavarone already had the insurance premium locked in, the death of the filly in the race, Eight Belles, did not affect his ability to get $17.5 million more worth of insurance for the Preakness. It was the first time a Derby horse went down since Flip Sal in 1974.

Not Betting on Brown?

With Big Brown at 2 to 1 and Eight Belles 13 to 1, the exacta paid $141.60 on Saturday. Despite being the overwhelming favorite, so many in the horse industry didn't pick this horse. Mike Battaglia, Churchill Downs' linemaker and NBC commentator didn't pick him (his last right pick was Fusaichi Pegasus in 2000). Neither did one of the six contributors to the New York Times' horse racing blogand countless others.

The reason? If you say the favorite is going to win, you're not going to get that much credit for it or win much money. That's why it's more bold to go with another horse. Me? I went with Monba, who came in last.

To his credit, Bob Neumeier on NBC did pick Big Brown: "You know how much I hate favorites," Neumeier, who also picked Barbaro in 2006, said to Battaglia before the race. "But I'm all over Big Brown today."

For the Preakness, it looks like I'm going to have to check out Leroy Baize. This from Tim Ethridge's column in the Evansville Courier & Press in an article before the race: "The best handicapper I know, Evansville's Leroy Baize, still swears by Big Brown, even with the No. 20 post position. He also won't leave the filly Eight Belles out of his exotics."

Questions? Comments? SportsBiz@cnbc.com

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