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Big Brown's Owners: Did They Sell Out A Race Too Soon?

Kent Desormeaux rides Big Brown across the finish line to win 133rd Preakness horse race, Baltimore, Maryland
AP
Kent Desormeaux rides Big Brown across the finish line to win 133rd Preakness horse race, Baltimore, Maryland

Michael Iavarone and Rich Schiavo of International Equine Acquisitions Holdings are looking pretty smart right now.

They bought a 75 percent piece of Big Brown for $2.5 million last year and on the way to Pimlico for the Preakness on Saturday signed the papers to sell the breeding rights to the horse for a reported sum worth more than $50 million.

First, let's appreciate how big their bet to buy Big Brown was. Consider that Real Quiet, who won the first two legs in 1998, was purchased for $17,000. That Funny Cide and Smarty Jones, who also went to Belmont with hopes of winning the Triple Crown, were purchased for $75,000 and $17,500.

Now, let's talk about what was on the table for them. Iavarone and Schiavo aren't saying what the total price is, but let's just go with the $50 million for now. If that's the price, that's $10 million more (about $5 million more, factoring in inflation) than the appraised value of Smarty Jones--Three Chimneys farm bought half of his breeding rights for $20 million in 2004.

Factoring in inflation, that's also $29 million more than what was paid for the breeding rights for the 2002 Derby and Preakness winner War Emblem. And keep in mind, that's before Big Brown won the Preakness.

I've never been in the horse business, but I've been covering the business enough over the past five years to know that most of a horse's value will come from the Derby win.

How do I know? Look at Fusaichi Pegasus, who commanded the record $60 million breeding rights in 2000, even though the horse just won the Derby. And those who win the Preakness alone or the Belmont alone simply aren't worth the same amount of money. Point Given's breeding rights were sold for $50 million because the horse won the Preakness, Belmont and Travers.

Straight up Belmont winners are nice, but they are not that coveted. I've been told it's because the type of horse that normally wins the Belmont because of the unusual length of the race isn't necessarily the horse you'd want for breeding.

So I say the guys at I.E.A.H. Holdings likely got a Preakness winning price for Big Brown ahead of the race. They had to take the money. But they might come out wondering "What If?" if this horse becomes the first horse in 30 years to win the Triple Crown.

That would be for two reasons. First of all, because the horse could be the first horse worth $80 million. Secondly, because these guys are looking to start their horse hedge fund. If they could have held out and Big Brown goes on to win the Triple Crown, it would have been much easier to raise money for the fund if people could own a piece of Big Brown's breeding rights than just have faith in I.E.A.H Holdings.

That being said, if this horse wins it all, I could see people buying into the future merchandise and museum rights to Big Brown.

Questions? Comments? SportsBiz@cnbc.com