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Run For Roses In Thorny Economy

It may be the most exciting two minutes in sports, but most people who watch the Kentucky Derby this weekend will not watch another horse race this year.

Here is a guest blog from Clint Goodrich, whom I profiled before. Goodrich is a futures trader who, with his wife, artist Caren Goodrich, has spent most of his life in racing, as a rider, trainer owner.

Here are his insights into how the economy is impacting the sport of kings:

"Legendary Hall of Fame Thoroughbred horse trainer, and one of my personal mentors, John Nerud, once told me, 'A horse is worth what someone is willing to give you'. No truer words have ever been spoken, especially if you apply this wisdom to markets in general.

In the fall of 2007, at what might be considered the top of our economic bubble in all things financial (including credit and housing), the winner of the Kentucky Derby and Breeders' Cup Juvenile, Street Sense, was retired from racing and sold for stud duties to the owners of Darley Stud in Lexington, Kentucky for a 'rumored' $50 million.

What a difference a year can make. In October 2008, during the middle of the financial meltdown and economic crisis, Curlin, one of the best Thoroughbreds to ever look through a bridle, was retired to stud service at Lane's End Farm in Versailles, Kentucky. Curlin won the biggest races in the WORLD, including the Breeders' Cup Classic and the Dubai World Cup. He was two-time Horse of the Year and the highest money winning Thoroughbred of all time, with earnings of over $10 million dollars. Curlin's pedigree is just as royal as Street Sense, and one could easily argue he’s an overall better horse. When Curlin was syndicated, shares for lifetime breeding rights were sold to investors and breeders at a cost that could scarcely value Curlin at $20 million, less than half the rumored sales price of Street Sense. Welcome to the re-pricing of assets in the new world.

Thoroughbred horses and horse racing is a barometer of the financial world just like the housing, oil and credit markets. Demand and mania run up prices to a level of perceived value. Once that perception is pierced, true value floods back into the market at much lower levels. The music stops and, inevitably, someone is left without a chair.

In 2008 the sales prices for Thoroughbred yearlings sold at public auction in Kentucky dropped by more than 50%. In 2009, advertised stud fees for most of Kentucky's top stallions dropped by nearly 50%. Home prices in Aspen, Colorado have dropped by nearly 50%. A barrel of oil is down by 66%. Shares of CitiGroup are down by 95%. Are you getting my point? Bubbles burst, it ain't pretty.

Yet since the Great Depression, Thoroughbred racing has thrived in economic bad times. There were fewer tracks, fewer racing dates, television was in its infancy, and there were certainly no computers and absolutely no Internet poker or wagering sites. Where else could you go to escape economic woes for the afternoon and find fun, excitement and inexpensive entertainment? You might bring $20 to the track and come home with a couple hundred!

Today, with the exception of the Kentucky Derby, horse racing as a sport has all but dropped off the radar. Crowds have dwindled and most grandstands these days resemble a ghost town. Horses now come and go within a year without a superstar equine athlete to capture the public imagination. In this latest economic cycle, numerous tracks have closed or are closing at the end of this year. Owners of Thoroughbreds have been driven out of the game by soaring expenses and lower purses due to fewer dollars being wagered. These are owners who, without exception, derive their money to participate in racing from outside businesses and capitalist ventures. These owners are fleeing the sport with 95 to 100% losses on their investments, never to return. The mood of race track people is gloomy.

As the vicious cycle continues, trainers find themselves with fewer horses to train and year-round operating expenses eating them alive. They can't raise their rates, or the few owners they have will jump ship. Many trainers have gone out of business, which has led to consolidation of the numbers of trainers. Fewer trainers training more horses leads to smaller fields, as a trainer can only enter so many horses in any one race due to conflicts of interest. This leads to less competitive races and, by default, less interest and fewer gambled dollars.

I'm confident the upcoming Kentucky Derby on May 2nd will continue to remain "The Greatest Two Minutes in Sports" with a wide and traditional following on the first Saturday of every May. However, my confidence level in horse racing remaining a viable industry and sport on a national level is very shaky. Horse racing, which once boomed in an economic bust, now finds itself linked at the hip to a downturn. A government bailout won't help. The horse racing industry needs to set an example by bailing themselves out. If they don't, horse racing appears to be headed down the same road as dog racing. Take the lead! Innovate, re-invent, advertise. Market the best you have to offer. Save thyself! Oh, wait a minute....that's how capitalism is supposed to work....

Quick, can anyone tell me who's the favorite for this year's Kentucky Derby? Can anyone even tell me who the contenders are?"

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com

  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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