Still, after three profitable decades in horse racing, Mr. Irwin is cautious when people talk to him about buying horses to make money. “When you write your check to me, you’ve got to kiss that money goodbye,” Mr. Irwin said. “We’re going to do our best. We’re going to try hard. But that money could completely evaporate.”
How someone buys a horse matters for its investment potential. While everyone has a hunch about where and how to find the best horses — Mr. Irwin gets most of his horses from Europe — what all successful buyers share is an awareness of the risk involved with any one horse. These are animals, after all, and this Saturday one or more horses in the Derby will surely be scratched before post time.
In buying, the options are simple: either buy one at a time like a stock picker, or pool your money into a syndicate like a mutual fund that will buy several racehorses — and hope that one big horse offsets the cost of the others.
David DiPietro, a part owner of Orient Moon and a former vice chairman of global equities at Deutsche Bank, said he favored the stock picker approach. “The highs and lows are pretty extreme,” he said. “But I dealt with those in my prior career, so I just move on.”
Mr. Irwin’s racing group, which has a horse called Went The Day Well in the Derby that will be ridden by Mr. Valezquez, is a classic syndicate. People can buy a 2.5 to 10 percent share of any horse, and everyone then pays a portion of the expenses, which can run to $60,000 a horse annually, and gets a portion of the winnings. Mr. Irwin said he made money by marking up the price he paid for the horse, taking 10 percent of the profits and receiving a commission when the horse was sold.
Jerry Crawford, a lawyer, prominent Democratic fund-raiser in Iowa and head of Donegal Racing, a newer syndicate, takes a different approach. He sets up funds that own all the horses he has for a year instead of sharing ownership of single horses.
His first fund owned Paddy O’Prado, the surprise third-place finisher in the 2010 Derby. This year, Donegal’s fund is running Dullahan, a Derby favorite.
Mr. Crawford said he came up with the idea of everyone buying into the seven or eight horses from experience: he remembered buying into a promising horse only to see it fail while an unsung horse from the same farm thrived. “By having one partnership a year, every person has a piece,” he said. “So if we have one big horse in a year everyone wins.”
Still, most investors buy 1-year-old horses. At that age, there are a lot of unknowns in how the horse will perform when it is 3. One hedge is a practice known as “pinhooking,” where individuals or groups buy yearlings and work with them before selling them as 2-year-olds.
One of the odder investment stories in this year’s Derby is that of Union Rags, another favorite, which has been owned twice by Phyllis Wyeth, owner of Point Lookout Farm and wife of the artist Jamie Wyeth. She sold the horse as a yearling for $145,000 in 2010 because her accountant told her she needed to book a profit that year. A year later, she bought him back for $390,000 at a 2-year-old sale.
“She had this gut feeling about this horse,” said Braxton Lynch, co-owner of Royal Oak Farm, where Union Rags was born. “Little did she know the horse was going to earn $1 million racing.”
In the year she didn’t own him, Eddie Woods, a pinhooker in Ocala, Fla., broke, trained and profited from Union Rags.
“It’s a crazy business,” he said. “The ones for $1 million usually don’t show up at the Derby. You never know where these horses are going.”
He said he broke even or made money about 75 percent of the time, and that attracted investors. The day before we spoke, though, Mr. Woods said he sold a horse for $30,000 that he had bought for $100,000.
Of course, what would a story about horse racing be without a tale of high risk and high reward? In 2007, Mr. Bolton and two partners acquired Curlin, who was 3 and had just won his first race by a 12 3/4 lengths.
They bought him for an undisclosed sum, widely estimated to be $3 million to $4 million. Curlin went on to finish third at the Derby, first at the Preakness Stakes and second at the Belmont Stakes. Nine months after buying him, Mr. Bolton sold his stake at the height of the horse bubble, with Curlin’s value estimated to be near $50 million.
“When your horse is worth more than your house,” he said, “you have to sell.”