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Speculative Investment: Risk and Return Evidence
From Thoroughbred Auction Markets
Pinhooking is a speculative investment where investors assume a risk position in the purchase
and resale of Thoroughbred horses. Thoroughbred auction markets provide a unique data set to
analyze investment risk. This study estimates the profitability of weanling to yearling pinhooks
sold at the Keeneland September Sale using three years of sale data. Maximum-likelihood
estimates of probability distribution parameters show that expected pinhooking profitability
follows a log logistic distribution. Profitability is highly sensitive to reserve not attained, (RNA).
A restriction against all RNA sales results in statistically significant expected positive investment
returns. The results illustrate substantial investment risk is associated with pinhooking
investments, but identifies market segments with positive expected returns.
Key words: Speculative investment, Thoroughbred, risk, Value-at-risk
1
Speculative Investment: Risk and Return Evidence from Thoroughbred Auction Markets
A subset of the Thoroughbred auction market provides data to analyze speculative
investments. An investment strategy known as “pinhooking” is a repeated sale market involving
buying young horses through public auctions, holding them for an investment/production period,
and then reselling the horses through public auction sales at a later date. Pinhooking originated
as an investment strategy in the 1970s when industry participants, began the practice as a means
of generating extra cash flow to supplement their primary racehorse operations. Pinhooking
activity expanded in the 1980s with the emergence of pinhooking specialists, who made buying
and selling Thoroughbreds their primary business. In recent years pinhooking activity has
expanded, and today it represents an important price leader in the Thoroughbred market.
Anecdotal reports identify individual pinhooking investments yielding substantial
economic returns. However no study has empirically evaluated the range of returns from all
pinhooked horses in a sale. Economic studies have empirically estimated the profitability of
speculative investments in specialized markets such as vintage wines (Ashenfelter) and art
(Agnello; Mei and Moses) and identify characteristics under which these investments yield
positive returns in an investment portfolio. The purpose of this study is to empirically evaluate
the risk and returns to Thoroughbred weanling to yearling pinhooking speculative investments.
The Thoroughbred Pinhooking Market
Thoroughbred auctions are well-established markets that have received some academic
analysis. Karungu, Reed and Tvedt; Buzby and Jessup; Chezum and Wimmer, and Vickner and
Koch developed Thoroughbred yearling price models. Neibergs and Thalheimer developed a
structural model of the Thoroughbred yearling market. Neibergs developed a hedonic model of
2
Thoroughbred broodmare characteristics. Neibergs and Vinzant developed maximum likelihood
estimates of racehorse earnings and profitability using claiming races. To date academic studies
have not evaluated Thoroughbred pinhooking markets.
Pinhooking
Pinhooking is a speculative investment where a horse is purchased at auction for resale at
a latter date. Agents purchase horses that they perceive to be undervalued at the purchase point,
or that they expect will increase in value when sold thus generating a positive return. Commonly
weanlings are pinhooked as yearlings. The most common time frame of a weanling pinhook is
to purchase a weanling in Keeneland’s November Breeding Stock sale, and after a ten month
holding period resell the horse at Keeneland’s September yearling sale. These two sales
represent the largest sales of Thoroughbred horses in the world. A second pinhooking
investment alternative is to purchase weanlings or yearlings and place the horses into physical
training as race horse prospects to resell them as two-year-olds in training. The capital facilities
and labor inputs required to condition a weanling to yearling are much lower in comparison to
other Thoroughbred market segments. Two-year-old in training pinhooks requires extensive
capital facilities and labor to condition and train these horses for re-sale. Further, two-year-olds
in training are tested physically in terms of time trials prior to sale and a substantial price
premium is paid for speed. This increases investment risk because physical ability is tested, the
process of training increases the likelihood of injury, and there are increased capital and
production costs. Risk and returns are significant in both pinhook markets but this study restricts
its analysis to weanling to yearling pinhooking investments.
3
Figure one presents a time line of average nominal weanling and yearling prices. In
terms of pinhooking investments, weanling prices are primarily determined in November of year
t, and yearling prices determined in September of year t+1. Then given yearling price signals in
year t+1, weanling pinhook purchases are made in November of year t+1 for sale in September
of t+2, thus establishing a continued cycle of investment and sale price discovery. Figure 1
presents bloodstock market trends in average weanling and yearling prices and price margin1
from 1990 to 2004. As shown in Figure one, from 1990 to 1998 there was a fairly steady price
margin of about $10,000 in average yearling over weanling prices. This represents the increase
in price on average that weanling to yearling pinhookers seek to profitably invest in. There has
been a sharp increase in price margin from 1999 to 2004, which increased to about $20,000 in
1999 to over $30,000 in 2004. Although Figure one reflects average price margins, actual
pinhook investments and profitability are made on individual animals and their characteristics.
The variation across individual pinhooks creates investment risk and the examination of this
variation is the basis of this paper.
At the time when a weanling is sold most of its individual characteristics have been
established. Pedigree characteristics are reported and publicly disclosed at the point of purchase.
There may be changes in pedigree desirability between the points in time of purchase and resale
as a sire’s offspring racing performance is established as better or worse than expected at the
point of purchase, or if siblings of the individual purchased have better or worse than expected
racing performance. Physical attribute characteristics are not publicly reported, but weanling to
yearling pinhooks have less physical variation than yearling to two-year-old in training pinhooks,
because of the measured physical performance required at two-year-old in training sales time
1
Price margin t = average yearling price t – average weanling price t-1
4
trials. Conformational characteristics identified in a weanling will be incorporated into the
purchase price and will likely remain incorporated into its selling price. However, since
yearlings are not physically tested, the extent of the conformational weakness’ effect on
performance may remain disguised.
Economic rationality is a key assumption of modern economics. Thoroughbred
bloodstock investments have long been characterized as high-risk, unprofitable investments and
in individual cases questioned the economic rationality of its investors. Thoroughbred
investments negative profitability expectations have been enhanced by industry analysis that
group horses of all quality classes together and report a high probability of negative profitability.
For example, industry reports indicate that only thirty-nine percent of the pinhooked weanlings
and short yearlings to the Keeneland 2002 September yearling sale were profitable (Biles).
However this aggregate analysis does not account for variation in investment returns or
differences in: weanling/yearling quality characteristics, points of original sale, length of
ownership, or the impact of RNA on the profitability estimates.
Reserve Not Attained (RNA)
Reserve not attained is a condition of sale2 that allows the owner/agent of a horse entered
in a sale to specify a minimum price, below which the horse will not sell so no transfer of
ownership occurs. The owner/agent can set the reserve price directly with the auction company,
or an owner/agent can actively bid on the horse as it is being auctioned. In the case where a
reserve price is submitted to the auction company, the horse enters the sales pavilion where the
2
Conditions of sales are the rules and laws that govern the sale. It sets commercial law dictating
all terms of transfer and dispute. Kentucky state law, KRS 330.210 and 355.2-328(4) allows an
owner or its agent to set reserves and buy back a horse offered at auction.
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bidding occurs. The auctioneer is provided the reserve price and will make a best effort to sell
the horse above the reserve price. Bid prices above the reserve price result in a sale and a
transfer of ownership. In the case where bidding falls short of the reserve price, the auctioneer
acts as if the horse is sold when the bidding stops and the horse leaves the sale pavilion and
returns to its assigned stall. The publicly reported sales results identify the last bid price and note
the horse as not sold or RNA. The owner/agent can then sell the horse privately at the stall. The
owner must pay the auction company a sales commission either on: the reserve price set with the
auction company, in the case where the owner/agent is actively bidding the last bid price the
horse received in the sale, or the private sale price of the horse sold at the stall with the sale and
transfer of ownership disclosed through the auction company.
The appropriateness of reserve prices has been questioned because owners may overvalue
their horses and set an unrealistically high reserve price. In this case the final bid price may be
an accurate valuation of the horse, and the owner has the option to drop its reserve and accept the
final bid. Or potentially, horses may be entered into a sale to establish market value and the
horse owners bid up the price to establish a higher than appropriate market value on a horse. Or
alternatively, the yearling has a higher expected value based on its individual characteristics than
the final auction bid price achieved at the sale. This would indicate that the reserve set by the
owner is appropriate, and identifies a market inefficiency on this particular horse. In all cases, a
RNA sale represents an economic cost to the owner.
Owner management strategies can impact the role of RNA’s. Owners may sell their
horse without reserve because they want to divest that horse. Owners may overvalue their horse
relative to current market conditions. Other owners may be interested in maintaining a minimum
market value of a pedigree line and are willing to pay the commission rate as a form of
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advertising. Economic gamesmanship occurs in establishing reserves and buy backs. One of the
aspects of this paper is to empirically evaluate the effect of RNA on pinhooking profitability.
Weanling to Yearling Pinhooking Profitability Model
Pinhooking investments provide a unique opportunity to analyze speculative investments.
All of the data necessary to calculate profitability are publicly disclosed: the initial purchase
price of the weanling, the terminal value of the investment from selling the yearling, and the
number of days in-between purchase and resale to estimate production costs. Pinhooking
profitability can be specified as:
(1)
πi = YSPi (1-c-s) – WPPi (1+t) – DiR - FC
Profit, πi, from the ith individual pinhook investment is the yearling sale price, YSPi, net of the
fixed commission rate charged by the auction house to sell the yearling, c and the sales agent
commission, s. Keeneland charges a 4.5 percent commission rate. Most owners use sales agents
that charge a 5 percent commission fee. The initial investment cost is the weanling purchase
price, WPPi, plus the state excise tax, t, of six percent.3 There are several points in time, where
weanlings/short yearlings can be purchased as pinhooking investments. Production costs
depends on the number of days between weanling purchase and yearling sale, Di, times the day
rate to maintain the yearling for sale, R. The day rate is $17.67 from time of purchase until the
last 21 days before the sale when the day rate increases to $26.26. There is a fixed cost, FC of
entering a horse to the sale for the catalog fee and conformation x-rays required for the x-ray
3
Horses are subject to tax unless they are transported out of state.
7
repository, of $1,420. The pinhooking investment’s return on investment, ROI can be specified
as:
(2)
ROIi = πi / WPPi
Data Sources and Analysis Procedures
Several sources of data are required to estimate the model. The Blood-Horse Auction
Edge provides information on horses cataloged in a sale. It identifies if the horse is a pinhook
investment, the sale where purchased, the purchase amount, and if the prior purchase was a RNA
sale. The Keeneland sale catalogs provide hip number and sale day. The Blood-Horse magazine
reports yearling sale prices and yearling RNA sales by hip number. The commission rate,
catalog fees and the tax rate are fixed parameters obtained from secondary sources. Daily
production costs were obtained through expert opinion. Sale data was collected for three years
from 2001 through 2003 for weanling to yearling pinhooks sold at the Keeneland September
yearling sale. The Keeneland September sale is the largest sale of Throughbred yearlings in the
world. The data are reported and analyzed in nominal terms, because of the recent time frame of
the study years, Thoroughbred day rates and production costs were stable over the study period,
and for ease of comparability to industry market reports and sale summaries.
Pinhooking Risk and Return Characteristics
The majority of the pinhook investments were purchased from the Keeneland November
sale. Table 1 summarizes the sources of weanling purchases. There were 1,435 weanlings or
about 70 percent of the pinhook purchased at the Keeneland November sale, followed by the
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Keeneland January and July sales with 291 and 52 purchases. Keeneland sales account for about
87 percent of the purchase locations of the pinhooked horses entered in the Keeneland September
Yearling sale. The remaining 13 percent come from Fasig-Tipton sales in Kentucky and from
other sales around the country.
Table 2 identifies the number of horses sold as pinhooking prospects controlling for RNA
status over the three year study period, 2001 to 2003. The greatest number of pinhooking
prospects were cataloged in 2001, but after controlling for RNA classification the number of
yearling sales per year are similar. Yearlings that were entered into the sale, but failed to go
through the sale are called outs and there were 217 outs in the data set. A total of 2,054 horses
over the three year data set went through the Keeneland September sales. Analyzing the
prospects based on RNA classification shows that 712 pinhook prospects entered the sale with a
RNA on WPPi and 515 pinhook prospects were RNA’d on YSPi. There were 184 sale prospects
with RNA’s on both WPPi and YSPi. There were 1,011 prospects were reported as sold on both
WPPi and YSPi. The RNA designation is a critical factor because it dictates the data set of
horses entered into the profitability model. Some studies do not include horses that RNA,
because they consider those horses not to represent an actual sale. Other studies include RNA
horses in the sale data, because they consider the RNA price as representing the last competitive
bid.
ANOVA Analysis of Profitability
Table 3 presents ANOVA results testing mean profitability and ROI by year controlling
for RNA. The null hypothesis for the ANOVA tests are one-tailed tests of profit and ROI being
less than 0. The test of mean profitability of all 2,504 horses combined of $-1,661 against the
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null hypothesis of, π < 0 cannot be rejected. Yearling pinhook profits for the combined group
are not statistically greater than 0. However, by continually increasing the restriction on RNA,
the profitability of pinhooking investments increase. Excluding yearlings with a RNA on both
WPPi and YSPi, leaves 1,870 yearlings with an average profitability of $495 for all three years
combined. Although average profitability is positive it remains not statistically greater than 0.
Excluding yearlings with a RNA on YSPi, results in 1,539 yearlings with an average profitability
of $3,990 and a ROI of 5.2 percent. Profitability is significantly greater than zero at a ten
percent level of significance. The case of excluding all yearlings with a RNA on WPPi, results
in 1,342 yearlings with an average profitability of $3,039 and a ROI of 9.0 percent and both are
significantly greater than zero at the ten percent level of significance. The most restrictive case
where all RNA yearlings are excluded results in 1,011 yearlings with average profitability of
$9,913 and a ROI of 21.1 percent which are both strongly significant at a one percent level of
significance. By individual year, 2003 had profitability significantly greater than zero for all
classifications of yearling sales. The largest weanling to yearling price margin occurred in 2003,
as previously presented in Figure 1, and partly explains the high profitability of this year. For
2001 and 2002 profitability was significantly greater than zero for only the most restrictive case
excluding all RNA sales. Table 4 illustrates positive expected returns for pinhooking investment
exists for horses that do not RNA.
Figure 2 presents a histogram of pinhooking profitability combining the three years of
data after controlling for all forms of RNA’s, and Table 4 presents the corresponding
profitability results comparing profitable versus unprofitable pinhooking investments. Both the
figure and the table reveal that by number, there is a higher probability of loss. Of the total 1,011
pinhooks evaluated, 42.1 percent were profitable and 57.9 percent had a negative profit. For
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profitable investments the average gain was $56,431 and the average ROI was 165.6 percent.
The average loss for unprofitable investments was -$25,207 and the average ROI was -84.1
percent. There is a higher probability of an unprofitable investment, but the variability of
positive returns is greater than losses.
Table 5 analyzes profitability by day of sale to evaluate pinhooking investment return by
quality. The sale is organized so higher quality horses sell at the beginning of sale. Horse
quality declines as the sale progresses. The day sale average shows a generally decreasing trend
by day of sale having a sale average of $321,153 on day 1 which decreases to $6,683 by day 13.
Average profitability and ROI is tested against the null hypothesis that π < 0, by day of the sale,
for those horses without a RNA. Days two through five and day seven show that on average
pinhooking investments had profitability significantly greater than zero. Day one had a positive
average profit of $50,016, but due to variance in individual investments, it was not found to be
significantly greater than zero, although for day 1 the ROI of 25.1 percent was significantly
positive. For days 1 through 5 and 7, the average ROI ranged from 25.1 to 144.2 percent over
the holding period and in each case was significantly greater than 0. The holding period for the
majority of pinhook investments from purchase at the Keeneland November sale to the
Keeneland September sale is approximately, 310 days so reported ROI’s would have to be
adjusted upward to compare to an alternative investment annual rate of return. The early days of
sale produce strong returns for investors that can bear the investment risk and have the financial
capacity to invest in this market segment. Days 8 through 13 of the sales show unprofitable
investments on average but have profitable individual pinhook investments throughout this
quality range.
11
The quality of the weanling purchased is directly related to the likelihood of pinhooking
profitability. Table 6 reports average profitability and ROI of pinhooking investments grouped
by quality as measured by weanling purchase price WPPi. The greatest likelihood of a profitable
pinhooking investment occurred in the $20,000 to $100,000 purchase price range. The quality
range is divided into two groups, $20,000 up to $50,000 and from $50,000 up to $100,000. Both
groups had profitability and ROI significantly greater than zero. The ROI for these groups were
29.6 and 24.8 percent respectively. This quality range had high average weanling purchase price
to yearling sale price appreciation which is profitability’s only revenue determinant. Higher
quality weanling purchases, with WPPi above $100,000 had positive average profitability, but
were not found to be significantly greater than zero. Limited value appreciation and the potential
for substantial devaluation negatively affected the profitability of this quality group. The largest
investment losses found in the data set were in this quality group due to devaluation. Weanlings
purchased for below $20,000 had the lowest profitability levels and were also not found to be
significantly greater than zero.
An ANOVA analysis tested for differences in profitability between colts and fillies.
Results presented in Table 7 show that colts were substantially more profitable than fillies. Colts
had an average profit of $14,501 versus $1,934 for fillies, and an ROI of 44.1 versus -10.4
respectively. Tests of the null hypothesis that profit and ROI were less than 0, were rejected for
colts at a one percent significance level, but could not be rejected for the fillies. The null
hypothesis that mean profitability and ROI between colts and fillies are equal is strongly
rejected, indicating that colts have significantly greater profitability than fillies. This may in part
be due to colts have greater race earning potential than fillies so investors are willing to pay more
for colts than fillies. There is also a substantial return for colts that are successful race horses
that end up as stallion prospects.
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Although very few colts end up as stallions, almost all fillies have breeding value
potential as broodmare prospects. Owners of fillies may be more willing to overvalue and set a
high RNA on fillies to capture the fillies expected breeding value. Fillies that RNA’d, had a
higher average weanling purchase price, WPPi of $47,980 versus the average filly WPPi for those
that sold was $42,108. Conversely the average yearling selling price, YSPi was lower for RNA
fillies, $46,876 versus $59,058 for those that sold. This combination of high purchase price and
low selling price can be explained in part through owner overvaluation and contributes to the
lower profitability of fillies versus colts. There was also a larger increase in the average yearling
sale price over the average weanling purchase price multiple for colts versus fillies, 1.62 versus
1.40 respectively for sales without any RNA.
Maximum Likelihood Estimates of Profitability and ROI Distributions
Analysis of stochastic investment outcomes frequently requires modeling investment risk
with estimated probability distribution functions. Maximum likelihood estimates of the
distribution function parameters best describing the mean and variance of profit and ROI are
presented in Table 8. The results indicate that both profit and ROI are best modeled using a loglogistic distribution function based on χ2, Kolmogorov-Smirnov, and Anderson-Darling
goodness of fit statistics ranking twenty-six alternative distribution specifications. The loglogistic distribution has larger tails and a higher kurtosis than a normal distribution, which means
that more of the variance is due to infrequent extreme variations from the mean. Figure 3
presents the estimated distribution functions for π and ROI respectively. For both profit and
ROI, all three goodness of fit statistics are statistically significant at a one percent level or
greater. The distribution’s estimated mean and standard deviation for both π and ROI are less
than the calculated input data indicating that the estimated distribution parameters are less
sensitive to the maximum values in the data.
13
The estimated value at risk, VaR, is reported in Figure 3. VaR, is a financial analysis tool
that estimates an investment’s expected gain or loss at a specified level of confidence, commonly
the five percent lower tail of the distribution. It is used to measure the downside risk of a
potential investment or portfolio. Examples of VaR models include Pritchett et al analyzing risk
management strategies for corn and soybean producers, Schnitkey, Sherrick and Irwin analyzing
multiple peril crop insurance and Manredo and Leuthold analyzing cattle feeding margins. The
five percent VaR for pinhooking profit is a loss of -$72,340.
Conclusions
This paper constructs a data set from Thoroughbred bloodstock auctions to examine the
profitability of weanling to yearling pinhooking investments. It complements the existing
empirical literature examining Thoroughbred bloodstock markets, and identifies the importance
of RNA classification on expected pinhooking profitability returns. The results find positive
expected profitability and return on investment for pinhooking investments without an RNA and
empirically quantifies important market characteristics for the sex of the horse, the quality
classification of weanlings by purchase price and the day of the sale. Probability distribution
functions were estimated and present an effective method of communicating the investment risk
profile of the pinhooking investments analyzed.
The results provide evidence of positive economic return of Thoroughbred pinhooking
investments and provide an empirical counter argument to the stereotypic characterization of
horse investments as unprofitable and not economically rational. Segmenting just profitable
pinhooks found average profitability to be $56,431 with an ROI of 165.1 percent over a ten
month holding period. The highest quality horses were not found to be the best investment
14
group due to limited appreciation and substantial devaluation risk. The greatest likelihood of
profitability is found with weanlings purchased from $20,000 up to $100,000. The strongest
value appreciation was found in this quality group. For investors with financial capacity and
who can withstand the investment risk, pinhooking may provide a diversification role in an
investment portfolio in addition to a utility return from owning a Thoroughbred horse.
Additional work is needed to develop a hedonic model of individual horse characteristics that
contribute to profitable pinhooking investments.
References
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Paintings”, Eastern Economic Journal, 28-4(2002):443-463.
Ashenfelter, Orley, “How Auctions Work for Wine and Art”, Journal of Economic Perspectives,
3-3(1989):23-36.
Biles, Deirdre B., “Rally Cry: Final week of Keeneland September Sale Shows Middle Market
has Remained Strong”, The Blood-Horse, 38(2002):5344-5349.
Buzby, J.C. and Eric.L. Jessep, “The Relative Impact of Macroeconomic and Yearling-Specific
variables in determining Thoroughbred Yearling Price”, Applied Economics, 26-1(1994):1-8.
Chezum, Brian and Bradley Wimmer, “Roses or Lemons: Adverse Selection in the Market for
Thoroughbred Yearlings”, Review of Economics and Statistics, 79(1997):521-526.
Karungu, P., M. Reed and D. Tvedt, “Macroeconomic Factors and the Thoroughbred Market”,
Journal of Agricultural and Applied Economics, 25(1993):165-173.
Manfredo, M. and R. Leuthold, “Market Risk and the Cattle Feeding Margin: An Application of
Value-at-Risk”, Agribusiness an International Journal, 17-3(2001):333-353.
Mei, Jianping and Michael Moses, “Vested Interest and Biased Price Estimates: Evidence form
an Auction Market”, Journal of Finance, 60-5(2005):2,409-2,434.
Neibergs, J. Shannon, “A Hedonic Price Analysis of Thoroughbred Broodmare Characteristics”,
Agribusiness: An International Journal, 17(2001):299-314.
15
Neibergs, J. Shannon and Richard Thalheimer, “An Economic Analysis of the Effectiveness of
Thoroughbred Breeder/Owner Incentive Policies”, Journal of Agricultural and Applied
Economics, 31(1999):581-592.
Neibergs J. Shannon and Patrick L. Vinzant, “Maximum-Likelihood Estimates of Racehorse
Earnings and Profitability”, Journal of Agribusiness, 17(1999):37-49.
Pritchett, James G., George F. Patrick, Kurt J. Collins, and Ana Rios, “Risk Management
Strategy Evaluation for Corn and Soybean Producers”, Agricultural Finance Review, 641(2004):45-60.
Schnitkey, G. D., B. J. Sherrick, and S. H. Irwin, “Evaluation of Risk Reductions Associated
with Multi-Peril Crop Insurance Products.” Agricultural Finance Review, 63-1(2003):1-21.
The Blood-Horse Auction Edge, Keeneland September Yearling Sale, The Blood-Horse, 2002.
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Yearlings”, Journal of Agribusiness, 19-2(2001):173-189.
16
Average Keeneland Sale Prices and Pinhooking Margin
120,000
100,000
80,000
60,000
42,828
40,000
34,565
34,067
28,614
20,003 21,051
20,000
10,626
9,214
7,948
9,546
9,987
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
71
-4,487
1993
1991
1990
0
1992
3,126
-20,000
Weanling
Yearling
Price Margin
Source: www.keeneland.com/livesales
Figure 1. Bloodstock Trend of Keeneland November Weanling and September Yearling
Average Prices.
17
500
Frequency
400
300
200
100
Mean =
9192.552057368932
Std. Dev. =
81528.12599287946
N = 1,011
0
-400000
-200000
0
200000
400000
600000
800000
1000000
Profit
Figure 2. Histogram of Pinhooking Profitability.
18
Estimated Probabilty Distribution Pinhooking
Profitability
X <= -72340 X <= 87675
5.0%
95.0%
0.01
Probability
0.0075
0.005
0.0025
0
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
Profitability $
Estimated Probability Distribution Pinhooking ROI
Probability
X <= - 2 0 7
5 .0 %
X <= 2 4 6
9 5 .0 %
0.0021
0
-1,000
-500
0
500
1,000
1,500
2,000
ROI %
Figure 3. Maximum Likelihood Estimate Probability Distributions.
19
Table 1. Weanling Pinhook Investments Point-of-Purchase.
Sale Name
Number
Keeneland November
1,435
Keeneland January
291
Keeneland July1
52
Ocala Breeders Sale October
63
Fasig-Tipton November
43
Fasig-Tipton February
63
Ocala Breeder Sale Winter
43
EAS December
24
Arkansas February
8
Miscellaneous sales2
32
Total
1
2
2,054
The Keeneland July sale was discontinued in 2003
These sales represent 13 sales spread out over the 3 year study period.
Table 2. Summary Number of Pinhook Prospects
Description
Total Pinhook Prospects Cataloged
Number of Outs
Number of Horses Going Through
Yearling Sale
Prospects with an RNA on WPPi
Prospects with an RNA on YSPi
Prospects with an RNA on both WPPi and
YSPi
Prospects reported as sold on both WPPi
and YSPi
2001
926
84
842
2002
657
72
585
2003
688
61
627
Total
2,271
217
2054
336
230
96
232
147
58
144
138
30
712
515
184
372
264
375
1,011
20
Table 3. ANOVA Tests of Mean Profitability and ROI Controlling for RNA status
Year1,2
RNA Group Description
2001
2002
2003
Total
-1,661
-4,236
-7,072
6,845**
4.5
-5.3
-23.4
10.1
627
2,504
842
585
Exclude Yearlings with RNA on
-1,973
-4,290
7,803**
495
both WPPi and YSPi
-18.7
16.1
6.9
-0.7
746
527
597
1,870
***
1,769
-2,134
12,254
3,990*
Exclude all Yearlings with an
-15.7
21.1
17.0**
5.2
RNA on YSPi
612
438
489
1,539
Exclude Yearlings with RNA on
-531
482
8,649**
3,039*
*
*
WPPi
-10.0
31.0
12.8
9.0*
506
353
483
1,342
6,144*
5,669**
14,697***
9,913***
Exclude all Yearlings with an
**
***
-1.9
44.3
27.6
21.1***
RNA on either WPPi or YSPi
372
264
375
1,011
1
The top number is the mean profit ($), the middle number is the mean ROI (%) and the
bottom number is the group’s n.
2
ANOVA Ho: π < 0 or Ho: ROI < 0 Reject Ho at significance level *** 0.01, **0.05, *0.10
All Horses Going Through
Yearling Sale
Table 4. Comparison of Profitable and Unprofitable Pinhooks
Profit (π)
n
average
std. deviation
426
56,431
102,278
Profitable (π > 0)
585
-25,206
32,704
Unprofitable (π < 0)
ROI (%)
average
std. deviation
165.6
351.7
-84.1
75.0
21
Table 5. Average Profitability and ROI by Day of Sale for Pinhook Yearlings
Without an RNA
Mean
Mean
Day Sale
Mean Profit1
ROI1
Day
n
WPPi ($)
YSPi ($)
Average ($)
%
π ($)
1
38 233,579
336,500
321,153
50,016
25.1**
2
36
139,417
245,056
363,901
67,233***
94.1***
3
84
97,387
173,798
129,722
47,114***
144.2**
4
78
75,160
122,353
105,898
24,128**
69.5***
5
113
48,549
68,951
66,971
4,158
60.9***
6
87
35,701
43,345
53,088
-5,539
10.3
7
114
31,999
59,978
39,971
13,456**
79.2***
8
105
21,494
32,340
27,955
-396
14.0
9
109
23,567
29,938
23,148
-4,741
-6.6
10
99
20,523
22,725
15,627
-8,079
-16.0
11
77
11,326
14,514
12,041
-5,550
-60.1
12
47
9,381
8,234
7,729
-9,349
-141.2
13
24
4,325
5,020
6,863
-6,826
-220.1
1
Hypothesis test Ho: π < 0 or Ho: ROI < 0.
Reject Ho at significance level *** 0.01, **0.05, *0.10
22
Table 6. Average Profitability and ROI by Weanling Quality Classification.
average
Weanling
Purchase Price
Quality Range
n
$200,000 and up
34
333,824
423,971
22,906
2.5
$100,000 - $199,999
83
134,241
182,916
16,318
12.6
$50,000 - $99,999
173
67,220
105,610
17,473**
24.8**
$20,000 - $49,999
354
30,706
54,900
10,224***
29.6***
$10,000 - $19,999
161
14,348
25,475
1,021
5.7
Less than $10,000
206
5,589
15,930
1,719
21.9
1
Weanling
Purchase Price
WPPi ($)
Yearling Sale
Price
YSPi ($)
Profit1
π ($)
ROI1
(%)
Hypothesis test Ho: π < 0 or Ho: ROI < 0.
Reject Ho at significance level *** 0.01, **0.05, *0.10
Table 7. Profitability Comparison of Colts versus Fillies.
Description
Ho: colts = fillies
p value
Colts
Fillies
Profit ($)1
14,501***
1,934
0.015
ROI (%)1
44.1***
-10.4
0.001
For colts n = 584 and for fillies n = 427
1
Hypothesis test Ho: π < 0 or Ho: ROI < 0.
Reject Ho at significance level *** 0.01, **0.05, *0.10
23
Table 8. Distribution Modeling Maximum-Likelihood Parameter
Estimates and Goodness of Fit Statistics for Pinhooking Profitability and
ROI.
Pinhook Profit ($)
Description
ROI (%)
π
Sample Data:
Mean
9,913
21.1
81,528
265.5
Minimum
-294,946
-688.9
Maximum
910,904
1,529.5
LogLogistic
LogLogistic
Parameter 1
-367,441
-820.5
Parameter 2
366,476
808.7
Parameter 3
13.593
10.630
374.1***
132.2***
0.116
0.080
29.6
10.4
2,319
2.113
49,876
142.48
Standard Deviation
Density Function Parameters:
Type of distribution
Goodness of Fit Statistics:
χ2
Kolmogorov-Smirnov
Anderson-Darling
Estimated Distribution Moments:
Mean
Standard Deviation
n=1,011
Denotes statistical significance at 0.01 or greater
***
24