🐎 Medina Spirit: Turning A $1,000 Investment Into $50 Million
After being acquired at auction for just $1,000 in 2019, Medina Spirit won the 147th Kentucky Derby this weekend — taking home a $1.86 million purse.
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In January 2019, a group of more than 400 horses sold at an auction in Ocala, Florida. The most expensive horse was sold for $200,000, while a group of 23 horses sold for the $1,000 minimum — meaning they only received a single bid (Source).
Now, two years and one ownership change later, one of those 23 horses— now named Medina Spirit — completed a wire to wire victory this weekend at the prestigious Kentucky Derby.
A winning purse worth $1.86 million.
Even crazier, just two years after being acquired at auction for $1,000, Medina Spirit is most likely now worth more than $50 million.
With less than 5% of all racehorses earning more than $100,000 annually, the sport of horse racing has long been considered a fun but money-burning experience reserved for elites.
But on the uncommon chance that your racehorse becomes a champion, well, that changes everything.
Because in addition to the multi-million-dollar purses handed to the winners of esteemed races like the Kentucky Derby, Belmont Stakes, and Preakness Stakes, the value of a winning racehorse can drastically increase as it attempts to breed future speedy foals (baby horses).
Here’s how it works…
After an average of two to four years of racing — once the male has established his dominance on the racetrack — the horse will retire to a “stud farm,” otherwise known as a breeding farm.
Horses are expected to mate at least 100 times per year, and the best horses command upwards of $100,000 for each healthy foal they produce. In total, that’s $10 million in annual income for their owner (Source).
Even more interesting?
Not only are investors willing to pay top dollar for the breeding rights to a legendary horse, which entitles them to free breeding and a share of the stud fees, but they typically attempt to maximize revenue by transporting the horse between the Northern and Southern Hemisphere to increase annual breeding.
For example, Coolmore, who refers to themselves as the “New York Yankees of Horse Racing,” purchased the breeding rights to Justify for $75 million after he won the Triple Crown in 2018.
Given that made Justify the most valuable horse in racing history — passing the $70 million fee Coolmore paid in 2000 for Fusaichi Pegasus — Coolmore looked to quickly see a return on their investment.
They shuttled the horse between the Northern and Southern Hemisphere, enabling him to breed at least 250 times in the first year. At an average rate of $150,000 per live foal, half the deal, or $37.5 million, would be covered in Year 1 (Source).
As if that isn’t absurd enough, keep in mind, Justify was purchased as a yearling (1-2-year-old horse) for only $500,000 just a few years prior.
A large percentage of the future value of a horse’s breeding rights depends on how well its first set of offspring performs. If they are fast, the fee goes up. If they are slow, it goes down.
As a general guide, most people estimate that a stallion is worth at least 300x his stud fee — or more. At $100,000, that would make Medina Spirit worth $30 million. But if you applied the same 500x multiple that Justify commanded, Medina Spirit would be worth $50 million.
Sure, the stud fee can fluctuate, but you get the point. Winning the Kentucky Derby was worth much more than the $1.86 million 1st place purse would indicate.
Medina Spirit is only three years old, potentially has another 12-18 months of racing in him, and has already won more than $2 million in prize money. But considering he was purchased at auction for just $1,000 less than two years ago, it’s clearly been an incredible investment — regardless of the valuation multiple.
Have a great day, and we’ll talk tomorrow.
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