Multiples

How much should a horse sell for?

One way to express the price is as a multiple of a horse’s sire’s current stud fee. For example Macleans Music currently stands at Hill ‘n’ Dale for $20,000. So when the buyer of hip #303 paid $47,000, he 2.35 x the stud fee. What if a fair multiple? It depends on many factors.

This multiple is similar the Price/Earnings ratio of a stock. The higher the multiple, the more expensive a horse or a stocks is. In the stock market many argue that earnings is not the best denominator. Some would argue some measure of cash flow is a better denominator. I am sure horse investors have the same issue with a simple multiple of the current stud fee. Maybe it should be the stud fee when the horse was bred. Maybe it should be the average yearling price in the prior year.

For simplicity I will start by using a simple ratio of price paid divided by current stud fee to express the value of a horse. More complex ideas might come later.

After watching the sale I am going to express some very general opinion as a starting point of discussion. I stand ready to adjust this later. Here is my first impression:

For maybe the top 10 to 20 horses in the sale, the multiple matters very little and it is just what a really rich guy wants to pay for what he perceives as the best horse.

For everything else the multiple has some value.

10 x – is what might be paid for a horse with above average pedigree and an above average workout

5 x – is what might be paid for for a horse with either great pedigree, or a above average workout

3 to 4 x. – is what might be paid for an average pedigree and an average workout.

2 x – is what might be paid for for either avrerage pedigree and a below average work, or the reverse.

< 1 x. – is what might be paid for both below average pedigree and a below average work

In general a real slow workout time might not overcome even the best pedigree.

That is a very rough estimate of what I think multiple were is the sale I just watched. Maybe someday I will try to do some more precise calculations.

These are very general guidelines, and of course the quality of any pedigree is a very subjective and even experts will disagree