Stable Economics

by Elaine Schwartz    •    Feb 7, 2012    •    739 Views

By Mira Korber, guest blogger.

What do the horse racing industry and the 2008 housing collapse have in common? More than you might think. According to this interview with Joe Drape, New York Times sports writer, over-breeding of thoroughbreds and over-borrowing to buy homes both lead to the same result: a market crash.

But, it seems the horse racing industry might be (somewhat) on the mend. The statistics from the Keeneland auctions (where many racehorses are bought and sold), show tremendous increases over last year’s numbers. This year, nominations for the renowned Triple Crown have increased 9% over 2011. The same cannot be said, however, for the housing market, which shows continually low volume of house sales.

Some more numbers for the Kentucky horse industry show just how much “the sport of kings” actually reaches a larger group of people than just the stereotypically aristocratic participants. A $10 billion tourist industry features horse racing as its symbol, and some 14,600 jobs relate to the racing/tourist market segment.

Although Keeneland numbers are on the rise, there’s no doubt the industry is still rather a wobbly colt. Adding slots and gaming to racetracks is a greatly controversial issue, but it would certainly increase revenues in a struggling marketplace.

To find out more about the horse industry — from breeding to boarding to showing — read this study on equine economics in Virginia.

The Economic Lesson

The market for race horses attests to the power of supply and demand. In Joe Drape’s NY Times article, he cites stallions that once commanded $100k per breeding now only bring in $10k. With a contraction of market demand comes a contraction in price (and quantity).

The Bottom Line: Horse racing is a sport of tremendous affluence, yet the market still dictates its health as an industry.

An Economic Question: How would the retraction of the horse industry be represented on a Kentucky supply and demand graph for tourism?

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