MAXIMUM-LIKELIHOOD ESTIMATES OF RACEHORSE EARNINGS AND PROFITABILITY

Thoroughbred racehorses are commonly characterized as unprofitable investments. Previous studies, grouping all racehorses together, estimate that over 80% of all racehorses in training fail to earn enough to recover the variable costs of training. However, these studies are not truly representative, because they fail to account for a number of factors affecting profitability. This study estimates expected purse earnings and profitability of claiming horses in Kentucky. Maximum-likelihood estimates of probability distribution parameters show that expected purse earnings follow an exponential distribution with a mean of $25,267. Profitability is best described by a Gamma distribution with a mean of$4,824. Of the 305 claims analyzed for profitability, 61% were profitable. The results indicate substantial financial risk associated with claiming race horses, but conclude that there are positive economic returns on average.claiming horses, financial risk, maximum likelihood, probability, profitability, thoroughbred, Agribusiness,

MAXIMUM-LIKELIHOOD ESTIMATES OF RACEHORSE EARNINGS AND PROFITABILITY

Thoroughbred racehorses are commonly characterized as unprofitable investments. Previous studies, grouping all racehorses together, estimate that over 80% of all racehorses in training fail to earn enough to recover the variable costs of training. However, these studies are not truly representative, because they fail to account for a number of factors affecting profitability. This study estimates expected purse earnings and profitability of claiming horses in Kentucky. Maximum-likelihood estimates of probability distribution parameters show that expected purse earnings follow an exponential distribution with a mean of $25,267. Profitability is best described by a Gamma distribution with a mean of$4,824. Of the 305 claims analyzed for profitability, 61% were profitable. The results indicate substantial financial risk associated with claiming race horses, but conclude that there are positive economic returns on average