653. Does Horse Racing Have a Future?

Summary

Freakonomics Radio Episode 653: "Does Horse Racing Have a Future?"

Release Date: November 14, 2025
Host: Stephen J. Dubner
Description: Dubner explores the world of thoroughbred horse racing—its economics, culture, and future. The episode follows the Keeneland Yearling Sale in Kentucky and dissects the state of the industry, the risks and rewards of horse investment, the changing landscape of betting, and the existential threats facing the sport.

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Episode Overview

This episode, the third in the "The Horse Is Us" series, investigates the burgeoning yet precarious world of thoroughbred horse racing. Centering on the famed Keeneland Yearling Sale in Kentucky, it examines the economics and emotional stakes of buying, breeding, and racing horses. Through interviews with breeders, auctioneers, buyers, analysts, and professors, Freakonomics unpacks the mystique of horse trading, the shift in gambling habits, and the sport's uncertain future.

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Key Discussion Points & Insights

1. The Keeneland Yearling Sale: Where Dreams Are Auctioned

Setting the Scene

• The Keeneland Sale is the world’s largest and most elite yearling horse auction, sending shocks through the racing economy each September.
• Over 4,700 yearlings in the 2024 catalog, with the event involving immense logistics and excitement.
  (00:01–07:00)
• “You travel around by golf cart. The grounds are extremely well manicured. From the first day of the sale to the last, you can smell fresh-cut grass.” — Stephen Dubner (01:25)

Breeder Perspective: Hinkle Farms & Ann Archer Hinkle

• Hinkle Farms only sells horses they have bred—deeply invested in the life story of each animal.
  (03:19–04:22)
• “These horses have been on our farm since when they were in their mommy’s bellies.” — Ann Archer Hinkle (04:22)

High Expectations, High Risk

• Top yearlings can fetch millions, but the majority sell for much less.
  (04:39–05:06)
• “You’re hoping your horses sell for a few hundred thousand dollars at least…have someone that breaks out…hits seven figures.” — Ann Archer Hinkle (04:39)
• The episode spotlights a prized filly sired by “Not This Time,” one of the hottest stallions in the industry.
  (05:01–05:41)

2. The Anatomy of the Thoroughbred Market

Breeding and Stud Strategy

• Successful stallions skyrocket in value: Not This Time’s stud fee rose from $15,000 to $175,000 as his progeny won more races.
  (06:15–06:51)

Auction Mechanics and Global Reach

• Cormac Brannock, Keeneland’s senior director of Sales Operations, explains how the auction is structured for maximum competitiveness and fairness.
  (08:30–15:36)
• “Every horse is led into a live auction ring. Sometimes they’re seen over 100 times per day by potential buyers.” — Cormac Brannock (15:12)

Category, Placement, and Price Dynamics

• Horses are “booked” by perceived value, with median prices dropping by 50% in each successive book. Global buyers now account for a third of sales, with major players from Ireland, Japan, and Saudi Arabia.
  (14:02–14:10)

3. The Psyche (and Economics) of Buying Racehorses

Marketing and Academic Insight: Emily Plant

• Emily Plant, a horse marketing consultant and professor, unpacks the risk-reward proposition of buying unproven horses:
  (18:07–21:37)
  • “If you try to look at buying a horse as a straight, rational return on investment, there’s no explanation there…There is a very small chance you will hit a huge success.” — Emily Plant (20:46)
• Top colts can fetch $100+ million stud deals—if their racing careers pan out.

The Filly HIP144: A $2 Million Gamble

• Ann Archer Hinkle and the Hinkle team, after tense bidding, sell their Not This Time filly for $2.1 million—one of the sale’s top prices.
  Key Segment: 25:15–26:47 (auction process)
• “$2 million is incredibly significant…The farm requires a tremendous amount of capital just to maintain.” — Ann Archer Hinkle (30:03)

The Buyer’s Perspective: Scott Heider

• Omaha investment manager and seasoned horse investor explains his strategy—focusing on fillies for their future broodmare value and the interplay of intellect and instinct in decision-making.
  (31:34–34:08)
• “When it’s the final bid in your head and you know you’ve just made it, all you’re thinking is, drop the hammer. Drop the hammer.” — Scott Heider (33:27)

4. Industry Economics: Booming Auctions, Shrinking Base

Rising Prices, Shrinking Supply

• Despite record sale prices (56 yearlings sold for over $1 million each), the overall supply of horses and number of races is shrinking.
  (34:56–36:49)
• “Our thoroughbred foal crop is smaller than it’s been in a long time.” — Mark Taylor, Taylor Made Farm (34:56)

Cultural & Demographic Shift

• Horse culture is declining as fewer Americans grow up around horses—explaining shrinking interest and foal crops.

5. The Sport’s Existential Challenges

Welfare and Integrity Concerns

• Animal welfare criticism and historical incidents dent public trust, but breeders assert that horses love to run and that industry reforms (like HEISA) are improving safety standards.
  (37:09–39:07)
• “I personally believe horses are born to run…Will we ever have a sport with zero horse fatalities? No, we won’t. But the horses want to participate.” — Mark Taylor (37:09–39:07)

Declining Popularity and Crowds

• TV analyst Richard Migliori recalls regular crowds of 20,000 at weekday races; now many tracks are shuttered, attendance is a shadow of its former self, and the younger generation is disengaged.
  (39:35–40:54)

The Changing Face of Gambling

• With the proliferation of legal online sports betting, horses are losing market share—handle has dropped by 57% since 2002.
  (51:19–51:36)
• “It’s become shark against shark—and more and more monopolized by computer players.” — Marshall Graham, economics professor & expert horseplayer (55:16)

6. Surprising Supports: Subsidies and the “Racino” Model

Hidden Subsidies

• State legislation directs a share of online sports betting and casino revenue to prop up the racing industry.
• “In some states, your NFL and NBA bets are helping to prop up the fading horse racing industry.” — Stephen Dubner (59:03)

Racinos & Historical Horse Racing Machines (HHRs)

• Tracks have increasingly become hybrids with casino-style gambling—HHRs look like slots but are based on replays of historical horse races. Revenue from these machines now outpaces live race betting and subsidizes purses.
  (59:41–61:02)
• “Why not expand the casino operations and let horse racing go?” — Thomas Lambert, University of Louisville (61:14)

7. The Future: An Uncertain Path

Industry Outlook

• Experts generally foresee contraction except at premier tracks (Churchill Downs, Belmont, Pimlico, Breeder’s Cup). The fate of lesser venues remains unclear amid industry consolidation, changing culture, and competition from other forms of gambling.

• “I think the future is discouraging. Racing has had decades of monopoly…but they haven’t adjusted well to competition.” — Marshall Graham (58:23)

Personal Reflection

• Dubner, initially skeptical of “horse people,” comes to appreciate their passion, eccentricity, and stubborn hope in a risky, fading, but richly storied sport.

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Timestamps for Key Segments

• Keeneland Sale & Industry Intro: 00:01–07:00
• Breeder/Pedigree Discussion: 03:19–07:09
• How Auctions Work: 08:30–15:45
• Buyers’ Psychology & ROI: 18:07–22:27
• Bidding for HIP144: 25:15–26:47
• Celebrating the Sale: 29:20–31:30
• Buyer’s Strategy: 31:34–34:08
• State of the Industry: 34:56–39:07
• Declining Popularity: 39:35–40:54
• The Horse Betting Ecosystem: 41:00–48:13
• Paramutual vs. Bookmaker Betting: 48:13–51:19
• Industry Decline Figures: 51:19–51:36
• Subsidies & Racinos: 59:03–62:04

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Notable Quotes (with Attribution & Timestamps)

• “If you try to look at buying a horse as a straight, rational return on investment, there’s no explanation there…There is a very small chance you will hit a huge success.” — Emily Plant (20:46)
• “A million dollars, when that goes up on the board, it can be a wall and it stops. Two million is the same thing.” — Scott Heider (33:57)
• “Our thoroughbred foal crop is smaller than it’s been in a long time.” — Mark Taylor (34:56)
• “Will we ever have a sport with zero horse fatalities? No, we won’t. But the horses want to participate.” — Mark Taylor (39:07)
• “Horse racing, even overall as a sport, is like joining a cult.” — Marshall Graham (41:00)
• “It’s become shark against shark—and more and more monopolized by computer players.” — Marshall Graham (55:16)
• “Why not expand the casino operations and let horse racing go?” — Thomas Lambert (61:14)
• “I will probably never become a horse person myself, but I see you, horse people.” — Stephen Dubner (62:04)

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Memorable Moments

• The tension and euphoria around the $2 million sale of HIP144—champagne and shared disbelief among the breeders.
• The behind-the-scenes look at a sale that is as much about psychology, family narrative, and hope as it is about numbers.
• The frank discussion of animal welfare, where industry insiders argue that horses “love to run,” even as they acknowledge painful history and reform.
• Insights from gamblers and academics on why betting on horses—uniquely among sports—is a fight among bettors, not against a house.
• The “racino” phenomenon: horses as loss-leaders for casino operations, and the industry's reliance on subsidies from gambling on other sports.

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Conclusion

Thoroughbred horse racing is paradoxical—an industry ablaze with high-stakes glamour, sky-high prices, and passionate adherents, but facing shrinkage, deep cultural shifts, regulatory oversight, and technological changes that threaten its very survival.
Dubner and guests lay bare both the exhilarating hope and the sobering economics of a sport at a crossroads.

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For more horse insights, economics analyses, and quirky human behavior, find all episodes at Freakonomics.com.

Transcript

[Stephen Dubner]

Freakonomics Radio is sponsored by NYQUIL Intense Flu Flu symptoms Don't keep business hours. They like to show up at night interrupting your sleep. Nyquil Intense Flu helps shut them down. Specially formulated to ease flu and cold symptoms. It is the nighttime sniffling, aching, aching fever. Best sleep with the flu medicine delivering fast powerful flu symptom relief for up to 6 hours. Nyquil intense Flu works overnight so you can sleep. Try NYQUIL Intense Flu today. Use as directed. Keep out of reach of children. Freakonomics Radio is sponsored by Amica Insurance. They say if you want to go fast, go alone. But if you want to go far, go together. When you go with Amica, you're getting coverage from a mutual insurer that's built for their customers, so they'll help look after what's important to you together, auto, home life and more. Amica has you covered at Ameca. They'll help protect what matters most to you. Visit ameca.com and get a quote today. Once we started making this series about horses, this is the third and final episode in the series. People kept telling us that if we really wanted to understand the market for thoroughbred racehorses, which is the glitziest of all the horse markets, that we needed to get to Keeneland. Keeneland is an auction complex in Lexington, Kentucky. They hold six major sales a year. They the big one is the two week September Yearling Sale. Unproven horses bursting with promise. A horse that someone comes to Keeneland to buy with the dream that their yearling will be the next Justify or the next American Pharaoh or God willing, the next Secretariat horse. Hope springs eternal. The Yearling Sale is the biggest sale like it in the world and the highest quality. A huge share of champions. Over the past few decades, maybe 40% of the winners of the biggest US races were bought at Keeneland as yearlings. So this September we decided to go see for ourselves. Keeneland is a massive complex with one racetrack and one training track, a sales pavilion and 46 barns that each have 30 to 40 horse stalls. You travel around by golf cart. The grounds are extremely well manicured from the first day of the sale to the last. You can smell fresh cut grass. For this year's September sale, There are about 4,700 yearlings in the catalog. It also takes a lot of people to make the thing work.

[Marshall Graham]

Wade Cunningham Ochsner Keeneland Rhoda Ferraro and.

[Ann Archer Hinkle]

I'm director of Keeneland Library we are the only library of our kind in the world and we're by far the largest repository of information related to the thoroughbred breeding and racing industry.

[Stephen Dubner]

Sean Feld, Bloodstock agent working the Keeneland September sale, looking for year lengths to purchase. It's like panning for gold. You just keep sifting and sifting until something sticks.

[Marshall Graham]

Robert Clark I've been painting out here for the last 20 plus years.

[Stephen Dubner]

When I'm not painting horses, I will be dead.

[Ann Archer Hinkle]

I'm Ann Archer Hinkle. I am the manager of Hinkle Farms in Paris, Kentucky.

[Stephen Dubner]

We first ran into Ann Archer Hinkle near the barns on the Saturday before the sale started. It was already very busy with potential buyers assessing the horses. Grooms and handlers walk the horses and tried to keep them calm. These horses have a lot of energy. Now they're being asked to present a more docile version of their competitive selves. Our team with microphones and backpacks just tried to not startle anything that might kick. Hinkle Farms is run by brothers Tom and Henry Hinkle and now Tom's daughter, Ann.

[Ann Archer Hinkle]

My great grandfather bought the main part of the farm in 1926, and it didn't always have horses on it. He grew bluegrass seed and raised sheep and cattle. And then in about the 60s, he bought his first two mares. And now we're primarily a broodmare farm, but we do have like 200 head of cattle as well.

[Stephen Dubner]

Unlike many of the consignors or sales agents at Keeneland, the Hinkles only sell horses that they themselves have bred.

[Ann Archer Hinkle]

These horses have been on our farm since when they were in their mommy's bellies. So we fold them out on the farm, raise them and bring them up here as yearlings. That's kind of our niche in the industry.

[Stephen Dubner]

And how is Hinkle Farms feeling about their prospects at this year's sale?

[Ann Archer Hinkle]

You're hoping that all your horses sell for a few hundred thousand dollars at least. You're always hoping that you're going to have someone that breaks out that might hit seven figures. We budget really conservatively because we always hope to be pleasantly surprised, but it doesn't happen every year.

[Stephen Dubner]

This year, Ann Archer Hinkle has high hopes for a certain dark bay.

[Ann Archer Hinkle]

Yes, I really love our not this Time filly out of Stave.

[Stephen Dubner]

That means Stave is the mother or dam and not this Time is the father or sire.

[Ann Archer Hinkle]

She's really, really gorgeous. And not this Time is super hot at the moment. I mean, it's just like every day he has a new great horse out there.

[Stephen Dubner]

We heard about not this Time in last week's episode. He is a stallion that is currently standing for stud at taylormade farm. They are the biggest consigner at the Keeneland auction. They have so many barns that it's basically a tailor made neighborhood. When we find Mark Taylor at the presale, he's wearing a black baseball hat with white lettering that reads not this time.

[Mark Taylor]

Every time there's a horse race that's happening in the week preceding the sale, there's all these horses running and most of them have relatives that are in the sale. So with us, you know, not this time as our stallion, he's had this incredible run. The last three weeks have just been. It's like fantasyland. I can't even keep up with all the horses that are running well. Those results, every day they're coming in, you know, a rising tide raises all ships, right? So it's not just the not this times we're selling, but other consignors have not this times that's affecting the value.

[Stephen Dubner]

When not this time started out as a breeding stallion, his stud fee was $15,000 per live full produced. Now it's $175,000. That's a one time fee. The stallion's owners don't get a share of any future sales or horse racing purses. But like Mark Taylor said, if your studs offspring start winning a lot of races, as not this time's offspring have, that drives your stud fee even higher. When we first spoke with Mark Taylor a couple weeks before the yearling sale, he was feeling bullish. So how's he feeling now the day before the auction starts?

[Mark Taylor]

Well, it's been busy. We keep some metrics year to year and as of the end of the day yesterday, the number of shows, that's the number of visits by buyers. That doesn't always translate to a good sale or a bad sale, depending on whether it's up or down. But the amount of traffic was up about 15% versus last year. I'd rather it be up than down. And we hope that the, you know, the money goes along with that.

[Stephen Dubner]

Today on Freakonomics Radio, we will watch how the money goes along. We will talk to some of the people who are buying these racehorses.

[Marshall Graham]

Once you get to that point, all you're thinking is, drop the hammer, Drop the hammer.

[Stephen Dubner]

We learn about the importance of the horse export business.

[Cormac Brannock]

American thoroughbreds have been bought and sold all around the world and have formed the foundation of the stud books in many other countries.

[Stephen Dubner]

We ask where the money comes from to buy all these horses.

[Marshall Graham]

You can bet races all day in the US and then at night, you can bet races simulcast from Australia and Hong Kong.

[Stephen Dubner]

And we wonder whether horse racing, the sport of kings, has a future.

[Marshall Graham]

Why not expand the casino operations and let horse racing go?

[Stephen Dubner]

Part three of our series, the Horse Is Us, starts now.

[Ann Archer Hinkle]

This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

[Cormac Brannock]

Thoroughbreds, in particular, they're kind, they're trusting, they're just magnetic in every which way, and they give back more than you get from them.

[Stephen Dubner]

That is Cormac Brannock. If you want to pull off a sale, like Keeneland's Yearling sale, you need someone like Brannock running the show.

[Cormac Brannock]

I am the senior director of Sales Operations at Keeneland.

[Stephen Dubner]

We spoke with Branagh a couple weeks before the September sale. He grew up in Ireland, where he got an undergraduate degree in biotechnology. Then he came to the States and got a PhD in Veterinary Science at the University of Kentucky. He did six years worth of postdoctoral work studying horse immune systems and developing vaccines. Then he started his own bloodstock consulting firm and he later worked for two big stud farms. In other words, Brannock's horse knowledge is vast.

[Cormac Brannock]

Horses are a huge part of the Irish landscape and the Irish culture. It's something that just about everybody on the street has a connection to. Either they own a piece of a horse or their neighbour does. It really is built into the society and it's something that people take a lot of pride in. When I was growing up, my start was my father taking me to the races. Some of my first words were race horse names at the time.

[Stephen Dubner]

Do you remember any of those early horses?

[Cormac Brannock]

A horse called Gay Fandango. I'm not sure when he was born, but it was not far from when I was born.

[Stephen Dubner]

There have been entire books written about racehorse naming. Names must obey a set of rules upheld by the Jockey Club, the official breed registry for thoroughbreds. A name cannot contain more than 18 characters. It cannot be vulgar or obscene. It cannot have any quote, clear and contemporary, commercial, artistic or creative significance. Nor can you repeat a name, although if your horse has a famous dam or sire, you might include their name in yours.

[Cormac Brannock]

They say that about 35% of a horse's racing ability comes from its genetics. So 65% of it is environment. That would be everything from the ride the horse gets, how well the horse is trained. But at some point, there's that gray area which is the horse's desire and its own will to win. And that really is what separates the good from the less good.

[Stephen Dubner]

If we were to ask 10 buyers who are coming to your yearling auction at Keeneland this year what they think is the most important factor that goes into assessing a horse that they're considering buying. Do you think we'd get 10 totally different answers?

[Cormac Brannock]

You'd probably get three or four, for sure. I think the most common answer would be a horse with an athletic look. So a horse with good lines and angles that's built to be strong enough, sound enough, and athletic and fast enough to be successful for what they wanted to do. Pedigree is obviously another massive component, but, you know, pedigree doesn't win races. That's on paper. And thirdly, the veterinary component, you know, how clean do the horses vet now?

[Stephen Dubner]

How much of what you just said will be included in the catalog that you and your colleagues put together for the September sale?

[Cormac Brannock]

So the catalog, in its old sense is a print book that is somewhat out of date by the time the sale even happens, because it's printed and distributed around the world weeks ahead. But the online digital catalog is something that's becoming a lot more dynamic over the last several years, and Covid had a hand in that. Where there are walking videos, there are photographs of each horse, and then there's an updated pedigree version that shows what the other family members have been doing since the horse was entered in the sale back in May.

[Stephen Dubner]

So you and your team who are responsible for putting together this catalog and conducting these yearling sales, describe the effort that goes into that. How big is your crew? Where do they go? What kind of information do they gather?

[Cormac Brannock]

Probably the biggest part that we do as a sales team is the inspection process. The entry deadline is May 1st. Every year. Once we accumulate those entries, we split into two teams of three people, a team, and travel mostly locally, but also out of state on some occasions. To see, in this year's case, 3200 or more of the yearlings entered in the sale. We went to about 410 farms.

[Mark Taylor]

Wow.

[Cormac Brannock]

And why we do that is we want to put the best physical versions, the best athletes forward in the sale and not just go by what's on paper.

[Stephen Dubner]

How are prices set?

[Cormac Brannock]

So sellers will set a reserve if they choose to. The old adage is you value your horse, and you set the reserve at two thirds of that price. If you think the horse is worth 150, you set a reserve at 99 and let the market play it out from there. Some people push the envelope. Some people don't set any reserve. The reserves are not disclosed under any circumstances. Unless the seller chooses to.

[Stephen Dubner]

When you and your team are going around to these 410 farms, though, and you're actually seeing the horses, is there sometimes the case where the seller will say, this is $150,000 horse, and then you and your team say, no, we think it's a $75,000 horse.

[Cormac Brannock]

That does happen. So when the sellers or the consignors, their agents enter the horses, we'll invite them to send in what's known as a wish list, which is the placement that they would like each individual horse to be within the sale. And the sale of this size has 12 different days. And they're. So book one is two days, book two is two days and so on. And the prices, typically, the median price per book goes down by 50%.

[Stephen Dubner]

What's day one?

[Cormac Brannock]

About 450,000 in a good year. Median price for the yearling sold, and it drops to low two hundreds and then to one hundred to fifty and so on. So it helps the buyers know when they want to show up. If they have a budget of $30,000, they're going to show up in book five. They're not going to work for 12 days to buy a horse on day 11.

[Stephen Dubner]

What share of buyers are American versus global?

[Cormac Brannock]

About two thirds are domestic.

[Stephen Dubner]

Of the remaining one third, what would you say are the top three spending countries?

[Cormac Brannock]

Those would be Ireland, Japan and possibly Saudi Arabia.

[Stephen Dubner]

Nowadays, what is your function as the director of sales? Is it to act as an honest broker so that the market is as legitimate as can be? Are you perhaps instead representing the interests of Keeneland itself? Are you representing the interests of potential buyers?

[Cormac Brannock]

Well, our interests as Keeneland are the same as the sellers, which is we're partners. Keeneland will charge a house commission of 5% for sales for horses sold, and so we want what they want. Which is the best, most successful sale across the board. Structuring the sale, what our role would be as a sales team, we would be to just ensure that we think the better horses are forward. We don't want weaker physicals to be at the front of the sale and create the wrong impression about the crop or the group of horses in general.

[Stephen Dubner]

Can you just describe what the auction or the days of auction look like? Is it a live auction where every single horse is brought into the ring and people are looking at it and bidding? Or is it more silent auction?

[Cormac Brannock]

It's a live auction. All the horses are here on the grounds. We use 1600 stalls to move them in and out every day. It's a Hive of activity. The horses are being shown sometimes 100 to 120 times per day seen by prospective buyers, sometimes two or three times. We have a holding barn in the back behind the actual sales ring that will hold about 12 to 14 yearlings that are the next through the ring.

[Stephen Dubner]

Talk to me about the upcoming September sale, how it will compare to previous sales in terms of size and excitement.

[Cormac Brannock]

The sale has evolved quite a lot. The September sale was a secondary sale back about 25 years ago, around the turn of the century. The July sales, that was the elite sale. And then September sale just kind of grew in vogue because it gives a little more time for yearlings to mature. They're that much older and percentage wise, quite significantly more mature. The largest September sale was in 2007, and we had 5,555 yearlings in the catalog. But in recent times, especially since the 2008 economic crash, there's been some more selectivity among breeders. This year's catalog is actually the largest it's been since 2010. And the quality, I think from top to bottom is probably the strongest in my memory. I think excitement's very high. Global participation is very strong. American thoroughbreds have been bought and sold all around the world and have formed the foundation of the stud books in many other countries. There are some emerging markets in the Middle east and elsewhere that love to buy American thoroughbreds because they're known for speed. In a lot of those countries, the racing will happen on dirt, which isn't the case in Europe. And so American thoroughbreds are dirt speed horses.

[Stephen Dubner]

So I'm looking at a number, I think this is from last year's yearling sale. $411 million was the total take, is that right?

[Cormac Brannock]

It was actually $428 million after you include the horses that sold post sale. So 411 million through the ring, but then a lot of deals get done the same day.

[Stephen Dubner]

So congratulations. That's a pretty good number. I hope you get some cut beyond your salary.

[Cormac Brannock]

We don't. And honestly, just to what Keeneland is, people think it's a non profit. It's actually for profit, but we have a non profit mission. Everything Keeneland makes goes back into the industry, whether that's purses or for safety and integrity measures or for local philanthropic efforts. And that's a good mission to live by.

[Stephen Dubner]

With about 4,700 horses to choose from this year, and with some $400 million at stake, how do buyers assess which horses are worth the investment? This brings us back to Emily Plant, whom We met last week feeding a carrot to Triple Crown winner American Pharaoh. Plant grew up in Kentucky as a horse crazy kid and a competitive rider. After college, she was working full time as a banker and was enrolled in an MBA program. But she didn't love the business world.

[Ann Archer Hinkle]

And my academic advisor, he said, listen, you have to choose something to study that you will be okay obsessing over for the rest of your life. His name is Bob Dahlstrom. I'm so thankful for his great guidance. I said, listen, Bob, I really like horses. That's really the only thing I can see myself caring about forever. Bob was like, if you think you can write a dissertation on horses, go for it. I was living in Lexington, Kentucky, home of the Keeneland sale, and I had never actually been to a Thoroughbred auction. So here I am, I'm living at the epicenter of thoroughbred racing, and I just wander into the sale on one of the opening nights of the auction. This would have been 2006.

[Stephen Dubner]

Open to the public.

[Ann Archer Hinkle]

Yes, open to the public. Anybody can come in and view what's going on. I immediately see a horse sell for or $5 million or something. And me as a lifelong horse person, the horses that I was dealing with are like five $10,000 horses. To see a baby racehorse that has never been asked to run, never been asked to carry a rider, its only potential at this point to see somebody spend millions on essentially worthless baby racehorse. Something flipped in my brain and I was like, oh, I think this might be my destiny. I became instantly obsessed.

[Stephen Dubner]

Today, Emily Plant is a marketing professor at the University of Montana, and she runs a Thoroughbred consulting business alongside the racing analyst Bill Oppenheim.

[Ann Archer Hinkle]

I publish the Stallion Spectator Rating. That is a several hundred page research volume with all kinds of detailed statistics about stallion performance and how they rate historically in terms of their quality. And then we publish the Thoroughbred Market Report, which is a monthly magazine tailored for investors in the thoroughbred business.

[Stephen Dubner]

How do you think about the risk or the return on investment or the predictability, whatever you want to call it, when it comes to trying to buy any unproven horse at auction? You're supplying all these potential buyers with all kinds of information. And so people are gathering this data and they're looking at the horses in the flesh. But when it comes time to measure the correlation between the price that they pay and the success that a given horse will have on the track, how do you think about that?

[Ann Archer Hinkle]

You're never going to like that answer. If you try to look at buying a horse as a straight, rational return on investment, there's no explanation there. There is nobody that can claim that it's irrational. But here's the thing. There is a very small chance that you will hit a huge success. And if you do hit that huge success, your life can be changed. If you make the right decision, you can end up with essentially a living, unlimited ATM machine. The other part of it is people like to go to the racetrack and see their colors on their jockey. They like to watch their horse run. It's a social thing. So there's also plenty of non pecuniary benefits in terms of the ownership.

[Stephen Dubner]

Describe what hitting it big means. Walk us through the the racing, the winning races, the stud fees, etc. And how the ATM thing happens.

[Ann Archer Hinkle]

There's kind of two segments to what we call the thoroughbred horse racing industry. There's the racing side and then there's the breeding side. Obviously, they're completely tied together and horses kind of move through these segments as they age. Now, obviously people stay involved at multiple levels of the game. Let's say I'm in the racing part of the ownership group and I want to quote, unquote, keep a leg or retain some ownership. So I might stay in. But the money for a top racehorse at the end of their career, for the colts they're going on to stud deals, huge money.

[Stephen Dubner]

How much huge?

[Ann Archer Hinkle]

Huge. You hear stallion deals, you know, $100 million for a top prospect. You value them at what they'll be able to make at stud basically in the first four years that they're a stallion. The other thing is that once a young colt wins like one high profile race, the competition to buy him as a stallion prospect is already starting. Let's say you enter into a $60 million stud deal for a colt in August because you think he's going to go on and do great things and he turns out to be a complete dud. He's not even worthy of standing at stud in Kentucky and he ends up going to Louisiana and standing for 2000 bucks. So even though it might be a little more straightforward on the stallion side, it is still really risky.

[Stephen Dubner]

Emily Plant's research reports are meant to help mitigate that risk. Her clientele includes some of the biggest breeders in the country, as well as some smaller farms.

[Ann Archer Hinkle]

One of our longtime clients, a family business called Hinkle Farms, they are a subscriber, they get the information and then we'll be meeting with them to talk about the data as it relates to their own mares and help them think through their mating decisions for next year.

[Stephen Dubner]

At The Keeneland September Sale. Emily Plant walks us over to the maze of barns behind the sales pavilion to chat with Ann Archer Hinkle.

[Ann Archer Hinkle]

They are generous enough to sit down with us once a year and talk us through some of their data because you need someone to help you make sense of it. Finding the right fit for each mare is a little bit of a puzzle.

[Stephen Dubner]

Remember at this year's sale, the horse that Hinkle is excited about is a filly that was sired by not this Time.

[Ann Archer Hinkle]

Yes, I really love our not this Time Philly. So, like, what stud fee would you have bred to? Not this Time. Do you remember what you paid for him? I think it was 150. Pretty high, but you know, not this Time. A tailor made stallion. We've talked about him before. Started for a very modest price, 15,000. Maybe he wasn't 150. I'm really bad about remembering what price you bred him to because it's like we bred this mare three years ago. She's sort of our star.

[Stephen Dubner]

That star filly doesn't have a name yet. It is usually the buyers who give the horse a name and then register the name with the Jockey Club before they run their first race. So this filly for now is called HIP144. All the names here start with Hip simply because that's the easiest place to put a big sticker with the horse's auction number. Here again is Cormac Brannock describing how the actual sale will happen.

[Cormac Brannock]

The horses come through, they go into a ring. There's seating for about 500 people in a fan shaped pavilion, but people can bid from the back where the chutes are. With two bid spotters, a horse is typically only in the ring for 60 seconds. Might be 40, it might be three minutes.

[Stephen Dubner]

And here on the first day of the September sale was the Auctioneer's pitch for HIP144.

[Marshall Graham]

HIP number 144. Property of Hinkle Farms. Dark bay or brown? Philly by not this Time. Out of Stave by Go Sapper by Not this Time. The number one sire of two year olds in North America in earnings, wins, winners and black type horses. This Philly comes from quite a Hinklebred family. The Phillies mother, a stakes performer at fairgrounds. The Phillies half brother, Spirits Mischief, that son of Into Mischief, a winner at fair both Keeneland and Saratoga. And under the stakes winning second dam, you'll find Westwood, who has a maiden, was third in the grade one Santa Anita Derby. He's broke his maiden since the catalog one down at Delmare recently. Earnings now over $134,000.

[Mark Taylor]

You bet. Thanks.

[Marshall Graham]

Huh.

[Stephen Dubner]

It been a good village.

[Marshall Graham]

Down 300, down 3. Would have been in 3 to 100. 200 it been in 1.

[Stephen Dubner]

2.

[Marshall Graham]

Down 3. Hit 200.

[Stephen Dubner]

We would have been in 300. Would have been in 3.

[Marshall Graham]

400. Down 3. 400. Hit 700. Hit.

[Stephen Dubner]

909.

[Marshall Graham]

Now. Million hit 1 million.

[Stephen Dubner]

Hit a bit.

[Marshall Graham]

1 million 1. Hit 2 million 1 hit a bit.

[Stephen Dubner]

Done.

[Marshall Graham]

Jesse. 2 million 1. Down 2,100,000.

[Stephen Dubner]

2 million 1.

[Marshall Graham]

Thank you everybody else. 2,100,000. 2,000,001. Roger. $2,000,000.

[Stephen Dubner]

Thank you.

[Marshall Graham]

Hip number 145 can sign by Cleburne Farm agent Darkly around.

[Stephen Dubner]

And that was the sound of Hip 144 selling for $2 million. Coming up after the break, we celebrate with the Hinkles. And we tracked down the buyer. I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. Freakonomics Radio is sponsored by Mint Mobile. Most holiday gifts end up in a drawer or the back of your closet or accidentally left behind. Not this one. Mint Mobile is offering unlimited Premium Wireless for $15 a month. That's their best deal of the year, aka the only holiday gift you'll actually use every single day. All Mint plans come with high speed data and unlimited talk and text on the nation's largest 5G network. Don't get them socks, get them Premium Wireless for $15 a month. Shop Mint Unlimited plans at mintmobile.com/freak. That's mintmobile.com freak Limited time offer upfront payment of $45 for three months, $90 for six months or $180 for 12 month plan required. $15 per month. Equivalent taxes and fees extra initial plan term only. Greater than 35 gigabytes may slow when network is busy. Capable device required. Availability, speed and coverage varies. See mintmobile.com Freakonomics Radio is sponsored by the new all electric Toyota BZ. With up to an EPA estimated 314 mile range rating for front wheel drive models and available all wheel drive models with 338 horsepower, the Toyota BZ is built for confidence. Conveniently charge at home or on the go. With access to a wide range of compatible public charging networks including Tesla superchargers and Inside enjoy a 14 inch touchscreen and an available panoramic view moonroof. Learn [e-mail] BZ the new all electric BZ Toyota. Let's go. Places Our nation has always counted on us to win, to fight for what better could be. To secure Our future together. We, our Marines, we were made for this.

[Marshall Graham]

Everybody got one. Ah, not bad, not bad. All right. Cheers. Cheers. Yeah. Cheers.

[Mark Taylor]

And takina.

[Ann Archer Hinkle]

Cheers, guys.

[Stephen Dubner]

After the hammer drops on Hip 144, the Hinkle Farms family is celebrating outside their barn. Champagne for everyone. Grooms and handlers included. Our producer Augusta Chapman catches up with Ann Archer Hinkle and asks how it feels to have just sold one of the highest priced horses at this year's September sale.

[Ann Archer Hinkle]

I feel like $2 million right now. It was beyond our expectations over the past few days. We definitely thought, based on the activity and the repeat interest in her, that there was a chance she could bring seven figures. And then as we walked her up to and through the sales pavilion, just seeing all of those buyers in the back when they actually are physically following your horse through the ring, it's a really good indication that they're still interested and they're going to bid on her. So all the big players who had been interested and looked at her several times out here at the barn were up there watching her go through, and so that's when we really started to feel good. Earlier in the sale, a colt by the same sire sold for 1.6 million. So I thought there was a chance that she could bring, like, a million and a half. What were you thinking as you were seeing a bit over 1 5? Well, I mean, it was going really fast, you know, and it jumped up. It got high really fast. So I thought, okay, there's probably a chance she could hit 2 at this point. What does $2 million mean for Hinkle Farms? $2 million is incredibly significant. I mean, without disclosing, like, too much about, like, the financials of the farm requires a tremendous amount of capital to maintain a farm. Stud fees alone are over a million dollars every year. Labor's a huge expense. Veterinary expenses are enormous, and just the required maintenance of keeping up a farm. Hopefully, this is a sign that we'll be profitable this year.

[Stephen Dubner]

So that was the seller of HIP144. Who was the buyer?

[Marshall Graham]

Scott Heider. Hey, this is Augusta from Freakonomics. Hey, Augusta, how are you?

[Stephen Dubner]

Scott Heider runs an investment firm in Omaha, Nebraska. He has also been investing in thoroughbreds for about 30 years. He tends to buy only female horses as race horses. They tend to be slower than males, but he likes their residual value as brood mares. So how does Hydra decide which horse to buy?

[Marshall Graham]

I would say to you, similar to the investing world, the thoroughbred business is truly the intersection of intellect and instinct. You've got to be clearly smart enough. But it can't just be purely intellectual. Instinct is a beautiful thing, and usually that only comes to somebody through trial and error and learning from mistakes. Usually you learn much more from mistakes than successes. When you're at the Keeneland sales, when you have thousands of buyers looking at the same horses, people are drawing different conclusions. Sometimes it's the physical attributes, sometimes it's the bloodlines. Other people actually are going into biomechanics.

[Stephen Dubner]

The horse that Hyder settled on at Keeneland, the only horse he bought this year was the hinkle farms philly. Hip144 heider sat in the ring and handled the live bidding himself. And what's that feel like?

[Marshall Graham]

The bidding was stronger than I thought it would be, for sure. I had kind of valued her at that million five number, which is plenty, and the bidding continued. Ten years ago, I would have maybe paused and not kept pushing a couple bids further. But I quickly said, well, this is the filly we really want. If we can make her successful at the track, this is the filly that will become a future mother with us, a broodmare. I'll push and I'll go a little higher, but immediately when that 15 got surpassed, I had said in my mind, we will not go above 2, period. So that was my final bid. Once you get to that point, when it's the final bid in your head and you know you've just made it, all you're thinking is, drop the hammer. Drop the hammer. Stop. It's interesting in the auction world because there are some levels that are psychologically like a wall. A million dollars, when that goes up on the board, it can be a wall and it stops. Two million is the same thing. So I thought perhaps that would stop people. And it did. They dropped the hammer. I had the whole team with me and I looked at everybody and I said, well, let's hope this Phillies really fast, folks, because I just stretched.

[Stephen Dubner]

$2 million is a lot to pay for a one year old Philly. But hip 144 wasn't even close to being the most expensive horse at the Keeneland sale. A colt sired by Gun runner went for $3.3 million. All told, more than 3,000 yearlings sold for a total of more than $530 million, setting a world record for a thoroughbred auction. 56 horses sold for more than $1 million each, another record. These numbers would seem to suggest a healthy horse racing industry, but it's more complicated than that. Mark Taylor of Taylormade Farm told us that record prices do not reflect any kind of racing boom. In fact, these high prices are the result of shrinking supply. There are fewer good horses to buy.

[Mark Taylor]

Right now, our thoroughbred full crop is smaller than it's been in a long time.

[Stephen Dubner]

Why is the crop smaller?

[Mark Taylor]

Well, there's a lot of reasons to that. If you look at the big 30,000 foot view, the proliferation of simulcasting and people watching racing on TV and gambling on racing on TV as opposed to being there in person, has naturally reduced the number of racetracks that you need. So less tracks, you need less horses. On the other side of that, on the breeding end, if you go back, my grandfather was born in the 1890s, so he used horses every day. In fact, he had a business where he would haul supplies back and forth between Frankfort, Kentucky and Louisville and then some to Lexington. His whole business and his whole life was tied to horses, mules, cattle, animals of all types. So obviously it was very easy for him to get attracted to racing and be fascinated by that and love horses. You fast forward to my father, who was born in 1924, right before the Depression. He grew up on that farm raising horses, working the land, doing those kind of things, went to World War II, came back, and then got into the thoroughbred business. But after he returned, in my dad's class, everybody rode horses to school. I graduated from high school in 1987. Maybe 25% of the people in my class of 200 would have some familiarity with horses. My son, who graduated four years ago from high school, I bet There was only 10% that have any familiarity with horses. So that's a long answer to why the foal crop is shrinking. I just think that that's faded because of cultural shifts.

[Stephen Dubner]

One reason that horse racing popularity has fallen off certainly was concern about the animals themselves. Some people just don't like the idea of an animal being raced for our enjoyment. Most people I know who are horse people say that's a crazy concern because a good racehorse loves running, I gather. Please correct me if I'm wrong, but.

[Mark Taylor]

I gather that's A yes, you're 100% right.

[Stephen Dubner]

But then there's also a pretty long history of horses being mistreated or abused or exploited by trainers, I guess, primarily. Talk to me about that. What would you say to someone for whom that's the main objection?

[Mark Taylor]

First of all, I understand and I validate what you're saying, because we all love horses and we don't want them to be neglected or abused. I personally believe horses are born to run, not to use the cliche. But we see them when they're born, and they come out of their mother and they stand up within 20 minutes, and their instinct is to get moving because predators fight or flight. They want to get going. Horses 24, 48 hours old are out running with their mother. You see the babies actually racing against each other, unprompted by humans. It's their gift, right? We are not perfect. We still have strides to make, but I think the industry has really rallied behind horse care, horse protection. HESA is the new federal legislation that oversees the safety and medication and testing and those types of things. It's a very polarizing organization, and I don't think it's perfect yet. But I do believe that now we can say we're looking at these horses and making sure that they are sound and able to compete safely. We're limiting crop use in the race. We're certifying the tracks. We're making sure that these surfaces are as safe as they can possibly be. Will we ever have a sport that has zero horse fatalities? The answer is, no, we won't. But if the horses had a vote and they said, we can just stop producing horses or we're going to keep producing horses and you're going to participate in this sport. The horses want to participate.

[Stephen Dubner]

HEISA stands for both the Horse Racing Integrity and Safety act and the Horse Racing Integrity and Safety Authority, which is a private organization founded just five years ago. The fact is, horse racing is already in serious decline. The number of races run at US Tracks has fallen by more than half since the late 1980s. I talked about this with Richard Migliori, who, after a long and successful career as a jockey, is now a TV analyst for horse racing.

[Marshall Graham]

Racing is not as popular as it once was. There was a period of time when I was in the prime of my career where was not uncommon to have 20,000 people at Aqueduct on a weekday, and we would race six days a week. We're down to five days a week during Saratoga, four days a week, pretty much the rest of the year. So there's been a decline in number of racing days. A lot of racetracks have closed. I could go through a list of tracks that I wrote at that are now defunct.

[Stephen Dubner]

Name a few.

[Marshall Graham]

Well, Hollywood park in California, Suffolk Downs in New England, Garden State and Atlantic City in New Jersey. I am just touching the surface here. There's a lot now, obviously, technology. They don't have to be at the races to wager. The problem with that is there will be a day when the people that are wagering online, off site, those people are going to die out, lose interest, move on to something else. And where is the next generation of people that are going to start wagering on racing? I don't think someone's going to magically wake up in the morning and go, hmm, you know, I think I'm gonna start betting on horses today online. If they've never experienced the event, it may not be a problem for 10 years, 20 years, 30 years, but it will be a problem.

[Stephen Dubner]

But for now, there are some people who wake up every day ready to bet on horses.

[Marshall Graham]

I mean, horse racing, even overall as a sport, is like joining a cult.

[Stephen Dubner]

And that is Marshall Graham.

[Marshall Graham]

I'm a professor of economics at Rhodes College in Memphis, Tennessee. I'm a horse player, horse owner, horse breeder.

[Stephen Dubner]

Do you also teach about horse trading and or racing at the college?

[Marshall Graham]

I do. I teach the economics of racetrack wagering markets. I've taught the course three times. The last time I taught it, in the spring of 2022, I had 75 students, which I think was the biggest course on campus. Rhodes is a small College with about 2,000 students, and I'll teach it again in the spring of 2026.

[Stephen Dubner]

Describe the median student who takes the course. What are they looking for? What are they hoping to get out of it? Obviously, it's gonna jump out in any course catalog as demonstrably different and more interesting than a lot of college courses. But is it the kind of people who are wanting to get into the horse industry, whether on the racing side or some other side? Is it people who are just curious about horses generally? Is it people who wanna be better gamblers?

[Marshall Graham]

Well, first of all, there's a lot of interest in gambling, especially with this Supreme Court decision that legalized sports betting in 2017. When I first taught the course, I was very careful to not focus on betting. I talk a lot about small sample size decision making instead of betting, and now I feel less concerned about that. Playing horses is very different. I think that a lot of the students are familiar with sports betting, but horse racing is different and unique enough, and so it allows them to enter a world that most of them know nothing about. Initially, when I taught in the course, it's mostly guys. If you look at sports bettors, next weekend is the National Horse Players Championships, and most of them are guys.

[Stephen Dubner]

Tell me a little bit about the National Horse Players Championship. Will you be there again this year?

[Marshall Graham]

I will be there. I'll be there for the 11th time. It's a tournament that this year is going to have 800 participants. It's in a giant ballroom at the Horseshoe Casino in Vegas. In Vegas, there's basically every track running. You can play those races. It's a mythical contest, meaning you make mythical two dollar win place bets. A win bet is obviously if your horse wins, your bet wins. A place bet is your horse finishes first or second.

[Stephen Dubner]

Mythical, meaning it's like a poker championship. You're not playing with real money, you're playing with chips.

[Marshall Graham]

Exactly, exactly. And the payouts are determined by the payouts on the tote board. So you have to pick horses that win races, but you also have to bring in horses that have decent prices as well. You can't just pick all favorites, and you can't just pick all long shots. You got to hit a lot of races, and then the top 10% advance to the final day. I think last year the winner won $800,000.

[Stephen Dubner]

How hard is it to qualify? How good do you have to be? How good are you? Is what I'm really trying to find out.

[Marshall Graham]

Well, I think that if you persist enough, you can qualify. It is in some ways a total crapshoot because there's 800 people participating. The whole contest, if you make it all the way through, is like 57 races. Playing 57 races is not exactly like playing 57 hands of poker and determining who's the best. It's not a huge sample. So it's a crapshoot. But, you know, it is an opportunity to meet other horse players. And betting on horses can be a fairly independent experience.

[Stephen Dubner]

A little lonely, you mean?

[Marshall Graham]

Yeah, I mean, you're doing it often now from your home, right? Horse players, a lot of them now play online. I'm in Memphis, Tennessee. There's no racetrack. The nearest racetrack to me is three hours away. So I'm playing at home, watching the races on television. I will text my friends, but all these friends I have met through the nhc, it's in a way, a horse Players convention. So it brings horse players together and you meet other people with your same obsessive interest. It's not a sport that a lot of people necessarily know about. Horse racing has a great history in the US and it was certainly one of the most popular sports in America up to a certain point. But now not many people know it exists outside of the Triple Crown.

[Stephen Dubner]

Tell me some things that you love about it. There's language, there's excitement, there's the animals themselves, et cetera, et cetera. But for people who don't know the ecosystem at all. What is it that makes you so enthusiastic? Makes you spend so much time on it? Spend money on it. Link it with your.

[Marshall Graham]

Well, first of all, I think there's nothing more exciting than a race. The pageantry, the competitiveness in races themselves are exciting. As a horse player, I get to spend my. Whether it's $2 or whatever I bet. I feel like at least for that, a minute and 12 seconds or two minutes or however long it is, I feel like I own that horse. The race itself is exciting. And I remember as a kid watching the Kentucky Derby and realizing the sport existed. The race itself was so exciting then wanting to learn more. I was a newspaper kid and there were two pages on horse racing. It was numbers and charts. The guy who wrote about horse racing in the Washington Post was a guy named Andy Beyer. Beyer was the popularizer of speed figures, is a high schooler. I bought his books. I was at the age where a lot of boys get into baseball because of all the statistics. I love baseball. But I realized that horse racing was the same. You could bet on horses and be an active participant. I remember when I turned 18, I drove to Pimlico. I still remember the first horse I made a bet on. Horse named Quail Rid Swap.

[Stephen Dubner]

How'd you do?

[Marshall Graham]

Oh, the horse won.

[Stephen Dubner]

So take a step back again for a second. I'm just trying to put together the pieces of the Marshall Graham constellation because there's professor and there's horse player and then there's horse buyer and seller as well. How do you describe the totality of the things you do?

[Marshall Graham]

I'm horse player first. In a typical weekend I'll watch the races and I'll bet the horses. Maybe I'll play in a handicapping tournament. That has led to everything else, right. That has opened up research avenues for me as an academic. I got my PhD. I realized at some point I was written my dissertation on banking regulation, which is ultimately really boring. We have this search engine called Econ lit where you can look at all academic articles and realize there was this huge literature that's tangentially related to horse racing. And so with a colleague of mine, we gathered a data set and looked closer at betting markets. And that made my academic career. It's really all back to betting on horses. And then as a result of that, eventually got into the claiming game, got into the partnership game, breed racehorses. And that's ultimately sprung out from my interest first as a horse player.

[Stephen Dubner]

Walk me through those different components from the ROI or financial impact. I know you're an economics professor and presumably that's just a straight up salary. There's no parlay, there's no daily double on your salary. Correct. Straight up regular salary.

[Marshall Graham]

Yeah, straight up regular salary.

[Stephen Dubner]

Okay, then you're a horse player. Tell me if you're willing, you know, how much you might bet in a given year and what your long term ROI has been.

[Marshall Graham]

So it depends on how you measure things. I've had good years. There was a year in 2020 where I won the Breeders Cup Betting Championships. That along with the National Horse Players Championship are probably the two biggest events. In that event, I turned a $7,500 bankroll into $170,000 over the course of two days.

[Stephen Dubner]

Nicely done.

[Marshall Graham]

And then got an additional 350 grand in prize money for winning the contest. So that was a big score. I've had years that have been very good years as horseplayer and I've had others that are struggles.

[Stephen Dubner]

When you say struggle, you lose money in a given year.

[Marshall Graham]

Yeah, yeah. Lose money. Right. So there are ups and downs. And I've been driven a little bit more by an outlying big score. Right. A big score like that, a half million dollar score is going to make your year.

[Stephen Dubner]

I assume you pay taxes on the winnings.

[Marshall Graham]

Yes, I'm very diligent about taxes.

[Stephen Dubner]

For people who don't know much about sports betting or only know about the modern version of legal online sports betting, describe why horse playing may give you an advantage in who you're actually betting against and why you think that's an advantage.

[Marshall Graham]

Well, when you bet sports, your betting against the house. Right. There's some elements where the house, the bookmaker, is able to spread their bets across multiple teams and lower their risk. But ultimately, if you're successful, if you're a winning sports player, the book is going to severely limit you or cut you off as a horse player. The game is paramutual, meaning that all the house does is collect the money and then they redistribute the winnings to whoever holds the winning tickets. So everyone makes their bets and the house takes their little cut, called the takeout, and then they distribute the pool to whoever holds winning tickets. If more people hold winning tickets, then the price is lower. The favorite has the most winning tickets on it, and then if there are very few winning tickets, the price is higher. The whole system was developed by a Paris perfumer named Pierre Holaire as a way to protect bookmakers. Because this is a system where the takeout is fixed and so bookmakers can't lose. The house can't lose. All the house is concerned with is that they're people betting their product. So they want to do more to encourage people betting their product. The house doesn't care if you win or lose. And so in that environment, you're really facing other horse players, other casual players, people who just might be betting the jockey or the color of the horse you're betting other professionals now more than ever. You're betting other computer teams. Horse racing has always been legal. There was this sort of national religious movement that led to prohibition that also led to eliminating a lot of racetracks in the early 1900s. Then with the Great Depression, horse racing made a comeback as a way to help governments fund themselves. Racing then arose as really legalized monopolies for gambling. The only place to go bet outside of Las Vegas was to go to the racetrack. Racing had its heyday between the 1930s and the 1970s. If you look at, for example, 1968, which I think is maybe the high point of racing, it's right before simulcasting in 1968, you had the bet on track Aqueduct, which is the racetrack in New York. It's in queens. It had 139 days of racing and its average attendance was 30,000 people. It outdrew the Mets, the Rangers, the Yankees and Knicks that year.

[Stephen Dubner]

So how far has it fallen from the peak?

[Marshall Graham]

Well, it's been dramatic. I think the peak in terms of handle how much was bet on horse racing was 2002, 2003, and that was about $15 billion a year. Now it's fallen to $11 billion a year. So it's down 57%, inflation adjusted from its 2002 peak.

[Stephen Dubner]

Coming up after the break, a surprising subsidy that is keeping some racetracks alive. I'm Stephen Dubner, this is Freakonomics Radio. We'll be right back. What is the secret to making great toast?

[Marshall Graham]

Oh, you're just gonna go in with the hard hitting questions.

[Stephen Dubner]

I'm Dan Pashman from the Sporkful. We like to say it's not for foodies, it's for eaters. We use food to learn about culture, history and science. There was the time we looked into allegations of discrimination at Bon Appetit or when I spent three years inventing a new pasta shape.

[Marshall Graham]

It's a complex noodle that you've put.

[Stephen Dubner]

Together every episode of the Sporkful. You're gonna learn something, feel something and laugh. The Sporkful. Get it wherever you get your podcast with TikTok ads.

[Ann Archer Hinkle]

Our revenue went up $10 million year over year during back to school season. Penn Foster is online education. TikTok is great because the reach is incredible for finding a lot of different types of audiences on the platform. Creator content at scale allowed us to easily develop and distribute creator led ads. Our return on ad spend for TikTok is 21% higher than the next best channel.

[Marshall Graham]

Start growing your business today. Head over to get started.TikTok.com tiktokads@maurices we're.

[Stephen Dubner]

All about great jeans. You know, the ones that fit you just right.

[Ann Archer Hinkle]

The ones that simply make you feel.

[Stephen Dubner]

Good because you don't just wear jeans, you live in them. Find great jeans starting at $29.90 in stores and at Marisa's.com here's something you might want to know about thoroughbred racehorses. Even though they are getting more and more expensive, they aren't getting any faster. There are also fewer races for them to run in. And while there's still a lot of money bet on horse racing, $11 billion a year in the U.S. that number has been falling significantly over the past couple decades. As the economist Marshall Graham was telling us before the break. The problem, Graham says, is that horse racing used to have something close to a monopoly on legal gambling.

[Marshall Graham]

The erosion started to occur as more and more gambling became legal. Initially there was the New Hampshire Lottery in 1964. New York started off track betting, which initially helped the race tracks in 1971 but ultimately led to fewer and fewer people going. Atlantic city came in 1978. Then you had the proliferation of casino gambling in most states. The wire act in 1961 really clamped down on sports betting, but it was amended in 1978 to exempt interstate pari mutual wagering. So that allowed for the advent of what's called full card simulcasting, where a racetrack like Churchill Downs could take its race signal and broadcast it to anybody. So first they would broadcast to other tracks and then to OTBS and now online. And so by the 1990s you could have an online account and bet horse racing. You couldn't bet sports online until the last five years, right?

[Stephen Dubner]

And now, as we all know, in many places there is legal gambling on just about any sport. And there is a lot less money being bet on horses, on the other hand, because it's a paramutual system. You're not betting against the house, you're betting against other horse players. And if you're a sophisticated horse player, which you are, and especially if you're a computer assisted horse, better then, even though the overall money involved is much less. I would think that the better, more sophisticated players have even more leverage than they used to and therefore it would be an even more profitable business for them than it used to be.

[Marshall Graham]

I would say part of that is true because of access and technology. If you have an edge, it's easier to exploit. Whereas in the past, if I liked a racehorse, I had to drive to the racetrack. Now it's easy to bet online and you can wake up in the morning and bet races from South Africa and the uk. You can bet races all day in the US and then at night you can bet races simulcast from Australia and Hong Kong. The downside of it is the casual player is disappearing from the market. They're drawn to sports betting, they're drawn to slot machines. So it's become shark against shark and it's become more and more monopolized by computer players. That's not only for racing. And if you're betting sports, you're certainly going up against people who are involved in computer modeling or the stock market. The stock market, right. It's exactly right. Now it's a little bit different in racing though, because the market is paramutual. The effect the computer teams have on the wagering market is that they certainly change prices, but they can change prices that you think you're going to get based upon because of last click betting. You mean because of last click betting. And I think that's the important thing. When the system was developed, it was developed when everyone was betting on track.

[Stephen Dubner]

If you're at the back of the line, you know you're not going to get to the window.

[Marshall Graham]

Yeah. You know you're not going to get shut out. And so it was impractical for someone to try to arbitrage prices. In its very simplest form, what they're doing is some form of arbitrage. They're in part using their models. But not only are they using their models, they're also using public information. The early computer modelers, a guy named Bill Benter, probably the most famous one, based upon his Hong Kong modeling, realized that the public was the most important piece of information. The public is very smart and collectively they do a very good job at establishing the price. The computer models not only use standard handicapping models based upon historical data, they will also input the odds themselves and then from that they'll make decisions or build probabilities based upon how they perceive a race is going to go and then bet those probabilities against the odds to basically arb away price differences. And that leads to dramatic price shifts at the end of betting. So you can see horse go from, you know, 8 to 1 to 5 to 2 in the last couple clicks. That's really what's changed the game, especially in the last five years.

[Stephen Dubner]

And if I'm a horseplayer, that's behind driving down those odds from the 8 to 1 to 5 to 2. What am I doing like 15 minutes before the last click? Am I trying to manipulate the price then to get more money flowing my way once I make those last click bets?

[Marshall Graham]

I mean, there would be people who would argue that would be true, that the teams may faint. Right. And that they may inflate the price of horses they'd like to bet and then come back the other way and willingly lose that money because they can't cancel their bets and then bet more heavily on the ones that they like at the last click in the last flash. But there's no hard evidence of that.

[Stephen Dubner]

Okay, one last question and a big one. Considering all the ground we've covered, what do you see as the future of the horse racing industry, at least in.

[Marshall Graham]

The U.S. i think the future is discouraging. Racing has had decades where they have been the legal monopoly. I don't think they've adjusted well to the competition they've been facing. And so it's a game that is still priced probably inappropriately. Right. The takeout that we've talked about is still for a retail player between 18 and 30%, whereas for a sports bet it is a lot cheaper. Changing the prices are difficult for the racetracks. They have to go through regulatory boards. And unfortunately the racetracks in the industry themselves spend as much time lobbying politicians as they do worrying about their fan base.

[Stephen Dubner]

And what is the horse racing lobby trying to accomplish? Well, it's a pretty long list. More race days, a better revenue split, maybe some tax incentives to maintain their historic facilities. And there's one other big area where the racing lobby has had success getting states to give them a share of the proceeds from all the new online sports betting. All that draftkings and fanduel money. That's right. In some states, your NFL and NBA bets are helping to prop up the fading horse racing industry. And we came across one more potential bright spot for racing.

[Marshall Graham]

You know, that's the business model now is the racino.

[Stephen Dubner]

That is Thomas Lambert, an economist at the University of Louisville. And what is a racino?

[Marshall Graham]

You've got track facilities next to a casino or here in Kentucky, not a full blown casino, but just all of the machines that that is a major source of revenue for those tracks in states which have HHR historical horse racing machines.

[Stephen Dubner]

And what's a historical horse racing machine?

[Marshall Graham]

For all practical purposes, you can call them slot machines or electronic gaming devices, except that they're slightly different. The results are based upon historical records. Data of when placed show records of horse races going all the way back to 1990.

[Stephen Dubner]

So rather than betting on a live horse, you place your bet in a video slot machine that reruns a race from the past, a real race. But you're not given enough details about the horse or jockey or track to look up the race and cheat.

[Marshall Graham]

We have several tracks throughout the state which have racing going on when it's the season, and then the rest of the year you have people using these HHR machines. That's where the money is right now. And the money from that is used by a lot of these tracks to supplement their purses for when the races are in session.

[Stephen Dubner]

Historical horse racing machines in Kentucky take in much more money these days than live race betting. So how does Thomas Lambert think about the future of horse racing over the long term?

[Marshall Graham]

I guess the key question is if they are making so much money from the casino side of the operation, then why not expand the casino operations and let horse racing go? Now, there are exceptions. You have the premier racetracks, Churchill Downs, Belmont, Pimlico, and then of course you have these very important, large, well known races in the Breeders cup, et cetera. I think those will continue. They're very popular, they attract large crowds, even though the general rule is that attendance is falling. So we'll have the premier races and the premier tracks continuing. What happens to the lower tier tracks is another question, at least in my mind.

[Stephen Dubner]

My thanks to Thomas Lambert and to the many other people who helped us learn about the horse industry and horse history and just horses over these past few episodes. There is a lot to learn and I came in knowing very little. Also, if I'm being honest, with a tiny bit of anti horse bias. Like I said earlier, even though I grew up in the countryside, I spent very little time with horses and I felt they were a little too big and scary. Then when I moved to New York City years ago, I had a girlfriend who grew up riding horses. So for her birthday I arranged for her to ride a horse through Central park park on the bridle path. There used to be a stable on the Upper west side. So we went to the stable, she got on the horse and we headed over towards the park on a cross street. Her on the horse me on foot. Then we got to Central Park West. The horse bolted straight down Central Park West. Cars are slamming on their brakes, bicyclists and pedestrians are jumping out of the way. My girlfriend is hanging on with everything she had. I guess the horse just wanted to get back to the stable. To this day I am amazed that no one was hurt. But yeah, that was enough horse adventure for me until now. I loved making the series. I loved learning about the economics of the horse industry and the science and the soul of it. There are so many people, so many different reasons for loving horses. I will probably never become a horse person myself, but I see you horse people. I'd like to offer special thanks to Constance Hunter, one of the many horse loving economists we spoke with for this series. If I had not had the good fortune to sit next to Constance at an economics conference, this series wouldn't have happened. Constance also told me about a horse charity she's involved in called Gallop nyc. It offers therapeutic riding to disabled New Yorkers. It's really nice to see that over a century since horses were displaced as a technology for transportation and manufacturing, that people are still finding new uses for them. I'd love to hear what you think about horses. Our email is radioreconomics.com we will be back next week with a new episode. Until then, take care of yourself and if you can, someone else do Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app. [e-mail] where we publish transcripts and show notes. This episode and this whole series was produced with great skill by Augusta Chapman and edited by Ellen Frankman. It was mixed by Eleanor Osborne with help from Jeremy Johnston. Special thanks to Nick Nevis for field recording in Kentucky, to Emily Plant for all her help at Keeneland. Also thanks to the Keeneland team itself and to everyone in Kentucky who gave us their time and their insights. The Freakonomics Radio Network staff also includes Alina Coleman, Dalvin Abuaji, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Morgan Levy, Sarah Lilly, Teo Jacobs, and Zach Lipinski. Our theme song is Mr. Fortune by the Hitchhikers and our composer is Luis Guerra. As always, thanks for listening.

[Ann Archer Hinkle]

There are definitely people who claim to be horse psychics.

[Stephen Dubner]

Would you apply the word empirical to them?

[Ann Archer Hinkle]

Wow, I feel like I'm going to make a lot of my friends mad that use animal communicators.

[Stephen Dubner]

If a friend like that gets mad, then they're not really a friend.

[Ann Archer Hinkle]

The Freakonomics Radio Network the Hidden side of Everything Stitcher.

[Stephen Dubner]

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[Ann Archer Hinkle]

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[Ann Archer Hinkle]

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[Stephen Dubner]

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[Ann Archer Hinkle]

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[Stephen Dubner]

Don't use with other Tirzepatide containing products.

[Ann Archer Hinkle]

Or any GLP1 receptor agonist medicines.

[Stephen Dubner]

It is not known if Zeppelin can be used in children. Don't take Zepbound if allergic to it or if you or someone in your family had medullary thyroid cancer or multiple.

[Ann Archer Hinkle]

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[Stephen Dubner]

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[Ann Archer Hinkle]

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[Stephen Dubner]

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[Ann Archer Hinkle]

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[Stephen Dubner]

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[Ann Archer Hinkle]

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[Stephen Dubner]

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[Ann Archer Hinkle]

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[Stephen Dubner]

At save on zepbound.com Terms and conditions apply. What is the secret to making great toast?

[Marshall Graham]

Oh, you're just gonna go in with the hard hitting questions.

[Stephen Dubner]

I'm Dan Pashman from the Sporkful. We like to say it's not for foodies, it's for eaters. We use food to learn about culture, history and science. There was the time we looked into allegations of discrimination at Bon Appetit or when I spent three years inventing a new pasta shape.

[Marshall Graham]

It's a complex noodle that you've put.

[Stephen Dubner]

Together every episode of the Sporkful. You're gonna learn something, feel something and laugh.

[Mark Taylor]

The Sporkful get it wherever you get your podcast.

[Stephen Dubner]

Freakonomics Radio is sponsored by Morningstar, where data speaks what if data wasn't just a bunch of raw numbers, but a clear and decisive language to help connect investment strategies with long term investor needs in a constantly evolving market landscape? Morningstar created that language, bringing order and utility to insight rich data so you can prepare for your next opportunity no matter the asset class or market it. Visit wheredataspeaks.com to see what Morningstar Data can do for you.