Bred and Butter

BY SAM WILLIAMS

[This is a pre-edited draft of a business story on the subject of pinhooking. The final version was published under the title "Bred and Butter" by the New York Post on June 1, 2003.]

For a guy who sold away a chance at $2 million, Tony Everard is pretty upbeat.

As co-owner of the New Episode Training Center, Inc., in Ogala, Florida, Everard knows the numbers inside and out: Funny Cide, the New York bred gelding Everard purchased as as a yearling for $22,000 and resold as a two year old for $75,000, is already past the $1 million mark in total winnings thanks to recent victories in the Kentucky Derby and Preakness Stakes.

A victory at next week's Belmont Stakes would make Funny Cide's new owners even richer. Rather than lament lost money, however, Everard plans to cheer on the horse that is already cementing his reputation as one of the industry's top assessors of equine talent.

"This is creating a lot of good business for me," Everard says.

That business is "pinhooking," the art of buying and selling horses ahead of their racing maturity. It's not for the faint of heart, but it is one of the few legal places where $25,000, wisely placed, can bring a 100 percent return on investment in a single year's time.

That's about the exact return Everard earned last year, once you factor in overhead, labor and additional costs. In August, 2001 Everard purchased two yearlings at the Fasig-Tipton Saratoga Select Yearling Sale. In addition to Funny Cide, Everard says he paid $20,000 for an unnamed colt by Eastern Echo, sire of this year's Santa Anita derby champion Buddy Gil.

Everard estimates the cost of boarding each horse at $10,000 a year and says he was lucky to come out with a profit. Funny Cide's sore shins precluded a trip to the spring auctions and his stablemate turned out to be a money loser

"He was gimp," says Everard. "I sold him for $7,500"

Fortunately for Everard, Funny Cide started turning in impressive times in the late spring of 2002. Everard got on the phone to Barclay Tagg, a New York trainer acting as buyer for a Saratoga Springs ownership group. Looking for a New York bred horse to enter in the local stakes races at Saratoga, Aqueduct and Belmont, Tagg paid three visits to the Ocala farm.

"On the third visit, my wife told him if you don't buy him now, the price is going up," says Tagg. "He bought him."

Motives for pinhooking vary. Most racehorse owners and trainers do it as a way to cover costs. Some, such as Everard, treat it as a career in itself. Still others see it as a high-risk, high-yield investment class like futures trading, albeit with a Bing Crosby twist.

Like futures trading, pinhookers have to weigh upside potential against an approaching deadline. The first two years of a race horse's life offer the best opportunity for speculative investment. Once that window closes, the track becomes a harsh judge of talent.

"Most pinhookers don't keep horses to race," says Michael McMahon, co-owner of McMahon Bloodstock, LLC, a Lexington, Ky. breeding firm that had a hand in Funny Cide's yearling sale. "The longer you hold onto a horse like Funny Cide the more money you make, but not every horse is like that."

Everard agrees. "Here's the best way to look at it: If you buy one horse a year you're in trouble. If you buy at least three for the same price, you might do OK. One of those horses might make you enough to cover your costs."

Like all markets, pinhooking has its undervalued sectors. Until this year, the New York bred market was a place for bargains. Now, with Funny Cide threatening to become the first New York bred Triple Crown winner in history, values are climbing. The top-seller at the this week's Fasig-Tipton Mid Atlantic two-year-old auction was a New York bred colt that went for $320,000. The median price for all 322 horses sold, meanwhile, fell 2.2 percent to $22,000.

Baden P. "Buzz" Chace, a New Jersey buying agent who lost out in the bidding war for that colt, says the acute desire for talent focuses dollars on prize colts, leaving plenty of bargains still on the table.

"The pinhookers that seem to do the best are in the under $100,000 range," Chace says. "They'll break even on one or two [horses] and lose money on one or two, but they're always looking for a big score on that one horse."