Alex, the bottom line.

Mall,

\"Many left after suffering huge losses, but the competition for capital has played an important role. Thus, when the last major Am carrier, Chubb, announced it was withdrawing from the market last yr, it acknowledged that the business was profitable, but left to deploy its capital in lines which were more profitable.\"

By the way, being profitable is not the standard by which an insurance operation should be measured.  An insurance operation can be profitable while still being a terrible business. It must earn a high enough return on invested capital to justify its existence. All of this screams that the insurance prices were inadequate to cover the values of the horses and the risks associated with the coverage. So if prices are soaring now, it is probably warranted to a large degree.

[Chuckles_the_Clown2]

This is the value thread?

I don\'t know, seems much ado about something upon which nothing can be done.

Yes, top stud fees and unproven horse prices are overinflated.

Yes, there are collectors in this game that don\'t care about price and many will pay more than they reasonably should.

Yes, horses will continue to retire when their breeding value significantly exceeds their racing value or the anticipated value continued racing can add.

Most retirements come because the horse is off, but sure, Smarty Jones and Ghostsprint went out on residual value issues. If a truly great horse comes along, its gonna take a sportsman to bear the risk of losing the residual breeding value. Paulson or Phipps or someone of that nature is necessary to make a horse great, provided he\'s not a gelding.

[HP]

Class,

\"If US buyers of yearlings are losing massive sums of money in aggregate, they will eventually be forced to drop out or they will come to their senses.\"

No, they won\'t.  I mean they might, but only if their other money dries up or their businesses go bad.  The people buying these high priced YEARLINGS for the most part don\'t care if they lose money on them.  They really don\'t.  I don\'t know what part of this that you don\'t understand.  That there are people in the U.S. that have enough money not to care what they are spending on a yearling.  There are times when money dries up, but you just can\'t look at it with the economic model of other businesses.  It\'s a unique and idiosyncratic situation.

There have been lots of insurance IPOs in the past year (I write about them for a living) so you have ample opportunity to test your theories...  

My dad has been in the insurance business for over 40 years and a lot of your assumptions are wrong, but you are right that this isn\'t the place for a long dissertation.  

HP

HP,

I understand that owners are willing to lose money and have said so. It\'s a matter of degree. An owner might be willing to lose \"x\" to have the enjoyment of ownership, but when his losses start exceeding \"Y\" some will reconsider. I\'d be willing to guess we may be at \"Z\" these days.

I would only be interested in companies that are writing insurance in lines of business where losses have been high and capital is leaving.

When you say insurance IPOs, I don\'t know if you are referring to those in the line of insurance we are discussing or in general. However, if there have been a lot of IPOs in a particular line, I wouldn\'t want to get involved because almost by definition that means new capital is heading in that direction and will thus depress insurance prices and business returns in the near future. Also, typcially IPOs occur when the prices for the securities within the industry are high.  

I am a value guy. I like to buy companies at cyclically depressed bottoms when others are leaving and new players aren\'t entering. THat\'s the way Warren enters and exits insurance and his theory has served me well also.

[richiebee]

Much ado about nothing.

Every time TGJB asks for the board to return to TG and handicapping issues, we get innundated with more and more fluff.

For every overhyped superstar that is retired early, there are being foaled 20 or 30 New York Breds who never should have been bred in the first place. In 3 years some of them will come together in a NY Bred maiden race in the dead of winter at Aqueduct that will be impossible to handicap and will produce a chaotic result. There will be less than 2000 people in the stands on that day and god willing I will be one of them.

I agree of course that it is much more fun to handicap and watch a card with the quality of the Belmont day races, but too many horses are being bred and too many races are being run for this type of racing to be anything but the exception to the rule.

Racing can survive without superstars, and can survive without the casual fans who are only drawn to the Triple Crown and Breeders Cup Day races. There are more and more ownership syndicates bringing new owners into the game, owners who could never have afforded participation in the game are now in. Delaware type
(read \"slots\") purse structures (8K claimers running for 15K purse money) will make it easier for owners to stay in the game.

Technology has turned every living room in the country into a potential OTB parlor.

So put away your tissues and respect TGJB\'s anti- fluff edict. If you are really concerned about retiring horses, don\'t worry about Smarty and Ghost and Alex... they will be fine, and maybe we should all pay a little more attention to the Excellers and the Ferdinands of the racing world (and many lesser known animals
facing similar predicaments), and make certain that their fates are not duplicated.

EDIT-- oops, sorry guys, I didn\'t realize that this was the Berkshire Hathaway
chat room.

[JimP]

X, Y, and Z have been trues for many years now. Behavior hasn\'t changed.

[Chuckles_the_Clown2]

Actually Richie, I think the host lauded the original post in this thread and the rest of it is merely discussion, but tend to agree with you. We all want fair top quality racing and can agree to disagree on whether the New York Bred Slow Rats are bettable.

richiebee Wrote:
-------------------------------------------------------
> So put away your tissues and respect TGJB\'s anti-
> fluff edict. If you are really concerned about
> retiring horses, don\'t worry about Smarty and
> Ghost and Alex... they will be fine, and maybe we
> should all pay a little more attention to the
> Excellers and the Ferdinands of the racing world
> (and many lesser known animals
> facing similar predicaments), and make certain
> that their fates are not duplicated.
>
> EDIT-- oops, sorry guys, I didn\'t realize that
> this was the Berkshire Hathaway
> chat room.
>
>
>
> Edited 1 times. Last edit at 06/16/05 11:29AM by
> richiebee.

[richiebee]

Chuckles:

  I agree with TGJB that the original post was brilliant, and to me, it stated all which was needed to be said with regards to AA\'s likely future. Mall reasonably and logically reached the conclusion that AA would be too expensive to race as a 4YO, without commenting on what that meant to racing. Mall really was looking at it from the OWNERS point of view, which was refreshing.

   When the ensuing discussion followed the path of what that OWNERS\' decision meant to RACING, I found that the posts became a bit subjective, and you could read them and think racing would disappear off the Earth in short order. Too much hand wringing and disclosure of poster\'s personal portfolios for me, anyway.

   Racing continues to regress in terms of overall quality, but the early retirement of a few superstars is not enough to bring it down around us...

Richiebee,

I don\'t see racing collapsing either.  

I see online betting as a long term bright spot unless Sen. Kyle manages to convince enough fools in Washington to screw things up (something I think is a very low probability event). UBET posted great Belmont numbers. IMO, the internet is a way to get at the younger crowd.  

However, I do think the current economics are a mess. I think a price bust is virtually inevitable and the sooner it happens the better off the industry will be even though it will cause a lot of pain for some for awhile.

The average person wants to see stars, marquee matchups, etc...

If the industry economics don\'t allow that to happen, then the fan base will continue to erode, handle will not grow at the rate of people\'s incomes (let alone faster), and the game will be further marginalized. At the core of that is the economics of retirement vs. purses for racing (risks and rewards).