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Jess Jackson’s Biggest Gamble

Posted by on May 14, 2009

Jess Jackson recently purchased Kentucky Oaks winner Rachel Alexander for the price of $10,000,000. Now, pardon me if I watch as my Kendall Jackson wine prices all of a sudden skyrocket!

To most of us, ten million dollars is an astronomical amount of money. The logical question then becomes how does one come up with such a figure as a sales price? The second question that comes to mind is why would someone pay it?

In analyzing a sales price for a horse of Rachel Alexander’s magnitude, remember she just won the Kentucky Oaks by over 20 lengths, one needs to evaluate several criteria. First, the horse’s earning potential on the track. Jackson owned Curlin, the horse who presently has the most earnings of any race horse from purses on the track with just over $10.2 million dollars. He knows that the likelihood that this filly will achieve that sum is remote. This is because should she continue to run against male competition as she is scheduled to do in the Preakness, she could be competitive but it is not guaranteed that she will be successful. Should she run against fillies she will find short fields and few competitors and more importantly, lower purses. As a result the valuation is minimally based upon potential race earnings.

Rachel Alexander presently is the broodmare prospect for 2009. It remains to be seen whether her racing will bear that out, but assuming that statement hold up, how will Jess Jackson recoup his investment? As the adage goes it will take money to make money because the expectation I am assuming will be that Rachel Alexander will make money through breeding.

The difficulty is that this is completely speculative. If Rachel Alexander is infertile, then the purchase will never recoup its value. Unlike a colt who can be booked for multiple mares in a season thereby earning stud fees on a recurrent basis, a filly or mare can only recoup monies after the foal is born and raised for a year and then sold at the yearling sales. Assuming a ten year breeding cycle, Mr. Jackson is betting that two things happen, first Rachel Alexander produces great runners with outstanding confirmation that would bring in excess of a million dollars at a yearling sale. Secondly, that the economy turns around so that there are interested buyers for the foal.

I wish him luck with this. As for me, I am skeptical that Mr. Jackson will ever recoup his investment.

Todd Engel
[email protected]

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