A Hedonic Price Analysis of Thoroughbred
Broodmare Characteristics
J. Shannon Neibergs
Department of Equine Business, College of Business and Public Affairs,
University of Louisville, Louisville, KY 40292
ABSTRACT
Thoroughbred broodmares are the primary input in the foal production process. Breeders need to
make informed broodmare investment decisions, since substantial financial and genetic risks are
associated with overvaluing a broodmare’s productive capacity. Each broodmare represents a unique
combination of breeding, racing, and genetic characteristics. This study estimates the marginal values of broodmare characteristics. Results identify large price differentials for broodmares that have
won or produced graded stakes race winners. The analysis provides information for marketing,
accounting and management decisions. [EconLit Citation: Q130]. © 2001 John Wiley & Sons, Inc.
INTRODUCTION
Thoroughbred broodmares are a capital input in the foal production process. In most managed animal populations the sire is of premier importance, because of its influence on the
breed’s gene pool, which is enhanced through artificial insemination and embryo transfer
biotechnology. The Thoroughbred industry is unique, because registration requirements
prohibit artificial reproduction biotechnology, and the value of a breeding animal is relative to its offsprings’ expected success at winning horse races. Biotechnology restrictions, a long generation interval,1 and the large capital investment associated with
Thoroughbred production place an added emphasis on broodmare breeding management
decisions.
Broodmares have a well-established, but complex market. Each broodmare represents
a unique combination of breeding, racing, and genetic characteristics, which result in a
wide variation in broodmare quality. A broodmare can be viewed as a production input
consisting of a collection of characteristics that are deemed desirable or undesirable. These
characteristics are not explicitly traded on the markets so there are no directly observed
prices for them. However, the quantity and quality of each characteristic contributes to
the value of the broodmare. Thus, each characteristic has an implicit price and associated
marginal value. Hedonic analysis is a standard technique of applied econometrics for
modeling differentiated products. A hedonic price function relates the observed price of a
1
A generation interval is the age of the parents at the birth of their average offspring. The average generation
interval in Thoroughbreds is about 10 years (Gaffney & Cunningham, 1988).
Agribusiness, Vol. 17 (2) 299–314 (2001)
© 2001 John Wiley & Sons, Inc.
299
300
NEIBERGS
differentiated good to the bundle of characteristics of which the good is composed. The
derivatives of the price function with respect to the characteristics are their marginal values. The objective of this research is to establish the set of broodmare characteristics
important to price and to estimate a hedonic price function to determine the marginal
value of the characteristics.
The framework developed in this analysis provides the means to understand the Thoroughbred broodmare market in depth and to conditionally predict characteristic values.
This would provide breeders an additional tool by which broodmares could be valued for
marketing, accounting, and management decisions.
BACKGROUND
Theoretical models for understanding markets for differentiated products have built on
work by Lancaster (1966), Griliches (1968), and Rosen (1974). The empirical estimation
of hedonic price functions has been widely applied to a variety of agricultural commodity
markets based on the framework developed by Ladd and colleagues (Ladd & Suvannunt,
1976; Ladd & Martin, 1976). The general theory of hedonic prices has developed along
two related lines. The first considers product characteristics to be utility-providing attributes
in a consumer’s maximization problem. The second approach views product characteristics as inputs in a production process. A differentiated product, such as a broodmare, is
demanded by breeders because of the particular characteristics it possesses. Either case,
utility or profit maximization, yields a hedonic price function that expresses price as a
function of the quality and quantity of characteristics associated with the product (Schroeder, Espinosa, & Goodwin, 1992).
Currently there is not a systematic method of valuing alternative broodmares. Breeders
could use this information to produce broodmares or purchase broodmare replacements
with relatively high levels of heritable characteristics that are correlated with exceptional
performance, improved quality, and higher profits.2 Breeders need to make informed broodmare investment decisions, since substantial financial and genetic risks are associated
with overvaluing broodmare productive capacity.
Several studies have examined the value of breeding livestock characteristics based on
the neoclassical input characteristics model of Ladd and Martin (1976). Dairy bull traits
were evaluated by Richards and Jeffrey (1996) and Schroeder et al. (1992). Implicit values of swine boar attributes were estimated by Walburger and Foster (1994). Purebred
beef bull price determinants were estimated by Dhuyvetter, Schroeder, Simms, Bolze,
and Geske (1996). Few studies have examined the value of dam characteristics. Parcell,
Schroeder, and Hiner (1995) estimated price models for cow–calf pairs, and Mintert,
Blair, Schroeder, and Brazle (1990) analyzed factors affecting cull cow prices. Comparable research has not been conducted for the broodmare market. Studies have been conducted on the yearling market.3 Karungu, Reed, and Tvedt (1993) examined the importance
of macroeconomic factors on Thoroughbred yearling prices. Buzby and Jessup (1994)
2
Heritability estimates for selecting breeding horses for speed ranges from 25 to 50%; (Field & Cunningham, 1976; Heintz, 1980; Tolley, Notter, & Marlowe, 1983). The heritability estimates reflect that selection for
speed can be effective, and therefore a breeder must incorporate measures of speed in broodmare management
decisions.
3
The yearling market is the most significant source of revenue to breeders, and is the first stage in producing
a racehorse (Neibergs & Thalheimer, 1997).
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
301
identified yearling-specific variables in their investigation of Thoroughbred yearling prices.
Lansford, Freeman, Topliff, and Walker (1998) analyzed Quarter horse yearlings. Neibergs
and Thalheimer (1997) developed a structural model of the Thoroughbred yearling market.
The combination of intermediate heritability estimates of racehorse speed, registration
constraints on artificial reproduction biotechnology, a long generation interval, and the
large capital requirement required for Thoroughbred production necessitate that broodmares be evaluated relative to the marginal value of the heritable characteristics needed
to produce a successful racehorse. Racing success is determined by several inherited factors (i.e., length of stride, stamina, conformation) and environmental factors (ability of
the trainer, proper nutrition, the opportunity to compete, etc.) to produce a horse with the
speed to win races. “Speed” is a quantitative phenotype that results from a composite of
genetic and behavioral characteristics. Speed can be measured in terms of race earnings
and the quality of races in which the horse competes.
To maximize the genetic potential for speed, a breeder will have to select successfully
for all traits responsible for racing success simultaneously. The variation in selecting for
speed is due to environmental factors, and because multiple traits are actually being selected for. Breeding decisions that mate selected individuals based on their favorable racing records result in offspring with marked variability in their success as race horses. This
may be due to two factors. First, it is possible that some of the selected parents do not
have favorable genetics, but have had exposure to exceptionally favorable environments.
A second explanation for the high variation in response to selection for speed in racehorse, may be because only alleles,4 not genotypes 5 are transmitted to offspring. An exceptional racehorse may contain a unique array of genotypes that resulted in its racing
success. However, since only alleles are passed on to a horse’s offspring, these genotypes
may be disrupted by Mendelian segregation 6 and recombination.7 This explains why repeated matings of a broodmare to a sire produce offspring with varied success as racehorses and breeding prospects.
THOROUGHBRED BROODMARE HEDONIC MODEL
The derived demand for a broodmare is a function of her expected productive capabilities
to produce yearlings. At a point in time, the expected yearling price is constant. Therefore, broodmare price is a function of her expected productive characteristics. Broodmare
characteristics can be classified into three categories: breeding, racing, and genetic characteristics. Breeding characteristics reflect the broodmare’s expected ability to produce
foals. Racing characteristics refer to the broodmare’s racing career. Genetic characteristics refer to the quality of the broodmare’s pedigree. Adding marketing factors, Thoroughbred broodmare price, pi , can be specified as:
pi 5 f ~ x ij , x ik , x il , x im !
(1)
4
Alleles, are the variant forms of any given gene. One form (or allele) of each gene is contributed to the
offspring from each parent so that offspring have two copies of each gene.
5
The combination of the allele given by the dam and the allele given by the sire comprise the genotype. The
mix of genotypes that any one individual possesses is unique, because the specific alleles given to them by their
parents may differ at each mating.
6
Mendelian segregation is the random separation of either the allele from the dam into ova or the sire into
sperm during meiosis.
7
Recombination is the reshuffling of the alleles inherited from an individual’s parents during spermatogenesis or oogenesis.
302
NEIBERGS
where i is an index representing an individual broodmare, and j, k, and l are indices referring to breeding, racing, and genetic characteristics respectively. The index m refers to
a vector of market factors. The vector of characteristics, x, are objectively measured in
the sense that all consumers’ perceptions of the amount of characteristics embodied in
each broodmare are identical, although breeders may differ in their subjective valuations
of alternative packages. Specific variables included in the model and their expected signs
are presented in Table 1.
Breeding characteristics important to broodmare price include factors describing the
broodmare’s expected breeding performance. Broodmares are sold barren (not pregnant)
or in-foal (pregnant). Barren mares, BARREN, are discounted due to the loss in earnings
of not being in-foal, for the increased production costs of maintaining an open broodmare, and for the increased risk due to the potential lack of reproductive soundness. Barren represents broodmares that have been exposed to a stallion, and are not pregnant at
the time of the sale due to reproductive inefficiency. Young broodmares retiring from
racing may also be barren, but they have not been exposed to a stallion. These mares are
identified as broodmare prospects, BMP. A broodmare’s reproduction efficiency is measured by REPRO, which is the percentage of times a broodmare is open relative to her
age. If the broodmare is in-foal, the stallion the broodmare was bred to is publicly dis-
TABLE 1.
Variable
Definition of Variables Used in Thoroughbred Broodmare Hedonic Model
Description
Dependent Variable
p
Individual broodmare price
Breeding Characteristics 1
BARREN
Binary variable 5 1 if broodmare is barren
BMP
Binary variable 5 1 if a broodmare prospect
REPRO
Percent of time broodmare is open relative to age
SFEE
Stud fee of covering sire, 0 if mare is barren 2
AGE
Age of broodmare in years
BTPROD
Binary variable 5 1 if a black type producer
GSPROD
Binary variable 5 1 if a graded stake producer
EPF
Average earnings per foal of racing age
Racing Characteristics
EARN
Broodmare’s career race earnings
BTYPE
Binary variable 5 1 if a black type winner
GSTAKE
Binary variable 5 1 if a graded stake winner
Genetic Characteristics
BTDAM
Binary variable 5 1 if broodmare dam is black type
BTSIBL
Binary variable 5 1 if sibling is black type
GSSIBL
Binary variable 5 1 if sibling is a graded stake winner
SIRE
Broodmare sire quality index
Marketing factors
DSALE
Binary variable 5 1 if part of a dispersal sale
RNA
Binary variable 5 1 if reserve not attained
EXPECT
Expectations of a mare with no foals of racing age
DAYi
Dummy variable for day of sale, i 5 1 . . . 11
1
Unit of
Measure
Expected
Sign
$/broodmare
N/A
Binary
Binary
Percent
$
Years
Binary
Binary
$
2
2
2
1
2
1
1
1
$
Binary
Binary
1
1
1
Binary
Binary
Binary
Index
1
1
1
1
Binary
Binary
Binary
Binary
2
2
1
2
Black type refers to boldface type used in sales catalogs to distinguish horses that have won or placed in a
stakes race.
2
A stud fee of 0 for a barren mare is not a missing variable, but reflects the expected value of the foal for a barren
mare.
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
303
closed. The stallion’s stud fee, SFEE, reveals information concerning the expected value
of the foal.
The broodmare’s age in years, AGE, reflects future earning capacity with younger mares
having greater earning capacity. Young broodmares are also perceived to have a greater
potential of producing a high-quality foal. The youngest age a broodmare can be bred is
two years. Reproductive and biological constraints limit the maximum age of a broodmare. Broodmares over 20 years old are sharply discounted, due to potential reproductive
problems, and decreased expected earnings.
Many broodmares in the sale have foals of racing age. The quality of a broodmare’s
production is reflected as being a black-type producer, BTPROD, or graded stakes producer, GSPROD. Black type refers to the boldface type used in sales catalogs to distinguish horses who have won or placed in a stakes race. Stakes races are the highest class
of racing. There is a range in quality of stakes races. The quality classification of stake
races, from low to high, ranges from ungraded stakes races to grade III, II, and I stake
races. About 4%; of the total number of races run per year are ungraded stake races. Less
than 1%; of total races are graded stake races. A black-type designation identifies a horse
of superior quality. Although the majority of horses do not have a black-type designation,
they can be ranked relative to the amount of purse earnings they have won. A third measure of the ability of a broodmare to produce successful race horses is reflected by the
average purse earnings per foal of racing age, EPF, that she has produced.
Racing characteristics indicate the broodmare’s ability as a race horse. Broodmares
with greater racing ability are expected to have the genetic characteristics needed to produce foals with superior racing success. Three measures reflect racing characteristics.
Race earnings, EARN, indicate the mares’ success at winning races, and provides a continuous ranking measure between mares. Earnings provide a proxy for the combination of
genes linked to speed in a race horse, and also provide some indication of conformation.
Horses with superior conformation are more likely to win races and remain physically
sound, which is reflected by higher earnings. The quality of competition the broodmare
faced is reflected by whether the broodmare was a black-type, BTYPE, or graded stakes,
GSTAKE, winner.
A Thoroughbred’s pedigree is a key attribute in its expected ability to produce quality
yearlings. Genetic characteristics reflect the quality of the mare’s pedigree. The racing
success of a broodmare’s pedigree is a phenotypic measure of the broodmare’s genetic
potential to produce offspring with superior racing success. Pedigree factors are indicated
by a black-type dam, BTDAM, and black-type and graded stake winner siblings, BTSIBL
and GSSIBL respectively. The quality of a broodmare’s sire is represented by an index of
sire quality, SIRE.8
8
Due to the comprehensive inclusion of all mares in the sale, published sire indices accounted for less than
a quarter of the data observations. Data requirements prevented augmenting published sire indices to the entire
sample. Therefore a sire quality index using available data and The Blood-Horse’s (1996c) leading broodmare
sire list was calculated as follows:
Average Earnings
Number of Stake
Stallion’s Ranking on
3
3
of Stallion’s Foals Winners Sired by Stallion the Broodmare Sire List
The Blood-Horse broodmare sire list ranks the top 70 broodmare sires as of the date of the sale. If the
stallion was not on the broodmare sire list, it was assigned a value of 1. The above equation was normalized
using by the average to develop an index ranging from .001 to 14.1. An average stallion would have an index
value of 1.0.
304
NEIBERGS
There are three variables in the SIRE index. Average foal earnings show the ability of
the stallion to sire racing foals and place younger stallions with fewer foals on an even
comparison with older stallions with many foals. The average further controls for stallions that have only one offspring with outstanding earnings. The industry focuses on
quality of races, so the number of stakes winners reflects the quality of the stallions’
foals. And the stallion’s ranking on The Blood-Horse’s leading broodmare sire list incorporates available information on how the industry perceives dam sire quality. The leading
broodmare sire index ranks stallions using the aggregate earnings of the foals out of all
dams sired by a stallion whose dams had at least one runner. In November 1996 (the
month and year of the study), 70 stallions were ranked by this index. The rank on the
broodmare sire index can vary greatly from the earnings of the foals directly sired by him.
For example, the top five stallions on the leading broodmare sire index, ranked 69, 20,
unranked, 59 and unranked on the leading sires index, which is based on a stallion’s foal
earnings. The multiplicative specification increases exponentially with the quality of a
stallion. An exponential distribution is typical of Thoroughbred industry when examining
quality, prices, and earnings.
The market factors reflect conditions specific to a broodmare and to the day of the sale.
Owners of horses offered in the sale set a reserve price. If the last competitive auction
price bid is below the reserve price, it is termed reserve not attained, RNA, and there is no
transfer of ownership. The appropriateness of reserve prices has been questioned in the
past because owners may overvalue their horses and set an unrealistically high reserve
price. If the estimated parameter on RNA is negative, then the broodmare in question
would have a higher expected value based on its characteristics than the final auction
price bid at the sale. This would indicate that the reserve set by the owner is appropriate,
and would identify a market inefficiency on this particular horse if it received a lower
sale price relative to the merit of its characteristics. The price for a RNA horse is the last
competitive bid. A dispersal sale occurs when an owner is dispersing its bloodstock investment and it is publicly noted. Historically dispersal sales, DSALE, were perceived as
being discounted. Expectations are a key market factor throughout the Thoroughbred industry. There are substantial financial rewards for purchasing and producing superior quality bloodstock. In the case of broodmares, it is the expectation of producing successful
foals. Due to the biological lag from reproduction through the foal maturing into a race
horse, many broodmares are sold that do not have foals of racing age. These broodmares
are sold with the expectation of their ability to produce successful race horses without a
measure of their foals’ on-track ability. The expectation factor associated with these mares
is represented by EXPECT. The day of the sale is represented by DAYi . In a sale that
spans several days, as the day of the sale increases, there is a hypothesized negative impact on price due to the increase in supply and buyer fatigue.
DATA
The Keeneland November bloodstock sale is the primary broodmare market for the Thoroughbred industry. In the 1996 November sale, 1,847 broodmares were offered for sale,
which represents 31%; of all broodmares auctioned in North America (The Blood-Horse,
1996). To facilitate the sale, Keeneland, as the sales company, produces a catalog of horses
offered in the sale. The catalog provides information on each characteristic in Table 1
except for the sale price, stud fee, RNA, SIRE, and EPF. Data on broodmare price and
305
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
RNA were obtained from The Blood-Horse. Data on stud fee were obtained from the
Annual Stallion Register (1996). SIRE was calculated by combining data from the catalog and The Blood-Horse leading broodmare sires list. Data to calculate EPF was obtained from combining data from the catalog and from the BRIS American Produce Records
(1997). Complete data for the vector of characteristics were obtained on 1,602 broodmares and their associated 4,955 offspring.
Summary statistics of the data are provided in Table 2, and a histogram of broodmare
price is presented in Figure 1. Average broodmare price was $71,271. Prices ranged from
$500 to $2.6 million. Seventy-four percent of the broodmares sold were below the average. The average stud fee was $16,932 with a range of $0 to $250,000. If the broodmare
was barren, the stud fee was set to $0. Five percent of the broodmares in the study were
barren and 4%; were broodmare prospects. The average reproduction efficiency measure
was 0.08, and ranged from 0 to 0.50. The age of the broodmares ranged from 2 to 23, with
an average age of 8.5 years. Fifteen percent of the broodmares were black-type producers, and 7%; were graded stake producers. The broodmares in the study produced 4,955
foals of which only 6%; were black-type winners, and only 2%; were graded stake winners. The average earnings per foal of racing age were $14,661 and ranged from 0 to
$315,540. A quarter of the broodmares in the study were sold with no foals of racing age;
EXPECT was 0.25. Average broodmare race earnings were $62,618, and ranged from 0
to $1.27 million. Twenty-three percent of the broodmares were black-type winners, and
TABLE 2.
Summary Statistics of Thoroughbred Broodmare Sale Data, Keeneland, 1996
Variable
Continuous Variables
p
SFEE
REPRO
AGE
EPF
EARN
SIRE
Binary Variables 1
BARREN
BMP
BTPROD
GSPROD
BTYPE
GSTAKE
BTDAM
BTSIBL
GSSIBL
DSALE
RNA
EXPECT
Mean
Standard Deviation
Minimum
Maximum
71,271
16,932
0.08
8.5
14,661
62,168
1.0
140,630
24,693
0.1
4.3
33,447
109,440
2.5
500
0
0
2
0
0
0.0001
2,600,000
250,000
0.5
23
315,540
1,266,460
14.1
0.05
0.04
0.15
0.07
0.23
0.06
0.38
0.68
0.26
0.03
0.15
0.25
0.21
0.20
0.27
0.26
0.42
0.23
0.49
0.46
0.44
0.18
0.35
0.43
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
1
1
1
n 5 1,602.
1
DAYi is a binary variable representing the average number of broodmares sold on each day of the sale for the
eleven days of the sale. The mean of DAYi in order is 0.08, 0.10, 0.09, 0.11, 0.10, 0.10, 0.09, 0.10, 0.11, 0.06,
0.05.
306
NEIBERGS
Figure 1
Thoroughbred broodmare sale price histogram, Keeneland 1996.
6%; were graded stake winners. Thirty-eight percent of the broodmares were out of a
black-type dam. Sixty-eight percent of the broodmares had at least one black-type sibling, and 26%; had a graded stake sibling. Only 0.3%; of the broodmares were identified
as part of a dispersal sale, and 15%;were identified as RNA.
RESULTS AND DISCUSSION
There is no theoretical principle that can be applied a priori to specify an explicit functional form. The model was initially estimated using a Box–Cox specification to test alternative functional forms. Likelihood ratio tests rejected both the linear and double log
functional forms.9 A semi-log functional form was chosen to estimate model parameters
based on descriptive econometric measures (goodness of fit statistics, appropriate economic signs and t ratios):
8
3
4
13
j
k
l
m
ln~ p! 5 a 1 ( bj x j 1 ( bk x k 1 ( bl x l 1 ( bm x m 1 e
(2)
A semi-log functional form is theoretically compatible with a hedonic price model because each broodmare represents a unique combination of breeding, racing, genetic, and
marketing characteristics that cannot be disentangled. As a result, the implicit price of
each characteristic is a function of the level of all characteristics embodied in the broodmare. An implication of the semi-log specification is that as the combination of preferred
characteristics in a broodmare increases, broodmare price increases exponentially. This
accurately represents the broodmare price distribution illustrated in Figure 1. Also, a semi9
The Box–Cox estimate of l is 0.15. The likelihood ratio test statistic for a linear functional form (l 5 1) is
164.2, and for the double log functional form (l 5 0) is 4,947. The critical value for a 1%; level of significance
of the x 2 6.64 resulting in a rejection of null hypothesis of both linear, and double log functional forms.
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
307
log functional form produces hedonic results that can be easily expressed as price flexibilities and marginal values.
The price flexibility with respect to a continuous characteristic is the percentage change
in price with respect to a 1%; increase in a characteristic from its mean. For a discrete
broodmare characteristic, the price flexibility is the percentage change in price due to the
presence of the characteristic relative to its absence. The price flexibility with respect to
characteristic x n , can be expressed as:
Fp, x n 5
Dp
Dx n
xn
*
p
5
5
e bn gx n 2 1
if x n is continuous
g
(3)
e bn 2 1
if x n is binary
where g is defined to be a 1%; change, and n represents a broodmare characteristic
~n [ j, k, l, m!.
The marginal value is the first partial derivative of the anti-log of equation (2) with
respect to a continuous characteristic x n :
S
8
3
4
13
a1( bj x j 1( bk x k1( bl x l 1( bm x m
]p
k
l
m
5 bn e j
]x n
D
(4)
For a binary characteristic variable, such as a broodmare that is a graded stake producer,
the marginal value is the difference between the predicted broodmare price of a graded
stake producer, and the predicted price of the broodmare not being a graded stake producer all else held constant:
Dp 5 @e~•!6x n51 # 2 @e~•!6x n50 #
(5)
The cross-section nature of the data suggests potential problems of heteroskedastic
errors and degrading collinearity. Multiplicative heteroskedasticity was identified as a
problem and corrected using the Shazam correction procedure for multiplicative heteroskedasticity. Degrading collinearity was not identified as a problem. Although a number
of characteristics are correlated, the variation of the characteristics both within an individual broodmare and across all broodmares is such that collinearity is not a problem.
Parameter estimates, marginal values, and price flexibilities of the Thoroughbred broodmare hedonic price model are presented in Table 3. The model is empirically robust with
an adjusted R 2 of 0.74. The model provides a high explanation of the variation in broodmare price in comparison to yearling price models, which have an R 2 of 0.42 (Lansford
et al., 1998), and 0.26 (Buzby & Jessup,). The high R 2 for this broodmare model indicates
that the characteristics included in the model largely explain the variation in broodmare
price. All model variables are strongly significant with the exceptions of REPRO,
DISPERSE, RNA, and sale day variables DAY2 and DAY3 . The residuals were tested for
normality using the Jarque–Bera test. The normality of residuals could not be rejected at
the 1%; level of significance, indicating the model accurately represents the full distribution of broodmare price. In Figure 2, the predicted prices were plotted against the actual prices, and Figure 3 provides a histogram of the residuals, both of which support the
conclusion that heteroskedasticity has been corrected and the residuals are normally
distributed.
308
NEIBERGS
TABLE 3. Parameter Estimates, Marginal Values and Price Flexibilities of Thoroughbred
Broodmare Characteristics
Variable
Intercept
Breeding Characteristics
BARREN
BMP
REPRO
SFEE
AGE
BTPROD
GSPROD
EPF
Racing Characteristics
EARN
BTYPE
GSTAKE
Genetic Characteristics
BTDAM
BTSIBL
GSSIBL
SIRE
Marketing Factors
DSALE 2
RNA2
EXPECT
DAY2 2
DAY3 2
DAY4
DAY5
DAY6
DAY7
DAY8
DAY9
DAY10
DAY11
Parameter
Estimate
t-statistic
Significance
Level
Marginal
Value
Price
Flexibility 1
125.7
0.000
—
—
20.665
20.225
20.263
1.245E205
20.102
0.311
0.443
5.362E206
26.0
22.5
21.3
13.9
216.6
4.3
4.7
7.1
0.000
0.001
0.306
0.000
0.000
0.000
0.000
0.000
215,010
26,097
27,878
0.37
23,051
10,634
16,178
0.16
20.49
20.20
20.02
0.21
20.86
0.36
0.56
0.08
1.622E206
0.328
0.441
7.1
7.1
4.9
0.000
0.000
0.000
0.05
10,791
16,194
0.10
0.39
0.55
0.136
0.130
0.311
5.258E202
4.3
3.5
7.5
8.2
0.000
0.001
0.000
0.000
4,130
3,788
10,043
1,574
0.15
0.14
0.36
0.05
21.1
20.5
4.4
21.3
21.4
26.8
29.4
210.9
213.2
214.6
217.4
218.8
216.9
0.493
0.852
0.000
0.193
0.162
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
23,862
2661
5,339
23,096
23,288
213,198
216,908
220,246
222,530
224,999
228,279
228,270
227,757
20.13
20.02
0.19
20.10
20.11
20.42
20.53
20.61
20.68
20.73
20.80
20.84
20.84
11.250
20.137
20.022
0.171
20.108
20.115
20.536
20.745
20.954
21.131
21.307
21.594
21.826
21.854
n 5 1,602. DAY1 is the base dummy variable.
1
The price flexibility for a continuous characteristic is calculated by assuming a one percent increase from the
mean for that characteristic, i.e., g 5 0.01 in Eq. (3).
2
Estimated parameter is not statistically significant.
Breeding Characteristics
The broodmare’s breeding characteristics have the greatest price effect. The ability of a
broodmare to produce graded stake and black-type offspring have large marginal values
of $16,178 and $10,634. These characteristics have price flexibilities of 56 and 36%,
respectively. Given that the goal of breeding broodmares is to produce race horses, the
ability of a broodmare to produce black-type and graded stake winners are not surprisingly identified as factors of paramount importance. The ability of a broodmare to produce horses successful at winning races is reflected by a marginal value of 0.16 for average
earnings per foal, EPF at the mean. This provides an additional premium to black-typeand graded-stakes-producing broodmares, because these races have the highest purses.
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
Figure 2
309
Comparison of actual and predicted broodmare price.
A barren mare has a marginal value discount of $15,010 representing the increased
production costs from maintaining an open broodmare, and the increased risk due to the
potential lack of reproductive soundness. Breeders can use this value in a marginal cost–
benefit analysis on investing in additional inputs and allowable biotechnology to ensure
the broodmare is in-foal. A broodmare prospect, BMP, is also discounted $6,097 for her
barren state, but due to the young age and her expected potential the discount is less
severe than that of BARREN. While the reproduction efficiency measure, REPRO, is the
correct sign, it is not significantly different from zero. This may indicate that breeders
expect to overcome reproduction problems with improved management, and, in many
cases, buyers of higher quality mares discounted reproductive efficiency in order to obtain the quality characteristics associated with the mare. Also, in contrast to cattle production where often an open cow is culled, the industry does not expect broodmares to
produce every year. Often, a management decision is made to leave a mare open to produce an earlier and more precocious foal from the following breeding season. These factors contribute to horses having the lowest reproduction rate of all domestic animals
(Lohman & Kirkpatrick, 1984). The marginal value of stud fee indicates that the return
per dollar invested in stud fee, relative to its mean, is $0.37. Although this is a relatively
small value, the range of stud fee is large and can have a significant impact on broodmare
price. Also, in addition to the return on stud fee, these mares will not be discounted for
being barren.10 Broodmares lose $3,051 in value for each year increase in age relative to
the mean age of 9 years old.
10
The combination of the marginal value of the average stud fee (0.37{$16,932) plus not having the discount
for being barren, $15,010 indicates that the return per dollar of stud fee at the average is $1.26.
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NEIBERGS
Figure 3
Histogram of residuals with superimposed normal distribution curve.
Racing Characteristics
Racing characteristics provide a phenotypic measure of a broodmare’s genotype linked to
speed, and have significant positive effects on broodmare price. The ability to win highquality, high-purse, black-type and graded stake races provides large marginal values of
$10,791 and $16,194 respectively. Their associated price flexibilities are 39%; for winning a black-type race, and 55%; for a graded stake race. Race earnings have the lowest
marginal value in the model. For each dollar of earnings relative to the mean, broodmare
price changes 5 cents. However, like stud fees, earnings have a large range from zero to
over $1.27 million. As a result, earnings have a significant price effect. Average broodmare earnings provide a $3,018 price premium. Results on race characteristics provide
information to breeders of fillies 11 in training to evaluate the marginal value of racing
characteristics of a broodmare relative to the financial return of maintaining the filly in
training as a racehorse.
Genetic Characteristics
Genetic characteristics are significant factors influencing broodmare price. The marginal
value of a one-unit increase in the sire quality index from its mean is $1,574, which
corresponds to a price flexibility of 5%;. The marginal value of a black-type dam is $4,130.
Stake-winning siblings are also important. A black-type sibling has a marginal value of
11
Fillies are female horses that have not reached their fifth birth date or have not been bred. Fillies are
broodmare prospects.
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
311
$3,788, and a graded-stake-winning sibling’s marginal value is $10,043. Genetic characteristics are phenotypic expressions of the genotypes linked to speed of the broodmare’s
dam and siblings. Broodmares with superior genetic characteristics are more likely to
transmit superior alleles to their offspring.
Marketing Factors
The marketing factors reveal information concerning the market in general. The variable
RNA was not found to be statistically significant. This reveals that the hammer prices
(i.e., the last competitive auction price bid) that these horses receive are an accurate reflection of their value. Based on this model, there is no additional value in the broodmare
that would justify setting a reserve price above the hammer price for these horses. Fifteen
percent, or 235 broodmares in the data set, were RNA sales. Dispersal sales had a negative sign, indicating concurrence with the market’s perceived discount of dispersal sales,
but it was not statistically significant.
Many Thoroughbred investors are considered to be risk lovers because they make substantial financial investments for expected returns that follow an exponential distribution
(Neibergs & Vinzant, 1999). Buyers compete to find unproved horses that can provide
substantial financial rewards if they produce above expectations. There are a number of
cases in which the market failed to identify superior individuals that went on to produce
substantial financial return. The EXPECT variable provides a measure of the risk-loving
preference of the industry, as a $5,339 premium is paid for unproved broodmares based
on the expectation that their value will increase as their foals prove themselves as race
horses in competition. Twenty-five percent of the broodmares in the sale fell into this
category. EXPECT indicates that broodmare sellers have the opportunity to cull unproved broodmares to take advantage of this premium.
Using the first day of the sale as the base dummy variable, each progressive sale day
had a price discount that was statistically significant from sale day 4 to day 11. The sale
day price discount peaks on days 9 and 10 at about $28,270 and declines slightly on day
11 to $27,757. The decrease in the discount on the last day represents a lower number of
horses sold on that day, and potentially increased competition between buyers who did
not satisfy their demand in previous sale days. The price decline as sale day increases
reflects excess supply and buyer fatigue. Breeders may want to consider alternative auctions or a private sale, if their broodmares are to be sold in the lower half of the sale. It
may be more profitable to sell the broodmare in the top half of the sale at a less prestigious auction.
General Discussion
The results of this study are relative to market conditions in 1996, which was the second
year of sustained growth in broodmare price continuing through 1999. Figure 4 shows
how average broodmare price has changed since 1990. The growth in average price is due
to buyers’ increased willingness to pay for broodmares’ quality characteristics. The Thoroughbred bloodstock market is in a growth phase as purses, stud fees, weanling prices,
and yearling prices have all been increasing in response to improved economic conditions affecting the Thoroughbred industry. This points out the need for additional work to
evaluate how demand for broodmare characteristics changes in response to economic
312
NEIBERGS
Figure 4
Average real broodmare sale price, Keeneland, 1990–1999.
conditions over time. An objective of this study was to establish the set of characteristics
affecting broodmare price as a precursor to this more in-depth study.
There is a mystique that exists in the Thoroughbred breeding fraternity. Thoroughbred
breeding decisions seems to remain an art form as opposed to the application of science
practiced by most other domestic livestock species by their utilization of artificial insemination, embryo transfer, and other genetic biotechnology, which are not allowed by the
Thoroughbred industry. Producers of all species make breeding decisions with the objective of improving desired physical characteristics by improving the gene pool within each
breed through selection pressure for desired genotypes. Genetic improvement increases
production and improves phenotypic quality with the implicit objective of improving financial performance. For example, dairy cows are selected for milk production and biomechanical soundness, and swine are selected for a uniform quality carcass that improves
the efficiency of production, packaging, and retailing. The Thoroughbred industry is no
different in that there are heritable characteristics undergoing selection pressure, with the
goal of producing competitive race horses. However, the Thoroughbred industry is unique
in that its genetic progress is constrained by a long generation interval, the limited use of
biotechnology, and the strong environmental impact—all of which can disguise the phenotypic expression of desired heritable characteristics. These factors limit the progress of
overall breed improvement. Also, the goal of biotechnology research and breeding decisions with other domestic livestock species is to produce an animal of uniform quality
with the desired combination of characteristics. The breeding of domestic livestock species seeks conformity between individuals, but the Thoroughbred industry’s production
goal is to produce outliers, or race horses with such superior speed that they dominate the
competition. These factors combine to make the Thoroughbred bloodstock market a unique
case in comparison to the traditional livestock species analyzed by economists.
HEDONIC PRICE ANALYSIS OF BROODMARE CHARACTERISTICS
313
SUMMARY AND CONCLUSIONS
The Thoroughbred breeding industry has substantial regional economic importance, but
it has yet to be widely addressed in economic literature. This study develops a hedonic
price function to estimate the value of Thoroughbred broodmare characteristics. A semilog hedonic price model was developed using 1,602 broodmares, and their 4,955 foals.
Phenotypic expressions of genetic and production characteristics provide useful information in explaining broodmare price variation. Empirical results indicate that a number of
breeding, racing, and genetic characteristics, in addition to market factors, have significant effects on the prices paid at auction for broodmares. In particular, a broodmare that
has produced a graded stake winner, a broodmare that has won a graded stakes race, and
a broodmare with a graded stake winner in her pedigree provide the greatest positive
marginal value increases in price relative to the mean of these variables. This is consistent
with expectations. Horses that win graded stakes have the greatest purse earning potential
and, as identified in this model, the greatest value as a breeding prospect.
Breeders have traditionally combined information on race performance and pedigree
evaluations to select potential racing stock, but this evaluation has primarily been a subjective analysis. Price differentials are related to several factors. Therefore, consideration
of individual characteristics across broodmares is difficult. Before a breeder can evaluate
whether or not to purchase a broodmare possessing a set of characteristics the breeder
must know both the marginal cost and the marginal benefit of the characteristics. Knowing how the market values broodmare characteristics can enhance pricing strategies and
production goals.
The hedonic model provides estimates of the marginal value of broodmare characteristics, so that breeders can develop selection criteria to develop breeding programs. The
information can be used for marketing management decisions concerning culling, and
replacement purchases. The results also provide accounting information for asset valuation. For example, the model predicts that a broodmare’s value increases by $16,178 if
she produces a graded stake winner. This increases the broodmare owner’s equity, and
provides accounting information for financial performance analysis. This information, in
turn, has potential implications on broodmare culling decisions to generate cash flow to
capitalize on the broodmare’s increased value.
The results from this model establish a set of broodmare characteristics and identify
their relative importance and valuation at a specific point in time. The data collected was
for 1996, which was the second year of a sustained price recovery. The results are applicable to this year alone and are not comparable to current prices due to an increase in the
willingness of buyers to pay for broodmare characteristics in response to improved economic conditions across the industry. Additional work is needed to determine how characteristic values change relative to economic conditions in the Thoroughbred industry.
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J. Shannon Neibergs is currently an assistant professor in the Department of Equine Business,
College of Business and Public Affairs, University of Louisville. She earned her doctorate at Texas
A&M University. Her current research focuses on the economics of the Thoroughbred breeding and
parimutuel wagering industries.