The Utility of Sport and Returns to Ownership

Abstract

Previous research has demonstrated that owning thoroughbred racehorses tends to be a losing financial proposition. Racehorses tend to offer rates of return that are below those of financial assets of similar risk - owners pay a premium to enter the game of racing. Recent research has concluded that this premium is approximately constant across thoroughbred prices. We extend this research by modeling multiple determinants of the premium. We conclude that although the premium is approximately constant for relatively low-priced horses, it increases with the cost of the animal, at least for the most expensive ones. Evidently, a sizable number of owners are willing to pay an increasing premium for talent in the quest to own a champion. To the extent that this preference for champions generalizes to other sports, then public policy and social welfare implications must be reexamined.

Keywords: utility, sport, racing, ownership, increasing returns to talent

JEL Classification: G0, G12, G19