Behind the midsummer glamour of Royal Ascot, Glorious Goodwood and Newmarket in July, and York in August lies a multi-million pound industry which is no more immune to the vagaries of the global economy than any other.

Editor's note: this is the second part of a series about the investment side of racehorse ownership, auctions and the breeding of bloodstock. To view the previous article, click here.

Racehorse ownership would not be regarded by many as an investment. An expensive pastime, maybe, but as an investment opportunity, probably not.

Nevertheless, behind the midsummer glamour of Royal Ascot, Glorious Goodwood and Newmarket in July, and York in August lies a multi-million pound industry which is no more immune to the vagaries of the global economy than any other. At the peak of the market in 2007 the amount of money spent at Tattersalls, Europe’s largest firm of bloodstock auctioneers based in Newmarket, exceeded £250,000,000 ($390,000). In the calendar year 2009 nearly £80,000,000 had been wiped off the record levels of 2007.

In 2007, the highest price paid for a single horse at Tattersalls was a staggering £4,830,000 (4,600,000 guineas as sales at Tattersalls are still conducted in this form) – a European record for a thoroughbred at public auction. In 2009 the highest individual price was £1,785,000; still a considerable sum but way off the levels achieved only two year’s previously. Similarly the £50,765 average price of the 5,064 lots sold at Tattersalls in 2007 slipped to £40,135 in 2009 for 4,432 lots.

So what do these figures mean for those wanting to play the racing game this year? Value – pure and simple.

History tells us that the downturn in the bloodstock market which accompanies any recession typically has a three-year span. 2010 is year three in the current cycle and again history suggests it will represent the low point of the market and therefore provide the buyer with the best value.

Unlike most manufacturing industries, the thoroughbred production line cannot be halted at the flick of a switch. As recession hits, thoroughbred breeders have a yearling (one year old horse) waiting to be sold, a foal also waiting to be sold the following year and a broodmare carrying a foal to be sold two years later. Consequently, nature forces the bloodstock market to live with the inevitable overproduction caused by a prolonged bull market for three years before supply can begin to be adjusted to reflect reduced demand.

The crop of foals which will be sold as yearlings in the autumn of this year are the last of the pre – recessionary era. Demand has dropped considerably but the supply is almost exactly the same as in the record breaking year of 2007. Excess supply met by dwindling demand can mean only one thing – lower prices, or in other words, better value.

The value for money currently available for prospective racehorse owners has also been enhanced by various self-help initiatives put together by an industry acutely aware of the tough trading conditions it faces. Tattersalls has introduced a richly endowed series of eight races open only to the 600 or so yearlings which will be sold at its premier yearling sale from 5 to 7 October. The series is worth £1,750,000, with each race worth between £100,000 and £500,000. Entries for the 2010 series have cost as little as £5,250.

An industry-wide scheme, sponsored by the trade paper, The Racing Post, has raised in excess of £2,000,000 with the pool used to fund an additional £10,000 win prize money to more than 200 maiden races (races for non-winners). Leading trainer Richard Hannon has already trained the winners of 18 Racing Post Yearling Bonus races, earning his owners an extra £180,000 in prize money that they would not normally have won. Winners of the "Bonus" races have cost as little as £1,250. 

The busy period of the autumn sales season is now underway, with yearling sales having already taken place in Deauville, France. Buyers and sellers will visit both Keeneland in America and Goffs in Ireland, before heading to the home of horseracing, Newmarket in Suffolk, UK, for the Tattersalls October Sale, the final all-yearling sale at which to buy future racehorses for the following season.

While it would be wrong to pretend that racehorse ownership is an inexpensive pastime, it would be equally misleading to portray it as a sport accessible only to the very wealthy. Profit should not be the primary motivation for entering into racehorse ownership, but it remains one of very few indulgences that can result in huge gains. In the first week of May this year, a French-trained horse called Makfi won the 2,000 Guineas at Newmarket. The horse had been bought six months earlier at auction in Newmarket, by two friends for £27,300. He earned more than £200,000 for winning the race and a resale value well into seven figures at the same time - you won’t find that happening on a round of golf with your mates on a Sunday morning.