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Originally Posted by GenuineRisk
I agree, owners could opt to sit out a year; in that case they'd be gambling on the industry's memory of a good season vs. a 4-year-old campaign. And yes, I agree they risk a stallion's "value" dropping after a bad year, but I think that's part of the problem- the stallions are overvalued to begin with- the insurance companies price the top ones with the idea that they'll all turn out to be AP Indy at stud.
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I pulled this quote out of your post because I thought it was an extremely good point. Cannon Shell's response that the market sets the value, not the insurance company, is 100% correct, but it doesn't change your conclusion. Namely, that the preceived risk proves that stallions are overvalued to begin with.
There's no other rational conclusion that could be drawn. If the average value of a stallion prospect would drop markedly after a 4-yr-old campaign, then people are paying too much for 3-yr-old stallions. (yes, there should naturally be a small drop attributed to the loss of one breeding season, but we're not talking about that kind of price difference.)
The initial market price for breeding is based on a combination of the stallion's lineage and what it accomplished on the track. If the average market price would suffer from another year of racing, then clearly people have been over-paying for what a horse accomplishes on the track up to the point of its 3-yr-old year.
Maybe it already seemed obvious to some that breeding prices are inflated. But the argument could always be made that the market establishes a fair price. However, that argument would be negated by the fact, if it's true, that on average, a horse's value would go down decidedly by simply racing another year.
--Dunbar