Examining Agency Conflict in Horse Racing

We study UK horse racing for signs of conflict between horse owners (principals) and trainers (agents). Trainers often prepare their own horses for races in addition to having outsiders' horses in their care. Utilizing betting market data to infer the expected performance of a horse, we find that owner–trainer horses outperform outsider–trainer horses, indicating that this principal–agent relationship is characterized by agent shirking. If the owner holds a large proportion of the horses in the trainer's stable, the shirking effect may be mitigated but not eradicated. In a separate result, we find that outsider–trainer horses are more inconsistent than their owner–trainer peers. As inconsistency is a sign of betting market manipulation, this suggests that the agent in this setting extracts a second, informational rent from the principal.