It was still a big leap in purchasing a 40 percent stake in Falling Sky, one of 20 horses scheduled to run in the 139th Kentucky Derby at Churchill Downs (CHDN) in Louisville, Kentucky, in two days, Covello said. The 3-year-old went for $425,000 at the Ocala Breeders Sales Co. winter sale in January, by far the highest price of the session three years after the colt was purchased for $16,000 at Keeneland.
“It’s a calculated risk,” Covello, 40, said in a telephone interview. “You have to be as analytical as possible in trying to marry the numbers.”
Falling Sky will go off at 50-1 in the Derby, the first leg of thoroughbred racing’s Triple Crown. Since Covello and his partners bought the colt, he has won the Sam F. Davis on Feb. 2, come in third at the Tampa Bay Derby on March 9 and fourth in the Arkansas Derby, the longest of his races at 1 1/8 miles, to earn $205,000 so far in 2013. The Kentucky Derby is 1 1/4 miles.
Covello, a semiconductor analyst at Goldman Sachs (GS), studies Thoro-Graph, a performance-rating number that is calculated on the basis of time of the race, beaten lengths, ground lost or saved, weight carried, the effect of wind, and a track variant. Falling Sky’s number is 5, the same as Giacomo, a 50-1 longshot that captured the Derby in 2005 to return $102.60 on a $2 win bet.
“He’s going to be a longshot; he should be a longshot,” Covello said. “Honestly, there are 20 horses running and I don’t think any horse has more than 5 percent chance to win.”
Covello, a football and baseball player at Georgetown University, was introduced to racing by his wife, Teri, and her parents, who took him to Saratoga Race Course in Saratoga Springs, New York, shortly after they returned from their honeymoon in 1998.
“Seeing your first horse race at Saratoga is like seeing your first baseball game at Yankee Stadium,” he said.
The following year, he invested in his first partnership with West Point Thoroughbreds Inc. He discovered it was a “relatively inexpensive way of learning” about owning a racehorse.
Covello became a competitive handicapper and has ranked in the top 10 of national contests. He also met Nick Sallusto, a bloodstock agent and racing manager who urged Covello and his partners to purchase Falling Sky.
Sallusto, 41, had been following Falling Sky’s performance as a 2-year-old that started with a four-length victory in his first race of six furlongs on Nov. 1 and ended with winnings last year of $44,800 over three races.
“Every year at this time, I watch the 2-year-old horses as they start to race, trying to get an idea of the young horses with talent early on,” said Sallusto, who views 200 race replays a week. “I’m looking for the ability to go two turns and eventually become a Derby prospect.”
Sallusto tried to buy Falling Sky for Covello’s partnership in a private sale, with the $600,000 offer rebuffed. By the time he reached the auction, he said, “Everybody had cold feet over how much to pay. We had a top budget of $450,000.”
Sallusto made one bid -- $425,000. His strategy was to intimidate the other bidders and prevent the frenzy of a bidding war that causes some buyers to go well beyond their limits.
“All the bidders just looked around as if something was wrong,” he said. “It worked out.”
Falling Sky’s price compared with an average of $15,368 in his sale division for horses of racing age, according to Ocala spokesman Jay Friedman.
“He was a standout in that group,” Friedman said in an interview. “These people -- the buyers and the seller -- hit a home run. The sale is that time of the year when buyers are getting Derby fever.”
Sallusto said the naysayers still believe the horse can’t finish the Derby’s distance.
“Every hurdle we have given him, he’s shown up,” Sallusto said. “History proves it’s not always the favorite that wins. We certainly think he deserves that chance. I still believe the best is yet to come.”
It won’t be the first time Sallusto has been to the Derby. He was there with Big Brown in 2008 and then experienced disappointment the following year when Derby favorite I Want Revenge was scratched with heat in the ankle.
Covello said there are always successes and failures, and “unless you’re Warren Buffett, you couldn’t afford too many misses like (I Want Revenge). I’m learning about spreading the risk.”
Covello said the price tag for Falling Sky was “the most I would have ever contemplated paying and we wouldn’t have the horse if I had to put all the money up. After all, I work for a living.”
He owns Falling Sky with Maurice and Samantha Regan, who race under the Newtown Anner Stud banner and own 50 percent, and James Bulger, who owns 10 percent.
Over the years, Covello has had ownership in 40 horses. Right now, he owns six outright with partnerships on six others. His broodmare lives at his farm in Kentucky.
Covello operates his 12-race horse business under the name Scout Stable LLC, named after his wife’s favorite character in “To Kill a Mockingbird.”
“I try to buy horses that are already racing,” Covello said. “I’m paying more, but they are a known commodity.”
The strategy has worked for Covello, who said he has always made a profit with a limited number of horses. People with 40 or 50 horses often end up with problems, he said.
“I’ve actually made money doing this and I like to keep it at this size,” Covello said.
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