As Jimmy breakfasts with the colonel, a letter arrives at the Dolan house from his uncle, informing the boy that he plans to sell Mike to a racing stable for $700.
When Jimmy, who has only saved $200, learns of his uncle's intentions, his sympathetic sister Erin suggests he make the horse unappealing to his prospective buyers.
The next morning, when the representatives from the stable arrive to inspect Mike, Jimmy coats the horse with mud and instructs him to act lame.
At his new home, Mike refuses to eat or train, and when the stablemen inform his new owner, movie star Kitty Tremaine, that the horse is lonesome for Corky, she decides to visit the Dolan house and buy the dog.
Spencer and Jimmy then decide to enter Mike in a handicap race, and when the syndicate learns of their plans, it hires Doc Slagle and his brother Bill to put the horse out of commission.
By the time Spencer arrives, however, the Slagles have killed Corky and fled, leaving behind the unused hypodermic needle bearing their fingerprints.