The victory capped a day in which Essence of Dubai established himself as a contender for the upcoming Kentucky Derby by winning the $2 million United Arab Emirates Derby at the Nad Al Sheba track.
The last time Sakhee competed in a race of international magnitude, he was defeated by Tiznow in the Breeders' Cup Classic at Belmont Park in New York last October.
Street Cry, another horse from the Godolphin Stable, upset the heavily favored Sakhee by covering the 1 1/4-mile course in two minutes, 1.18 seconds.
American jockey Jerry Bailey was aboard Street Cry, which took home the $3.5 million first-place prize.
Sei Mi was second, 4 1/4 lengths off the pace, and Sakhee settled for a distant third. Japanese champion Agnes Digital was sixth in the 11-horse field.
Sakhee, the winner of the Arc de Triomphe last fall, had raced just once since the Breeders' Cup, winning a prep by nine lengths. The 5-year-old is expected to race in Europe this year with a return to the Breeders' Cup in the fall.
With Tiznow retired, Sakhee was likely to compete for the title of the world's best racehorse, but Saturday's poor performances could change that.
Godolphin racing, owned by the Maktoum family of Dubai, had another winner in Essence of Dubai, who rallied from last place. With Frankie Dettori aboard, Essence of Dubai overtook Chilean-bred Total Impact to win in 2:02.90. The race matched the 1 1/4-mile distance at Churchill Downs, putting Essense of Dubai up for a run at the first leg of the Triple Crown.