Where do you start? EDUCATION, EDUCATION, EDUCATION. I can’t emphasize this enough. Go out to the races and observe what goes on there. Visit farms, training centers, equine hospitals, wherever you can go. Read (see the Library section). Go to seminars. Ask questions.
Thoroughbred ownership is a high risk business with huge highs and the very lowest of lows. If you don’t have passion for the business it will be very difficult for you to stay involved as the losses mount up. (For example, that young foal that was going to sell for six figures was injured a week before the sale.)
I think the most important thing is to decide what part of the thoroughbred industry most interests you. Decide on a plan of action; i.e. a business plan that fits your budget, and take it from there. Don’t forget the tax considerations because if you don’t follow the rules, your business might be considered a hobby and you will have enormous tax liabilities.
There are many different avenues to entering the business. Do you see yourself in any of these scenarios?
- I like the action at the track and really enjoy handicapping. I am pretty good at picking the winners and like the strategy of the claiming horses. I would want my horses to be in action as much as possible. I don’t want to wait for some young horse to grow up. Life on the farm is too slow for me.
- I dream of owning a major stakes winner.
- I enjoy the peace and serenity of being out at the farm watching the young horses running around the fields changing from playful and perhaps ugly foals into sleek racehorses.
1) Owning a broodmare and raising foals to sell as weanlings or yearlings or to race (number 2 and 3 from above).
- You plan the mating and make the stallion choices
- Control of the quality of care and environment as the foal develops
- Knowledge of the complete history of your horse
- Enjoyment and satisfaction of watching your horse grow up and either sell successfully or make it to the races under your guidance.
- Chance to have a top quality horse for far less money than a purchase.
- Having the satisfaction that your mating cross was correct should the foal become a stakes winner.
- Your mare may not get pregnant each year.
- The foal could be born with deformed legs that greatly decrease its value or even its ability to make it to the races. You “get what you get” in the breeding business.
- Takes about 3 years from time of conception for your foal to be old enough to actually enter in a race.
- Greater chance something could go wrong due to the long lead time while waiting for the foal to grow up.
- Foal could end up with little or no talent after the long wait time and three years of expenses.
2) Purchasing foals, yearlings, or unraced 2-yr-olds. (number 2 and 3 from above).
- Get to pick out the best individual that you can afford, thus avoiding the crooked legged horses or those that have veterinary problems which may preclude a successful racing career.
- The horse is closer to the races.
- Chance to get a top quality horse.
- You can control the care and pre-race breaking and training.
- The horses will be more expensive. Something to remember: the closer the horse is to the races, the more valuable it will be. The reason for this is that some risk has been removed and they are closer to bringing in income.
- You don’t always know if they have been properly cared for during their critical growth years prior to your purchase.
- The horse is unproven; you are only buying potential. It could very easily turn out to be worth far less than what you paid for it.
3) Claiming horses (number 1 from above).
- Horse is already running so the “getting to the races risk” is removed.
- Plenty of action; horse can likely run right back shortly after your claim.
- Adds one more element to the handicapping challenge. Did you make a good claim? Can your trainer improve the horse’s value so that you can run him “up the ladder” to higher claiming levels or perhaps even turn him into a stakes horse?
- No pre-purchase exam by a veterinarian so horse could have soundness problems.
- Claiming horses are usually worth what you claimed them for and the chances of them ever becoming a stakes horse are remote.
- If you run your horse where it can win, he will be claimed from you within a race or two, so you never really “get to know” your horse. Claiming horses come and go quickly.
4) Purchasing horses that have already raced and proven their value
- You get a somewhat proven commodity that you can have examined pre-purchase by your agent, trainer and veterinarian.
- They will be very expensive and in short supply.
There are many stories of the $17,000 yearling (Seattle Slew or more recently, Real Quiet) that went on to be major stakes horses.
Perhaps the fastest-growing area of new ownership is that of racing partnerships and syndicates. There are also breeding partnerships. For most new owners, it can make sense to start as a part owner so they can easily get into the game, share the rewards, spread the risks and in some cases, own more horses for the same amount of money. (With more horses, an investor stands a better chance of getting one or two good ones.) Partnerships are also a great way for anyone with limited time and limited resources to be actively involved in Thoroughbred ownership.
As a member of a partnership or syndicate, owners get most of the same rights and privileges of any owner, including access to the barns, clubhouse and box seating. Some partnerships are formal public offerings while others are a gathering of friends in pursuit of a good time.
Whether a formal offering or a group of friends, the trick to this kind of investment is getting involved with people who are reliable, knowledgeable, responsible and trustworthy. It is also important for co-owners to enter into a written agreement concerning the exercise and transfer of their ownership right as operating a business with other people can create its own brand of risks. Partners may disagree about the operation of the venture, die, become disabled, divorce or be unable to pay their bills. Thus the need for a properly drafted “buyout agreement” which offers the best means of protecting individual interests within a common venture. A sample partnership agreement can be accessed by Agreement.