| | Great article about Forming a Syndicate and Funny Cide...
...as an aside, I'm almost got involved in that 600K horse Beyer mentioned. Would have cost me 30K for 5 percent (they originally asked for 15K for 5 percent but the interest was so great they doubled their asking price)...
A Beyer's Guide for Racehorses
By Andrew Beyer
Tuesday, June 3, 2003; Page D01
The 10 partners who own Funny Cide are ordinary citizens, but this fact makes them extraordinary in the horse racing game.
Their principal rivals in Saturday's Belmont Stakes are more typical thoroughbred owners. Khalid Abdullah, who bred and owns Empire Maker, is a fabulously wealthy Saudi prince. J. Paul Reddam, part-owner of Ten Most Wanted, founded Ditech.com and sold it to General Motors for a nine-digit sum. Peter Karches, co-owner of Dynever, held $336 million in Morgan Stanley Dean Witter stock when he retired from the firm.
The presence of the 10 small-town pals amid these moguls has made an irresistible story, one that will get even better if the Sackatoga Stable parlays its $75,000 purchase of Funny Cide into a $5 million bonus for sweeping the Triple Crown. And the excitement accompanying Funny Cide's bid has stimulated many fans to wonder if they could get involved in the sport. Many racing organizations report a sharp increase in inquiries about horse ownership.
This is good news for the thoroughbred industry, which is perpetually trying to bring new owners into the game. The bad news is the truth that any prospective owner will quickly learn. Buying a racehorse is about as sound an investment as buying a stack of lottery tickets. Even though inexpensive horses often become champions, ordinary folks rarely own them, because ordinary folks can't afford to take such imprudent risks with their money.
Buying a thoroughbred is expensive; Funny Cide is rightly considered a bargain at $75,000 when 52 other members of his generation were sold at auction for $1 million or more. The upkeep of the average racehorse costs about $30,000 a year and can run to as much as $50,000 at a top-class track. Yet the average American racehorse last year earned about $16,000. It is commonly estimated that for every dollar invested in the thoroughbred racehorses, 50 cents is paid back -- just about the same rate of return as a state lottery.
Accordingly, there is only one legitimate reason for buying a racehorse. "You've got to go into it for the fun," said Jack Knowlton, managing partner of Sackatoga Stable. He and some of his partners live in Saratoga Springs, N.Y., and for them it is a dream come true to walk into the Saratoga paddock and see their horse being saddled. The shared experience makes for great camaraderie. As for the finances, Knowlton said, "We went into it hoping that we could break even."
If a racing fan accepts the grim financial realities and still wants to own a racehorse, how should he go about getting into the game? How can he give himself a better-than-average chance to succeed?
The recommended first step is to form a partnership or join one. Even the wealthiest owners frequently join others to diffuse their risks and give themselves more chances to get a high-class runner.
An operation such as Team Valor, which solicits investors and forms syndicates, has the connections within the industry to locate promising horses and hire prominent trainers. This expertise comes at a cost: Team Valor marks up the purchase price of horses before it syndicates them, then receives 10 percent of any profits and a 5 percent commission on any selling price.
By contrast, a do-it-yourself partnership such as the Sackatoga Stable has fewer costs; Knowlton takes no fee for managing the operation; he handles the bills, discusses plans with his trainer and keeps all of the investors informed. Rarely do such small partnerships come up with a thoroughbred star, but Funny Cide has demonstrated that it is possible.
A person entering the horse business must find a contact -- a trainer or an agent or a syndicator of horses -- who is reputable. The sport has always been filled with unscrupulous characters who view newcomers as sheep to be sheared. The Thoroughbred Owners and Breeders Association has recognized this problem and now refers would-be buyers to people it screens and deems to be honest. "We tell [prospective owners] to have a business plan," said TOBA President Dan Metzger, "and we give them three referrals to speak to."
Locating the right trainer was the key to the Sackatoga Stable's success. "My advice to any beginner," said Knowlton, "is to find a trainer whose reputation you have checked out and whom you're comfortable with. Your trainer needs to understand the capital you have access to and what you hope to do." When Knowlton and his partners approached Barclay Tagg, they found the perfect trainer for them -- experienced, capable, honest, yet willing to train for a small-time partnership.
For a newcomer with limited resources, there is probably no better way to enter the game than buying a medium- to high-priced claiming horse. A ready-made runner has several advantages. The owner gets immediate action instead of waiting (and paying bills) while an unraced youngster matures. High-priced claimers have some upside potential -- they can improve enough to move into allowance or even stakes company. And the buyer doesn't have to wonder if he is paying a fair price; if a horse is in a $30,000 claiming race, he's worth about $30,000.
Of course, every horse owner envisions winning the Kentucky Derby, but for most this is an unrealistic and counterproductive dream. Team Valor almost won the Derby with Captain Bodgit in 1997, but managing partner Barry Irwin says colts with Derby prospects have become wildly overpriced in recent years.
"If you buy a filly, you have a pretty good shot of making money," Irwin said, "If you buy a colt, you don't. We try to buy fillies with enough pedigree that you can get your money back." Irwin lamented that a colt Team Valor had syndicated for $600,000 had wound up in a $12,500 claiming race. A filly with the same credentials could have been sold as a potential broodmare, recouping a chunk of her purchase price.
An owner who wants a realistic chance of making money should probably forget the Kentucky Derby and high-priced horses altogether, and instead look to the opposite end of the racing spectrum: the minor league tracks whose purses have been infused with revenue from slot machines. Some of them have turned the sport's dismal risk-reward ratio upside down: costs are low and purses relatively high.
At Charles Town, the horses are cheap and training expenses modest -- only about $35 per day. But $5,000 claiming horses run for a purse of $12,500, enabling an owner to recoup the cost of a purchase with a single victory. The slot-fueled purses have changed Charles Town profoundly. "In 1996, when we were down and out, we had 1,200 licensed owners," said General Manager Dickie Moore. "Today we have 8,000. The higher purses have brought new people in, along with people who once left the business."
If major tracks could increase their purses significantly, they, too, could attract broad-based participation from people who are not princes, sheikhs or titans of industry. But until the economics of the sport undergo a fundamental change, owners like the Funny Cide partners will remain a rarity.
© 2003 The Washington Post Company