ownership

[inputplease]

Thought I would ask an informed group a question or two. Do you think people would buy in to a racehorse where they only owned 1-5% of the horse? Would obliviously be looking at people that can't buy all or 1/2 of a horse. Have you seen any other places where you can buy in that low and what do you think of them? What would you like to see in this, and what would stop you from buying in. I think the monthly fee would have to come in around $45.00 per 1%. Would look to have the horse's running at tracks like Keeneland, Belmont, Gulfstream ECT. What would it take to keep interest up? Should the horses be bought as yearlings or claimed already running. Any in put would be greatly appreciated

Thank You

[madelyn]

Hm. The costs of running at Keeneland, Belmont and Gulfstream would be pretty excessive. All that shipping....or do you have your own plane to shuttle the horse around with?

I recently put together a partnership for two 2 year old colts. The colts will train here, probably at Turfway, for the winter, and probably start racing there, with a view to the spring meets at Keeneland and Churchill, summer at Ellis Park, maybe Hoosier/Indiana Downs, Arlington, etc. etc.. The buy-in was $2500 for 10% of both horses, and $250/month, based on selling six shares. The trainer gets 20% of both horses and the partnership manager gets the other 20% (and originally owned the horses, so put them up as his share). The partners vote on everything. I have had no trouble finding takers (two shares left but they will be gone soon). If one of those partners wants to sell a ninth of his share to friends for $250 apiece and mess with collecting the $25 a month let him. Too much accounting, and at that lower level you run the risk that the fractional partner is using his milk money. Actually, the lower the cost, the less likely you are to collect the money, in my experience.

In this case, the partners want the fun of developing and running youngsters. We had the two colts in hand before we started. We have three other two-year olds we can drop into the partnership as it develops.. and we could always claim something later. As with anything, partnerships are all about the group you get together, the synergy, meeting of the minds, etc., and articulating, very thoroughly and UP FRONT, everything to do with how it will run. But I've never looked for partners "obliviously" ......

[inputplease]

You got me out of context there. I was trying to use Grade 1 tracks as examples of where they would run,as apposed to lesser track's. Before you take offense, I am not referring to Ellis Park, Hoosier/Indiana Downs, Arlington as lesser tracks ether. I think we all know what a cheap track is. Yes ,I have run horses at cheaper tracks, and been happy as a kid on Christmas day with the win.

[madelyn]

No, I read what you presented. Again, the most important thing in setting up something like this is to articulate EXACTLY how the partnership will go forward.. and I would NEVER advocate getting yearlings for a partnership.. that is the fastest way to make sure the partners drop out and you never get so much as a Christmas card from them ever again. Yearlings are far too speculative, especially at the level you are talking about.

[Playwithfire]

Claiming would be an obvious place to start given that the owners could get immediate results for their investment (generally speaking). I imagine these would be new owners if they're only putting in a small % stake. I don't think they'd want to wait a year, 2 years or possibly never get to see their horse if the yearling doesn't pan out.

That being said, the claiming game is a tough racket so to speak. I don't know if you've ever run a partnership or raced your own horses in claiming races, but there is a lot that goes into being successful in this arena. Getting a trainer that you can trust as well as has good insights into the horses you are claiming is of utmost importance. If I was getting involved in a partnership, i'd want to know where the monthly fees were going, and if it was reasonable. Also, how much does the managing partner take for their efforts? Does the trainer actually have a stake in the partnership too? Who makes the calls on where/when the horse runs, does the partnership have input, or is it all the trainer? Stuff like that.

[casallc]

As far as the best return on investment, claiming horses in the $5,000 to $10,000 range will result in the best profit ratio of all horse racing. As previously posted you need to find someone who you can trust at the tracks which is not an easy thing to do. If you haven't trained or had a lot of experience in the race business, get ready to learn some hard lessons.

[Old Goat]

I don't think claiming in the $5K - $10K range is the best idea. If that is the only level your horse can compete at you won't be making much money once the jockey mount, training fees, vet fees and such you won't have much left to take home to put in the bank. Maybe I am wrong.

[casallc]

Claiming Horse Profitability by Claiming Class

Class---------Ave Earning--Profit------%---Purse to CP
$4K - !0K-----$9,1222-----$4,173-----68%-----1.32
$10K – 15K---$11,989-----$4,740-----59%-----1.01
>$15K---------$21,813-----$6,046-----51%-----0.79

*Neibergs and Vinzant – Estimates of Racehorse Earnings and Profitability in KY



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[inputplease]

I would like to thank everyone that has given a reply. I hope to still get some more ,but you have brought up some great point. I knew this was the place to ask.

Thank You

[Old Goat]

Are you going to be claiming or will the partnership be based on yearlings? Not sure if you have raced before but if not, you need to talk to some trainers to get their day rates and try to set up a estimate on what day rates will be for vet, farrier, trainer, feed, etc. so that you charge enough to cover all your expenses each month and are not shelling out of your own pocket more than you should because the monthly fee is too little. Do you plan to keep majority interest in this/these horse(s).

[Playwithfire]

I also doubt that $5k-10k is best place to make money in claiming unless you are fortunate (shrewd, clever, or lucky) enough to claim low and get claimed higher. to be successful at those levels you are going to have to win a fair share of races because the purses are lower than the 20k-30k claiming range. it'll likely costs 25-35 k a year to keep your horse at a track that would have that much variety of claimers (lets us NorCal as an example, since that is where I live). Key thing is it costs that much for any level of claiming horse. So you'll need to make close to $40k in purses for a year (remember 10% to jockey and trainer each for winners) to make a true profit, assuming you hold onto the horse and it doesn't get claimed. A 6,250 or 8k claimer roughly has a purse of $12k. First is 55% at Golden gate fields, 20% for 2nd and 15% for 3rd? So if you ran 10 times in a year with 3 wins and 2 seconds and 1 3rd (a highly successful campaign), you'd still only take net revenues of about $22k. Next time you open a racing form, look at a claiming race under 10k, and tell me how many of the entries have earned over $20-25k in the past year? I gather not many.

Now take a look at races in the 20-30k claiming range. purse for a 25k claimer at GGF is $26k. You'll do much better in that range, assuming you can eventually get claimed for a similar figure as you made the original claim. The biggest risk is an injury that puts you on the sidelines that doesn't allow you to make any money, and causes the value of your horse to drop. So if they can't come back and be able to run at that level, you'll have to drop them, and risk getting claimed at a lower price. Like most "investing", higher rewards require greater risk.

So there are alot of assumptions, and its certainly possible to make money in cheap claimers. Maybe other markets are different, but i don't know if places w/ higher purses actually run alot of claiming races that give you some flexibility on where/when to run, except maybe a place w/ slots.

i don't know how those statistics given are created, but they seem funky and oversimplified to me. There is alot more going on than those figures tell, to me it makes it seem like claiming at all levels actually earns a profit. which of course is far from true.

Some good resources, no matter where you live.
http://www.toconline.com/ownership/
http://www.toba.org/ownership/

[casallc]

[quote="Playwithfire"]
i don't know how those statistics given are created, but they seem funky and oversimplified to me. There is alot more going on than those figures tell, to me it makes it seem like claiming at all levels actually earns a profit. which of course is far from true.

[/quote

Here is the source. If you like long scholarly papers all the info is in the link. The studies are in KY.


Maximum-Likelihood Estimates of
Racehorse Earnings and Profitability
J. Shannon Neibergs and Patrick L. Vinzant
http://www.agecon.uga.edu/~jab/Library/S99-03.pdf

[geowarrior]

I have shares in three horses with a group that runs multiple partnerships. Each partnership is run as an LLC. In this particular case the buy in is much of the same value as the original poster suggested but the percentage of the horse bought is about half that mentioned by Madelyn. The difference between this partnership and all the others mentioned so far is that the initial buy in involves a cost for a three month reserve for expenses and there are no markups on training, farrier, etc. costs. The partnership company doesn't invest in yearlings but has a variety of two year olds and older, from stakes horses to claiming partnerships. Once the three month reserve is used up, either a cash call is made prorated on the percentage of the horse which is owned, or if the horse has accumulated winnings, they are put towards the reserve. If the reserve is exceeded a distribution of winnings is made. This does away with the monthly fee, which is offputting for many investors, and if you are following the career of the horse and know what percentage of it you own, given the information provided by the partnership as to general costs you can prepare for the liklihood of a cash call and for the amount. The horses are based at one track with a variety of trainers, but have been shipped to various other venues depending on whether there are suitable races. In this particular case the managing partner owns five percent minimum of each horse and pays expenses prorated according to his ownership of the horse. If the horse wins a purse over a certain amount (I think 100,000) the managing partner gets an extra percentage.
The partnership agreements are spelled out pretty carefully.

I've been pretty happy with my partnership. The horses are well looked after, and we get regular health reports and photographs, however the partners pretty much don't have a say in when or where the horses will run (although opinions are welcome). They do have a say in whether a horse will be sold or the partnership dissolved. The not having a say part is the part I'm least happy with, but since I only own such a small percentage and there are quite a few partners, I imagine the whole thing could become quite unweildy if we voted on every aspect. The part I'm most happy with is the lack of monthly expenses, and the ability to predict and plan for a cash call.

[Playwithfire]

Thanks for the link, it was very interesting to read. I think the authors touched on what i was dubious about, and that is that 40% of the horses claimed in KY during their study were not re-claimed, so that they were not included in the profitability analysis. I think therein lies the real question since I would guess that many of those not reclaimed and originally claimed at a low price have near 0 residual value, which will affect profitability.

It does make sense that cheap horses that get re-claimed are going to get claimed at a higher value on average, since they are already at the bottom of the class level, they can't really get claimed for lower. This will skew the profitability results positive, and Table 3 indicates that of the 128 re-claimed chepies, the average Claim was $773 over initial claim price. I would gather the ones that don't get claimed again are either 1) not racing well and earning little money (which is why no one wants to re-claim them), or 2) retired from injury or some other reason. The ones getting reclaimed are likely the ones winning the low level claiming races in the first place, therefore earning decent purse money and moving up in class. Also it is likely that the high level claiming horses that fall into the study have dropped in value to get re-claimed and that will affect profitability. The good ones will go onto allowance races and fall off the profitability radar for this study, even though they likely made the most money of all the original claims.

I think my point is that while the study is interesting, I would not use it as a basis to decide to get into claiming horses, especially at low levels. I think that to do that, you have to be able to buy low and sell high, so to speak. Purse money alone likely won't get it done.


Good luck in all your future endeavours.