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How Much Does It Cost to Own A Racehorse With A Thoroughbred Partnership?

December 05, 2011 · By Terry Finley · Share

When prospective clients talk to me about investing in a racehorse, they always want to know how much it costs.

Be prepared to spend about $10,000 to get started with a reputable outfit. In the case of West Point Thoroughbreds, that typically equates to 5% position in one horse. On average, a new client will spend around $20,000 to $25,000 with us in the first year. Now let’s roll up our sleeves and dig a bit deeper into syndicate pricing and how it works.

 
There are critical questions that you, the consumer, should ask of all public partnerships as you conduct your diligence. Here’s the first one: what is included in the investment price?

Some partnerships only include the price of the horse when you buy; other expenses like training fees and vet bills are extra costs. Others like WPT include training and maintenance fees, pre-sale veterinarian and physical assessment consulting, vanning as well as insurance coverage until the end of the horse’s 2-year-old season.

This is critical information as it will help you understand how to compare the offering prices of partnership groups.

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The next piece of critical information that you need to know is: how much profit am I paying the manager?

Yes, we all want the most for our money, but to my knowledge, all public stables are for-profit companies. At West Point we believe in full transparency in pricing, which is why we buy our horses at public auctions. You can see what price we started with by looking at the auction websites of sales companies like Fasig-Tipton, OBS, Barretts, and Keeneland.

Add in:

· five percent commission for the buyer
· six percent sales tax (amount could vary based on state)
· legal fees (we estimate $4,000.00)
· training and maintenance fees which run through the horse’s 2-year old season
· mortality insurance (generally 4.5% of auction value)

If you take our syndication price and subtract all of the costs listed above, you will arrive at our projected gross profit margin. Feel free to challenge our team on why we are worth it! Other stables may not be as transparent, but you should ask the manager enough questions to understand how much money they are making off of your investment. Be very weary of those that avoid these types of questions!

One more related point when it comes to the profit paid to the manager. Over the years, I’ve read articles and I’ve seen advertisements for many public partnerships which claim there are “no fees” and/or “no markups.” The funny thing is, I have yet to see a syndicate group survive for more than a year or two that promotes such a structure. The bottom line is, you as the consumer want to be comfortable that the group you invest with will be in business a year from now. There is an old expression that is very fitting here, “you get what you pay for.”


 
The last key question to ask when it comes to pricing is: what are my ongoing costs and what do they consist of?

This is critical to know up front as you will likely be asked to sign a contact when you invest which may require you to contribute additional capital. A thoroughbred racing at top-level racetrack can cost over $60,000 a year to maintain. At West Point, we tell prospective clients to plan, on the high end, $60,000 times their ownership percentage, billed quarterly. So that would be $1,500 a quarter if you own 10%, assuming your horse isn't earning purse money to offset expenses. On the low end, if your horse is earning checks and paying its way, the owner may not have any capital calls. We don’t mark-up expenses, but do charge a $300 a month administrative fee per horse and receive a percentage of purse earnings, sales proceeds and shares if a stallion is syndicated. Here's a one page resource to help outline the "All-In" costs.

Once you understand how much the total expected out-of-pocket expenses will be for the life of the partnership, you will be in a position to adequately compare and contrast all of the different syndicates that are out there. I think you’ll find that WPT is the most transparent and easiest to work with, but I’m clearly biased.

Good luck with your search and I hope to speak with you about ownership one day.
 

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