Investing's longest shot

In early March, the great raffle that is Australia’s annual thoroughbred sales season will get under way. Buyers from around the world flock to the William Inglis and Magic Million yearling sales, where buyers regularly outlay more than $2 million to buy a one-year-old that has never raced.

As in previous years, buyers will be there on behalf of racing heavyweights Bob Ingham (head of the Ingham family’s $880 million chicken and thoroughbred empire), David Hains (hedge fund billionaire and owner of three-time Cox Plate winner Kingston Town) and Gerry Harvey (billionaire retailer and one of Australia’s biggest thoroughbred owners).

But owning a race horse is no longer restricted to a wealthy few: the number of people with some form of ownership in a thoroughbred has soared in recent years. In Victoria alone (national figures are not available) numbers have increased from 26,000 in 2005 to 37,000 in 2007. Increasingly, owners are using partnerships, of two to 10 shares, or syndicates of up to 20 shares to find a cost-effective way into the sport.

Barry Poynter, the managing director of Victoria Carpets, is one owner who has come to the sport through a syndicate. Poynter says he and his wife decided to buy some shares from syndication company Clanbrooke (owned by his good friend Dean Humphries) as a bit of an indulgence after putting their kids through school and university. “We decided to go into syndicates because you’re able to spread your risk across a few horses.” Amazingly, all of the 11 syndicated horses he’s raced have won.

His biggest win came last year, when Arapaho Miss (syndicated by Clanbrooke) won the Crown Oaks. First prize was $605,000 and Poynter’s 8.3% stake gave him $50,215 '¦ plus some extra cash from a few well-placed bets. Even better, prizemoney is usually tax-free.

Poynter says winning the Oaks was a magic moment. “That euphoria lasted for a long time, but then you start thinking about what you’ve got to look forward to with the horse.” Arapaho Miss is being aimed at the $600,000 Australian Oaks on April 30 and is then likely to be set for the $2.5 million Caulfield Cup and the $5 million Melbourne Cup. The horse’s value could be up to $2 million. Arapaho Miss cost just $22,500 as a yearling.

As with any investment, the first step towards horse ownership is set a budget. This will determine a number of things:

• The form of ownership you can afford: sole ownership, partnership or syndicate.

• The quality of the horse you can buy. Prices of yearlings vary wildly. The average price of a yearling sold in Australia in 2006-07 was $70,752, with the top price $3 million. Still, bargains can be found. In 2001, a syndicate that included AFL coach Kevin Sheedy bought a yearling called Bel Esprit for $9000. The horse went on to win $2 million and is still earning income as a stallion.

• The quality of the trainer you can employ. Trainers charge between $60 and $160 a day per horse, depending on their reputation and whether they are based in the city or the country.

The second step in buying a horse is to get help. If you decide on sole ownership or a partnership, you’ll need to select a trainer who will then help you pick a horse at the sales and prepare it to race. If you’ve decided to join a syndicate, there are two options: you can organise the syndicate yourself or buy a share through a syndication company, which then manages the syndicate. Some syndication companies, such as Hancox Bloodstock, guarantee to replace a horse that does not make it to the track because of illness, injury or a lack of ability.

If you purchase a yearling, you’ll need to wait until the horse is two before it is allowed to race. Then the prizemoney starts rolling in '¦ or maybe not.

Barry Poynter’s ownership experience is extremely rare: many owners buy horses that become injured or ill or are simply too slow to make it to the track. The majority of horses (about 61% of those that raced in 2006-07) never win. Dean Humphreys from Clanbrooke has some simple advice. “We often advise prospective members not to become involved in syndication or horse ownership if they expect to make a profit.”

Industry body Queensland Racing estimates the minimum cost of keeping and racing a thoroughbred racehorse in Australia is about $15,000 a year, which includes training costs, racing fees (owners must pay to nominate their horse for each race) and the inevitable veterinarian bills.

True, the pot of money on offer is large: total returns to racing owners in Australia has (including prizemoney and incentive scheme payouts) grown by 18.7% in the past five years to $393.7 million. But the arithmetic says most owners lose out on their investment: of the 31,419 horses that raced in 2006-07, 9809 earned nothing and 13,447 earned less than $10,000. In other words, almost three quarters of race horse owners have no chance of covering their $15,000 annual costs. It should also be noted that trainers receive 10%, and jockeys 5%, of any prizemoney. Queensland Racing advises that a full owner of an average racehorse could expect to pay about $10,000 a year out of their own pocket.

So why would anyone get involved in racing at all? Barry Poynter says he’s in it to indulge his passion for racing and horses. He also points to the social aspect of racing horses with friends and family. Bryan Martin, who was one of Australia’s best-known race callers before his retirement late last year, admits race horse ownership can be a rocky road, but the excitement of watching your horse race is unforgettable. “It’s the thrill, the adrenalin rush that attracts owners.”

There are some other tangible benefits for owners, including free entry to the track when your horse runs. Syndication companies work particularly hard to look after owners, organising stable visits and social functions for members; Clanbrooke even holds special dinners during which syndicate members choose a name for their horse.

Racing Victoria leads other states with its Owners’ Gold Card scheme, which entitles owners to a range of benefits including admission to 300 Victorian race meetings even when their horse is not running; a discount program; designated owners’ areas at many racetracks and unlimited admission to the Australian Racing Museum and Hall of Fame.

Bryan Martin – who owned a stake in Fields of Omagh, winner of $6.5 million in prizemoney – has just started offering another form of ownership through his super syndicate, Bryan Martin Racing Syndicate Number 1, with 3000 shares on offer for $750 per year. The syndicate will race eight horses each year, several of which will be “tried” horses that have already run in races and shown promise.

“We want people to be at the races straight away,” Martin says. With so many syndicate members, dividends from prizemoney are likely to be small unless the syndicate flukes another Fields of Omagh. But money is not really the point. “We want to give mums and dads a chance to get involved in racing. You’re buying for the fun, for the excitement of the ride.” Martin’s model could provide an affordable way to test the ownership waters before moving into a syndicate, partnership or sole ownership.

As a punter, James Thomson is a bookies’ favourite. He aspires to afford even a small share of a race horse.