Friday, 15 August 2014
In the last blog I argued strongly for full transparency on the costs of buying horses, particularly when it is done through commercial syndicates. This certainly struck a chord and I had a number of emails and telephone discussions with owners about it all. Indeed there is quite a strong view that syndication should be more strongly regulated, as it is in some countries such as Australia. Personally I would like to see a syndicate charter which outlaws a number of the shady practices pursued by unscrupulous syndicate managers.
Another area that can cause a lot of problems is how joint owners and syndicate members can actually come out of a horse in which they have invested. It is not unknown for owners to buy into a yearling and still find that it is racing at 10 – albeit with a lowly rating and not many, if any, wins. The problem as always is the preponderance of conflicts of interest. It can be very tempting for some trainers and syndicate managers to hold on to moderate horses purely as a contribution to overheads and profit margins. Quite a few syndicate managers will be making at least £5,000 per year on each horse that they manage, and that is before additional contribution is secured through add-on costs for offices, travel, web sites, staff, hospitality etc. In some of the biggest and best-known syndicates you can be talking about very substantial increases on that figure.
In Owners for Owners, by the way, we have a standard charge of c. £3 per week per owner, or £150 per owner per year, so £900 in total for a horse, with no additional charges whatsoever, not even for VAT reclaim which we do ourselves (rather than using Weatherbys which is c.£160 per quarter).
We believe that owners should not enter into an open-ended commercial relationship, but that there should be proper reviews with the trainer about each horse at the end of the first and second year. If the horse has physical problems and / or is unlikely to win a Class 4 or better, then it is in the interests of the owners to move the horse on. Obviously this rule is not applied inflexibly, but as we say on the Home Page of our web site, we’re determined to avoid keeping horses for too long (“It doesn’t cost any more to train a good horse than a bad one. Realism is necessary. Move on the unsuccessful”) and no proper reviews (“Decisions have to be taken about horses, their performance and their welfare. As co-owners, work closely to make the right ones”).
Therefore it is a strong recommendation for anyone going into a joint ownership or syndicate that they ask specifically about the term of the partnership. All of us as owners go into ownership with optimism and high expectation, but inevitably in our sport there are more disappointments than successes. An important role for anyone involved in organising syndicates is to do everything possible for the horse to realise its potential, but at the same time not to avoid the difficult discussions when it has become clear that the animal is moderate at best. It is just too easy to hold on to a poor horse for too long. Delaying the decision to move the horse on then becomes both very expensive and ultimately demotivating. It is not much fun going racing to support a horse where there is no longer a dream.
And of course there are a number of situations where consensus cannot be achieved, particularly when one or more owner(s) decide they want to throw in the towel. We’ll look at ways of dealing with that in the next blog.
Friday, 1 August 2014
In many ways the two key decisions about any horse are the initial one to acquire the animal, and then deciding when it is time to move him on to pastures new. One of the reasons we set up Owners for Owners is that we were dissatisfied on too many occasions by how these decisions were managed. Over the last six weeks we have experienced both, buying The Fugitive (3yo Flemensfirth gelding) and selling Houndscourt. In this blog I’ll use the example of The Fugitive to look at some of the shady practices in buying, and in the next one, how best to move a horse on.
Like many people we came into owning via syndicates. Some worked well, but others didn’t. There were two practices we really disliked. One was the syndicate manager picking up a horse that quite frankly not many people wanted. We’ve always hated the phrase, “a fun horse”, ever since. All too often they are useless and it costs no more to train a good one than a bad one. The other practice was that of adding a big margin on to the purchase price of a horse – indeed, often doubling or even trebling it.
So how do we go about buying a horse? We always like the trainer and the bloodstock agent to buy a horse together, against a well-defined specification. Ours was £50,000 hammer price maximum, top ten NH stallion, strong NH dam line with multiple winners at listed quality or above, no ancient mares, no first foals and with the scope and correctness for chasing. We went over to Tattersalls’ Derby Sale in Ireland in June with both Charlie Longsdon and our preferred agent for NH horses, Gerry Hogan, who is based over there and has his ear well and truly to the ground. They selected over 20 horses for detailed consideration, and we eventually bid on two. We let the first one go – a Presenting who was bought for €160,000 – but acquired the second, a gorgeous Flemensfirth from the family of Albertas Run. This is a real Cotswold staying type of horse (Charlie is based at Chipping Norton) because many of his close relatives have run for trainers such as Jonjo O’Neill and Nigel Twiston-Davies, with particularly fine records at both Cheltenham and Aintree.
Here are the details of what we paid. The hammer price was €52,000 and when you add on the Tattersalls commission (6%) + Gerry’s commission + vetting + LRT transport to the UK, the final cost was £46,320, which is what we are partnering him out at, with 1/6th shares costing £7,720. I find when buying horses that as a rule of thumb you need to add about 10% to cover the various related and unavoidable costs. In Owners for Owners we don’t add on any margins or mark-ups and we don’t charge anything for going to the sales, since we enjoy them so much.
So I decided as a comparison to have a look at two large syndicate companies to see what they would charge. One of them would have syndicated the horse at somewhere between £90,000 and £100,000 (so a sixth share would cost c. £15,000) while the other, on their policy, would have been well over £120,000 (sixth share c. £20,000). I just do not understand why anyone is prepared to end up either paying twice or three times the price or, looking at it the other way round, potentially halving the quality, with their money going to pay for lower quality stock but with high margins being maintained by the syndicate manager. I’ve actually discussed this with the self-appointed trade body for racing clubs and syndicates, and they are just not prepared to acknowledge that this is a completely unethical practice.
Obviously anyone can run any business in any way they like, and owners going into a commercial transaction should have their eyes wide open, and as always, “caveat emptor” – let the buyer beware. The problem though, I think, is that some racing managers of syndicates are using this practice to conceal profit margins. Personally I believe that if there were a code of practice for syndicates and racing clubs it would outlaw it, and require all racing managers to provide explicit and transparent breakdowns of costs of purchase and also their ongoing charges. If the syndicates then continued to ramp the price of the initial purchase, I think they would lose business rapidly. Transparency would drive much-needed changes in commercial practice.
What do you think? You have been warned!