Greedy Managers

You may have seen the headline in the Racing Post earlier in the month, “Racing Lovers Could be Lost to the Sport by Greedy Managers”. While I didn’t come up with that title, I did write the text for the piece. After it came out, I was delighted by the large number of telephone calls I had – universal support for the sentiments expressed. So, if you missed it, here is the full article. 

“Not all is rosy with the syndicate scene, by any means. There is little or no regulation, some are badly managed, owners can easily be regarded as lambs to the slaughter, the commercial frameworks connected with ownership often lack transparency and it is easy for people to get into them without realising the open-ended commitments and costs involved. Some of them are clearly run by the syndicate managers as lifestyle businesses where the syndicate owners are in effect paying for that lifestyle. My worry is that the syndicate scene can easily be the bottom of the barrel of ownership in an industry that is prone to exploitation. I would certainly like to see syndicate owners treated with a much more positive attitude by the whole industry, rather than as easily expendable contributors to overheads. More specifically a framework / checklist is needed for syndicate owners to consider so that they know they are not going to be ripped off.

What did the syndicate horse actually cost to buy? In far too many instances the price charged to the syndicate is massively inflated to generate an easy profit for the syndicate manager. What is the term of the syndication – how long will it last and what are the precise rules for exit? Without that, it is too easy for a poor horse to be kept in training for too long and be run as a revenue stream for the syndicate manager and trainer.

How will any disagreements or potential conflicts of interest be handled? What is the appropriate annual remuneration for a syndicate manager and / or his business? In some syndicates the majority of the charges are to do with that.

What access can you get to the syndicate horse and the training yard, and is it likely to be a really enjoyable social experience? Getting into some yards is extremely difficult and syndicate members are made to feel distinctly unwelcome. Some syndicates don’t encourage visits at all.

Finally, what financial transparency will there be of all the various charges and costs associated with owning the horse?

A typical monthly fee is £275 x 12 owners. That is £3,300 per month, or £39,600 for the year – double the Racehorse Owners’ Association’s current view on the average cost of owning a horse. It can be very easy for syndicate managers to massage costs in a way that absorbs a lot of that additional payment. If they don’t provide detailed, transparent accounts then it is impossible to pinpoint exactly what happens to that money. Yes, an annual dividend may be returned to the syndicate owners but only after other charges have been taken from the balance. Please don’t read the above as the comments of a disillusioned owner – far from it. I adore racing and am expanding my involvement in it as an owner. However, since I came into ownership seven years ago, it has been a huge eye-opener to understand what I have called on my website “The Good, the Bad and the Ugly” of syndicates.

Unfortunately, I know of too many instances where enthusiastic lovers of horseracing have come into syndicates, had a disappointing experience and then been lost to the sport. It would be interesting to know the statistics, not just of how many syndicate owners there are every year, but what the annual churn is – i.e. those who leave the sport never to return. It may be far higher than many would like to acknowledge.

I hope you find this perspective relevant. I for one would like to see some form of code of practice made available that would encourage the whole industry to embrace syndicate owners as a really key stakeholder that is helping to underpin racing.”

Would you buy a share in “The Rip-off”?

Like many owners, I regularly receive flyers and marketing materials from racing syndicates, and I’m always interested in looking at the way they frame prices and costs.  Unfortunately in our industry there is an extremely common and, as far as I am concerned, very pernicious practice that’s regularly applied.  Here’s an example.

Syndicate manager goes to UK sales and buys a horse, The Rip-off, for £6,000 + VAT.  Pretty cheap and probably with a few negatives on conformation or breeding.  Never mind, it’ll be a “fun horse”.  Put together the sales bumf and offer it at £2,500 + VAT for a one-twelfth share.  A £6,000 horse is now priced at £30,000.  If you challenge the manager, he’ll probably say there are a lot of associated sales costs to justify it.  Utter nonsense.  If you add up the buyer’s premium, bloodstock agent’s commission, vetting and transport, it won’t exceed £3,000.
Three months’ initial keep, breaking fees, BHA fees, turnout, farrier, clipping, etc., etc., might come to another £3,000, but that will be covered by the monthly subscriptions.

Total cost for purchase and the first quarter therefore cannot exceed £12,000.  The syndicate manager, though, is now sitting on a 300% profit margin of £18,000 minimum.  Do this ten times a year and he’s got a cool £180,000!!

What should you do about it?  Firstly, never buy into a horse without seeing a fully transparent statement of account for the purchase and associated costs.  Secondly, refuse to be ripped off, and negotiate a fair price.

Thirdly, it might be far better to come to Owners for Owners, where we never adopt this practice.  There are no hidden margins on the purchase of the horse.  This is a scandalous practice.  I’m going to ask the trade body for syndicates what they think to it.  Should be an interesting discussion.