As We Enter “Syndicate Season”, How Many of Them are Ripping Off the Owner?

A few weeks back I posted a blog on over-charging by agents and trainers. I know from communication that I’ve had with owners in my network that this theme definitely struck a chord. Indeed, as well as the specific examples that I quoted, a clear theme emerged that the “racing mind-set” of those who work in racing just doesn’t seem to understand the need for proper transparency and active management of costs (downwards). In most other walks of life, and particularly in modern companies, this laissez-faire attitude towards over-charging (which is either incompetence, greed or alas on occasions corruption) would be completely unacceptable. In these days of price comparison web sites and consumer guides, customers would just switch allegiance to other suppliers.

Those who have been reading the blog since Owners for Owners was set up will know that I’ve had a particular crusade to reduce the over-charging that takes place in some syndicates. Indeed this message is increasingly being recognised by the racing authorities and it is likely that a code of conduct will emerge fairly soon, which I have personally been making some input into. One of the big problems is that many potential owners have little insight into the costs and practices of syndication. As naïve owners they can be lambs to the slaughter in the hands of the less scrupulous syndicators. Look out for these unacceptable practices:

1. No contract and no cooling-off period. The owner has no real clarity on what is being provided.
2. Inadequate term definition. You don’t know how long you’re going to be in for.
3. Unclear and / or no defined exit routes from the syndicate. No annual review process.
4. No breakdown of the precise horse acquisition cost. The owners end up paying far more than this. So from day one, the value of their investment is reduced by syndicate manager profiteering.
5. Use of free shares by racing managers, enabling them to participate in the benefits but not the costs.
6. Undeclared retrospective rebates from trainers retained by the syndicate manager.
7. Inflated operating costs. No itemised annual estimate of ongoing costs. Inadequate coverage and disclosure of a racing manager’s annual fee vs. additional (hidden) charges for overheads.
8. Undisclosed supplementary costs.
9. No service standards and no commitment to provide an enjoyable owner experience.
10. No communications schedule and therefore no commitment to provide regular information.
11. Little owner involvement in the key decisions relating to the horse. Limited access to trainer / horse.
12. Undisclosed, opaque syndicate manager’s expenses e.g. travel, flights, hotels, meals, hospitality, etc.
13. Back-handers and luck money on horse purchase retained by the syndicate manager.
14. Expensive phone lines for information on your horse.
15. Trainer syndicates which end up charging double margins, i.e. on training fees and then syndication.
16. Offloading of crocked and useless horses to a syndicate. No access to sales vetting or vets’ reports.
17. Undisclosed conflicts of interest e.g. syndicate manager buying horses from related parties.
18. Retention of sales money or high percentage deductions by the syndicate manager against sale.
19. Owner benefits being retained for the syndicate manager e.g. lunches, badges, boxes, car park admission, prizes, prize-money, breeding rights, use of colours, running horse in manager’s name.
20. No proper dispute resolution process. Only way to exit the syndicate is by abandoning your share. No valuation or buy-out procedures. Syndicate manager has complete control, and a vested interest in prolonging the syndicate for as long as possible in order to maximise fees / overhead contribution.

September is often the start of the “syndicate season”. The yearling Flat sales are under way and the main NH season about to start. Lots of trainers and syndicate managers have bought horses and are desperate for owners to take them over. If any of you are thinking of buying into syndicates this autumn, you would be strongly advised to evaluate their offers in line with this list of 20 practices. If in doubt, ask questions of the syndicator and commit to being “an informed customer”. Don’t join the gullible and be ripped off. There is nothing wrong with a syndicate manager being paid reasonable remuneration for the work done. As always, it is the definition of “reasonable” that matters. Look closely at the actual costs, the syndicator’s total profits and what they are offering you in terms of added value benefits of being an owner with them.

I am always interested to hear your views so please do leave a comment. If you can't see the comment box at the bottom of this post then navigate to the post using the right hand navigation or click here > and scroll to the bottom of the page. Look forward to hearing your views. Thanks very much for sharing them.

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.”