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.

The Two Key Decisions for an Owner – Part 1, Buying the Horse

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!

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.