Incompetence or Corruption – Where Do You Draw the Line on Ethical Practices?

I always remember a lovely story told by the inimitable cricket correspondent, Henry Blofeld. Apparently on one occasion when he was entering Australia at Sydney Airport, he was stopped at Immigration to answer a number of questions. When asked, “Do you have a criminal record?”, his reply was, “My dear old thing, I didn’t realise it was compulsory!”

I don’t know if I was chuckling quite so much when I read on the Racing Post web site this week an almost unbelievable story concerning the Australian trainer, Dean Howard, who was suspended for 18 months after selling a horse without the consent of the owners, and keeping a chunk of the sale proceeds for himself. Apparently he sold the horse, Convincable, to Hong Kong without the owners’ knowledge, before informing them of a lower final sale price. He then kept the difference. What I find even more unbelievable is that he only got 18 months!

Maybe it depends on the Australian interpretation of criminality! The serious issue is that a lot of ownership and partnership problems that can occur are actually a breach of agency law. In most instances the owners are the principals and the bloodstock agents and trainers are merely agents, covered by well-established common law principles and precedents. Agents must act in the best interests of their principals. Alas, that all too often isn’t the case. So I decided to think about problems that I have encountered in the last decade or so of owning horses, and have listed ten examples below. They are numbered from 1 to 10. Where would you draw the line in your interpretation of a breach by the agent? I suspect a lot of you will start to have concerns from 1 onwards!! Unfortunately all of these are relatively common examples.

I just don’t believe that the racing mind-set is to protect owners properly, while seeking out value for money at every opportunity. Indeed, one of the very top NH owners believes that practices such as those listed below are “illegal taxes on owners”.

1. Trainer uses the same vet for all his horses, but the owner is charged at the standard vet rack rate; no reductions and no rebates for annual volumes, regardless of the profit to the vet over the year.
2. Inaccuracies on the trainer’s recording of full training fees vs. lower fee out of training, box rest etc.
3. Vet automatically doubles the cost to the owner of buying in proprietary drugs. Adds no value whatsoever.
4. Trainer takes a full box to the races and then charges each owner the mileage rate as though for a single horse. Similarly, charges full costs of a visit to a sale (flights, hotels, meals etc.) to each owner for whom he buys a horse at that sale.
5. Trainer charges for a treatment such as use of a cold-water spa, swimming pool or treadmill, even though the horse has not received the treatment.
6. Syndicate manager has a “free share”; no cost for this but participates in all benefits / prize-money.
7. Horse bought by a syndicate manager from a family member’s stud farm. Horse has a chronic wind problem.
8. Syndicate manager, inept on accounts, manages to “lose” £8,000. “Forgets” to register for VAT.
9. Syndicate horse entered into a sale without the approval of the owners. Doesn’t meet its reserve. Sold privately the same day by the manager at a lower price to a “contact”. That person sells the horse on the next day for twice as much. Zero owner involvement, discussion or opportunity to make a bid.
10. Syndicate manager doubles the purchase price of the horse on syndication, thereby immediately halving the value of the asset purchased by the owners, while making himself 100% profit for doing nothing.

You can see why we set up Owners for Owners. We make sure that none of our owners are ripped off. Occasionally mistakes occur, but we’re now in the fortunate position where our relationships with trainers and agents are excellent. However, that doesn’t mean that everything is perfect, and for example the way vets charge is a persistent niggle, and something which from time to time we’ve had to challenge.

I’ve just been invited to take part in an ROA working party, tasked with producing a code of conduct for syndicates. Alas, I’m not going to find it too difficult to come up with real-life examples of incompetence and, I’m afraid on occasion, corruption. It will be interesting to see the appetite for where the line is drawn in the ethical sand. I’m certainly going to be at the robust end of the scale, and would like to see far more transparency and demanding service standards required from the various agents.

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 2, Moving the Horse On

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.

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 Rip-off Races On

Blimey!  I’ve clearly stirred up a veritable hornets’ nest with the last blog on some syndicate managers’ shenanigans.  Don’t get me wrong – many syndicates are extremely well run, and bring great pleasure to lots of owners.  My criticism was levied at managers who make huge mark-ups on the sales price of horses prior to syndication.

Mind you, in a week when “Big Boy” Barclays’ bankers have been in the limelight for fixing Libor rates, it pales into insignificance.  Or does it?  Arrogance towards customers, no proper regulation, open abuse of the system, readily exploitable and opportunistic culture, self-serving lifestyle, complete lack of transparency and a love of Bollinger .... and that’s just a few of the syndicate managers!

So are there other dodgy commercial practices in syndication that need to be looked at?  Some of the whispers I’ve picked up cover luck money, back-handers on purchase, discounts and rebates not being passed on to the syndicate members, overly generous claims for management expenses, mishandling of VAT reclaims, duplicated mileage and spurious hospitality.  It will be interesting to see if the Racing Post’s series on syndicates even hints at any of this mismanagement.  I suspect that it will present syndication through very rose-tinted spectacles.  I’ll comment further once I’ve read the articles.

On a much more solemn note, what a tragedy to befall Campbell Gillies.  That stirring day at the Cheltenham Festival on Brindisi Breeze now seems such a distant happy memory.  Our thoughts go out to his family, friends and all who knew him.