Ownership Insights presented by OwnerView: The Partnership

by | 07.24.2014 | 1:45pm

Ownership Insights presented by OwnerView is a weekly series examining different aspects of Thoroughbred ownership. A more detailed presentation on these subjects will be made during the Thoroughbred Owner Conference at Keeneland Race Course in Lexington, Ky., Oct. 13-16. Click here for more information.

For those wanting to experience the thrill of owning a racehorse without the same time commitment, liability, and financial uncertainty of sole ownership, syndicates are an appealing option.  The growing number of racing partnerships in recent years come in many forms and offer different price points, structures, and experiences.

We can't say this is everything you wanted to know about joining a partnership, but this should be a good primer at least.

Representatives from four major syndicates share their insights below. Thanks to Terry Finley and Erin Birkenhauer of West Point Thoroughbreds, Aron Wellman of Eclipse Thoroughbred Partners, Barry Irwin of Team Valor International, and Jack Wolf, Donnie Lucarelli, and Donna Barton Brothers of Starlight Racing for their time and input.

1. When you pitch your syndicate to prospective new partners, what do you consider your unique and strongest selling points?
West Point
: “We sell owning with West Point Thoroughbreds as a “lifestyle investment.” We afford people the opportunity not only to see their horses race, but to get up close and personal with them and the industry experts as well. Client service is one of our strongest selling points — we give people behind the scenes access to our operation, take care of them at the racetrack, and have a strong emphasis on education so they can learn the business while relying on our institutional knowledge to put their horses in the best spots for success.”

Starlight: “We keep our partnership to a minimum size and we build upon our past successes.”

Team Valor: “Everybody that works for me is a horseman or horsewoman, they all can write and none of them are sales people. Our track record speaks for itself, so we rarely advertise. Potential customers come to us, we don't seek them out and we never hustle them. Prospective owners respond to this approach.”

Eclipse: “Trust is always the fundamental basis for every relationship we establish with prospective or existing partners.  Owning racehorses requires a significant financial commitment, so partners have to trust us that we are providing them with good value for money when we present them with an opportunity to participate in an Eclipse partnership.

“And, of course, people come to Eclipse because they want to win.  We have been extremely fortunate to have established a track record of success at the highest level all across the country in a very narrow window of time. The stats don't lie and winning matters, plain and simple.”

2. Aside from potentially lower financial costs, what are the major benefits of choosing a syndicate over sole ownership?
Team Valor: “They can find and manage horses better than most owners or trainers. Syndicate members share the experience with like-minded individuals.”

West Point: “Diversification is the major benefit of owning horses with a syndicate. We all know only a select few horses make it to the upper echelons of racing. By giving people a chance to spread their money across a few horses, their chances of making it to the big leagues are increased. Other benefits include access to the best trainers in the country, lower risk, and camaraderie with other Partners, and not having to deal with administrative or billing headaches.”

Starlight: “Since our partnerships are small, we're generally able to get our whole group seated together so it's a fun day at the races, win, lose or draw.  Also, with sole ownership there are a lot of decisions to make and for someone who is new to horse racing or simply busy with another business and/or career, the time involved with making all of these decisions can be overwhelming.”

3. How does your company make its money?
Eclipse:  “Eclipse makes money 3 ways: From the outset of the partnership we place an initial mark-up on the acquisition cost of the horse.  This typically hovers in the 25-35% range.

During the course of the partnership, Eclipse does not make any money.  We retain an equity interest in every horse we own, so if the horse earns purses, we receive our pro-rata share of earnings, just like all of our partners.  But, there are no commissions on earnings or dilution of purses, so what you see is what you get.

There are 2 backend, incentive-based bonuses Eclipse is eligible to receive upon dissolution of a partnership:

2. A 5% commission on the sale of the horse; and

3. A 10% bonus of any net profits realized by the partnership.”

Starlight: “Starlight's managing partners only make money if we have a horse that is successful enough to sell at a profit.  When that happens, the managing partners only receive additional monies if all of the partners have recouped the capital they put into that partnership.”

West Point:  “In this blog, we talk about our pricing structure and what is included in the syndication price of each horse. There is a markup on our syndications, we receive a percentage of purse earnings in relation to each horse's syndication price, make a commission on the sale of a profitable horse, and retain shares if a stallion is syndicated. We also have a quarterly administrative fee.”

Team Valor: “We mark-up our horses and earn bonuses for profit and sales of 10 and 5 percent each.”

4. What is the minimum cost associated with being in a partnership?
West Point
: “It depends on the individual horse opportunities available, so we don't have firm minimum dollar amount. Typically, a 5% investment in one horse ranges from $7,000 to $20,000.”

Team Valor: “About $7,500. Average investment for existing partners is about $15,000.”

Eclipse: “Eclipse partnerships vary in make-up and price.  We offer horses for as little as a $50,000 total valuation with 3% minimum buy-in increments or as much as 7-figure valuations and 24% minimum buy-in baselines.”

Starlight
: “Minimum for StarLadies for 2014 will be around $100,000.  Minimum for Starlight Racing for 2014 will be around $200,000.”

5. How do you structure your partnerships? Are horses syndicated on a per-horse basis or are there “group packages”?
Team Valor: “All of our partnerships consist of one horse. The structure is an LLC. Team Valor is the managing member. All expenses are invoiced on a pro rata basis, nothing is ever marked up and all costs are passed through to the racing partners. We don't fiddle with expenses or purse earnings.”

Eclipse: “Each Eclipse partnership is structured as a single horse LLC.  We will package horses on occasion, but that is the exception to the rule. Eclipse acts as the Managing Member of each LLC and we also retain an equity interest in each horse so our partners know that we have skin in the game.

“When it comes to horses that aren't performing up to snuff, we have made a point of getting realistic expediently so as to not chase bad money with good.  We will either find a claiming level for the horse to become productive by way of earning purses and possibly lose the horse through the claim box.

“We take racehorse aftercare very seriously, so if we have a horse who has suffered a career-ending injury or simply doesn't have the desire to be a racehorse any longer, we are diligent in our process in placing that horse with owners who will re-train it for a secondary career, or simply provide the horse with a safe home and a quality standard of living.”

Starlight: “Starlight and StarLadies Racing get their horses at the three premier yearling sales in North America: Fasig-Tipton, July; Fasig-Tipton, August; Keeneland September, and there is no mark-up on any of the horses.  In order to be in the partnership, you have to be willing to own a percentage of the horses purchased at all three of these sales. The Starlight Racing co-managing partners, Jack Wolf and Donnie Lucarelli, have contributed as much or more capital to the overall partnership as any of the partners so they have had a real vested interest in success. We forecast our expenses based on past history and request training expense money twice annually. The end game is to sell the horses as a stallion or broodmare prospect.”

6. What makes for a good syndicate member? A bad one? Are there “dos and don'ts” when it comes to their involvement?
West Point
: “A good syndicate member understands that this is a high risk investment. I urge people not to put all their eggs in one basket and to diversify to increase their chances of success. If someone has a need to be in complete control, joining a syndicate may not be the best fit. I've also found that people who are involved just to make money, aren't a good fit for racehorse ownership. They also recognize the emotional and social aspect of owning racehorses, but realize that as managers the vast majority of the time we must strip emotion from the decision-making process as it relates to race placement.

“We write regular blogs, produce educational videos, and create articles to help educate not only our Partners, but prospective Partners as well. One of the most innovative things we are doing is testing an internal online social network to collaborate and communicate with Partners which is keeping them more connected with the stable and enhancing the overall client experience.”

Team Valor: “Good ones bring an optimistic outlook to the venture. Bad ones usually lack the ability to roll with the punches. The ideal partner is a lawyer. They've seen the underbelly of society and can deal with disappointment, as well as appreciate the high points.”

Eclipse: “I really enjoy interacting with partners who apply and educate themselves about all facets of the industry.  We want our partners to be informed and wise to the ins and outs of the sport and we pride ourselves on serving as mentors for those of our partners who want to take their knowledge to the next level.  That education process paves the way for a realistic perspective and allows partners to cope with the lows they will experience and to really appreciate the highs.

“Partners can make whatever they want of their involvement, but the only thing we ask of our partners is that they represent our stable with class, win or lose.”

7. What strategies do you recommend for first-time partners?
Starlight: “
Ask as many questions as you need to feel comfortable—both before getting into the partnership and once you're in it.  Co-managing partners, Jack Wolf and Donnie Lucarelli both have a great mind for business and are quite comfortable explaining every line of the general partnership agreements if need be.  Donna Brothers oversees client relations and is always available and happy to answer any questions one of our partners may have about anything from horse acquisition, to what to wear to the races.”

Eclipse: “I always suggest to new partners that they focus their equine portfolio on fillies. There will always be some residual value to a filly, whereas colts are more of an all or nothing play. Fillies will always churn some return back into your pocket so you can reinvest into more horses without always having to write a fresh check.

“And, most importantly, it is imperative that new owners understand that this is not a game made for men who wear short pants.  Those who can accept this standard have the best chance of surviving for the long haul.”

Team Valor: “Don't buy an unraced horse, stick with fillies in the beginning because they have residual value and spread your investment over 3 or 4 horses, don't put all your eggs in one basket with an unraced colt.”

West Point: “Do your homework. Ask the partnerships you're investigating for sample documents and make sure you understand their financial structure. Find out if the partnership has a program in place for their retired runners. Don't go for the cheapest option — partnership groups who claim they don't charge a markup almost never make it in this industry.  As they say, there are no free lunches in this world.”

8. Is there social engagement beyond going to the races (like annual events)?
Starlight: “
Jack & Laurie Wolf have a party every year in Saratoga Springs (during the Saratoga meet) to which all of the partners are invited.  We also try to bring all of the partners together at the end of every year by inviting them to watch the babies train in Ocala, Florida.  We do a nice dinner out the night before and then, after morning training, get everyone together for breakfast.”

Eclipse: “Eclipse does host social events a few times a year, mostly surrounding major industry events like the Breeders' Cup or the Kentucky Derby or during public auctions.  There are various gatherings we host for our partners throughout the year, but our main source of lifestyle experiences are the horses themselves and allowing our partners all-access to their horses.”

West Point: “There are a number of social events throughout the year for Partners to take advantage of. One of our most well-attended events is a tour of the Fasig-Tipton sales ground prior to the select sale in August. We give Partners the opportunity to get up close and personal with the buying team. It's then also very exciting to Partners to be there on sale night when Terry signs the ticket for a new horse. We also hold morning training events at the racetracks and training center open houses several times per year. Being involved in racehorses is definitely a family affair.”

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