Is it Worth Buying Shares in a Racehorse?

Is It Worth Buying Shares in a Racehorse

Horse racing has been a prestigious and profitable sport for many years and has managed to maintain that status through the passage of time. The last Kentucky Derby, which took place on May 7, 2022, marked the 148th installment of this great tournament and counting.

Both casual viewers of horse racing and avid fans are well aware of the huge financial investments that go into the sport. From purchasing, breeding, and caring for the horses to the most lucrative part of racing, and betting, the horse racing industry has always been a cash cow business.

As an average person, you may be wondering how to get a piece of the cake with horse racing. You may not want to train or race the horses yourself, but you also want to be more involved than a few bets on the sidelines. So, what are the options for someone that wants a financial stake in horse racing? Is racehorse ownership a viable option?

Your first thought might be to buy a horse, but we will discuss the financial implications of such a decision in this piece and explore an even better alternative—investing in a racehorse. Racehorse investment is not a new trend, but people have become increasingly interested in it.

Investing in racehorses is one of those investments that has very high risks but the potential for even higher rewards. There are a lot of things that people have to understand about the horse racing industry before they can consider investing in a horse of their own.

In this article, we will go over all the aspects of the industry that you need to understand before you make an investment or consider racehorse ownership more seriously. We will weigh the pros and cons of investing and explore whether buying a racehorse is worth it or not.

The history of owning racehorses

Horse racing has been a sport for the extremely wealthy and influential for centuries. The culture around horse racing has evolved with time, but the roots of the sport are still fairly aristocratic. This is because horses bred and trained for racing have always been incredibly expensive to own. For this reason, racehorse ownership remains extremely exclusive.

The first record of organized horse racing in North America dates back to 1664 in the area that is now New York City. The circumstances and audience of the races then have changed greatly, as have the requirements for horses.

Modern-day horse races are a test of speed, and horses are trained for that. In the earliest records of horse races, the horses were judged on their stamina for lengthy races. It was the post-Civil War era that led to speed races between horses.

In earlier times, races only occurred between two or three horses at a time. As the sport grew in popularity and more people started showing interest, race tracks began to expand to accommodate more horses, which is how we find ourselves at today’s tracks where multiple horses race at a time.

The pedigree attached to horse racing meant that only the wealthiest members of society could own race horses for many years. The costs of breeding and training horses were too substantial for the average man to shoulder.

Alongside the financial burden, there was also the question of grounds to house and train the horses. This was why it was more common for rich people with large estates and personal stables to own horses.

Members of prominent royal families such as the English monarchy as well as the royal family of Dubai have historically owned award-winning horses of international racing acclaim. But, with time, people started to wonder what the average man’s options were if he wanted to own a horse as well.

The introduction of the concept of investment brought about a change in the concept of owning horses and brought the opportunity of racehorse ownership to small-scale investors. With horse investing, people could own shares in a horse and receive dividends from its successes.

By buying shares in horses, people get to share in the financial burdens and rewards associated with horse ownership. The number of shares you buy dictates how much responsibility and rewards are allocated to each individual shareholder.

Today, wealthy individuals still own race horses largely, but the presence of horse racing syndicates means that owning racehorses, at least in part, is not so inaccessible anymore.

How horseracing works.

Horse racing is a performance sport in which horses, controlled and ridden by jockeys, compete against each other in races and other types of events to win prizes. Horses involved in racing are often bred and trained for that sole purpose.

Races are held over different distances with different classes of eligibility. Eligibility for different races is based on things like the sex, age, and abilities of the horse, so that the races are as fair as possible from the start.

Both the horse and the jockey work together to win a race, and in most cases, jockeys would have trained with horses for years before they started racing with them. The sport is very competitive and involves a very high level of training and skill.

For the horses, they are often trained from birth and are even bred for racing. Racehorses follow strict routines like diets and training regimens depending on what kind of race they do to stay in winning shape.

The jockeys also undergo a significant amount of training. Jockeys have to learn how to understand horses and build trust with their horses so the horses obey their commands. In some cases, jockeys may have to tame wild horses to prepare them for racing.

Horse racing is a sport that tests strength, speed, endurance, stamina, and other aspects of the animal. It is highly popular in the United Kingdom, though it is a sport that is enjoyed worldwide. Horse race gambling is also very popular and one of the standout features of a horse race.

There are some different types of horse races as well. We will explain some of these below:

Flat racing

Flat races are horse races where the horses run ‘on the level’. This is the term used for races run on tracks that do not include any obstacles or obstructions. Flat races are mostly a test of speed, with the fastest horse winning the prize money.

Flat races do test the stamina of the horse and jockey as well, though not to the extent of jump races. Flat races also test the skills of the jockey as they control the horse and choose racing tactics in a bid to win the race.

Jockeys need to have good skills and communication with their horses to position them rightly and gauge when to restrain or encourage them. The horse and jockey work together to win the race with the horse’s strength and the jockey’s leadership.

Flat races are usually run on grass tracks, though some tracks are made of synthetic ‘all weather’ materials that allow races to take place in diverse weather conditions.

Jump racing

Jump races are races in which the horse and jockey have to jump over different obstacles and obstructions on the track. The obstacles laid out before them are of two types- hurdles and fences. Hurdles are small obstacles, while fences are larger.

In the UK, jump racing is officially called National Hunt racing, which is a nod to the origins of the sport. Jump racing usually takes place in the seasons of spring, winter, and autumn, though you are likely to find some races scheduled in the summer as well.

For people interested in purchasing or investing in horses that participate in jump races, you first have to understand what makes a horse a good jump racer. Jump racing tests the stamina of horses, not their speed. Horses that compete in these races are usually older than Flat horses.

Horses that excel in jump races also tend to look bigger and bulkier than the more lithe and elegant horses that race in flat races. Some horses are bred specifically for jump racing while others started out as flat racers and were trained for jump races as they grew older.

Other types of races

Most other types of races fall under the flats or jumps, but can still be further categorized.

Classics

These are the pinnacle of flat races and include five different races for different categories. Classics are run by three-year-old fillies and colts and have three different distances. The five races involved in the classics are the 1000 Guineas, 2000 Guineas, the Oaks, the Derby, and the St Leger.

The 1000 Guineas and Derby are restricted to fillies while the other three are open to both genders of horses. If a horse and jockey are able to win three different distances at the classics, it is called winning a Triple Crown.

Maidens

This is a type of race for horses that have not previously won any races. Maiden races give horses a chance to win against other horses who have never worn. Maiden races are also commonly run by younger horses.

For maiden races, flats and jumps are treated differently. Therefore, if a horse has won a jump race but not a flat, it is still eligible for a flat maiden race and vice versa. Most maiden races are held at the beginning of a horse’s career.

Handicaps

A handicap race is one in which the horses are made to carry different weights according to their abilities. The idea of a handicap race is to put all the horses on as equal a playing field as possible so that they all have a fair chance of winning.

The handicapper is the person that allocates the weights to the horses. The better the ability of a horse, the heavier the weight it will carry as it is believed that the weights will slow down the horse and put it on an equal level to weaker horses.

Steeplechase

This is a type of jump race that only includes fences. Steeplechase races are also known as chases for short, with horses that participate in these races known as chasers. Chases can be run over distances ranging between 2 and 4 miles.

The obstacles that horses and jockeys jump over in chases are not just limited to fences, but can also include water jumps and even open ditches. The minimum height for a fence is 4.5 feet and they go higher than that.

Many chasers are older horses that used to compete in hurdle races and are now chasers. Steeplechase races don’t use starting stalls. Instead, the horses start behind elasticated tapes that are stretched across the course.

Should I buy a racehorse?

Now that we understand all the types of races that a horse can participate in, you may be wondering whether it would be a good decision to buy a horse or not. Buying a racehorse might seem like a tempting option, but let us first go over everything involved in buying a horse.

Horses are usually bought at public auctions. While some experienced horses may be sold, it is more common for horses that have never raced before to be sold. There are a few reasons why it is better to buy an unraced horse.

Firstly, selling horses young and untrained makes it a necessity that horse buyers to do ample research on horses and horse racing before they choose to buy a horse. This ensures that horses only get serious and committed buyers.

Selling horses as foals also means that sellers can get the fair market value of the horse because it does not have a proven track record to affect the pricing. Horse pricing will be based on things like genes, size, gender, and such.

Selling horses that have already begun their racing careers means that sellers have to consider how much profit they can make based on the chances that the horse will continue to be successful. This makes experienced horses cost much more money than the average price of an untrained horse.

Because a winning horse can be extremely profitable to the racehorse owner, horses can go for very high prices. A good horse can cost thousands, if not millions of dollars. The cost of the horse depends on factors like age, gender, and if it has raced, its past performance.

However, the cost of the initial purchase is not the only thing that a horse buyer has to consider. There are also the ongoing expenses of owning a horse. As the owner of a racehorse, you will have to bear the sole responsibility for its wellbeing, training, and upkeep.

Purchasing older horses can be even more expensive when accounting for stud fees. A stud is a retired race horse that is kept for breeding in the hopes that the foals it sires will be as successful as it was. Breeding and management fees for horses can be very high.

In general, ongoing expenses for a horse owner can include training, veterinary fees, feeding and wellbeing of the horse, travel, housing in stables, and more. This can lead horse owners to spend tens of thousands of dollars yearly per horse.

Even if you buy a horse at the cheapest price you can get from a reputable horse company, the amount of money spent on the upkeep of most horses is not easily accessible to the average person. This is why alternative means to being a racehorse owner are needed.

Investing in horses and syndicates

Now that we have established that buying a racehorse might not be the best option for the average person, we can go into the world of investing in racehorses and how to join a horse racing syndicate. These are the options available for anyone who doesn’t want to buy a horse but wants to have skin in the game for horse races.

Online platforms like MyRacehorse and many more now let people invest in horses by purchasing shares in them. These could be horses participating in major races or young horses that have not begun their careers yet.

The ownership of these horses is broken down into shares just like a publicly traded company sells stock on the market. Online brokers for horse shares allow people to buy percentages of the ownership of a horse and therefore partake in the successes and failures of the horse.

Horse racing syndicates are a type of investment in horses but they are slightly different than just buying shares for a horse. A syndicate is a closed group that can consist of 3-100 people who collectively own a horse, race it under one name and take care of its upkeep.

Syndicates can be formed to own 100% of the shares of a horse or a syndicate can be formed to purchase only a percentage of the horse. For example, if you can only afford to buy 1% of the horse shares, you can get four other people to buy 1% each so you collectively own 5% of the horse.

The members of the syndicate are also responsible for a percentage of the horse’s upkeep which correlates to the percentage of the horse they own. This means that they will have to pay either monthly or annual bills for their part of the horse’s upkeep.

Whether you choose to join a syndicate or simply invest in a horse is your choice, though there are some advantages to joining a horse racing syndicate. As a member of a syndicate, you may get additional privileges like access to racetracks, meeting horses, and more.

In some stables, the members of syndicates and horse investors often get events hosted for them and other kinds of perks. This is especially true if you have a winning or successful horse. However, it is important to remember that investing in horses is high risk and high reward.

Investing in good west point thoroughbreds might seem like a great way to make money, but if you are only in it for the profit, you might want to reconsider investing. A way to try and secure some financial returns from your horse investments is by investing in multiple horses.

Are syndicates expensive?

Syndicates are actually very cost-efficient to join. Joining a syndicate is one of the cheapest ways to get involved in the behind-the-scenes aspects of horse racing. You do not have to invest a million dollars or even a thousand dollars into a syndicate to enjoy the benefits.

The purpose of a syndicate is to significantly reduce the price of owning a horse by sharing the responsibility among members. Syndication is even cheaper than investing because it allows people to share the responsibility of a small percentage of shares.

Syndicates are also advantageous because each member gets to connect and interact with the other. Syndicates can be formed by groups of friends or family so the financial responsibility is only what the members agree on it to be.

Buying shares for a horse as a syndicate can be as cheap as only a few hundred dollars for each member. A syndicate can come together to own up to 10 or 15 percent of a horse with each member only paying a few hundred dollars.

If an individual wanted to own that many shares in a horse, it would cost them significantly higher on their own. Syndicates make the thrill of horse ownership more accessible than ever for average people who are interested.

Is syndication profitable?

Joining a syndicate or just investing in a racehorse can be a very risky investment. The truth is that only a few horses can be prize-winning horses. This means that a majority of horses will not end up yielding big wins for their owners.

With luck and good investments, you might happen to invest in a successful horse that wins substantial earnings for its owners. However, this is not as likely. In terms of finances, racehorse investment is just not the best decision.

This does not mean that it is inadvisable to invest in horses though. For most investors and members of syndicates, racehorse investment is seen as a lifestyle investment. Their investment is not based on whether or not the horse wins or not but is born of a desire to participate in the culture of racing.

People who are passionate about horse racing are the most likely to join a racehorse syndicate. Their investment is rooted in the enjoyment they get from the sport and not in the profits or losses that the horse brings to them.

Many people also just enjoy the fact that they are partial owners of horses. For centuries, only the rich and powerful were able to do so and horse racing was even referred to as the sport of kings. Now, a person who owns a share of a horse can feel like royalty as they partake in the sport.

Horseracing is a very profitable sport with millions of dollars worth of prize money available annually. For example, the 2022 Kentucky Derby has an estimated $3 prize fund with the winning horse getting more than half of that.

However, it is important to remember that only one horse can win a race. Investors can still make some money through gambling, but it is unlikely that the average investor will make a profit from their horse or even break even with their initial investment.

In the event that you end up investing in a profitable and successful horse, it is important to remember that you will have to pay taxes on the profits you make from the horses. These will be registered as passive income and are taxed just like any other profit from investments.

Advantages and disadvantages of investing in a racehorse

With everything that we have said, you may still be wondering what the answer to the question is- is it worth it to buy shares in horses? The truth is that nobody can answer that question for you. As a horse investor, you have to determine whether or not you want to make that move.

However, we will compile a list of advantages and disadvantages of investing in horses to help you decide whether buying shares in horses is a choice you want to make.

Advantages

·         The biggest advantage to investing in horses is that it is a lifestyle investment. If you are passionate about horseracing and want to be part of the system, investing is a great way to get yourself involved. Horse investments can be a lifelong hobby that lets you partake in something you love and enjoy.

·         While horse racing is a high-risk investment, it also has the potential for very high rewards. If you invest in a good horse that wins enough races, you stand the chance to win thousands in profits.

·         Investors in horses and members of syndicates get access to the behind-the-scenes parts of the horse racing industry. This gives them the opportunity to develop relationships with horses and trainers, learn more about what goes into training a racehorse and expand their knowledge of horses.

·         Investing is significantly cheaper than buying a racehorse outright. If you truly want to own a horse, this is the cheapest way to do so. As an investor, you do not have to worry about the full costs of training and taking care of the horse but you still get to enjoy the benefits of owning it.

Disadvantages

Depending on the number of shares you want to buy, investing can turn out to be very expensive. For example, if you choose to forgo a syndicate and want to own the majority of a horse, it can cost you tens of thousands of dollars.

The high-risk nature of horse owning means that you may never see a profit for your investment. The financial return for investing in a horse can be non-existent or highly negligible. You will have to depend on other rewards such as emotional or recreational.

The more shares you buy, the higher the recurring costs of caring for the horse will be. With investments, you still have to cover a percentage of the training and upkeep of the horse which includes things like travel, medical expenses, and more.

Digital horse racing

Digital horse racing is another way that the horse racing industry has been thriving in recent times. Platforms like Zed Run allow people to race horses digitally by using NFTs to compete in race simulations.

Zed Run allows people to buy and breed horses in the metaverse and earn money by racing. With digital racing, people can engage in horse racing without having to deal with the physical upkeep of taking care of a horse.

The algorithm on the platform generated races for users with randomized patterns for tracks and locations. Digital horse racing brings the fun and excitement of horse racing to more people by making it more accessible.

Horse NFTs can be bought using cryptocurrency and horses can be bought for as cheap as $10 or for thousands or millions of dollars. Users also have to pay fees to enter races though the fees are not too high and there are multiple races held throughout the day.

Taking part in digital horse racing is an interesting way to partake in the horse racing world without buying or investing in physical horses. This type of racing might not be ideal for all racing enthusiasts because they may crave the physical sensations of watching a race.

However, digital racing is still worth a try if you are looking for affordable ways to invest in horse racing.

Conclusion

There are many reasons why someone might want to invest in racehorses. For someone that has had an interest in the sport for a long time or someone who admires horses and their racers and wants to partake in the industry, investment is a good option.

What is most important to remember is that investing in racehorses is likely to be a lifestyle investment and not a financial one. Investors get the chance to be immersed in the industry and enjoy the benefits of owning a horse.

Total
0
Shares
Previous Post
Can you invest in stocks at 17

Can you invest in stocks at 17? Is it legal?

Next Post
Do you actually buy stocks on etoro?

Do you actually buy stocks on eToro?

Related Posts