Time to Hop On for Horse Investing?

Betting on horse races can be great fun. But does it make financial sense for investors to consider moving from the stands to the stables as owners?

Although racing is the more visible aspect of the sport, investors can also participate in the breeding business.

“Some operators and investors do both, and some just breed for commercial purposes, that is, to sell their foals to racing owners and operators,” says Steve Zerda, managing partner of Z Thoroughbred Racing LLC in Seattle, Washington.

“But, the breeding business requires broodmares and acreage to keep the broodmares and raise the foals to at least what’s called a weanling age, nearly one year old or more, (or) typically a yearling age, where they’re over a year old where they’ll sell in an auction to racing operators,” he explained.

Going Solo vs. Partnerships

There are different paths to horse ownership. Direct ownership, solely or with a few partners, provides increased control.

Owners can select their own trainers, veterinarians and training facilities, pick their races, set their own breeding fees, and so on. The drawback is that unless the investor is an expert who can afford to own multiple horses simultaneously, it’s a classic case of a highly concentrated position.

Ownership partnerships or syndicates offer an alternative pooled-ownership structure. Investors have fractional ownership and leave the training and racing decisions to the general or managing partner.

That approach limits investors’ risk and gives them to time to learn the racing business, says Zerda: “In addition, it will allow you to invest in multiple horses at a lower investment amount. The racing of thoroughbreds is a numbers game in that you’re looking for a good horse and to buy one or two lowers your chances.”

Going in 100% on one horse is certainly possible, he adds, but the learning curve can be steep and the owners’ losses can be large if they do it that way. Investing in partnerships can enhance the learning process, as well.

“A partnership also allows you to develop relationships with other partners, with trainers, with operators and get to know the folks that can help you along the way should you go out on your own and purchase 100 percent of a racehorse,” he adds.

Making Money

On his website, Zerda provides ownership-cost projections for a racehorse stabled at Emerald Downs in Auburn, Washington.