Advisor Helps Jockeys Keep Their Finances on Track

The required athleticism naturally limits the length of their career, and jockeys' compensation is largely tied to whether their horse wins, places or shows in a given race.

"That variability is the major part of the financial challenge in planning and investing for them," says Merkler, a thoroughbred breeder who built his 13-year-old firm by creating financial plans for military veterans.

And, like the military, horse racing involves physical risk, for both the horse and the jockey.

Consequently, jockeys' advisors must support and protect them with planning and investing strategies to both smooth out and capitalize on their riding career.

In the interview with Merkler, whose racing blog is Jockey Money Matters, he discusses the importance of retirement planning and tax planning for jockeys, who as independent contractors must carefully keep note of state-by-state expenses for tax purposes. Merkler also offers his thoughts on the upcoming Belmont.

Here are highlights of our conversation:

THINKADVISOR: Which horse do you like in the Belmont Stakes?

DEREK MERKLER: The Kentucky Derby winner, Golden Tempo, won because the sequence of the race set up perfectly for him. It wasn't necessarily because he was the best horse in the field. I think he'll struggle to repeat in the Belmont Stakes.

Napoleon Solo, the winner of the Preakness Stakes, could, potentially, repeat.

THINKADVISOR: Now let's talk about financial planning for jockeys. What special considerations do you give these entrepreneurs?

MERKLER: Their income goes up and down wildly. With every mount on a racehorse, they have an opportunity to earn money. But if they don't hit one of the top three places, they don't earn very much.

That variability is the major part of the financial challenge in planning and investing for them.

THINKADVISOR: Do jockeys get any employee benefits like W-2 workers receive from the company they work for?

MERKLER: That doesn't exist for them. Jockeys are very much in an eat-what-you-kill-type profession.

THINKADVISOR: Please elaborate.

MERKLER: All jockeys are self-employed. So they have to solve their own health insurance and disability insurance problems. Social Security disability is there if they qualify for it.

But there really aren't private disability policies for jockeys because it's too risky a profession. The only bank I know of that will write one is Lloyd's of London, and they'll do it only for two years — and it costs almost as much as it pays.

THINKADVISOR: What's most important from a long-term planning perspective?

MERKLER: Controlling lifestyle inflation — growing expenses — because success can go away overnight. We can at least start setting aside some of their proceeds in savings and investments and make assumptions about their success and failure to smooth out their earnings.

THINKADVISOR: What about tax planning and reduction?

MERKLER: The tax piece is what first drives people to seek me out. That's why I have different levels of service — Apprentice, Journeyman, Hall of Famer.

With apprentice jockeys, there isn't anybody looking over their shoulder saying, "You need to set aside money for income taxes and self-employment tax." And nobody is telling them to make estimated payments.

For example, "You have earnings in three states this year, so you need to track those and your expenses by state in order to figure out how [much tax to pay]."

THINKADVISOR: What's one of the jockeys' most significant expenses?

MERKLER: They're very transient. Especially early on, they don't have a home. They might have a travel trailer that they drag with them to every track in different states, or they might stay in Airbnbs.

So they have to track those expenses and marry them up when it comes to making estimated payments and filing.

For instance, there are jockeys who might race at Prairie Meadows in Iowa for four days, then head to Will Rogers Downs in Oklahoma and race there for three days, then come back to Prairie Meadows the next weekend.

Some of the more successful jockeys might even race at one track in the afternoon and hop on a private jet to another track for a big night-stakes somewhere else.

THINKADVISOR: What other expenses do they incur?

MERKLER: Jockeys certainly have things to purchase and maintain, like saddles and other equipment.

If they need to upgrade their vehicle, [for taxes], we can do bonus depreciation on it because they're traveling all over to ride in races.

Once we get a good financial foundation in place where they're current on their estimated tax payments, have an emergency fund, some form of health insurance or a plan to deal with injury, then we start looking at more advanced tax strategies, like solo 401(k)s.

THINKADVISOR: Tell me more about their retirement planning. I suppose that's a big part of what you do for them. Right?

MERKLER: Absolutely. They have to plan to exit their career. But there's no mechanism to help them. They simply work for the trainer or the owner of the horse for a given race and then move on to the next.

THINKADVISOR: What's the biggest risk for jockeys?

MERKLER: A horse can take a bad step, the jockey falls off, gets trampled; and their career is over in an instant.

So we have to keep an eye on the [possibility] that they may not be racing past age 25 or 30. Maybe it's because they got hurt and were forced to retire or they want a more stable family life or they had health changes and can no longer ride.

Therefore, for younger jockeys, we have to set aside enough money so they're in a position to do a career change. For instance, they could work at a low-paying job and [spend down] investment returns to make ends meet.

THINKADVISOR: Broadly, what types of investments do you recommend for them?

MERKLER: Early on, in a lot of cases it's very conservative: short-term bonds, maybe some stock index funds — a higher stock-to-bond ratio than for a young person with a regular job.

It's not until they set aside a significant amount to cover their short-term needs of potential healthcare costs due to injury or just to cover expenses, that we start focusing on long-term investments.

I use all exchange-traded funds in my portfolios. The jockeys' earnings power comes from their racetrack success. I'm just trying to get them from a career that's unpredictable to a financial life that's predictable.

THINKADVISOR: Is buying an annuity ever appropriate?

MERKLER: It certainly could be a viable strategy if they have assets we want to change into a guaranteed stream of income and shift some risk to an insurance company.

THINKADVISOR: How do you help jockeys with "personal development," as you call it?

MERKLER: If a good jockey at a lower-level track is successful and wants to take a step up, like riding at Churchill Downs, they'll face much higher quality jockeys than they've been racing against.

So they need to be ready to experience very low earnings for a while because they'll have to convince trainers at the new track to put them on their horses.

Setting aside money for that plan is a big part of professional development because once you get to the top-tier tracks, it's much more competitive.

THINKADVISOR: Any other pitfalls in financial planning?

MERKLER: Not understanding the racing schedules of different tracks and how they can [mean] income changes both up and down, or breaks in income throughout the year. Also, not understanding the costs that jockeys have.

THINKADVISOR: You've been breeding horses since 2013. What have been your big successes?

MERKLER: We've had horses earn qualification points toward the Kentucky Derby and [some were awarded] Horse of the Year in different states. We had Tyler's Tribe that raced in the Breeders' Cup World Championships in 2022. But that ended in tragedy.

THINKADVISOR: What happened?

MERKLER: We had adopted his mother and paid a fee of $500. We bred her, and the offspring was Tyler's Tribe. He won his first five races by a combined 50 lengths.

At the Breeders' Cup, he [suffered an] exercise-induced pulmonary hemorrhage: Blood pressure caused some of the blood vessels in his lungs to burst. He could never overcome that later in his career.

But we ended up selling his mother for a little over $300,000. So we turned a $500 adoption into a $300,000 sale.