A horse may be purchased in three primary ways. There are
advantages and disadvantages associated with each approach. Regardless of the
approach taken, the team, whether it is you and your trainer or you and a group
of advisors must work together, utilizing each member's skills in devising a
strategy for acquiring your equine assets.
Auction sales offer the widest selection and often assure fair market values for horses. It is safe to say that they are the option of choice for many buyers.
The table below summarizes the advantages and disadvantages associated with purchasing a horse at the various ages:
|
Age/Type |
Months of Sales |
Advantages |
Disadvantages |
|
Yearling |
Jul - Dec |
Large selection;
can oversee all breaking and training; pinhooking
options. |
8-12 months until
ready to race and will incur expenses during this time. |
|
2-year-old |
Feb - May |
Ready to race;
more developed; better able to assess ability. |
Smaller selection;
horses may be rushed through training for sale. |
|
Weanling |
Oct - Feb |
Reasonably priced;
pinhooking options; can oversee growth. |
Hard to evaluate
ability this early; 18 months until ready to race. |
|
Broodmare |
Oct - Feb |
Choose matings; can sell foals or enjoy success of homebreds. Mares can be purchased in-foal (foal in utero), barren, or with a foal at her side.) |
Pregnancy can be
complicated; lots of risk, time and cost involved. |
To familiarize
yourself with the sales process, we suggest you attend several as an observer;
consider it a dry run. This exercise should include selecting horses to
inspect, evaluating them based upon their pedigree and conformation and
estimating their selling price. As you compare your figures to the actual
selling price, a sense of the market will develop. In addition, through
attending the sale, you will gain an understanding of the auction environment.
The auction purchase
process can be separated into three stages: Before, during and after. However,
each phase is dependent on the other. The after phase is somewhat a misnomer as
proper provisions for this final stage, such as payment, insurance needs and
boarding arrangements, should be made in advance.
It is essential that you arrive as prepared as possible at an auction. The pre-sale work can be more important than the work done at the sale.
First, review the catalogue. A catalogue can be obtained from the auction company. It is generally available several weeks prior to the sale and is always complimentary. In addition to a horse's pedigree and hip number, the catalogue contains explanations of the Conditions of Sale -- the terms which control the sale's proceedings.
Establish credit. The first section of the catalogue contains information regarding payment, including sales tax requirements. To secure credit with the sales company, a credit application must be completed. If another party, such as your agent or trainer, will bid on your behalf, the Authorized Agent form must also be completed. Copies of both forms are contained in the catalogue.
Review the Conditions of Sale. Each condition should be read carefully and understood. Pay special attention to the warranties and the types of defects that enable buyers to rescind the purchase of a horse, as they differ from company to company and between the different ages of horses.
Study the catalogue and select, based upon pedigree, the horses in which you are interested. Nomination information is typically listed at the bottom of each catalogue page. Note, those nominated to state-bred programs and to the Breeders' Cup.
A team of professionals should greatly facilitate the sales purchase process.
Assign responsibilities. Bidding arrangements, pre-purchase veterinary procedures, pedigree research and post-sale accommodations should be discussed for each horse identified. Each member of the team should fully understand their responsibilities.
Devise a first-look list. The team should revise the preliminary list, adding to or eliminating horses in a manner consistent with your plan and budget. Keep in mind that the list is likely to be narrowed as each horse is physically inspected.
Secure the services of a veterinarian. If a veterinarian is not already part of the team, consider consulting one to assist in the selection process. Fees should be discussed and agreed upon in advance.
For maximum efficiency, be well-organized and stay focused on your objectives.
Physically inspect the horses on your first-look list. To avoid confusion, take notes and assign a grade on the corresponding catalogue page. Based upon the inspections, it is quite probable that you will further cull the list of potential purchases to a short list. Inspect your final candidates several times. Don't be afraid to go back for a second or third look.
Depending upon the degree of interest in a horse on the short list, your budget, and the estimated sales price, you may wish to have a veterinarian perform a pre-purchase exam. Such an examination may include x-rays, an endoscopic exam and a physical exam.
On occasion, a veterinary examination may be required by the sales company before a horse is accepted or offered for sale. The type of examination required can be found in the Conditions of Sale. If a consignor offers x-rays and/or other test results, such as endoscopic exams, for your review, be certain to inquire as to the age of the information, as the information only has value if it is truly recent. Remember, horses are not machines, their physical condition can change overnight.
It is easy to get caught up in the excitement and atmosphere at a sale. Do not permit yourself to get carried away when bidding. It is imperative that you follow your initial plan and stay within the identified budget. Bid only on horses on the short list, exercise control and stay within the pre-determined price limit for that horse.
Remember, both title and risk pass at the fall of the hammer. The buyer becomes totally responsible for the horse and its actions at that moment.
Successful bidders must make the necessary arrangements for the board and care of their purchases. This includes purchasing insurance, where appropriate, making payment and securing transportation and boarding accommodations.
Payment should be consistent with the arrangements made with the sales company. If credit was not established prior to the sale, payment is generally due within 30 minutes of the fall of the hammer. It is not uncommon for consignors to continue to care for the horse while the buyer makes settlement with the sales company and secures transportation services. Ensure this is the case by asking the consignor. Upon settlement, buyers will be given a stable release and later the proper Jockey Club Registration Certificate from the sales company.
Van companies have representatives at almost every sale. Select a carrier and provide them with a copy of the stable release. The carrier will need that form to remove the horse from the grounds.
Taking possession constitutes delivery and acceptance. Consequently, it is imperative that, prior to removal of the horse, a veterinarian examine the animal as to the conditions warranted in the Conditions of Sale. Persons purchasing mares in-foal should confirm their pregnancy status. Under most Conditions of Sale, the purchaser's right to rescind a sale is prefaced upon a veterinary examination occurring on the grounds.
Claiming races
constitute the majority of Thoroughbred races. Each horse entered in such a
race is subject to sale, or claim, at the value stated in the conditions of the
race. However, all purse money earned is the property of the person in whose
name the horse started.
The primary
advantage to claiming is that it offers immediate racing action. Likened to
purchasing a used car, the buyer may be obtaining a horse which, with a change
in training routine, may develop and excel or may turn out to be nothing more
than a lemon. Unlike purchasing a horse at public auction or privately, the
buyer is not entitled to perform a veterinary examination prior to the
purchase.
If you elect to
pursue this option, you should employ a trainer who excels in this aspect of
the business. With your trainer, devise a strategy for selecting potential
claims.
Consider the
following points prior to claiming a horse:
Claiming rules differ from state to state. It is important to note: (a) The point at which the horse becomes the property of the new owner - when it steps onto the track before the race, when it leaves the starting gate or at another point; and (b) the conditions under which the horse must make its next start.
Obtain the proper owner's license. To be eligible to claim, you must possess the proper owner's license from the state in which you intend to claim. Licensing is controlled by the particular state's racing commission or board. If you are not licensed in that state, you are required to complete the application process, receiving either a permanent or temporary license.
Most states now have rules authorizing open claiming, thus permitting licensed owners who do not currently have horses stabled at the particular racetrack where the horse is running to claim a horse.
· Prior to the claim, establish an account with the racetrack's paymaster or horsemen's bookkeeper. Prior to the claim being made, an owner's account must have sufficient funds to cover the transaction: the claiming price plus state sales tax. Sales laws and bookkeeper's procedures differ from state to state and from track to track. If you intend to have your trainer make a claim on your behalf, there must be an authorized agent form on file. Contact the Horsemen's Bookkeeper and/or Claims Clerk for more precise information on these matters.
· Complete the claims slip. Claims must be made on the day of the race and filed prior to the start of the race in accordance with the rules of the specific jurisdiction. Claiming forms are available in the racing office. The information on the claim form must be absolutely correct; a misspelling can invalidate a claim. A person is not permitted to enter a claim for more than one horse in a race. If more than one person wishes to claim the same horse, a random selection system is used to decide the new owner. The system is commonly referred to as a shake.
Title and risk pass to the new owner immediately upon selection as the successful claim. As the new owner, you will be expected to take possession of the horse at the conclusion of the race or after completion of any post-race tests.
It is widely accepted that claiming horses have established values. In other words, their performance on the track and the levels at which they are competitive are clear objective indications of a horse's value.
Purely from an investment stand-point, this makes the claiming horse a "less risky" investment; the speculative nature of assessing and establishing a horse's value is significantly reduced.
In the claiming business there is more and more competition at the claiming box. Consequently, "getting outshook" is common.
Owners must also keep in mind that the competition for good horses coupled with better purses makes all of us more willing to make riskier claims.
Don't make desperation claims. Each horse must be fairly and reasonably valuated as to performance, available conditions, pedigree, and demonstrated earnings. Spend only as much as the evaluation indicates the horse is worth. Try to claim only horses at or near that price, and, above all, make certain they are as sound as possible.
Relying on intuition. To some extent, every claim represents some level of intuition. However, that does not imply that the decision is in reality nothing more than a guess. To the contrary, in this context, intuition represents experience and innate skill. No claim should be made unless the basic questions regarding value, condition, pedigree, etc. have been addressed. However, from that point forward, intuition is about as valuable as any other factor.
Building your stable through claiming. Only you and you alone should decide if this is your preferred method of operation. However, many horsemen, owner and trainer alike, have built successful stables on the athletic prowess and ability of the claiming horse. It is the most affordable means of developing or expanding one's stable.
Even though most of the news in horse racing is about the high-profile horses, most of the races are for claiming stock.
Following is a partial list of factors to consider when claiming a horse:
As with all aspects of Thoroughbred racing, it is very important to have an advisor help you make informed decisions.
Many first-time owners elect to become involved in racing through a partnership. The proportional initial capital expenditure, combined with reduced recurring expenses, affords most an economical entry into the business.
There are generally
two paths to becoming involved in equine partnerships:
Many partnerships are looking for new investors. As a prospective investor, you should investigate the partnership, particularly the individuals involved. Naturally, some are more reputable than others. It is important to select a partnership with goals and philosophies that match your own, and whose financial requirements are within your budget.
The considerations identified below may assist in selecting a partnership.
To find the names of existing partnerships, contact local horsemen's associations, trainers and other industry professionals. Additionally, the TOBA Membership Directory and The Source published by The Blood-Horse, Inc. offer comprehensive lists of individuals who operate partnerships, including their addresses, telephone numbers and e-mail addresses.
Compile a list of partnerships to contact and request a copy of their written plan or prospectus. In reviewing this material, determine if the partnership is (a) oriented in the area of the industry in which you wish to participate: racing, breeding, racing and breeding; (b) involved at the level at which you desire to be involved: claiming, allowance or stakes horses; and (c) a limited or general partnership, as this distinction will affect your expense liability and your right to participate in the making of certain decisions.
After identifying the partnerships most appealing to you, arrange to meet with the managing partners. Don't be afraid to ask them the same questions you would ask of any other potential partner. Determine up front the answers to questions that could develop over the course of the partnership.
The managing partner should be able to clarify the objectives and the manner in which he intends them to be achieved. Is there a developed plan? Does the plan appear realistic? What about the partnership's goals? Are they consistent with yours? Will the success of the partnership be determined by profit alone, caliber of races won, by social activity, etc.?
· Managing partner: depending on the type of partnership, one individual or a group of individuals will have primary decision-making authority. The success and overall profitability of the partnership are dependent on the skill of the managing partner. Consequently, determine to your satisfaction what the managing partner's credentials and experience are in the industry. Ask whether he intends to have and maintain a financial interest in the partnership.
· Team players: in addition to the managing partner, identify who the other professionals involved are - the trainer, bloodstock agent, pedigree advisor, veterinarian and farm manager. You may want to meet them and verify their references.
· Other partners: how many partners are there in the partnership? What will their role and /or percentage of interest be? Will each partner own the same percentage? Are any of the partners related to the managing partner? Remember, these are your business partners. It is important that you are confident that you are compatible and that you find them trustworthy.
· The horses: if the partnership does not yet own any horses, determine the procedure and criteria for their acquisition. If the horses have already been purchased, examine how closely the price of partnership share reflects the purchase price.
Equine partnerships can be formed in a variety of ways. Your personal expectations and comfort level should be considered along with the tax and liability implications associated with the form of partnership utilized.
When income is recognized from purse money or sales, does this income flow directly to investors or is it maintained in an account to cover future expenses? At what point does the partnership settle up? Is it monthly, quarterly or annually? Is each partner provided a statement reflecting cash receipts and disbursements? If so, how often?
As indicated above, depending upon the degree of knowledge and expertise of the partners, it may be desirable for the managing partner to have the final say. However, it is imperative that you know going in whether decisions will be made in a democratic manner or whether the managing partner has full authority.
· Communication/correspondence: at what intervals will reports on the condition, progress and location of your horse(s) be sent? Who will be responsible and via what mode (written or oral communication) will this information be disseminated?
· Perks: as you may be paying a premium, will you be provided with special racetrack accommodations on race days? Will you be given access to the stable area? Are you welcome to visit your horse? Will you be supplied with some sort of income or other financial statement for your tax purposes?
· Licenses: according to the Association of Racing Commissioners International Model Rules, each person who has a five percent (5%) or more ownership or beneficial interest in a horse is required to be licensed. Names of owners of less than five percent (5%) must be disclosed in an affidavit filed by the partnership which also states that these persons are not presently ineligible for licensing or suspended in any racing jurisdiction.
Many partnerships require investors first offer their shares to the existing partners; however, determining a transfer or sale value can be difficult. On occasion, the partnership will employ an expert to determine this issue, but it is far more common to disburse partnership interests at public auction.
As an investor, you may know how long you are committed to participate in the investment. If you are involved in a racing partnership, what happens when the horse retires from racing? Is the horse to be maintained for breeding purposes? Will it be sold publicly or privately?
You may also wish to explore forming your own partnership or seek a consultant, trainer, or bloodstock agent to match you with other interested investors. Be certain to discuss these issues with your partners.
Clearly, this option is more time-consuming; however, the advantages may outweigh the disadvantages. For example, common goals and criteria can be established and a plan developed from the outset with which each partner feels most comfortable.
While auctions and claims are the two most popular methods of acquiring horses, they may also be purchased privately. Private transactions offer the buyer value and opportunity as well as the option of a pre-purchase exam. Furthermore, the purchaser is not restricted to only those horses offered for sale, but may make an offer on any horse considered desirable, including those which are not necessarily advertised for sale. Advisors play a vital role in finding, selecting and inspecting prospects.
As with other purchase options, proper pre-purchase arrangements must be made and various factors should be considered.
If you are interested in purchasing a particular horse, contact the horse's owner, trainer or owner's agent and inquire if the horse is for sale.
After ascertaining that the horse is for sale, a thorough physical examination should be conducted. Follow the same guidelines as those associated with inspecting horses at public auction. If you are serious about the purchase, employ a veterinarian to perform a physical examination evaluating the soundness, general health, wind capacity and reproductive ability of the animal.
The sale price should reflect the quality of the horse's pedigree, conformation and race record. To determine an offering price, evaluate the following factors in addition to the three previously mentioned:
· The level at which the horse has been competing: If the horse competed in claiming races, what was the claiming price?
· The future earning potential: How much longer will the horse be able to race and at what level?
· The residual value: Will the horse be of value as breeding stock?
When a purchase price has been determined, make a formal offer.
A written Agreement of Sale or Purchase should be prepared and should include the names of the parties, identification of the horse, terms of sale, warranties of sale, contingencies and deadlines and site of the transaction, as sales tax may be a factor. It may be prudent to also include a procedure for resolving disputes, as well as a provision acknowledging the right for a complete veterinary examination. In most cases a veterinary examination is required by insurance providers before a policy will be issued. Where questions or suspicions exist, good business practice suggests that a title search should be made to ascertain that the seller's title is free of liens.
Upon acceptance of the offer, the purchaser should request a Bill of Sale. A Security Agreement may be imposed by the seller to secure payment if the seller finances any portion of the purchase price. At the closing, the purchaser should receive the horse's Jockey Club Certificate, as well as copies of its health records.