There is little debate that the thrill of owning part of a racehorse matches that of sole ownership. Because of this, and other more practical considerations, 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:
Investing With an Established Partnership
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.
1. Compare Partnership Prospectus
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 or pinhooking*; (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.
* "Pinhooking" is the term utilized to describe the practice of purchasing a young horse, either a weanling or yearling, for the purpose of selling that horse during the next sale season. Pinhooking is a very speculative venture and may not be the best introduction to Thoroughbred ownership, as it requires in-depth knowledge and skill.
2. Meet with the Managing Partner
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.
3. What are the goals of the partnership and what is the plan to achieve those goals?
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.?
4. Who are the players?
5. What type of entity is used?
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.
6. How are the finances handled?
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?
7. How are decisions made and by whom?
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.
8. What are the services provided to investors?
9. What are the conditions for transfer of shares and dissolution of the partnership?
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.