Partnerships: Finding the Right Partnership For You–Part I

If you are someone who always had the dream of owning a Thoroughbred racehorse and have room on your wall for a few coveted winner's circle photos, there are some important things to consider in order to maximize your experience and avoid some of the pratfalls that can leave a new owner's confidence crippled.

As the Executive Director of the Minnesota Racehorse Engagement Project from 2019-2022, I was able to direct over 300 first time owners into Thoroughbred racehorse ownership. The secret sauce in making this happen was providing a menu of options/opportunities that would appeal to a vast audience. We also took down a plethora of barriers to entry and answered hundreds of questions in the process including, “how much does a horse cost”. Let's start there.

Investment

One of the best things that has happened in Thoroughbred racehorse ownership in the past decade is that ownership isn't just for blue-blooded capitalists or celebrity chefs anymore. If you have a love for horses or horse racing and an extra $100 in your pocket, you can own a share in a Thoroughbred racehorse. Establishing an investment level that you are comfortable with is vital. The key to financial success in this business is longevity and a lot of luck. Being able to financially survive long enough until the “big horse” comes along–or be just fine even if he never does–should be the objective for any new owner coming into the game.

There are partnerships that can offer you micro-shares for under $100, there are partnerships that will ask you to invest six figures, and there is everything in between. Some partnerships capitalize only once and have no additional bills or cash-calls. Others have an up-front capital investment and then you pay your ownership percentage of the bills each month. There is a certain attractiveness to the one-time investment which includes a cap on potential losses, yet the true ownership experience is one of getting checks and writing checks each month. The great thing is that these unique opportunities all exist, as well as attractive hybrids. Take some time to ponder what would be comfortable for you, carrying the knowledge that you can always get involved in other partnerships down the road if you find your first choice wasn't what you expected. The important thing is to invest enough to make it exciting, but never more than you can afford to lose.

Entertainment Value

Owning a Thoroughbred racehorse is a bucket-list item for most racing fans. When you take the first step and communicate to family and friends that you are thinking about buying a racehorse, be prepared to get hit with, “what a waste of money”, “what do you know about horses?” or other cynical cliches about how owning racehorses leads to certain financial ruin. To those comments, I would simply retort, “how much did that family vacation to Disney cost you?” Most people are comfortable spending thousands of dollars for vacations, season tickets to sporting events, golf memberships, or here in Minnesota, a boat. Yet isn't the entertainment value of owning a Thoroughbred racehorse greater than a three-day trek to stand in long lines and buy overpriced souvenirs? Consider the value of a summer visiting the stable area, watching morning workouts, feeding your horse carrots, inviting people to the racetrack, being in the paddock and cheering on your horse as it takes the lead and goes on to win in an upset? Most people don't even know that is available to them.

Sharing these moments and memories has tremendous value and so do the people you will meet. Horse racing is a social game and ownership takes it to a new level. Partnerships offer you partners–people who are like-minded, love the game, and understand there is something special in these equestrian athletes. They are like you. You will also meet the trainers, jockeys and the people that care for and race your horse. These are some of the most interesting people on the planet and as an owner/partner, you will now be part of this wonderful ecosystem. Shared stories, shared pictures, shared victory toasts are what you are really investing in. The fact that you can actually make money on top of that makes ownership very appealing. The entertainment value is your true return on investment, and it can be tax deductible.

Taxes

Owning a Thoroughbred racehorse can offer you several tax advantages, if executed properly. When looking at a partnership in which to become involved, you need to ask how they handle the tax issue with their partners. Some micro-share opportunities aren't actual ownership, but entertainment clubs where there are no tax advantages or consequences. Most partnerships will handle all the tax requirements of the partnership and either issue you an annual K1 partnership tax form or a simple 1099 for your portion of the revenue, leaving you to report your expenses separately. If operated like a true business (Hobby Loss Challenge), your involvement will open doors to depreciation deductions, travel deductions, related research costs, etc. that will all help offset other income you report. There are professional equine tax and accounting individuals and groups that the partnership can refer you to, or you can find through simple Google searches.

Follow Along

The multitude of factors to consider prior to embarking on Thoroughbred racehorse ownership can often feel like handicapping the Breeders' Cup card. It can seem overwhelming. Yet, I can attest, it is not as complicated as you might guess, and you will learn along the way. Thoroughbred Daily News is working to highlight partnership opportunities for prospective owners and bring you information to help you make a better decision on the partnership that may be right for you. In our next article, I will discuss the value of owning 5% or more of a horse, claiming partnerships vs. younger-horse partnerships, education opportunities with partnerships, the geography of partnerships and one recent subject growing in importance to new prospective owners, aftercare.

If you manage a partnership, we hope you will support this effort to reach new owners by sponsoring this series or advertising on our Partnership Page. If you are thinking about Thoroughbred ownership and have specific questions or subjects you would like to address, feel free to reach out to me via X @RacingHorseshoe.