It is not an easy matter to place a value on a racehorse, especially one who’s breeding you planned, who’s mother you took care of during gestation (11 months, 1 week), and whom you took care of as a baby and yearling.
One of the most accurate methods of valuing a racehorse is to see what its sire’s other offspring have sold for at the 2 year old in-training sales. These 2 year olds are judged by looks (conformation) and pedigree, just as at a yearling sale, but also and most importantly, by their performance on the track in a timed workout. The manner in which a racehorse moves and covers the ground, as well as the actual time of the workout, gives a good indication of what type of racehorse it will become. The sire of our Offering is Hook and Ladder. He has had 50 of his offspring sell at the 2 year old in-training sales with an average price of $67,134. Fifty horses is a large enough sample to give a fair and realistic value to Hook and Ladder’s 2 year olds.
Even though we believe that ARRRRR Stables’ 2009 Racehorse Offering would be in the upper half of these horses in pedigree, conformation and price, we are using the average price of $67,134 as a fair starting point. This price is for 2 year old racehorses that were sold beginning in February of their 2 year old year. Our Offering is a yearling and will not turn 2 until January 1, 2010. Taking into consideration this age difference and the cost of getting a racehorse ready for a 2 year old sale, we are subtracting $20,000 from the $67,134 average price. Rounding off to an even thousand, this places the value of ARRRRR Stables’ 2009 Racehorse Offering at $47,000.
COST OF PARTIAL OWNERSHIP
ARRRRR Stables is selling shares in the 2009 Racehorse Offering, a yearling filly by the sire Hook and Ladder out of the mare, Filly of the Jag, in units of $940 each. Each unit represents a 2% ownership of this racehorse. One or more units can be purchased.
The General Manager of the Partnership, James R. McGlinn, will own a minimum of 50% of this racehorse, leaving 25 shares available at $940 each for purchase.
The Partnership is scheduled to close in October, 2009, or whenever 25 shares are purchased.
To keep and train a thoroughbred racehorse in New York costs approximately $45,000 per year. This includes the cost of housing, training, feeding, shoeing, veterinarians, etc. These are the routine training costs. Each unit will be responsible for 2% of this cost per year, or $900. Payment can be broken down into 2 payments of $450 each, due January 1 and July 1 of each year. In the year the racehorse is retired or sold, a refund of the unused portion of these payments, based on a monthly calculation, will be made.
The first year of training is less expensive as part of it is done at a private training track rather than at the racetrack. The first ongoing cost payment will reflect that. This first payment is due on January 1, 2010 and will cover all expenses from the beginning of training in Oct/Nov 2009 through June 30, 2010. This payment will be $380, reflecting the lower initial training costs.
On July 1, 2010, the second ongoing expense payment of $450 will be due. Subsequent payments will be $450 for each 6 months of training.
There are two benefits when using an estimated cost rather than keeping meticulous track of every penny spent.
1. The benefit to ARRRRR Stables is ease of bookkeeping. We are breeders and owners of racehorses, not accountants, and want to keep it that way.
2. The benefit to you, a purchaser of one or more units, is that you know in advance what your costs will be. Regardless of what may occur, you will not have to pay any more than the $380 or $450, respectively. Any unusual or extraordinary expenses will be paid for by either earnings generated from racing purses won or proceeds if the racehorse is sold or claimed. If there are not any such earnings, it will be paid for by the General Manager.
You know in advance what your costs will be and they are limited. This makes it easy for all concerned.
If you ever feel that this is not for you, or not what you expected, you can bow out at any time without penalty. You would, however, forfeit your ownership in the process.
When our racehorse earns money, you will receive the same percentage of net earnings (income) as the percent ownership you have. If you own 10% of the horse, you receive 10% of the net income. If you own 2% of the horse, you receive 2% of the net income. Very straightforward.
Net income checks will be sent out on a quarterly basis.
Net income is calculated in this way:
From purse money won, jockey and trainer race day fees are subtracted. An additional five percent will be subtracted to pay the General Manager a fee for managing the Partnership. The racetrack takes out a small amount for insurance and other purposes. The remaining amount is net income.
If the horse is sold or claimed, the dollar amount minus related expenses, if any, is considered net income.
This is all straightforward, nothing hidden, nothing marked up, no surprises.
The five percent management fee paid to the General Manager is the only “extra” ongoing cost of the Partnership. If there is not any income, no fee is paid.