MyRacehorse Breaks New Ground in Thoroughbred Ownership

As a marketing executive, Michael Behrens focused on delivering a message to as many people as possible and prompting them to act.

As chief operating officer of a new venture called MyRacehorse.com, Behrens is enticing sports fans to become engaged—in most cases more engaged than they already are—with Thoroughbred racing. My Racehorse gives the casual fan access to racehorse ownership through U.S. Securities Exchange Commission-approved microshares that can cost from $65 to $206.

MyRacehorse grabbed the spotlight on the biggest racing stage in America Sept. 5 when Authentic, a son of Into Mischief  owned by the company along with Spendthrift Farm, Madaket Stables, and Starlight Racing, won the Kentucky Derby Presented by Woodford Reserve (G1) in wire-to-wire fashion. The victory gave 5,314 people unprecedented and legitimate bragging rights to owning a Kentucky Derby winner.

"It's insane when you think about it," Behrens said the day after the Derby, his voice hoarse from the previous day's excitement. "That is more winning Derby owners than there has been in its whole 146-year history. I truly believe ownership is the best way to celebrate our sport and understand it and love it."

Behrens' love affair with horse racing began at Santa Anita Park, where a day at the races helped him shake off the stress of weekly cross-country flights while he was the chief marketing officer for the online mattress company Casper. In addition to being a fan, Behrens developed a fascination with the business side of the industry. He watched the Round Table conferences held annually by The Jockey Club and delved into McKinsey & Co. reports that assessed the status of multiple industry issues, including fan engagement, media exposure, and wagering.

"I didn't have any dreams of going professional in it, but I just wanted to know," he said. "I was trying to understand why it wasn't growing—in reality, contracting."

Behrens' fascination grew, and he dabbled in partnerships but got frustrated with what he called an "opaqueness" in the industry regarding the details of how horses and cash are managed.

"I thought the industry desperately needed transparency. I tried it myself and struggled to find disclosure documents and all the details," he said.

Another truth surfaced from his personal experience and through multiple conversations with industry participants—owners radiate an infectious energy and excitement when they are talking about their horses and the sport.

"It didn't matter what they owned or how much of a horse," Behrens recalled. "I thought, this is a great manifestation of our sport, maybe even better than the bet. We need scale out of this."

Behrens did research on racing clubs in Australia, where securities law limitations are more relaxed than in the U.S., and in Japan, where he found multiple successful programs. His research reinforced his hypothesis that growing owners was the best way to grow the sport, and the idea of selling shares in racehorses started to gel.

Terry Finley, the president and CEO of the West Point Thoroughbreds partnership company, was Behrens' next stop in vetting out his idea. Finley agreed with Behrens that the concept seemed like the next step in the progression of horse ownership but also introduced Behrens to all the barriers: securities issues and the technical issues associated with managing hundreds, maybe thousands, of owners while preserving the experience of ownership.

"As a tech guy and marketing guy, that sounded like a fun problem to solve," Behrens recalled. "How do you use technology to manage a big group and give great experiences through mobile devices, and then how do we get regulatory compliance?"

Behrens dove in and spent a lot of his own cash with attorneys to navigate the tricky securities landscape. Eventually, he got approval for MyRacehorse.com to provide offerings in racehorses to only California residents in 2018. After a year, he got approval to sell shares in all 50 states, which began in July 2019. Armed with a proven concept, he went looking for a partner but only had one particular partner in mind—Spendthrift Farm owner B. Wayne Hughes. Behrens at one time owned a small marketing company, and Hughes' Public Storage company was a big client, though at the time Hughes was not involved in the day-to-day operations. Still, Behrens had done a lot of research on Hughes' business career.

"I knew the innovation he brought to real estate, and it sounded to me that he liked to be disruptive, and this idea is disruptive," Behrens said.

Hughes had already shaken up the Thoroughbred breeding industry with his "Share the Upside" program, which provided lifetime breeding rights to breeders who supported his new stallions for the first two years of their career. In the highly competitive stallion market, Hughes was able to keep breeders committed to his sires during the critical first years of their stud careers.

Behrens pitched the idea to Hughes, who quickly recognized the venture's potential and is now the majority owner of MyRacehorse.

Besides offering fans a cost-effective way to become a racehorse owner, Behrens said he cannot stress enough the importance of the transparency provided to investors. Every offering includes a statement that breaks down how the money being raised will be spent. With Authentic, for example, MyRacehorse bought 12.5% of the colt after he finished second in the Runhappy Santa Anita Derby (G1) for $1,894,218. The offering on Authentic was 12,500 shares at $206 each, which raised $2,575,000. Of that total raised, 73.6% covered the cost of the 12.5% interest; 15% ($386,250) went to the due diligence fee that covered the services for MyRacehorse management to evaluate, investigate, and identify horses to purchase; and 11.4% ($294,531) covered operating expenses that includes training costs, veterinary work, bloodstock fees, etc.

When MyRacehorse bought its share of Authentic, Behrens notes that deal included both racing and breeding rights for the horse.

"We bought into this horse because (Spendthrift general manager) Ned Toffey and the whole team said this might be the next big one. Toffey felt he was headed for a big race, could be the next great son of Into Mischief, and really felt confident he would get the mile and a quarter," Behrens said. "It is a high-risk, high-reward game, and all the reasons were there for him to be able to stand for a significant amount of money. We did as much due diligence as we could and then said, 'We're in.' All the investors are in for the long haul."

MyRacehorse also provides statements to every shareholder before a race that discloses how much is in the reserve account used for operating expenses and where any money has been spent.

"We tell people the reality. They don't like it when four months go by and $16,000 came out of the reserve and there is no payout even if you win. It is a tough pill to swallow, but it is a great way to reinforce how difficult this game is to make any money. To care for a horse the right way is very expensive. That is how it works with every horse, every time," Behrens said.

"I think it is educating a lot of people. Some say this is too expensive and there is no way to make money. They don't enjoy just saying, 'I own a horse,' and the risk is too much," he continued. "I love that we have made the minimums so low that people can spend as little as $65, yet they have incredible means. I was surprised at how affluent a lot of our users are, but they don't want to go into this blind. They are using our platform to understand all the bills associated with ownership and how the money is done. I know of several that in parallel have gone into other partnerships and syndicates."

Finley said he already is seeing an influence from MyRacehorse on ownership.

"We have never had more interest and more potential owners coming to us," Finley said. "Part of that is the coronavirus and people not being able to do other things they were accustomed to doing like traveling, but part of it is the firestorm of exposure MyRacehorse has been able to generate. We have seen the impact of them in a big way. You can pick apart any new concept, but the industry needs to give this a chance. There were a lot of dissenters when Cot Campbell started partnerships in the late '60s. This is the next phase."

Plenty of people on social media after the Kentucky Derby took their shots at MyRacehorse shareholders who owned anywhere from .001% to .02% of the Derby winner.

"The reality is that you should be doing it for the experience," Behrens said. "Look, you can go buy tickets to go watch the (Los Angeles) Lakers. You can burn a couple thousand dollars to go watch basketball for a couple of hours, and you don't own anything. I was getting texts all morning (after the Derby) of people jumping into pools, falling off couches, and breaking TVs because of the excitement when you win the Derby. That's different—5,314 owners who just won the Derby."

Behrens also stressed how valuable the MyRacehorse platform is for grooming new owners with serious money to spend.

"I fundamentally believe, right or wrong, that there is too much opaqueness in this industry. It keeps a lot of people on the periphery," he said. "I have been in the start-up community and have a lot of friends who cashed out and did well. Because of the opaqueness in our industry, they won't touch it. They don't mind playing, they don't mind high risk, they don't mind losing, but they don't want to be had.

"We are going to have some friction along the way as we bring transparency to a world that hasn't had it, but we are going to come out of the other side with a lot of passionate, educated people that can change the economics of this game," he continued. "If our trajectory continues, we are talking about $100 million in a couple of years through the microshares. You curate the crowd and bring in $100 million, it will make a big difference."

Behrens also pointed out that profits can be realized.

"We don't go to Vegas thinking we are always going to walk away winners, but there will be that one night where you are sitting around with your buddies and you hit 7's three times in a row. It happens," he said.

MyRacehorse has distributed thousands of dollars in cash back to shareholders through some of its offerings. When a horse's earnings grow its reserve account to more than is required to cover the projected expenses, than a special dividend is distributed to the shareholders into their MyRacehorse wallets. In the future, Behrens hopes to build an exchange that allows people to sell their shares electronically. Right now a share can be sold, but the transaction needs to either be a gift or the buyer and seller must have agreed on the price.

"What's most important is that buyers have all the documentation provided so they understand what they are getting into. We don't want people transferring shares to people who don't understand they are buying stock into a company and what the cash reserve is, all of it," Behrens said. "Our North Star mission is to have a fully liquid, easy exchange with full transparency that can facilitate buyers and sellers all day long, but we won't do it unless we feel both the buyer and seller have a solid transaction."

Behrens fervently believes if Thoroughbred racing peels back the curtain and opens up access, the sport will become stronger.

"Like I said, with full transparency comes friction, when people realize how difficult it is to make money in the game, how tough it is to keep a horse on the racetrack, and how often they get injured," Behrens said. "They get disappointed, but more often than not they get an appreciation for the sport, and through the journey—the difficulties financially, the difficulties of the sport, and understanding the horse as an athlete—they come out the other side an exponentially more intense fan."