Spreading the Risk Key for New Owners

When deciding to get into horse ownership, go slowly and spread your risk, advised a panel of experts at the opening session of the OwnerView National Owners Conference Oct. 31 at Santa Anita Park.

"At first, we bought one to two horses every year to get me used to the bills," said panelist George Bolton, who has owned such good stakes horses as The Factor   and was a partner in champion Curlin  . "You want some fun and to spread your risk."

Buying a small percentage of several horses allows a new owner more chance to succeed, according to the panel.

"I work on the rule of five," said Ken McPeek, trainer of such graded stakes winners as 2002 Belmont Stakes (gr. I) victor Sarava. "For every five horses you buy—one can't run, one refuses to run, one gets hurt, one is a nice horse you had a little fun with, and one is a really nice horse that makes you forget the first four."

Bolton and McPeek joined several other experts on the panel, titled "Business Considerations for Racehorse Ownership." More than 100 people listened to the panel, moderated by Millie Ball of XBTV, in the FrontRunner restaurant at Santa Anita. The panel also included Pete Bradley of Bradley Thoroughbreds, Mike McMahon of Bourbon Lane Stables, accountant Jen Shah, and attorney Shannon Arvin.

The panelists offered advice about establishing business plans and revisiting those plans when necessary.

"First, have an exit plan," said Bradley. "Have a yearly review of your horses. I believe everyone should invest in at least five horses. That spreads the risk and gives you more opportunities. Patience is the biggest part of this game."

Discussion also centered on how to select a good horse, whether at a public auction or privately.

McMahon said he concentrates on conformation, though when looking at pedigrees, he is more forgiving with "very strong sires." When a question arose about what to look for in foals, McMahon said that "the tricky part is the front end" and added that it takes practice to learn how legs will develop in a young horse.

"We all want good hind legs—Quarter Horses that can go a mile-and-a-quarter," he said.

"The hind leg is very important," agreed McPeek. "I won't touch a horse with an OCD in a stifle."

When asked to explain OCD (osteochondritis dissecans), McPeek cited Curlin as an example of how patience can pay off.

"Curlin had an OCD the size of a dime in his ankle as a yearling," said McPeek. "They operated on it, and when he came to the sale, the surgery site was infected and his ankle was the size of a grapefruit."

McPeek took a chance and bought Curlin for $57,000 as a yearling. The trainer said he offered the colt to six people, and all turned him down. Curlin went on to be a two-time Horse of the Year, a member of the Hall of Fame, and now a successful sire.

Bolton cited examples of how hitting with a successful stallion can be lucrative.

"Our costs per mare are about $4,000," he said. "It costs about $400,000 to keep a stallion. If he stands for $10,000, you make $6,000 per mare. If he stands for $50,000, you make $46,000. There's math behind that."

Shah and Arvin discussed some of the technical aspects of ownership. Shah advised that owners be organized and keep their horse operation separate from other businesses and their personal finances. Arvin noted the importance of insurance and written documents.

"The horse business is such an informal business, and many deals are done on a handshake," said Arvin. "It doesn't work if you throw a 30-page agreement at someone. But I can do a one-page bill of sale that gives you protection." She added that LLCs are often an advantageous way to go.

Shah addressed tax issues and explained the basics of being sure an ownership enterprise is considered a business. 

The panelists also emphasized that horse ownership can be enjoyed at every level.

"There are starter horses, just like there are starter homes," said McPeek.