As one of the few legal firms that specialise in thoroughbred breeding and racing law, there are several reasons why our lawyers enjoy practising in this niche area. However, the main reason is that we love horses! Attwood Marshall Lawyers have been involved in the breeding and racing industry for over 20 years and our team enjoy working with fellow equine enthusiasts. For many people it is the love of horses that gets them hooked initially. Our role is to help clients navigate the business and legal aspects of the horse racing industry, explains Attwood Marshall Lawyers Associate Georgia Taylor.
Attwood Marshall Lawyers was one of the first full-service law firms to run a separate department specialising in the equine industry. Headed by our Legal Practice Director Jeff Garrett, a successful thoroughbred breeder and owner in the racing industry, the firm’s linage also falls to other equine pursuits such as Standardbred horses (harness racing), Olympic disciplines, dressage, show jumping and eventing. We have also acted in greyhound racing matters.
Spring, however, is the season for breeding and racing for thoroughbred racehorses. After the more recent ‘richest race day in the world’ of The Everest at Royal Randwick, and the time-honoured Caulfield Cup, the world’s eyes now turn to the most famous race in Australia, the Melbourne Cup, otherwise known as “the race that stops the nation”.
Unsurprisingly, the spring carnival brings out the best racehorses, jockeys, and trainers, all with eyes on the lucrative stakes races that are run in the Spring. The breeders and owners are also hoping their horses can win these races, which can have life-changing consequences for everyone involved. For example, if a three-year-old colt can win the 1200 metre ‘straight six’ Ascot Vale Group 1 race on Derby Day at Flemington (now the Coolmore Stakes), his value as a stallion would be in excess of $30M, not to mention the winner’s share of $1.5M in prizemoney (plus whatever has been won to get there!). Having a 5 or 10% share in such a horse would certainly be a life-changing event!
Along with our Legal Practice Director’s top tips for race day, it would be prudent to provide our top tips to look out for, if dabbling into racing as an owner in one of the most popular forms, racing syndicates.
What is a syndicate?
Syndication is a form of ownership whereby “shares” in a racehorse are divided across groups and individuals. Those shares allow for small portions of the horse to be owned, which allows for a smaller upfront and continuing cost for an owner. The most common form of buying into a syndicate horse is where the syndicate company buys a yearling at the sales and subsequently manages the horse, with shares offered to the public. You buy a percentage share of the horse and the price is based on the purchase price at the sale, insurance and spelling fees, and training fees. You become a registered owner with Racing Australia and any prizemoney won is credited to your nominated bank account, after deduction of the trainer’s (10%) and jockey’s (5%) percentages. That, of course, assumes the horse makes it to the track and wins a race!
Why is a syndicate beneficial?
For a novelty or rookie horse owner, a syndicate is a great starting point. It allows you to purchase a share of a horse, to the value you are comfortable investing. Syndicates by larger trainers are usually well established with clear cut contracts as to owners’ obligations and potential costs.
Similarly, first time owners don’t generally have well established or any contacts in the industry. Syndicate owners connect at the purchase or time of investment in the horse and share in the enjoyment of owning a racehorse. At races, syndicate owners meet and socialise with likeminded persons and share in everyday communications in relation to the horse.
How do I become a part of a syndicate?
Enthusiasts who are taking the step to owning shares in a racehorse will typically have their favourite trainers, jockeys and breeders. This is the perfect place to start! Most larger stables will have horses ready for syndication through established programs.
What should I look out for when buying into a syndicate?
1. Is the horse syndicator licensed?
Horse syndications are governed by ASIC and approved syndicators will be registered as Australian Financial Services Licensed Promoters or Authorised Representative Permit Holders. You can ask directly with the syndicator for their license status, or conduct searches yourself through the government websites. Most syndicators who are licensed will have their license details listed on their website. In our view, the more transparent the better.
2. Are they registered with the governing racing body?
Check your applicable States website for a list of their approved syndicators. In our experience, the racing regulators are selective on who they approve to ensure the integrity of syndications throughout their jurisdiction. An approved syndicator will have to establish minimum requirements to obtain the approval, generally including having the applicable license (as above).
3. What information do they provide you?
Transparency is key. Initially, you should receive a product disclosure statement (PDS) which will advise you of the standard, special and possible unexpected costs that could apply to your share in a potential horse. Along with the fees, information on the trainers they intend to use, the number of updates they provide (i.e weekly/ fortnightly updates on the horse’s progression in training) and the all-important prize money distribution. We also recommend asking who the managing owner of the horse is intended to be.
A PDS should encompass the answer to all of your questions, if it doesn’t, make sure you ask the question prior to purchase.
Tips to consider before buying into a syndicate
Here are a few of our top tips to put you in an informed position, prior to purchasing into a syndicate:
Insurance: The insurance of the horse will differ depending on who you choose to syndicate with, the horse you buy and the level of the horse. The syndicator will generally hold insurance for the horse at the time of purchase, but after your purchase, the insurance will likely become your own responsibility. Along with this, the insurance may only be for mortality, and not loss of use. Meaning, if the horse is injured and can’t race further, your share is lost. Prior to purchase make sure you ask the syndicator or check the PDS as to the owner’s insurance obligations and when you are required to insure your share (should you choose to do so). Quite often the first 12 months insurance is included in the initial buy-in amount – you have the option to insure your percentage privately if you wish.
Check if there is an exit plan: Unfortunately, the unexpected can happen. Whilst you might have the spare capital to start dabbling in racing this can change, however, the bills won’t stop coming. It’s important that you check your PDS for any potential exit steps that you can take to sell or forfeit your share if the time comes.
Who are the key persons? Do their values and intentions align with yours? Like acquiring shares in any asset, such as a company, the persons making the key decisions as well as their intentions for the asset are vital. The welfare of the horse is of course paramount but after that, do you have the same shared intention? Every person wants a horse that will win the Melbourne Cup, but the horse’s care, your access to the horse and the perks, the horse’s name, colours and other novelties can be diminished by other parties if their intention or values differ from yours. Speak with the key personnel, do your research, and make sure that you are comfortable entering into this transaction.
Do your homework before buying in!
There are numerous public syndication companies in the racing industry, all vying for your business if you are intending to buy a share in a racehorse. There are many different types of syndicated racehorses, including where the horse is owned by another company or people and is leased to the syndicators to race. You need to be careful to clearly define exactly what it is you are buying. If it is a leasehold syndication then you do not own the percentage share in the horse completely. The lease may only be for the racing life of the horse and if it wins Group 1 races and subsequently becomes valuable as a stallion, you may find that the “owners” will get the benefit of this and not you as a lessee.
Most of the larger trainers have syndication companies within their own operation. This makes it easy to contact one of the top trainers and to select horses which they always will have available from buying them at the various yearling sales. Usually, the minimum percentage for an owner in most of these syndications is 5% or sometimes 10%. You need to carefully consider how much you are paying for this percentage and what the ongoing monthly costs will be. Most trainers charge between $5,000 – $7,000 per month when a horse is “in work”. This means when the horse is in the training stables and is either preparing to race or racing. After it has finished its racing preparation, it is usually sent to a specialist spelling farm in order to have a rest or a “spell” until it is ready to come back into racing again. The spelling costs of the horse are much lower than the racing costs and usually this is between $1,000 – $1,500 per month. If you buy a 10% share in a horse you will be responsible for 10% of these amounts per month. If something serious happens to the horse and there are significant veterinary expenses and transport costs, you will be responsible for your owner’s percentage of any such costs as well. You should make sure that you have enough disposable income to pay for your share of the horse and that you are aware of the usual risks involved with horseracing.
There is no guarantee that the horse will actually make it to the racetrack, let alone become a successful winning horse and win large amounts of prize money. However, most people who know the horseracing industry are aware of the risks and love the thought of owning a share in a racehorse. You should make sure that you do your homework on any proposed purchases and get advice from anyone that you know in the industry who is experienced in yearling selection and which trainer you should trust with your investment.
Getting legal advice early will ensure you are making an informed decision
Sharing the ownership of a racehorse can be an exciting way to be part of this dynamic industry. However, it is always best to ensure you have a comprehensive understanding of your rights and obligations under the agreement. There are a number of legal matters to consider!
Attwood Marshall Lawyers have experience in both pre-syndication advice and syndication disputes. If you would like advice prior to entering a syndicate or are having trouble with one you are already apart of, contact our friendly team by phoning Equine Law Department Manager, Amanda Heather, on direct line 07 5506 8245, email email@example.com or free call 1800 621 071 at any time.
Our Melbourne Cup Tips
Here’s the top tips from Legal Practice Director and racing enthusiast, Jeff Garrett.
“It is another tough Melbourne Cup to try to pick the winner! Incentivise is the short priced favourite and deservedly so. However, the history of short priced favourites winning the Melbourne Cup is not very good for the former Queenslander who early in his career was beaten in a maiden at Toowoomba.
Outside of the favourite, I like the chances of last year’s winner Twilight Payment to complete the Cups double (which has not been done since Makybe Diva won 3 in a row in 2003, 2004 and 2005). The Chris Waller trainer Great House has an excellent each-way chance at $21 and Spanish Mission may have crept under the radar with champion jockey Craig Williams aboard at $11. Grand Promenade although drawn barrier 21, has the benefit of Melbourne Cup winning jockey Kerryn McEvoy and the very astute trainers in Maher and Eustace. My suggestion is to box 1, 2, 3, 16 and 23 for the trifecta and first four.”
Editors Note: Always chuck $10.00 on the grey!
The Spring racing season is here on the Gold Coast! Attwood Marshall Lawyers are proud to sponsor the Caulfield Cup & The Everest Raceday at Gold Coast’s Premier Racecourse: Aquis Park