Alternative Investing

Racehorse Investment: Risky Bid or Runaway Success?

James Longman|Special to

A day at the races can be good fun, and as the world’s economic troubles continue to bite, putting your money on the right horse could see you make more than just a one-off win.

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Opportunities also exist for lucrative investment in the horses themselves—rather than just a single race. But the risks are potentially very high; it takes a passionate investor to make bets like these.

“First and foremost you come into racehorse ownership to enjoy the horses, and to have some real fun,” The Honorable Harry Herbert, chairman of Highclere Thoroughbred Racing, told CNBC. Click here to watch the full horse investment video segment as aired on CNBC.

“There is a chance you can end up with a top-class racehorse who can earn you a fortune from prize money. And also if that horse is a success at stud, the rewards are gigantic.”

But he warned against big money splashes on individual horses. Syndicates, rather than total ownership, are a better bet. With the average horse costing around $80,000, Herbert suggested making group investments, because this means buying better horses. “You can invest in $300,000 horses and pay less than half the money than it would cost you to train that animal.”

Alongside syndicates and outright ownership, getting into a fund can also provide a way into the sport.

William Sporborg, managing director of Breeding Capital told CNBC, “We set up corporate vehicles, and we issue shares for cash. We then invest that cash into the bloodstock market. It’s very tax efficient.”

At Tattersalls, Europe’s leading bloodstock auctioneer and the oldest of its kind in the world, industry professionals gather to size up 18 month-old yearlings. The international appeal of racehorse investment is clear, as investors from the Middle East, Europe and Japan are on the look out for potential.

While the industry has taken a hit from the global downturn, many are optimistic about a renewed interest in horseracing investment. “This business is up 10-20 percent this year,” journalist and pedigree consultant John Oppenheim told CNBC. 

But while investment methods are varied, and the wins sometimes big — last year members of one syndicate got a 500,000 pounds return ($791,215) each on their 36,000 pound investment ($56,968) after their horse won a high-stake race — the risks far outweigh the rewards.

International breeding agent James Delahooke told CNBC “The biggest risk is buying a slow horse…because nobody wants to subsequently breed from it. So yes, it is a high-risk investment.”

Oppenheim explained the statistics of a win: “Between 14 percent and 22 percent of commercial breeding transactions at the yearling sales show a profit. So if things are as good as they can get, you’re still going to lose 7 out of 9 times.”

The general consensus then, is that these ventures shouldn’t be seen as alternatives to more traditional business investments. As Herbert made clear, this industry is for people with money to burn; swapping stocks for bloodstock is not a good idea.

“Nobody should come into a syndicate thinking they are going to make money. It will, however, give you the best opportunity of coming up with a good horse, and also you meet some very interesting people...It all depends on how lucky you are.”

Oppenheim was more contemplative, telling CNBC that after all, nothing in this climate is a sure thing.

“All these people in stock, derivatives, options. It’s just as big a gamble as what we do — its just nobody admitted it.”