Racing uncertainties
Dominic Prince says you'd have to be potty to buy a racehorse as an investment — unless your name happened to be John Magnier or Sheikh Mohammed Al Maktoum wning and breeding a thoroughbred racehorse can be a mouth-wateringly profitable enterprise. Sir Percy, winner of last year's Epsom Derby, cost a piffling 16,000 guineas when he was knocked down to the Pakenham family at auction as a yearling, and costs about the same in training fees each year. To date he has won a little over £1 million in a racing career of just two seasons. Not a bad return on capital, but the risk-reward ratio is huge — and it can safely be said that anyone who buys a racehorse as an investment is potty.
That said, the really big money will come when Sir Percy retires to stud, probably at the end of the 2007 season. At that point he'll be worth around £6 million — not a huge amount, but then he's not particularly well bred and in racing breeding counts for everything. Every racehorse owner wants to win the English Derby or at the very least one of the four remaining annual British classic races. It is this overwhelming ambition that has made the business of bloodstock a global affair.
The man who can take credit for creating this market is John Magnier, the son of a Tipperary potato farmer. Magnier is to bloodstock what Bernie Ecclestone is to Formula 1. And as with Formula 1, there is a huge infrastructure behind the horse breeding business: stud farms, trainers, agents, auctioneers and owners, the first four all vying for the patronage of the last.
Families like the Wildensteins, the Niarchoses, the Sangsters and the Rothschilds — and most important of all, the Maktoums, the ruling dynasty of Dubai — queue up for the services of stallions owned or controlled by Magnier. His Coolmore stud at Fethard in County Tipperary also has offshoots in Kentucky and Hunter Valley, Australia. Anyone serious about breeding a champion — from the Queen to the Aga Khan — has to do business with him The secret of Magnier's success is severalfold. His big financial break came in 1969 when Ireland's then finance minister Charlie Haughey abolished all tax on stallion income — creating an environment in which, frankly, any business would have flourished. Indeed, until three years ago stallion owners in Ireland didn't even have to put in a tax return, so the Irish treasury had no idea how much money it was missing out on. Stallion income is now about to be taxed — but the Irish racing lobby is powerful and observers predict that the rate will be modest.
The second important reason for Coolmore's success is a certain bloodline. Magnier and his father-in-law, the trainer Vincent O'Brien, correctly spotted that the progeny of super-sire Northern Dancer would dominate racing for years to come. The horse became the most successful stallion of all time, the grand-daddy of the modern thoroughbred. He was father to Triple Crown winner Nijinsky and Derby winner The Minstrel. One of his progeny, Sadler's Wells — while no track superstar himself — has in turn sired a third generation of top stallions Magnier charges out his services at Coolmore as a supreme equine fornicator at 300,000 guineas a time: between February and July he will mate with more than 90 mares, down from 200 at his peak.
The American equivalent of Sadler's Wells is Storm Cat, a grandson of Northern Dancer who is charged at $500,000 a mating; Magnier owns shares in him too. Consider that Coolmore has upward of 50 busy stallions and you get some idea of the scale of the operation.
Big strides in equine gynaecology mean that mares can now be tested in-foal in less than two weeks; this means multiple matings by the same stallion with the same mare are unnecessary. As recently as 20 years ago stallions would mate with just 40 mares in a season. But the advances mean that a stallion can cover 150 mares — and the owner collects 150 fees, not just 40.
Magnier has also pioneered southern and northern hemisphere coverings so that when a stallion's duties are finished in Ireland, he can be flown down to Australia for more fun and games — and more money for his owner.
'Worldwide, the racing and breeding industry is worth £50 billion, but the irony is that anyone going into racing will only ever recover half of their investment. It's a very high risk indeed,' says American bloodstock market analyst Bill Oppenheim. High risk or not, the Maktoum family emerged from Dubai a generation ago to spend billions buying up the best mares, stallions, training premises and stud farms all over the globe. Magnier and the Maktoums then entered a bidding war, culminating in the $10.2 million world-record price paid by Sheikh Mohammed bin Rashid Al Maktoum for Snaffi Dancer in 1983. Sadly the horse was so useless that it never saw a racecourse and proved infertile at stud. Unlike the art market or the property market, where your purchase can usually be resold for what you paid, a horse like Snaffi Dancer is worth only his weight in dog food, which is approximately £500.
Eerily reminiscent of the Snaffi Dancer non-event, Magnier and his partner Michael Tabor bought an unraced horse at public auction in Miami last year for $16 million, smashing all previous records — and the under-bidder was Sheikh Mohammed. The horse, now called The Green Monkey, was notably well bred but has been beset with problems and there are fears that the duo may have bought a dud. If true, it is a rare setback. Tabor, a former East End bookmaker, got into the racing game relatively late in life. His first big success was when Thunder Gulch won the Kentucky Derby for him in 1995; since then he has owned, or part-owned with a group of investors that includes Magnier, the winners of more than 100 Group 1 races.
The super-rich Maktoums hold the lead over their Irish-based rivals in terms of sheer numbers — thousands of horses in training, a breeding operation and 19 stud farms across the globe make Coolmore look like a whelk stall. But to the Sheikh's annoyance, Coolmore remains predominant in terms of breeding quality.
Both Coolmore and the Sheikh sell some of their equine progeny. In Britain this is done through Tattersalls at Newmarket, Europe's biggest bloodstock auctioneer, which sold £244 million worth of horses last year. It is in the nature of the game that most of those horses turned out to be useless — but as leading bloodstock agent Patrick Cooper says, 'The only way to approach this is as a gamble. You'll probably lose all your money but you'll have a great deal of fun doing it, whereas if you lose all your money on the stock exchange there's no fun to be had at all.'
City PR man Piers Pottinger has had a fair amount of success with his horses. King Harald won at the Cheltenham Festival and has clocked up £70,000 in prize money while Geos has won £380,000. 'There's one hell of a lot of smoke and mirrors in the racing business and that's because the buying and selling is pretty unregulated. There are two things necessary for successful racehorse ownership — patience and stupidity,' he says.
Some forms of ownership qualify for Enterprise Investment Schemes. One such is Breeding Capital, an investment fund run by former jockey and corporate financier William Sporborg. It recently raised £5 million from investors for what is a high-risk venture, buying and selling brood mares and their progeny as well as dealing in stallion shares. If they hit the jackpot, the returns could be fantastic.
If you want to get into racehorse ownership, a reputable organisation called the Racehorse Owners Association runs seminars and gives advice to potential owners about both the pitfalls and the upside. For anyone embarking on this crazy pastime, there will be more fun to be had trying, hoping, wishing and dreaming at auction rooms, trainers' yards and racetracks than you'll ever have trying to choose an ISA. Just don't go into it thinking you're going to buy the next Sir Percy.
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