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Horse racing is an expensive and financially risky endeavor. It also is one of the most exciting and rewarding sports in the world. But, can you make money owning a racehorse?
Yes, you can make money owning a racehorse, but it takes patience, luck, and knowledge of the racing industry. However, the vast majority of racehorse owners don’t make money.
Before you buy a horse, you need a relationship with someone in the industry you trust and can guide you. It’s never a good idea to invest in a racehorse expecting to make money, but if done right, you can have fun, and there is a possibility for financial reward.
How Does a Racehorse Owner Make Money?
The most obvious way a racehorse owner makes money is by winning races. But owners can also make money other ways as well such as:
- Support services
The owner can earn money racing: Purse Money
Most racehorse owners intend to win money by racing their horses. Each race is designated a certain amount of money called the purse. The track steward sets the purse based on the grade level of the competition.
A percentage of the purse is paid to the finishers in a race. In some racing jurisdictions, all entries in a competition receive a portion of the purse. In other districts, only the top six are paid.
Typically, the winner is paid 60 percent of the total purse, and second place is paid, 20% to second place, 10% to third, 5% to 4th, 3% to 5th, and 2% to 6th. From horses’ earnings, jockey and training fees are paid.
After monthly expenses and fees are paid, there is usually very little profit remaining for the horse owner. As an example, in a race with a purse of $10,000, the winning horse owner gets $6000. From this $6,000, the jockey and trainer fees are deducted, leaving the owner with $4800.
Likely, $4,800 won’t cover the monthly expenses to feed, house, and train the horse. If his horse runs third or lower, he surely didn’t earn enough to cover his costs.
Owners can make money breeding horses
Racehorse owners can make money standing a stallion at stud, selling offspring, and breeders awards. Upon completion of their racing career, many horses retire and are used for breeding.
Even though a successful horse can make a lot of money racing, its real earnings potential might be as a stud. The most expensive stallion is Galileo, his stud fee is unknown but is speculated to be $700,000.
The highest-earning stud in the United States is Tapit. He earns over $35 million per year. He breeds 125 mares per year at a stud fee of $300,000 per horse. Tapit and Galileo are exceptional studs and demand the highest prices, most stud fees for a talented stallion with an excellent pedigree range from $2,500 to $10,000.
Owners may decide to breed their mares with proven pedigrees. Breeding has advantages: 1) you can race a horse you raised from birth 2) you can sell the offspring, 3) you are entitled to breeders awards from the horses earning, and you don’t have to pay training fees.
Owners can make money pinhooking and selling racehorses
Some racehorse owners Pinhook horses. Pinhooking is the business of buying young horses and reselling them. Typically, a person buys a yearling or weanling, puts some training into the horses, and ssells them for more money.
In high-end well-bred racehorses, pinhooking is a common practice; however, the risk is considerable. The young horse might not progress the way you expect, or may get injured or sick.
However, if a young horse develops correctly, and takes to training, it is worth a lot more money than it was as a yearling. Buyers see the potential in a horse much better at two than one year old.
Owners can make money selling racehorses, some as runners, and other horses as breeding prospects. I’ve had friends sell good young horses in their prime. Trainers are often in the market to purchase horses for investors and individual owners.
Horses recently off the track, especially mares with good breeding and success on the track, are desired by breeders. An owner may not be into the breeding business and elect to sell a horse as a broodmare.
Owners can make money providing support services.
Some racehorse owners have farms with facilities that can be leased. Near most race tracks, owners have barns and paddocks that can be used to house horses during the offseason or when a horse is injured.
We used to pay a daily fee to use an owner’s private training track. This worked well for us since we kept our horse at home and only paid for the days we used the track. An owner may also have a breeding facility to earn income.
What is a Horse Racing Syndicate?
A horse racing syndicate sells a percentage of ownership in a racehorse. The business can be formed before the purchase of a horse or include a horse already purchased.
An agent is designated for the syndicate and has the responsibility for selecting the horse, finding the owners, and finalizing the paperwork. The price of shares varies widely based on the number of shareholders and the costs of the syndicated horse.
The syndicate owns the horse and is responsible for all the bills and management fees. The initial shares cover the cost of the horse and all related expenses to purchase the horse, such as vet checks and transportation costs.
After the purchase of the horse, each shareholder is responsible for paying his percentage of expenses. The expenses include monthly costs for training and upkeep of the horse along with a management fee. Typical expenses you can expect to pay to include:
- Training fees- the daily fee charged by the trainer;
- Vet fees – as needed
- Transportation charges- haul the horse
- Dental/Chiropractic charges
- Track fees
- Farrier fees
- Nomination and acceptance fees-Fees for special races may be mandated
- Management fees and associated administration expenses
- Insurance fees-Insurance premiums on the horse
Can you depreciate a racehorse?
Yes, if you are classified as an “active” owner to the IRS, which requires you to be involved in the activities of the racehorse. To be considered active, an owner must meet specific participation requirements, such as spending a minimum amount of hours at this business activity during the year.
Currently, you are allowed to depreciate the cost of the horse over three years. A yearling horse counts as a capital expenditure and can be written off immediately. Check the IRS guidelines to confirm you are eligible to depreciate your horse.
Can you insure a racehorse?
Yes, most owners buy mortality insurance policies for their highly-valued horses. The premium is typically 5% of the fair market value of the insured horse. The mortality insurance coverage pays you in the event your horse is lost, killed, or has to be destroyed for any reason.
Do horse owners pay tax on winnings?
Yes, winnings have to be reported in your IRS tax filings. Syndicates and partnerships have specific forms for reporting their income. Each person’s tax liability is based on their agreed percentage of ownership. See a professional accountant determine your tax liability.
Owners that meet specific requirements are allowed to take losses so long as they are not considered “passive” owners. (Click on this link to see if you meet the IRS guidelines.) Members of syndicates or partnerships are typically considered “passive,” and can’t deduct net losses against other business income.