Can You Make Money Owning a Racehorse?

Last updated: December 31, 2023

By: Miles HenryFact Checked

Horse racing is an expensive and financially risky endeavor. It is also one of the most exciting and rewarding sports globally. 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, most racehorse owners don’t make money and use their losses as a tax write-off.

Before you buy a horse, you need a relationship with someone in the industry you trust who 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 of 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 in other ways, such as:

• Breeding
• Selling
• Support services

Winning Races

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.

The percentage of winnings a horse owner receives from a race depends on the specific rules of the race and the racetrack. Generally, the total purse is divided among the top finishers in the race, with the majority going to the winner.

Here’s a typical distribution for a race in the United States:

• First place (Winner): Approximately 60% of the total purse
• Second place: Approximately 20% of the total purse
• Third place: Approximately 10% of the total purse
• The remaining 10% is typically divided among the fourth through sixth places

Remember, the prize money goes to the horse’s owner(s), which might be a single individual, a partnership, or a syndicate, depending on the ownership structure. Additionally, a portion of the winnings often goes to the trainer and jockey, typically as a percentage agreed upon beforehand (usually around 10% each).

Remember that these percentages can vary based on many factors, including the country, the specific race track, the type of race, etc. It’s essential to check the specific rules of each race for accurate information.

After monthly expenses and fees are paid, there is usually very little profit remaining for the horse owner. For 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. Many horses retire and are used for breeding after completing their racing career.

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 annually 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 horse’s earnings, and you don’t have to pay for training fees.

Owners can make money pinhooking and selling racehorses

Some racehorse owners Pinhook horses. Pinhooking is the business of buying a young racehorse prospect and reselling them. Typically, a person buys a yearling or weanling, puts some training into the horses, and sells 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 as expected or 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.

You can also make money claiming racehorses. In a claiming race, all competitors are available for a set price. Sometimes, you can find a horse dropped down in class so it can win a race.

These are opportunities for a savvy person to get a horse already racing for a decent price. Seabiscuit ran in a claiming race before he became the most dominant horse of his time.

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 by providing support services.

Some racehorse owners have farms with facilities that you can lease. Owners have barns and paddocks near most race tracks that can be used to house horses during the offseason or when a horse is injured.

We used to pay a daily fee to board our horses at 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 syndicate is a group of people who come together to share the costs and responsibilities of owning a racehorse. Instead of one person owning the entire horse, ownership is divided into shares. Each syndicate member purchases a share and pays a proportionate part of the horse’s purchase price and ongoing upkeep costs.

Joining a syndicate instead of buying a racehorse by yourself offers several advantages, especially for those new to the racing industry or those who want to mitigate the financial risks involved. Here are a few reasons why people might choose to join a syndicate:

1. Cost-sharing: Owning a racehorse outright can be an expensive venture, with costs including not just the initial purchase price but also ongoing expenses like training, stabling, veterinary care, insurance, and entry fees for races. When you’re part of a syndicate, these costs are split among all the members, making it a more affordable way to be involved in horse racing.
2. Risk Mitigation: As the costs are shared, so are the risks. The horse racing industry is inherently uncertain, and many factors can influence a horse’s performance and profitability. Being part of a syndicate can lessen the financial impact if the horse does not perform as expected.
3. Learning Opportunity: For those new to horse racing, being part of a syndicate can provide valuable insight into the industry. You can learn from more experienced syndicate members or the syndicate manager.
4. Community and Shared Enjoyment: Syndicates also provide a sense of community. The thrill of watching your horse race is shared with a group of people who have similar interests. Win or lose, the shared experience can be a significant part of the enjoyment.
5. Access to Higher Quality Horses: With its combined financial resources, a syndicate may be able to afford higher caliber horses than an individual could buy. This potentially increases the chances of owning a successful racehorse.

The primary motivation for joining a syndicate should be the enjoyment and excitement of participating in the sport. Each syndicate is different, and the terms of the agreement can vary. These may include how decisions about the horse are made, how costs are divided, and how any earnings are distributed. It’s essential for anyone considering joining a syndicate to understand these terms thoroughly before committing.

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.

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 to determine your tax liability.

Owners who meet specific requirements can take losses if they are not considered “passive” owners. Members of syndicates or partnerships are typically considered “passive” and can’t deduct net losses against other business income.

Below is a helpful YouTube video with tips about buying a racehorse.

FAQs

Conclusion: Can You Make Money Owning a Racehorse?

In conclusion, owning a racehorse can be a thrilling and potentially rewarding venture, but it requires careful consideration of the financial aspects involved. While there are multiple avenues to earn, such as winning races, breeding, and pinhooking, each comes with its own set of risks and challenges.

Joining a syndicate or partnership can offer a more accessible entry into the racing world, sharing both the costs and the excitement. Ultimately, success in racehorse ownership combines passion, knowledge, and a bit of luck, making it a unique and exhilarating experience for those who choose to embark on this journey.

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