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Can You Make Money Owning a Racehorse?

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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, the vast majority of 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.

Picture of racehorses.

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 as well such as:

  • Breeding
  • Selling
  • 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.

Picture of yearlings in a field.
Picture of Thoroughbred yearlings

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

Picture of our two year old running
Our two-year-old-in-training.

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 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.

You can also make money claiming racehorses. In a claiming race, all the 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.

Picture of a dapple gray racehorse

What is a Horse Racing Syndicate?

A horse racing syndicate sells a percentage of ownership in a racehorse. The business can be formed before purchasing a horse or include a horse already purchased.

An agent is designated for the syndicate and is responsible 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 purchasing the horse, each shareholder is responsible for paying their 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 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 if 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 to determine your tax liability.

Owners who meet specific requirements can take losses so long as 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.

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