While gambling is integral to the history of horse racing, it’s not the only avenue for profit.
Investing in and owning racehorses is a highly risky venture, but it can be extraordinarily lucrative for those who succeed. Major races offer substantial prize money, and successful racehorses often maintain significant breeding value long after their racing careers end. However, the financial demands of horse racing a horse or maintaining a stable are considerable.
Here’s what you need to know about investing in racehorses.
The History of Investing in Horse Racing
People have been racing horses long before mint juleps and giant hats became synonymous with the Kentucky Derby. Our fascination with horse racing spans centuries, with the first organized races in North America dating back to 1664 in what is now New York City.
In those early days, races focused more on a horse’s stamina than its speed, a shift that occurred post-Civil War as races began to emphasize speed. Initially, races were match events between two or three horses, but as the sport grew, the fields expanded to include larger numbers of competitors.
Historically, owning racehorses has been an endeavor of the wealthy due to the high costs associated with housing and training. Yet, there are now options for smaller investors to make fractional investments in racehorses.
Most racehorse owners are either significantly wealthy or come from families with deep-rooted traditions in the sport. For example, Queen Elizabeth II was a passionate horse racing enthusiast, and the British royal family owned several competing horses. Similarly, Dubai’s royal family possesses numerous race-winning horses worldwide. Hold a look at the horse racing schedule to see when these remarkable horses are competing.
One notable racehorse owner who transitioned from traditional asset investment is Seth Klarman, founder of The Baupost Group, a Boston-based hedge fund. Klarman built his wealth by investing in undervalued securities, authoring “Margin of Safety,” a book hailed as one of the best investment guides ever written. Klarman’s horse, Domestic Product, is set to compete in the 2024 Kentucky Derby.
Buying a Racehorse
According to Stroud Coleman Bloodstock, a global thoroughbred agency based in the U.K., racehorses are usually purchased at public auctions before they have ever competed. Due diligence and a profound knowledge of the industry are critical, given the lack of performance data on these horses.
Horses can be bought as foals, yearlings (one-year-olds), or two-year-olds. They can also be bought and sold after their racing careers have started, but successful horses with proven track records are significantly more expensive. Keeneland, located in Lexington, Kentucky, is one of the most prestigious thoroughbred auction houses globally and hosts several auctions each year. At its September 2023 auction, nearly 2,900 horses, with the highest-priced horse fetching $3 million.
Costs vary based on the horse’s age and racing success. Yearlings tend to be cheaper than two-year-olds, as predicting their racing potential becomes easier with age. Prices drop for older horses past their prime unless they possess significant value as studs, typically reserved for the most successful horses.
The initial purchase cost is just the beginning. Ongoing expenses for training, travel, veterinary care, and stabling can be substantial. According to Horse Racing Sense, a blog dedicated to the horse industry, you can expect to pay between $30,000 and $50,000 per horse annually. Trainers usually charge day rates ranging from $60 to $120 or more, depending on the trainer and facility.
Owning Part of a Racehorse
If purchasing a racehorse is too costly, platforms like MyRacehorse offer fractional ownership, allowing investors to buy shares in horses starting around $100. This makes horse racing investments more accessible and provides opportunities to engage in the sport. However, it’s a high-risk investment with no guarantee of significant returns.
