When Authentic steps into the starting gate for the 145th running of the Preakness Stakes (Oct. 3) an eclectic ownership group—one that includes Bode Miller (Olympic skier), Walker Buehler (Dodgers pitcher) and several NASCAR drivers—will be rooting him on. The athlete collective is among 5,300 micro-owners that bought shares in the Kentucky Derby winner through MyRaceHorse.com, which owns 12.5% of Authentic. The online marketplace has democratized ownership within the sport of kings and given the average fan an opportunity to participate in the sport beyond placing bets in the grandstand (shares worth .001% were sold for $206). But despite the potential for a ROI (as Authentic should deliver for investors), Ray Paulick (editor/publisher, Paulick Report) said he would “never use the word ‘invest’” to describe the micro-owners’ purchases. “You don’t get into [horse racing ownership] expecting to make money because the math doesn’t work,” he warned.
Our Take: The shared ownership model is not new to horse racing. Cot Campbell (Dogwood Stable) introduced the first racehorse partnership in 1973, and as Paulick noted, ‘racing clubs’ have become “very, very successful in Japan” in recent years.
That doesn’t mean racing partnerships make money or that one should be buying into them. Michael Behrens (founder and CEO, MyRaceHorse.com) acknowledged, “There is ridiculously high risk and high beta in investing in a race horse. The majority of horses lose a lot of money, and because the delta [between winners and losers] is so high, it is hard to classify [racehorse ownership] as an alternative asset class.” For that reason, MyRaceHorse has been careful to position its product as one people purchase because they love the sport and want to get closer to it (think: behind the scenes looks/access)—not because they’re likely to see a ROI.
While the experiential component of racehorse ownership drives the MyRaceHorse model, it’s also responsible for upsetting the risk-reward balance on the platform, which makes reaching profitability a challenge. “It is a thrill of a lifetime to own a champion horse. We don’t buy in search of an ROI. We buy to capture the excitement of winning,” Behrens explained. “If we get lucky and have a nice ROI, that is icing on the cake.”
Making money in horseracing requires an enormous bankroll. Behrens explained, “[The business is] like ridiculously risky VC. You go in on 100 companies knowing 99 won’t do well, but maybe you get Uber, and it pays for the whole portfolio.” At $300,000 per horse—the price Authentic was bought for as a foal—an investor needs tens of millions of dollars to have the mathematical odds of turning a profit in their favor.
While most MyRaceHorse shareholders “chalk up [their investment] to the experience of seeing what it’s like to own a racehorse,” the site is securities compliant, meaning fractional owners who get into “a horse that becomes a star can [legally] participate in the returns,” Behrens said. Those that bought into Authentic should see a positive ROI long-term, but they won’t get a cut of last month’s Kentucky Derby purse (nor any portion of the $1 million at stake this weekend at Pimlico). That’s because, as Behrens explained, MyRaceHorse “purchased [Authentic in June 2020] after he had already proven to be a good horse.” The company (along with Spendthrift Farms) paid $15.2 million in a deal that also included bonuses for the original owner if the horse won big races (like $9 million for the Derby). After the group paid out on their obligations, the net proceeds from the Kentucky Derby were negative—there was no money left over for shareholder dividends.
Of course, the breeding shed is where horses generate the bulk of their earnings and MyRaceHorse/Spendthrift Farms bought Authentic for his upside as a stallion. Behrens suggested the horse’s Run for the Roses “probably doubled his value. Prior to the Derby, speculation was he would cost $20,000 to be booked to. Now, that number could be as high as $50,000 [for the first couple of years].”
The payday remains several years away (even if Authentic is retired following his three-year-old season), but Behrens does expect annual dividends to be paid out on the horse once he reaches the breeding shed. The MyRaceHorse executive reasons Authentic’s dad (Into Mischief, arguably the ‘hottest’ sire in America) “stands for $175,000 and covers 200 mares/year.” If Authentic were to replicate those figures, shareholders would receive $350/share annually—and it is realistic for a stallion to breed for 10-15 years. In other words, “If projections come to fruition [and his babies run fast], it could be a triple digit return over time,” Behrens said.
Winning the Preakness certainly won’t hurt Authentic’s value as a stallion, but a second Triple Crown victory is unlikely to drive it up in a meaningful way either. “He’s already beaten the best three-year-old competition,” Paulick said. “There’s probably more downside in running in the Preakness than there is upside [for him]. If he runs a terrible race, breeders might begin to look at him with a bit of skepticism.” The one race left this year that could increase the horse’s value is the Breeders’ Cup Classic. “To date, Authentic has only run against horses in his own age group. The Breeders’ Cup Classic is for horses three and older. It’s like going from college to the pros,” Paulick explained.
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