When the starting gates are thrown open tomorrow evening at the Preakness Stakes, financiers, media magnates and others in the usual group of horse owners will be cheering for their thoroughbreds. So will about 6,000 more Mom-and-Pop investors who paid as little as $93 for a piece of one of two horses in the field.
Syndicates of owners aren’t new in horse racing. There is even the occasional group of average Joes hitting it big, as with Funny Cide, winner of two legs of the Triple Crown in 2003. Yet those groups required thousands of dollars up front and cash calls for everything from a farrier to shoe the horse every few weeks to footing the bill for dentist visits. In the past two years, companies focused on fractional ownership firms have formed to offer a low-priced, less-hassle entry into the sport of kings.
“What’s now come is like buying shares in Amazon or Apple, but instead you’re buying share in either a stable or a racehorse with a micro-share,” explained Chris Wittstruck, a New York equine attorney who has taught about fractional horse ownership at Hofstra University. “You don’t make much money, but you’re in and it’s a lot fun.”
Authentic, this year’s Kentucky Derby winner and the favorite in tomorrow’s race at Pimlico in Baltimore, has 5,314 owners, many of whom bought in at $206 a share through a company called MyRaceHorse.com. Next to it, in post 8 of the 11 horse field, will be Max Player, which came in third at the Belmont Stakes. It has about 700 owners who paid as little as $92.50 to SportBLX Thoroughbreds, according to regulatory filings. The company opened another round of share offerings this week.
“The entry point is typically in the thousands of dollars for syndicates, and they’re just not equipped to handle the small shareholder. What we’re able to do with SportBLX in horse racing… is use technology to be able to buy shares that small denomination,” explained Joseph De Perio, founder of SportBLX.
While SportBLX and MyRaceHorse are the most successful groups offering racehorse ownership on the cheap, they’re not the only ones who have popped up lately, although it’s not clear how many are out there. It’s following an investing trend that has fractional ownership seemingly everywhere, from popular equities to baseball cards to NBA player investments.
In horse ownership, an organization looking to sell stakes to non-accredited investors—a term for Mom-and-Pop types who haven’t been vetted for financial wherewithal—should be filing with the Securities & Exchange Commission, Wittstruck said. Both SportsBLX and MyRaceHorse.com have filed with the SEC. The regulatory oversight allows fractional horse companies to eliminate a lot of red tape for retail investors that typical horse investors face—like having to get fingerprinted and licensed.
Yet the ease of ownership comes with some trade-offs. While traditional owners get to watch races from the track, a fractional interest won’t get you admission. Instead, one has to be content with Zoom meetings with the managers and making mint juleps at home.
And despite the low dollar price, it’s not clear fractional shares are financial values. MyRaceHorse bought 12.5% of Authentic and then raised $2.575 million through MyRaceHorse.com, according to the company. That values the horse at $20.6 million, which makes it the third-most valuable horse of all time, based on information published by The Irish Field, a racehorse publication. Even so, the one-thousandth of one percent of Authentic each share represents would be in line for a $1,860 in the Kentucky Derby payout—except performance payment clauses to the horse’s prior owners means retail shareholders might not get any money at all this year, according to the company’s website.
In the case of Max Player, DePerio said the horse is now valued at $2.35 million overall. “We think that’s a fair price given the prospects of him as a four-year old and potentially a stallion prospect in the future,” he said.
For right now, there’s also no way for a shareholder to cash out short of an outright sale of the whole horse to someone else. DePerio said SportBLX is looking to create a secondary market for trading shares. There’s some incentive to do that: If horse owners make fractional ownership viable in the long-term, it opens up the pool of people who can invest, potentially raising horse prices across the board. There are only about 12 million accredited investors in the U.S., but at least 50 million retail investors that buy stocks, for example.
“This allows lots of people with small dollar amounts to participate with the same excitement as if you own the entire horse,” said George Hall, the majority owner of Max Player. “The more they learn about the sport, the bigger fans they become. The idea is: Bring the sport to a greater number of people, and that ultimately will be good for the sport and good for investors.”
(This story has corrected George Hall’s name in the last paragraph.)