Updated: Mar 10, 2021
Personally, I didn't know this was even a thing until my father became one of over 5,000 shareholders of the racing horse, Authentic earlier this year. Amazingly, Authentic wound up winning this year's 146th Kentucky Derby and my father earned a small windfall in the form of dividends. When I learned how many people compound these dividends by buying more shares in more race horses, I realized what a clever way it was to create a new passive income stream completely uncorrelated to traditional markets. This article will show you to get into this wonderful subculture and make some money in the process.
The Business of Racing Horses
For those of you who aren't familiar with the Kentucky Derby, it's the most famous horse race in the country. It is also the first and biggest race of the Triple Crown, which is an award given to thoroughbred horses who can win the Kentucky Derby, Preakness Stakes (the second leg of the Triple Crown) and the Belmont Stakes (the third leg of the Triple Crown) in the same year. Authentic is owned by Zayat Stables, which is owned by brothers Ahmed and Moshin Zayat. Other horses owned by Zayat Stables (all named after family members), include fractions of shares in American Pharoah, California Chrome and Bodemeister.
Racing horses is sometimes a very profitable business. The highest price paid for a thoroughbred race horse within a public auction is $16 million for a two-year-old unnamed colt (male horse), who hadn't even raced yet. The colt was bought through an Irish agent named Demi O'Byrne in Florida in 2006. The colt, who's name has since changed to I'm a Giant, went on to win in later years creating money for any shareholders.
How to Invest in Racehorses
Thoroughbred racehorses are investment holdings in a business which is relatively safe, as one can diversify into a number of different racehorses. They can be purchased in a variety of ways, and individuals who are short in time or money, can easily buy a tiny fraction of a horse.
MyRacehorse.com is the most popular platform to purchase micro shares in racehorses. The price of a share includes the costs associated with caring and training the horse. In order to maintain enough funds to cover these costs, race earnings are used to top off the account. In the event additional money needs to be raised, MyRacehorse will have the option of issuing additional shares at the current market price.
When you purchase shares, you are buying stock in a particular series of an LLC that has been validly issued in compliance with securities laws. In addition, much like the traditional stock market, if the horse you own a stake in is ultimately profitable, you will receive a dividend. Profitability is measured against several costs, including the purchasing price of the horse, its training, and of course maintenance of the horse and the company.
The Benefits of Owning Shares in a Racehorse
Besides making a little dough, investing through MyRaceHorse also offers an enriching experience within this fun sport. Besides enabling investors to have ownership in a beautiful animal, they also offer consistent updates on the current state of your horse, free backside tours and farm tours. In fact, you can even watch your horse and its trainer workout in person!
Lastly, you can attend horse races sitting in the VIP section "Winner’s Circle", enter raffles for paddock access and attend exclusive race day parties.
The Risks of Owning Shares in a Racehorse
Horses can be as unpredictable as stocks. Just like human athletes, they can get ill and hurt. Sometimes, they don't perform as expected. No one can guarantee the performance of a racehorse. Therefore, many investments will not be profitable. Some will indeed be profitable, and some can make you a small fortune.
At the time of this writing, you could buy 0.001% a share for $30 in a horse named Collusion Illusion. Trained by Mark Glatt, Collusion Illusion is a "Top Southern California sprinter on dirt who presents the versatility to excel on turf."