BY LAURA D’ANGELO
PARTNER, JONES WALKER LLP

With the recent record viewership of Sovereignty’s win in the Kentucky Derby presented by Woodford Reserve (Grade 1), exceeding the Masters Tournament and NCAA Men’s Basketball television ratings, horse racing is once again top of mind with long-time and casual fans. Is world-class racing too lofty a goal for a prospective new owner or one who doesn’t invest millions of dollars? Imagine watching a horse you own (or own even a part of) crossing the finish line first!

The reality is that the price tag of the horse is not predictive of its future success. Breeders’ Cup winners, Kentucky Derby winners and Horse of the Year victors come in all shapes, sizes and backgrounds (and price tags).

Yes, there are sheikhs, princes and big commercial farms with horses in these races. However, if you want to participate in racing, there is an entry point option at a reasonable price, utilizing racing partnerships.

Many racing partnership groups had entries in the 2025 Kentucky Derby at Churchill Downs and the 2024 Breeders’ Cup at Del Mar. Racing partnerships are designed to let an investor buy into a horse—or a group of horses—for much less than it would cost to go it alone. Partnerships are an excellent entry vehicle for a first-time buyer, as well as great fun for repeat buyers. Owning a partnership interest has all the fun and excitement, but with less financial commitment and less risk.

While some racing partnerships are entered into among friends on a handshake or loose verbal agreement, most are formally organized groups that will present you with an organizational document such as an LLC operating agreement, partnership agreement, or co-ownership agreement.

Begin by doing some due diligence as you would with any other business investment. As noted by late author and real estate broker Arnold Kirkpatrick in his book Investing in Thoroughbreds: Strategies for Success, “don’t check your brain at the door” simply because you aren’t experienced in the Thoroughbred industry.

Do your due diligence; use that business knowledge you have from other industries. Research online, ask around about the various partnerships, meet the principals, and choose a partnership with objectives that align with your own. There are almost unlimited variations in the structure, operation and management. There isn’t a model that is necessarily better than another. Rather, identify what kind of partnership you would like to be involved in based on the financial model, required investment, where the horses run, what kind of horses are to be purchased, what you hope to get out of your involvement, and other key factors. 

Often the ownership/management document is not particularly negotiable as it is a standardized document for that group and may have already been executed by other investors. However, your questions or concerns may prompt a manager to add or change provisions in the future. Your remedy, if you don’t care for a particular structure, is to walk away and find a partnership that meets your goals and objectives. Find the one that is a fit for you personally.

1. Purpose of the partnership—The horses 

Is this a partnership to buy yearlings and sell at the 2-year-old sales (so-called pinhooking)? Is it to buy 2-year-olds that are ready to race? Yearlings to develop and race? Identify the aspects of the Thoroughbred business that you are interested in and your timeline.

Pinhooking can be higher risk, but it also presents the possibility of a quicker return. Buying a 2-year-old already in training, or an existing racehorse, will get you to the track faster. Buying yearlings may be less expensive, there are more choices, and your team develops these young horses as the trainers see fit, offering a longer time frame, but more control over the course of events. The longer the timeline to reach the objective, the higher the carrying costs and the greater possible risk of injury.

2. Purpose of the partnership—The people

Some partnerships are more affordable and intended to attract younger investors as an introduction to the business, and to generate new fans and owners. Some of these models are “clubs” with a very low buy-in and no profit motive. Others are focused on racing and social events and some are targeted to women to encourage more women to invest in and learn about the industry.

Know your objectives and match those with the partnership that fits.

3. Horses purchased

How many and what type of horses are expected to be purchased from funds raised? You should be aware of such factors as the age, sex and upper limit in price of the horse.

Some partnerships invest only in fillies so that after their racing career, the horses may ultimately be sold as broodmare prospects. With a decent pedigree, this is a relatively predictable exit strategy. 

Buying colts generally means they have to have significant success on the track to be a stallion prospect in today’s market. Some will be gelded, meaning that at the end of their racing career, a new career will need to be identified upon retirement from racing.

Do your research on the price points that typically have a positive return on investment. The Jockey Club and others keep track of purchase price versus success on the racetrack and the percentage of horses that are successful on the track.

4. Racing region and types of racing

Some partnerships focus their efforts on a particular racing region, for example, some partnerships race exclusively in California, Florida, Kentucky or New York. Other partnership race around the world.

Ask questions about history and trainers used so that you can determine where the horses are likely to be targeted to race.

It is most fun when you are able to see your horse race in person — although in today’s environment, watching online or on TV is always an option.

Some partnerships are all about “Big Days,” and some are more focused on a range of competitiveness. Note if the operational document permits a horse to be entered in a claiming race. This should be addressed in the documents as the claiming race value will set the value of the horse (for insurance purposes, etc.) and cause the horse to be “sold” if claimed.

However, some highly effective partnerships are formed for the sole purpose of trading in and out of claiming races.

5. Capital

What is the capital raise objective.

A minimum and maximum amount of money to be raised is often identified either in the document or in a term sheet circulated in advance of closing. If the minimum isn’t raised, the offering doesn’t “close,” and your deposit is returned.

How much is raised between the minimum and the maximum matters if you are planning to invest a fixed amount (say, $50,000). If $100,000 is raised, you will own 50% of the partnership. If $500,000 is raised, your outlay is still the same ($50,000), but your interest is less and your pro rata expenses will be reduced.

How much is raised will also determine how many horses, and of what quality, can be purchased. Get comfortable with what the buy-in is and what percentage you will own. Find out from the manager what the purchase strategy is or will be.

6. Ongoing funding

Ongoing costs may be the most important aspect for an investor, along with an exit strategy. Know much will it cost you to continue month-to-month and year-to-year in the partnership.

Some partnerships collect enough money in the initial capital raised to fund the partnership for some period beyond the initial horse purchases. This time frame may be six months or a year, or through the 2-year-old sales in the event of a pinhooking partnership. Purses or sales of partnership horses may continue to fund the operations. Most likely, you will be billed monthly or quarterly for expenses.

All of these arrangements exist and are acceptable — just know what the situation is and budget accordingly. More importantly, if expenses exceed ongoing earnings (and they are likely to), know if the manager make a capital call. Know if that capital call is voluntary or mandatory and be prepared and budget for such calls.

If the calls are voluntary, the agreement should provide that if one investor makes the additional capital contribution and one does not, the non-contributing investor’s interest will be ratcheted down, pro rata.

Partnerships estimate the cost to keep a single horse in training at about $60,000 per year, the bulk of which is the trainer’s day rate (generally including stabling, feed, and employees).

7. Financial Reporting

Determine how often you will receive a profit and loss statement (monthly, quarterly, annually). Inquire as to the details in the reports and whether you can clearly identify how and where the money is spent. Know how often profits, if any, distributed.

Some partnerships deduct outstanding expenses from any revenue source and pay or request the difference. Some partnerships bill monthly or quarterly but pay out your share of the purse money after every successful race, without offset of expenses other than those deducted at the track level (10% to the jockey and 12%–13% to the trainer, who typically shares part of that with their staff). This can be a fun approach, as you are cashing checks along the way.

Also, know what management expenses are funded and what the budget for such expenses is (i.e., travel, hotel, entertainment of partners, and similar expenses).

8. Insurance

Insurance is critical to the operation of the business. The operation should have a general liability policy in place as well as mortality insurance on each horse.

Most partnerships cover both in the expenses so that coverage is in place and management dictates coverage amounts based on the purchase price or market value of the horse. Some, however, leave the mortality insurance to the individual partners. You may choose to insure or self-insure. You can insure a percentage interest in a horse, but you will need to coordinate with the manager and other partners on valuation.

Competing policies with different insurance companies may create coverage issues in the event of a claim, so best practice is typically one policy administered by the manager and expensed through to the partners pro rata.

9. Taxation

The typical racing partnership (LLC, partnership) will generate partnership returns (K-1s), and the profits and losses will flow through to the investor’s personal return.

Be aware that investors in racing partnerships are largely considered “passive” investors, meaning that an investor does not invest a material amount of time or authority in decision-making and management. As such, losses may not be deducted each year on the investor’s tax return but must be carried forward until the conclusion of the partnership. Passive losses can, however, be taken against other passive income (rental real estate income, for example). 

Consult an equine tax advisor on these matters as well as on the availability of depreciation and tax treatments specific to horses. Remember it is not the manager’s role to advise you on your individual tax treatment or characterization of your investment.

10. Management

The document should set forth a “managing member/partner” or other equivalent. If the manager is an entity, determine the ultimate owners of that entity. Interview the manager. Ask questions about their background, education, experience, and track record with prior partnerships. Request references from past and current investors and interview the investors about their experience. Ask your friends about their experiences.

The website ownerview.com publishes statistics including win percentages by partnership, which can be useful as a comparison tool.

11. Management compensation

There are numerous ways that managers may be compensated. 

Some charge a monthly management fee. Some take the bulk of their money on the front end by purchasing horses and contributing the horses to the partnership at a markup. If you are curious about the degree of the markups, all public sale-price history is available online or through industry resources.

Some managers employ more of a hedge fund formula (i.e., 10/10/10) where the manager takes a percentage of assets under management each year and sales commissions on the horses on the way in and out of the partnership in return for their efforts in identifying or selling prospects.

Read the document carefully to understand the management costs. 

12. Removal or replacement of manager

Most agreements provide for a supermajority vote to remove a manager, and some will provide for removal upon “cause,” which might be for the conviction of a crime or for any reason that results in the manager not being able to be licensed by a racing commission or Horseracing Safety and Integrity Act (HISA), or being sanctioned, or temporarily or permanently suspended by a racing commission or HISA. Provisions should be made for the partners to select a successor manager should one be unable to continue to serve for any reason.

13. Member voting

Know if the members (nonmanagers) have a say in any decision-making.

Most commonly, if this is a partnership that is managed by someone who does this for a living, the members do not have a vote on any day-to-day decisions. Some agreements provide for a supermajority vote for major decisions such as to admit a new member, terminate the partnership, change the manager, spend above a certain amount, borrow money, sell a horse, and similar big-ticket items.

Do not be surprised if, as a minority member, you do not really have a vote on most issues.

Remember, you are relying on the manager, who has experience, to make these decisions for you and to educate you along the way. If you have questions about how the partnership is managed, speak to the manager.

Communication is key. Partnership timelines are typically short, so ultimately you can choose not to reinvest in the next partnership if your interests are not aligned.

14. Resale of interests

Partnership interests are typically closely held with significant buy-sell restrictions. Such restrictions are in place for good reasons: first, so that the parties are not trading what may be characterized as a security and, second, to control who participates. Also, there may not be a lot of buyers for an interest in a racing partnership that is already underway.

Both the manager and the other members want quality partners who understand the model, how it will work, and who will pay their bills. So, if an interest can be transferred, it is usually subject to a right of first refusal back to the remaining members at the offered price, and for the manager and/or members to vote whether or not to permit the transfer. Involuntary transfers (death, divorce, and bankruptcy) should be addressed in the documents.

15. Private sale of a horse

What if the partnership or manager receives an enticing offer for all or part of a particular horse? Who decides if the horse should be sold? Often this is a management decision or a supermajority decision, as the manager is generally best suited to determine fair market value.

A 2-year-old who won his first race impressively. 3-year-olds that are on the Derby trail or other horses headed to the Breeders’ Cup will attract attention from one or more potential buyers (individuals or stallion farms) as the horse approaches big race days.

Some buyers intend to own 100% of the horse and will not entertain having the original owners stay on as partners. Sometimes the seller of the horse can negotiate to stay in for a percentage (even if a minority interest) in order to enjoy the ride to the Derby, Breeders’ Cup, or other big race.

These details are negotiated at the time of the offer. Additionally, commercial stallion farms will sometimes buy the breeding rights to a colt during the horse’s racing career in order to tie up a promising prospect for stallion duties upon retirement.

16. Career-ending decisions

Evaluate what happens if a horse is injured and cannot race in the short term (costs and location of layups) or long term (needs to be retired) or simply is not demonstrating an aptitude as a racehorse. 

Typically, the manager makes this decision in conjunction with the trainer and/or veterinarian in the best interest of the horse. Know if there a plan for rehoming a horse that cannot race or isn’t suitable for sale for breeding purposes (lack of commercial pedigree, gelding, etc.) as a sport horse.

Ask the management how they handle such decisions. Responsible Thoroughbred ownership is important and there are numerous retirement and retraining options available across the country. Thoroughbred Aftercare Alliance is one organization that accredits these types of organizations.

17. Exit strategy

This is by far one of the most important provisions for the investor. 

Ask the manager when and how the partnership will be concluded. There are many options. Racehorses may be sold at public auction by a particular date (say, in the fall of their 3- or 4-year-old year). Research the nature and timing of the public auctions. Auctions are limited and only occur at specific times of the year, depending on the use of the horse (breeding stock, yearlings, 2-year-olds in training, etc.). The main auction houses include Keeneland, Fasig Tipton, Ocala Breeders Sales and Inglis.

Infrequently, agreements provide for conversion of the partnership to a breeding partnership by the vote of the members. If you are buying an interest to race, decide if you are willing to own a broodmare and be aware it takes years to realize a return and requires the payment of long-term boarding fees, vet bills, and stud fees.

Some people love the breeding side of the business, and some are not interested in the long timeline.

The type of partnership often dictates the exit strategy and the timing of such exit. Be sure that management files the necessary dissolution in the state of organization upon the termination of the partner¬ship to establish an end date on both taxation and possible liability issues.

18. Tangible and intangible benefits

Review the document and ensure the manager explains/outlines other benefits such as backside access, morning workouts, trainer and training barn access, farm tours, tickets or boxes at popular racetracks or hard-to-get tickets to premier racing.

If you own an interest in a racehorse, enjoy all the perks of ownership. Get involved, attend industry educational events, and learn the business of horse ownership. Some of the intangibles are meeting and socializing with new, like-minded friends; camaraderie; introduction to industry leaders and trainers; and attending horse sales, special industry events, charity events, and awards dinners. 

These elements may be unwritten but are what participating in racing partnerships is all about — enjoyable experiences and, hopefully, the thrill of victory. 

 

Laura D’Angelo is a partner in the Lexington, Kentucky, office of Jones Walker LLP. Her practice is focused on corporate transactional, equine, and gaming law. She is licensed in Kentucky, New York, and Washington, DC.

Return to the June 16 issue of Wire to Wire