Can you make a profit from horse racing?

On 10 October 2018, a strapping yearling colt parades through the Tattersalls sales ring. The great and the good of British horse racing descend on Newmarket at this time of year in the hope of finding the next Frankel, Sea The Stars or Galileo, but today it is Lot 325 who is creating all the buzz.

The sales ring is deadly silent but for the clip and clop of hooves, and the dulcet tones of the auctioneer taking care of proceedings. Bloodstock agents, breeders and trainers watch intently without discussion.

The well-bred full brother to unbeaten two-year-old Too Darn Hot, Lot 325 comes from the proven sire and dam combination of Dubawi and Dar Re Mi, and walks with the kind of indefinable class and elegance of a horse that could emulate his highly regarded sibling. For now, he’s just a baby, thoughts of charging down the Rowley Mile far from his mind, but that doesn’t stop the hammer falling down at £3.68m.

In football terms, he’s the big-money signing of the transfer season. The only difference between him and an Eden Hazard or a Cristiano Ronaldo is that he’s been bought in his infancy. His new investors have just bought a baby in the hope he becomes a Champions League winner.

Glory in horse racing, it appears, is a combination of careful training, good breeding and a tonne of luck.

In among the throng, I spot Tattersalls’ marketing manager Jason Singh and ask him to tell me more about the spectacle I’ve just witnessed: “Book One is the top end of the yearling selection, the cream of the crop. That’s where you’ll find some of the royal owners like Sheikh Mohammed [Godolphin Racing], Sheikh Hamdan [Shadwell Racing] and operations like Coolmore owned by Irish business magnate John Magnier.”

If you get bloodstock right, you're not talking about a 50% return of investment – it can be many multiples of that

With an average price at Book One sales of 271,000 guineas (the equivalent of £284k), it’s not a surprise to hear this is the pool from which the biggest names in racing source their talent.

For Lot 325’s part, his mother Dar Re Mi is largely responsible for his obscene price tag, as much as his sibling’s blockbuster performances have intensified the focus of prospective buyers.

Singh explains: “Dar Re Mi has been an exceptional mare for Watership Down stud, both on the racecourse, where she was a highly rated horse, and now as a broodmare – they don’t always go hand in hand.

“Her first foal was a Group-placed horse, her second was So Mi Dar who won the Group 3 Musidora at York and was Group 1 placed, her third foal was Lah Ti Dar who still looks a great prospect this year, and her fourth foal is Too Darn Hot. So she’s looking like a mare that just doesn’t miss at the moment. The price for Lot 325 might be inflated, but it’s not at all surprising.”

Follow the Money

So who are the people buying these expensive colts? The man responsible for consigning the latest hot yearling is someone who knows a thing or two about finding the proverbial needle in a haystack. David Redvers, racing manager to Qatar Racing, won 2018 Bloodstock Agent of the Year for his part in discovering last year’s champion three year old, Roaring Lion.

In September 2016, his team travelled to the Keeneland Sales in Kentucky to track down a US-bred colt that could challenge for the biggest races in Europe. Roaring Lion, a stylish-looking grey out of Kitten’s Joy immediately struck a chord.

“Roaring Lion was a horse that really excited from the get go because he was by a stallion that I had been very keen to buy a son of in Kitten’s Joy. The reason was Kitten’s Joy is the preeminent turf star in America – in fact in 2018 he was the champion sire across the board – and he breeds in a certain amount of toughness to his stock, which the progeny of some American horses are lacking,” Redvers explains over the phone.

“Roaring Lion was not only the best-looking son of Kitten’s Joy I’ve seen, he was also out of a Grade 1-placed race filly with a stunning pedigree. To my eye, he was the most athletic and well-balanced yearling in the entire sale and so we staggered to have to pay only $160k for him.”

With the average yearling price at the Keeneland sales coming in at north of $320k you might wonder what put the buyers off Roaring Lion at first glance. For Redvers, it came down to a quirk of timing: “I think we were lucky in that he was placed early on in Book One, which is the most select sale, and as a result he was surrounded by big heavy dirt-bred horses by sires like Tapit and the like, who are physically a slightly different breed. He was a little overshadowed by these yearlings who are all the rage, but for my eye he was the most perfect example of a turf yearling you could find.

"It’s an innate thing where you just look at horse and you can just tell they’ve got it."

"And so it would prove. No more than two years after the hammer fell down on Redvers’ successful bid had Roaring Lion risen to the top of the three-year-old ranks. He won the Group 2 Dante stakes at York decimating the field before not quite staying the distance in the Derby to place third. After that close call, he never lost on turf again, racking up four Group 1s in a row against older horses and £2.6m worth of prize money.

He’s been described as a horse of a lifetime – and Redvers certainly can see why: “I remember that wonderful line by Sir Alex Ferguson about the first time he saw Ryan Giggs kicking a ball around as a child. He said it’s like ‘watching a cigarette paper blowing in the wind’ the way he carried himself with an ease. That was Roaring Lion. He just did everything so easily.”

If you look at greatest athletes on the planet – Lionel Messi, LeBron James, Tiger Woods – while their high skill level and mental toughness is perpetually apparent, it’s their innate movement that transcends greatness. It is, unsurprisingly, the same in horse racing.

“Movement is the key part for middle-distance horses: they’ve got to have action, they’ve got to be balanced, because then everything is easy to them. If they lack that then they’re always struggling. It’s an innate thing where you just look at horse and you can just tell they’ve got it.”

$160k is not an insignificant sum, but if you were to buy Roaring Lion off Qatar Racing now? You’ll need upwards of £15m to be taken seriously.

Risk and Reward

For every Roaring Lion, of course, you have countless other horses that fail to live up to their initial promise. Some, in fact, never make the track at all.

Perhaps the most infamous recent example is a filly called Al Naamah for whom Al Shaqab Racing paid £5.25m as a yearling – still the world record today – whose best performance was not better than placing in a Group 3 race in France. She was the Andy Carroll to Liverpool or Robinho to Manchester City: a good athlete, but an ability that didn’t match the price tag.

But her best days may still be ahead of her, as she now stands as broodmare at Aga Khan stud in France. Could her children go on to repay her humongous debt?

Singh certainly believes that life after the race course is perhaps more important: “Well, there are a lot more people looking to make money in the breeding side of the game then there are in racing, just because of the probability of success. Your chance of making money in a single racehorse might be one in ten, but breeding is a lot more commercial.”

A bank of well-bred broodmares have the potential to create champions year after year, but a champion sire? That’s hitting the jackpot

Al Naamah may have failed on the racecourse, but as the daughter of the most successful stallions alive in Derby-winner Galileo, she has every chance of passing
on the very best genes to her children.

Another blockbuster mare, Marsha, is set to have a date with Galileo, having chalked up a world-record fee when she was purchased for £6.3m by Irish juggernaut Coolmore with the breeding shed in mind.

“Coolmore own the preeminent stallion of the last 20 years in Galileo, so it’s no surprise that they’ve been trying to buy the best fillies and mares that are on the market to send to that horse, with the knowledge that they’ll be able to breed potential stallion and Classic horses by him every year. So while Marsha might appear to blow the budget, I’m sure that will be averaged out across her expensive children.”

If anything, it goes to show that a bank of well-bred broodmares have the potential to create champions year after year, but a champion sire? That’s hitting the jackpot.

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The Lottery Ticket

This year’s numbers have all dropped for Redvers and Qatar Racing: “He is a clear example of what a good yearling can do for you. Here, you’ve got a horse who cost $160k and he’ll bring in that amount in one day in the breeding shed at the moment.

“This year, he’s got 150 mares coming to him at £40k a time, and then he will almost certainly be shuttling to the Northern Hemisphere at the end of June where he will have a similar-sized book.”

It might be the most valuable form of legalised prostitution on the planet, with £12m changing hands in Roaring Lion’s first year as a stud. As and when he produces his first winning offspring this figure will no doubt close in on six figures.

By comparison, Frankel’s stud fee now stands at £175k (having sired 40 Stakes winners in his short career as sire), while the legendary Galileo is rumoured to command as much as £500k for his stud services.

“The point I suppose is bloodstock is unlike any other high-worth investment in the sense that if you hit it right, you’ve got the right team and the right horses, you’re not talking about getting a 5% return of investment or a 50%, you can be talking about many multiples of that.”

"Nobody really knows where those special horses come from. Our best horse was one of the cheapest horses we've ever bought"

For Roaring Lion, his glory days on the track may be consigned to highlight reels now, but he has barely provided his most lucrative return for his owners.
By 2022, we’ll be seeing the sons and daughters of the Lion – hopefully demonstrating his trademark poise and guts – and, as the world turns, his progeny may well join him in the breeding shed to continue his champion bloodline.

“Actually the breeding industry was screaming out for a new bloodline and the latest hot thing, and Roaring Lion is absolutely that,” Redvers tells me, clearly excited about what the future holds for this superstar stallion."

“Investing in racehorses isn’t for the fainthearted but if you go with the right focus, the right skillset and are happy to lose whatever you invest – because that’s the nature of the beast as they’re living animals and anything can go wrong – then you do probably have the most exciting investment opportunities of all.”

Room at the Top?

The truth is, of course, there is a reason why the mega-stables at the top of the sport are a combination of royal money and über-wealthy investors: the capital required to transform an operation into a Classic-contending outfit, even before you think of their breeding potential, is substantial.

But there are other options available for those passionate enough in the sport – just ask Ed de Giles who swapped a job in the City for a full-time life on the gallops.
As an assistant trainer under Nick Gaselee (trainer of Grand National-winning Party Politics) before he moved into the financial world, he was familiar with what it takes to train winners. After 15 years of job security, he made the decision to turn back to the sport of his youth in 2010.

“I probably had bored all my mates in the City about becoming a racehorse trainer and they figured I was never going to do it but, much to my wife’s shock, I made the break. She knew about the plan, of course,” De Giles tells me over the phone. “But when you’re being paid a nice paycheque and a bonus in the City and then suddenly you’re setting up on your own with no money, it’s a bit of a cultural shift!”

Since then, the trainer has made a name for himself by transforming low-level horses into good handicappers. For those who don’t know their racing, if the very best athletes in the sport are rated 120 or more, De Giles has a track record of turning low-80s performers into 100-rated horses.

Owning horses, or training them yourself, is but two options in the world of racing

Frosty Berry was sent to the yard with a meagre rating of 68, but got up to 100 after winning the Nottingham Further Flight Stakes at 50/1. Likewise, the trainer bought Kingsgate Choice with a rating of 80 before raising him to 100. These are not the mare and sire prospects of Roaring Lion’s calibre, but they represent a good return of investment for those that bought into De Giles’ recipe for success.

So, what would his advice be for those looking to enter the horse racing frey? “It’s so difficult to say exactly what the right thing to do is, but if someone came to me with £200k to invest in horses for a bit of fun. I’d probably go and buy two yearlings, and one ‘form horse’. You’ve then got a solid 85-rated handicapper who’s five years old, we’ve paid £50k for him and you’ll be running on Saturdays in OK handicaps and maybe a big handicap. Then you’ve got two lovely projects coming through in behind, where hopefully you’ll have at least one who’s very good.”

For those who stay the course, you slowly start to see the rewards. “One of my main owners is a hedge fund manager and most of the yearlings we’ve bought are yearlings and most of them have won for him. He’s bought bits and bobs in form horses to keep himself busy, but he’s bought the project. I’d say that’s the best way of going about things.”

Doing Things Differently

Owning horses, or training them yourself, is but two options in the world of racing. One of the more viable options is taking a share in one or several horses with a club like Chelsea Thoroughbreds, founded by CEO of institutional broking firm Whitman Howard, Richard Morecombe.

As a successful businessman, Morecombe dabbled in horseracing for a years before starting his new venture with an eye to opening up the sport to more people.

“When I first went into the stock market pretty well most people who sat on a trading floor had a leg of a horse. I think for whatever reason that’s changed somewhat, probably because there are many many ways of spending your money these days, but what I’ve found is that people who enjoy the sport of horse racing tend to be people who enjoy the risk-taking environment of life. We wanted to bring those similarly minded people together under one banner.”

Morecombe’s method is all about spreading the risk across several shares, much in the same way he may advise hedge funds in the broking side of the equities business. With average shares coming in at £10k for a tenth of a horse, it’s possible to live the life of an owner without the expense.

“What you do begin to learn over time is buying unraced well-bred horses is a big investment, even if you’re well off – you never know if they’ll be any good or not. Therefore, diversification by having shares in more than one horse gives people not only a much greater chance of having a successful horse, but also gives them many more days out racing.”

With hospitality and private boxes reaching into the thousands, there’s something to be said for attending the races with an owner’s badge on your jacket for a not-too dissimilar cost.

In the helter-skelter world of racing, it seems nothing is for certain, regardless of the size of your investment

Then a horse like Humphrey Bogart comes along. A surprise winner of the Lingfield Derby trial in 2016, the Chelsea Thoroughbreds-owned colt went on to finish fifth in the biggest race in UK racing a month later – a huge achievement.

“Nobody really knows where those special horses come from,” Morecombe chuckles. “Ironically, Humphrey Bogart was one of the cheapest horses we’ve ever bought, but the best colt we’ve had so far. It doesn’t necessarily work that you spend good money, you get good horses. We’ve always bought horses in the hope that they’ll give our owners a run for their money on a Saturday at the big tracks.”

Redvers agrees – and while there are “no new Roaring Lions” coming through the Qatar Racing ranks this year, there’s plenty of yearlings who could be the next big thing.

“That’s what exciting about this guy, which is why those of us who are in it for a profession don’t struggle to jump out of bed in the morning. The next horse you find may be the one that propels you to the top.”

In the helter-skelter world of racing, it seems nothing is for certain, regardless of the size of your investment. But for those who saddle up and take the plunge, it might just be a bet worth making.

To get involved in racing, visit chelseathoroughbreds.com and eddegilesracing.com. For auction enquires, see tattersalls.com