Most people don’t know, but horse trainers expect a 5% “bonus” when an owner sells a thoroughbred racehorse for a profit. For example, a horse racing syndicate purchases a horse for $100,000, races the horse successfully, then later sells a horse for $1,000,000. In such instance, due to the nice profit, the trainer expects 5% or $50,000.
This is a hot-button issue with many owners and horse racing syndicates. In almost every case this bonus is based on a handshake, industry norm. There is nothing in writing.
As managing partner of horse racing partnerships, we are immensely appreciative of the work our trainers do. They spend countless hours, many before we wake up in the morning, supervising and caring for our horses.
An owner though, recently told us he was taken aback when the issue arose. “I purchase the horse, and pay a daily training fee and 10% of purses. We win a few races and I see a small return...but I'm not still not in the black with this horse or the other nine I've had with the trainer. Finally, I'm lucky enough to receive a big payday and my trainer tells me it’s ‘standard' to receive 5% of the purchase price. But I’m still generating a loss from all my horse investments.”
The horse trainer (think of someone like Bob Baffert), of course, sees it differently. "Most people think we make money on our day rate," one trainer recently told us. "I know I don't. I earn my living on the 10% commission from purses. This bonus is important to me."
When horse racing partnerships address the issue the response is usually straight forward. As fiduciary of our partners investment we can’t legally “hand out” a non-contractual bonus. We do explain the “industry norm” to our partners and some actually want to pay it. So, we leave it up to the partners. I suspect the same percentage of partners of thoroughbred syndicates pay the bonus as do other owners.
Unfortunately, there is no right answer. Personally, we agree with both sides. Trainers shouldn’t have to base their livelihood on whether their horses are profitable. They are experts in their field and should be paid as such. The real issue is… why is the rule “unwritten”? Nobody likes hidden fees. Wouldn't transparency resolve the issue? Trainers should make it clear in writing when receiving a horse that the training fee is day rate, plus 10% of purses, and 5% on a sale. At this point, the owner has the right to agree or walk away. Most will stay.
Let's move deals like this from the back room out into the light and make positive change through transparency and communication.
For more information about horse racing partnerships, please visit www.littleredfeather.com.