Most people don’t know, but many horse trainers expect a 5% “bonus” when an owner sells a thoroughbred racehorse for a profit. For example, a horse racing partnership purchases a horse for $100,000, races the horse successfully, then later sells a horse for $250,000. In such instance, due to the profit, the trainer expects 5% of the sales price or $12,500. He expects this usually for one of two reasons. One, as a bonus for the increased value in the horse. Or two, if the horse continues to run and earn income for another trainer, for the lost purse commissions.
This is a hot-button issue with many owners and horse racing partnerships. In almost every case this bonus is based on a handshake, ie industry norm. Trainers and horse racing partnerships and owners do not have written agreements.
As the 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 the other nine horses I've had with the trainer. Finally, I'm lucky enough to receive a small payday and my trainer tells me it’s ‘standard' to receive 5% of the sales price. But I’m still generating a net 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 explain the “industry norm” to our partners and invite them to give the bonus or decline - - just like a regular owner. We can tell you, some want to pay it and some don't. And we get it.
There is no right answer. 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. When a trainer gets a horse to a stakes level, and the owner solely profits from a sale, we can understand why a trainer expects a bonus. Especially when the horse continues to race and a new trainer earns purses based partly on the old trainers work product. Some could argue the old trainer should be entitled to some of the purses going forward.
On the flip side, if it indeed is a bonus, then the totality of the situation must be taken into account. Did you make a profit on the horse? Are you profitable overall with the trainer?
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. Let's move transactions like this from the back room out into the light and make positive change through transparency and communication.
What do you think?
For more information about horse racing partnerships, please visit www.littleredfeather.com.