Opening Bid: Unwelcome Surprises
A comprehensive agreement between trainer and owner is paramount
Those of us who make our living in harness racing find different aspects of the sport absorbing, challenging, rewarding, and fun.
In the fun category, a trip to the winner’s circle with our own horse is surely the ultimate experience. Large purse or small, good weather or bad, local track or distant—we never get tired of that winner’s circle. For a few minutes, our dreams have come true, and we’re the best there is, at least until the next race is called to the post.
Harness racing needs new owners to keep those winner’s circles populated. Bringing in new owners has always been necessary, and we always have had to work hard to attract and maintain them. Today, however, we’re competing with more entertainment options than ever before, and each option offers its share of enjoyment.
Fortunately, people like horses, and people like winning.
The goal of winning and the enjoyment of being part of the effort leading up to a win are potent attractions for new horse owners. These are two of the entertainment assets that enable us to compete successfully against other forms of entertainment.
Those trips to the winner’s circle are expensive, though. Becoming the owner of one or more racehorses is a serious financial commitment, and paying bills is not the fun part. Fractional ownership enables a new owner to keep costs within known and manageable limits, but still do all the enjoyable things that an owner does: frequenting training centers, learning the lingo, hanging out with the horses, going to the races, and showing up in that winner’s circle when everything goes well.
An owner who is truly new to racing has a lot to learn.
He or she is primarily dependent on the trainer for guidance. Major decisions will always involve the trainer, and will require both expertise and good communication skills on the trainer’s part. The new owner’s lack of knowledge, and his or her dependence on the trainer’s expertise is what triggers the securities laws when a trainer becomes a promoter, and sets about to sell fractional interests – which are investments – in racehorses. The securities piece in this issue (see pg. XX) is offered mainly to let present and future trainer-promoters know that when you set up your fractional stable, some sophisticated business planning is required. You’re not “just” a horse trainer any more.
Actually, horse trainers have been sophisticated business people for a long time. Managing the logistics of conditioning and feeding the athletes is just the core skillset. Time-sensitive and detail-oriented functions such as race entries, shipping, and owner communications are superimposed on that. Fractional ownership takes things to yet another level, and some new variables are found on that level.
Securities registration exemption is just one of a number of variables that can be dealt with in a thorough, well-drafted stable agreement. Like a written partnership agreement, a stable agreement spells out the rights and responsibilities of everyone involved. Who makes what decisions, how to get into the deal, how to get out of the deal, and how to resolve disputes are other examples of matters that should be dealt with in advance.
Obtaining the services of a lawyer who is experienced in business organization is a wise business decision.
Such a lawyer can tell you whether your fractional ownership business plan is subject to the securities laws and, if so, what to do about it. He or she can also bring up a host of other planning questions that you may not have thought about. In business planning, unlike horse racing, you can actually identify and eliminate, in advance, most ways for things to go wrong.
Avoiding unwelcome surprises from regulators, such as the state and federal securities authorities, is always a good idea. Your new owners might find an official investigation unsettling, to say the least. More importantly, thorough planning will earn your fractional stable a reputation for dependability that will pay off in the long run for everyone connected with it. Good experiences and an atmosphere of solidity give owners a long-term viewpoint, and can turn fractional owners into full participants.
The USTA is a customer service organization. We think about it all the time: how can we make things better for our members? For example, we’ve made important advances in online entries and online foal registration. On the other hand, when we see a potential hazard that could affect our members, we have a duty to eliminate it or chart a course around it. The securities area is not a familiar one to most horsepeople, and its implications for racing syndicates have rarely been addressed.
We think that calling attention to the potential need to obtain a securities registration exemption could save one or more of our fractional ownership stables from an unpleasant surprise down the road. That’s good customer service, too.
by USTA President Russell Williams
To see more from the December 2017 issue of Hoof Beats, click here.
