Consumer Expectations

Because racehorses are not machines, there is no guarantee that even if a horse has already entered training, that it will actually make it to the races, let alone win a race or any place prize money. In other words, it is essential that a syndicatee measures his/her expectations from the outset.

If you are buying a share in the ownership of a horse, (as opposed to a leasing arrangement) it means that you are becoming a part owner in the horse.

The syndicator may have already speculatively purchased the horse prior to syndication.

Alternatively, the Syndicator may not choose to risk his own funds and seek funding from syndicatees in advance of looking for a horse at the sales (or elsewhere). From a Syndicatee point of view, this could mean that an essential element of choice is lost. If you are not happy with the resultant syndicated horse, the contractual agreement could mean that it is too late to pull out.

Some syndicators management fees are considerably more than others. For example, a syndicate business with 40 members of staff is quite likely to have a higher management fee than a syndicator with no staff, particularly if he administers the syndicate from his home. Furthermore the service and professionalism is likely to vary between syndicates, therefore price comparisons are often of little use unless they are like-for-like.

Some syndicators do not purchase a racehorse, instead they merely lease it from the legal owner, for a period of time. The syndicator then splits the lease arrangement into shares. You need to be sure that you are not merely funding the racing career of a racehorse (particularly a filly) for the legal owner. Or merely subsidising a syndicator's hobby. If you are hoping to get some of your costs back from a share of prize money won by the horse, you need to be aware of the actual or likely BHA rating of the racehorse. For example, the average Flat racehorse will have a rating of about 70. A below average racehorse is less likely to run at prestigious race meetings and less likely to win even a small percentage of the costs back, that's assuming it actually gets to the races.

Joining a racing syndicate or club should be treated as an entertainment. The syndicator should not imply that the purchase of a share is an investment.

Check that the offer is unambiguous. Is the difference between ownership, leasing and club, clearly defined? If for example; the headline text is "JOIN XYZ RACEHORSE OWNERSHIP SYNDICATE" and the small print further on, states something like "the syndicatee is not acquiring any equity in the horse" alarm bells could start ringing.

If the syndicator is a member of any racing industry body, this does not infer protection against being misled. No organisation within British Horseracing ensures/guarantees that a syndicate or club is being run in accordance with the principles of consumer legislation. Albeit understandable, even the BHA do not have a compensation scheme for losses arising as a result of their failure to address any anomalies prior to the BHA registration process.It is therefore a case of caveat emptor (buyer beware).

Apart from being good business practice, every syndicator should have a set of terms and conditions and these should be available in a written format to a potential buyer BEFORE joining. This avoids any misunderstanding arising from discussion over the telephone (for example).If the full set of terms and conditions cannot be easily found, on the syndicate/club website, this could potentially be considered a "lack of transparency".

Once you have purchased your share, the syndicator will normally issue a receipt or a share certificate. This should confirm the exact percentage/proportion you have purchased. For example,if you were originally informed that the ownership or lease was being split into 20 x 5% shares, the share number on your receipt or certificate should be any number between 1 and 20 out of 20. For example 4/20. If the syndicate was then registered with BHA as 'XYZ Syndicates and John Smith', you would expect John Smith to own at least one of the 20 shares and that he is not taking advantage of a disproportionate percentage of prize money etc. If you later discovered that a fellow syndicatee had been allocated the same numbered share as you, in the same syndicate period, you could have grounds to immediately refer the matter to BHA for investigation.

Just as you would possibly not entertain purchasing a motor vehicle that had failed its MOT test, you need to be satisfied that the horse(s) in question are fit for training. If you have any doubts, you can request a vet examination (otherwise known as 'vetting') or you can view a recently issued vet certificate, before you agree to purchase a share. Vetting costs vary, but a reasonable pricing expectation could be £100 for a Stages 1 and 2 examination OR £300 for Stages 1 - 5 examination.

Further tests can be carried out beyond Stage 5, such as endoscopy of the upper respiratory tract to detect “wind” problems, radiographs to evaluate bony abnormalities or ultrasound examination to review the soft tissue anomalies. These can be added to the standard examination for additional information and is more normal if the horse is of a higher value or intended for export.


Syndicate Formats

There are a number of Syndicate formats. One such option is an all-inclusive arrangement. This is where the Syndicator sets a fixed fee to cover all (or the majority of) costs arising for a set period of time. Essentially, this is where the Syndicator takes a commercial risk, hoping that costs and overheads will be less than the sum collected. Profit or loss arising, is entirely the Syndicator's business and Syndicatees should not expect to receive a set of the Syndicator's trading accounts at the end of the syndicate term (save where the Syndicator chooses to do so). However, even though a syndicate may be all-inclusive, there are certain accounting requirements that are required. If VAT is charged on any item by a VAT registered Syndicator, a VAT invoice, carrying the relevant VAT registration number, should be supplied by the Syndicator to the syndicate as a whole. Secondly, all income derived from the activities of the racehorse, particularly race prize money, needs to be properly itemised, to enable the Syndicatee to clearly identify that he/she has received the due amount, relating to the share percentage held. These amounts should also help demonstrate that the Syndicator has paid over any VAT due to HMRC, on behalf of the Syndicatee, arising from race prize money etc...

A Syndicate can involve the ownership of a racehorse or a leasing arrangement. The difference between the two is significant and should therefore be very clearly defined by the Syndicator from the outset.

A Syndicate may involve more than one racehorse.


Syndicate Variation

The following scenario deals with a situation where the Syndicator invites syndicatees to collectively pay a full upfront sum to purchase a horse at auction or elsewhere.

Because the syndicator is not using his own capital to purchase the horse, syndicatees may have an expectation that the syndicator will not have hidden profits in the acquisition of the horse. 'Best practice' would appear to be that any add-on costs are declared upfront and at the point the contractual arrangement is generated.

Any connection (including an arrangement to bid or to determine a specific reserve value) between the Syndicator and the vendor must be declared to the syndicatees, thereby avoiding a potential perceived or actual conflict of interest.

The VAT treatment in this scenario would appear to be that the Syndicator is acting as agent on behalf of the syndicatees. The auction house or agent or vendor will invoice the syndicate for the cost of the horse and the syndicator will reclaim any VAT element from HMRC as part of the syndicate accounting procedure. If the Syndicator is making any supplementary charge relating to the purchase of the horse, then, in addition, he will raise his own invoice to the Syndicatees for his fees.


Value of the Racehorse

Once a Syndicator has speculatively purchased a horse from the Sales or indeed purchased the horse from any source, the horse becomes the Syndicator's property and he is at liberty to attach whatever value he wishes to the capital purchase price. It therefore becomes the syndicatee's responsibility to satisfy himself that the Syndicator's horse valuation is reasonable. If the Syndicator has not specified the current valuation of the horse on his website or in marketing material, this could be the point where the syndicatee looks elsewhere.

Note: where a horse has been bred by the syndicator, his valuation of the horse should, ideally, have some form of documentary evidence to support an attached value. An unconnected registered bloodstock agent could be contacted to provide an idea of a fair market value.


The Difference Between a Syndicate and a Partnership

A racehorse Syndicate is an ownership or leasing mechanism created by an entity (e.g. a trading company or a racehorse trainer).

Whether or not for profit, it is a business-to-consumer 'offer to treat' which could be portrayed via a website, a newspaper advertisement, in fact by any form of communication (including a verbal offer). The entity creating the offer becomes the Syndicator and the people accepting the 'offer to treat' become the Syndicatees. In law, and for the purposes of the BHA Rules of Racing, the Syndicator is deemed to be a 'responsible person'. Anyone can set themselves up as a Syndicator, therefore Syndicatees are advised to check that the Syndicator has sufficient expertise.

A racehorse Partnership is an ownership or leasing mechanism created privately and collectively amongst two or more persons, where no person has a commercial interest in the venture. Essentially, all members of a Partnership are legally bound to accept all liabilities for the entire arrangement. Partners are advised to be particularly mindful of the legal implications arising from 'joint and several liability'. Professional legal advice is thoroughly recommended before participating in a Partnership.


Consumer Offers

The BHA (British Horseracing Authority) are the body responsible for overseeing fair trading practices within the industry.

All offers to consumers in websites, advertisements etc. are bound by law to comply with The Consumer Protection from Unfair Trading, Regulations 2008. Compliance with these Regulations not only offers consumers protection but also ensures a level playing field for all those trading in the racehorse syndicate business. As the governing body of the racing industry, The BHA actively investigates any potentially misleading business practices that are brought to their attention.

Rule 30 of the BHA Rules of Racing states:

If you believe that a syndicator has contravened Rule 30.1 here is the BHA contact information to report the matter to: info@britishhorseracing.com. Please copy-in info@rsaca.co.uk

Alternatively, you can contact your local TRADING STANDARDS office.

Most racehorse syndicators run their businesses fairly and honestly, therefore hopefully you should enjoy a hassle free service and enjoy participating in the syndicate and enjoy your foray into the exciting world of British Horseracing.