The emergence of the RacehorseClub in recent days caused an almighty stir in the racing community; so much so, prize money wasn’t the focal point of discussion for the first time in weeks.
Two Grand National participants have been the subject of debate: Potters Corner and Balko Des Flos.
RacehorseClub purchased a “percentage” of the former from All Stars Racing; the exact percentage they own, to my knowledge, has not been disclosed. One share, which equates to 0.002% ownership, is priced at £75. This equates to the horse being valued at £3,750,000; a truly astonishing amount. Given that Potters Corner is an 11-year-old and that the prize for winning the Grand National is “only” £500,000, it does not take a genius to discern that you’re extremely unlikely see a positive financial return on your investment.
Interestingly, the maximum number of shares of Potters Corner I could add to my basket, as of midday on the 2nd April, was 4,925; that equates to 9.85% ownership. Perhaps that is all that the shares that are available to purchase, so RacehorseClub may have only purchased 10% of the horse. That is purely speculative on my part and is not to be taken as fact.
Balko Des Flos is being fully syndicated, with a 0.02% share available to purchase for £80. As such, the horse is valued at £400,000 although he was purchased for just £110,000 on the 24th March. Considering that only 5,000 shares are available, I was able to add 4,944 to my cart as of midday on the 2nd April; the shares are hardly flying off the virtual shelves.
Many have been quick to label the RacehorseClub as a scam, noting that the horses are way overvalued while being part of a syndicate with thousands of members does diminish the ownership experience.
And to an extent, they are correct. I certainly won’t be purchasing a share but it’s important to consider the decision-making process.
People make decisions based on “utility”; which is the total satisfaction received from consuming a good or service. In the case of horse ownership, very few endeavours will be profitable and that is widely known. The appeal of owning a horse is in the experience and the feeling of being a part of the sport.
From a pure economics perspective, if everyone was to act logically in monetary terms, nobody would buy a share in either RacehorseClub horse.
However, it is obvious that sentiment and emotions significantly impact decision makings, and in turn, their utility. The subject of behavioural economics has made great strides in recent decades and we now view utility theory differently. Kahneman and Tversky (1979) forcefully argued that observed choice behaviour presents many violations to fundamental axioms of expected utility theory.
Now in reference to the RacehorseClub debate, it is clear that the group is reliant on sentiment overriding basic financial instincts. After all, it is a dream for many to own a horse, let alone own a Grand National contender.
But that does not mean that it is a scam. All of the information needed to make a decision is available and if someone concludes that they want to purchase a share, then clearly the positive utility from the emotional aspect of ownership outweighs the obvious negative financial outcome. It is up to the individual to decide what is right for them; everyone has a different utility curve and to lambast someone for their choice if futile.
It is also worth noting that there are multiple other costs involved in horse ownership. For example, the well-known Owners Group are currently selling a share in The Carpenter for £59. Just £25 of that is the capital outlay for the horse himself. The remaining £34 covers: VAT, management fees, vetting, transport, training costs, insurance and more. This helps explain why the valuation of a horse in a syndicate such as this does not simply equal the purchase price of the horse.
Perhaps the wider concern is how syndicates involving a large group of people are perceived. The valuation of Potters Corner can definitely be viewed as exploitative and in a sport that often struggles with its image, we could do without alienating the fans. It also brings into question the involvement of high-profile names such as Oisin Murphy and Ed Chamberlin, who are listed as ambassadors on the RacehorseClub website.
But it is not as if all syndicates are like this. There are a multitude of syndicates available; some that have a large number of members, such as the Owners Group, have proved very successful and popular. They currently have 63 horses running in their colours; all bar two are currently sold out.
In conclusion, I feel as though the level of outrage towards RacehorseClub has been over the top. It certainly won’t be for everyone and the market will decide if the model of purchasing high profile horses for syndication in this manner is viable. Currently, the number of shares sold seem to be quite low while the coverage has been overwhelmingly negative.
But if demand picks up and both Potters Corner and Balko Des Flos sell out before the Grand National, it would present an interesting option for owners. Financial incentive is often lacking but if they could potentially sell a successful horse in the latter stages of his/her career to a group such as RacehorseClub, it may help keep them involved in the game long-term.
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