“Fit, sound, and wants to go the distance—essentially marathon horses,” says Julie Rini, owner and manager of Crowning Point Farm, located in Paris, Kentucky, referring to the horses that will run in the upcoming Belmont Stakes to be held in New York, this coming Saturday, June 9. While there will be no Triple Crown winner this year, the prominent stakes race is sure to draw a crowd to watch these three year old racing machines as they run in the final leg of the Triple Crown. Running in the Belmont Stakes will likely have a substantial impact on each horse’s subsequent racing and breeding career. Consider these business and legal implications:
How these horses are insured must be carefully reviewed and analyzed, as well as the clauses within these respective insurance contracts. Will the horse have a continued racing career? Breeding career? Or both? Depending on how the horse performed in the race will likely increase its value. Typically, owners pay an annual insurance premium based on the value of the horse, usually between 4-5%. As an example, American Pharaoh, post Triple Crown win, while the exact value is unknown, he is likely insured for between $20-30 million.
Racing, Breeding, Or, both?
The owner usually decides whether the horse will continue to race, breed, or both, as opposed to mandated by the insurance company. However, insurance premiums are usually higher if the horse is racing because of the greater risk of injury. The owner will have to perform a business analysis to decide if the “purses” (winnings paid by the track for the race) are substantial enough to compensate for the higher annual insurance premiums. The owner will also consider training and racing expenses. Some tracks increase purses when winners of Triple Crown events.
Just the fact that the horse posted for such a race can be lucrative. There is great value in the breeding rights of these horses (e.g. a stud fee could be $75,000-$100,000 and breeding 200 mares per year). Owner(s) should carefully assess clauses in insurance contracts that impact such breeding rights. Review whether there is coverage for breeding abilities especially if the horse is continuing his racing career. The Jockey Club requires “live cover” and prohibits the registration of foals conceived by artificial insemination, therefore if a horse sustained injury to his hind legs which render him unable to cover mares this would substantially limit the animal’s breeding value. By contrast, if the horse is retiring to a breeding career, injury is significantly less likely. Pay specific attention to any exculpatory clauses in all insurance coverage contracts.
Ownership and breeding rights can also get very complex before a high profile race. Owners will often sell breeding and ownership rights before the race with the hope that the horse’s value will increase if it performs well and protects their interests if it does not perform well. It also provides people opportunities to “cash in” on a future champion for a lower cost, either with respect to ownership or breeding.
Keep in mind that any such sales contracts should be reviewed carefully, as well as in connection with insurance coverage on the horse.
Marketing contracts also appear in advance of high profile races. As an example, Sketchers signed California Chrome to a large scale marketing deal after winning the Derby and Preakness but before the Belmont Stakes. The company’s logo was to appear on all of the horse’s equipment (saddle pads, fly sheets, blankets, as well as his handler’s clothing and gear). Lucrative endorsement contracts such as these will often be executed pre-race and extend for a time period post-race depending on the horse’s success in the race. Again, regardless of successful performance just the fact that the horse posted for such a race can be lucrative for such opportunities.
*photos courtesy of Deanne Cellarosi, Maryland Equine Artist.