THE HIDDEN GAMBLE IN RACING
The mostspectacular form of gambling in racing today is partnership in a Thoroughbredbreeding syndicate. Whereas once upon a time—in the very long ago, beforeincome taxes and the $100,000 weekly stakes race—a wealthy man gambled on ahorse's nose, today he must figure that what he can't get back in purses hemust retrieve on the success of his horse's ability at the stud.
With the recentsale by Ralph Lowe of three-quarters interest in Gallant Man for $1 million—andthe announcement last week of syndication plans for Ballymoss in England andPorterhouse in Kentucky—public attention has been directed toward a facet ofracing's business little understood by the layman even after the widelypublicized sale of Nashua to a syndicate for the then record price of$1,251,200 three years ago.
"There is nomore mystery about syndication of a horse than the syndication of an issue ofbonds by Morgan Stanley for the American Telephone and Telegraph Co." isthe way one syndicate participant puts it.
"A finestallion costs more than one man wants to risk, and the risk is very greatbecause the horse may not be fertile—and if he is, his offspring may be no goodas race horses. So he takes in a number of partners to share the risk, and eachone takes one or more shares. This means that the owner of each share may sendone of his mares to be bred to the stallion each year for free. Or he can sellor exchange his breeding season (a season is the horseman's, definition of eachindividual mating of a stallion to a broodmare) for a season to anotherstallion. Or, instead, he may sell his share in the stallion any time he wantsto—and often does, at a handsome profit."
The moderninflated value of stud fees has created a situation whereby participation in asyndicate is often the only way for a man to breed to a potentially topstallion, and now leading privately owned studs (such as Bull Lea, NativeDancer, Tim Tarn, Bold Ruler, Mahmoud, Citation, Khaled and Swaps) are theexception rather than the rule. Among those stallions owned by syndicates, inaddition to Nashua and Gallant Man, are Polynesian, Traffic Judge, Determine,Olympia, Bolero, Roman, Ambiorix, Alibhai, My Babu, Prince-quillo, Heliopolisand, of course, the most successful sire of the past few years, the legendaryNasrullah, sire of both Nashua and Bold Ruler. Another champion, Tom Fool (sireof Tim Tarn) is in the process of being syndicated for 1960 by Greentree Stablewhich, while retaining 15 shares for their own use, is asking $50,000 each foranother 20 shares.
Although it wasnot known officially as syndication years ago, the practice of owning a studhorse in partnership is hardly new. Conscientious breeders—cautiously mindfulof not oversaturating their own stock with too much of one blood strain—havealways traded seasons with their neighbors. But when the potential desirabilityof one stallion over another became increasingly apparent, even the mostprosperous U.S. breeders began to find the market too hot for one man'sresources. The first instance may have been in 1926 when the late Arthur B.Hancock Sr. went abroad to buy Sir Gallahad III. Finding the asking price of$125,000 too much to swing by himself he enlisted the aid of three friends toform what later developed into a profitable partnership. A decade later Hancockformed a syndicate in eight shares to buy Blenheim II for $240,000.
Today'ssyndicates are usually made up of 32 shares, and the formation of one requiresmerely: 1) a good horse; 2) a number of people willing to risk a lot of moneyin a slow-to-pay-off-if-ever investment; and 3) a supersalesman who can quicklyand efficiently round up the horse, the people and the money. There are todayonly three such outstanding salesmen, and all three, Leslie Combs II, A. B.(Bull) Hancock and Lou Doherty, operate breeding farms within 20 miles of eachother in the Bluegrass country of Kentucky. Each of the three has a reliableclientele, a sharp and critical eye for a potential stud horse and the know-howto manage a syndicate with all the smoothness of a cruise director taking alanding party of schoolteachers ashore in Havana. "There is nothing verycomplicated about the mechanics of forming a syndicate," says Leslie Combs,who won out in the sealed-bid contest for Nashua in 1955 and who (with John W.Hanes) topped even that exploit by negotiating the Gallant Man deal the otherday. "Everyone in the horse business usually knows which horses will beretired to stud privately and which are in the open market for syndication.And, acting on the theory that no sensible owner-breeder wants to put all hiseggs in one basket by sending too many of his mares to one stallion [few modernbreeders, in fact, care to risk breeding more than one quarter of their maresto any stallion, no matter how great his potential], I have a pretty good ideaof who might like to breed to a certain horse—if that horse's services could bemade available."
SPEEDDESIRABLE
"But let'sget specific. In Gallant Man's case I knew an awful lot of people who wouldwant to breed to him no matter where he was retired to stud. And I liked himmyself, largely because of his speed. Disregarding any shortcomings he mayhave, I always like a horse with real speed, speed that he can turn on anywherein a race. Gallant Man has this sort of speed. So my next step is to approachMr. Lowe. You don't ask people to go in on a syndicate until you are prettysure you have the horse; in other words, when I start negotiating with anowner, both he and I understand that I personally assume the financialresponsibilities should we make a deal. Thus, in Nashua's case only three of usput up the money in the bidding, then we broke it down into shares later on. InGallant Man's case, when Mr. Lowe said he wanted one million for three-quartersinterest [making his total value of $1,333,333 higher even than the purchase ofNashua], Mr. Hanes and I bought him on our own, with plenty of assurance thatit wouldn't take us long to sell shares. It didn't, either: just a day and ahalf to raise the money, and if some people hadn't been away on vacation Icould have done it over the phone in less than an hour."
The fabulousprice of $41,666.67 for one share of Gallant Man represents a risk that fewhorsemen can afford, and yet, from an investment standpoint, it may well be abetter deal than an attempt to buy just one season to him at an annual cost of$10,000. For the buyer in any syndicate has a number of attractive andfavorable factors working for him. He can use this desirable blood strain tosupplement the strains provided by his own stallions; he can plan his breedingprogram with the knowledge that as long as the stallion is capable offulfilling his stud duties the syndicate member is on the free list and, mostimportant, he has the option of trading, selling or getting out entirely if hewants.
To see how thiscould work let's take Nashua as an example. If you had bought one share of thiscelebrated runner (whose trainer, Sunny Jim Fitzsimmons, is pictured on pages40-41 with his multifarious offspring) in 1955, your initial outlay would havebeen $39,100. The following year Nashua raced in the Combs colors, but he wasalso racing for you and other syndicate members. He did pretty well, too,winning about $350,000. After deductions for expenses the syndicate managerwould have sent you a check for approximately $8,000. The next spring Nashuawent to the stud and there you had the option of either breeding one of yourown mares to him or selling your 1957 season only for $10,000. The same optionwas given to you in 1958. Now, supposing—and this is a big if—that everythinghad gone perfectly for you. As of this moment you would have one weanling byNashua and another mare in foal to him and a season that sells at the marketprice of $10,000. Your material assets are considerable: the weanling, beingout of Nashua's first crop, should bring a minimum of $30,000 at next summer'sKeeneland or Saratoga sales; the mare in foal might bring more than that rightnow—and if you wanted out of the syndicate altogether right now your singleshare would go for between $50,000 and $60,000. A profit, and how!
Taking anotherrealistic look, however, your $39,100 investment might have taken a differentturn. As no racing animal is tested for fertility before his retirement fromthe track, nobody knew in Nashua's case (nor do they in Gallant Man's) whethertheir purchase was capable of producing for them. This is the greatest risk ofall (only when a horse is retired prior to purchase by a syndicate is certifiedproof of fertility standard procedure). Secondly, as the average stallion getsonly between 75% and 85% of his mares in foal, you stand a 20% chance of havinga barren mare every time you send her to be bred. Thus, under adverseconditions, it might have developed that you would have had your best maretwice barren to Nashua, nothing by him either to race or sell, a singularlyone-sided account book and an understandably long face.
To add to theseworries and pitfalls, of course, is the problem of getting along with theInternal Revenue Department. Thoroughbreds, for bookkeeping and depreciationpurposes, are treated like producing factory machinery; in other words, a horseat stud is considered a "producing machine" having a limited productivelife, and the owner is entitled to recover his investment through depreciation.The normal life of usefulness for stallions averages 16 years (and he is bredto an average of 35 mares a year). So if you invest in a 5-year-old horse thetax laws permit an annual deduction for depreciation of the animal of afraction over 9% of the cost price per year. This deduction becomes an annualcharge against income, just like any other item of expense, such as insurance,feed or labor. But as no two people ever have exactly the same tax problemsanyway, two horsemen rarely find themselves facing the same obstacle. Theseller of a high-priced stallion is selling a capital asset, under normalcapital gains rates. The breeder, depending upon his own financial situation,usually has but one of two courses to follow: 1) he buys only individualseasons to a stallion and treats it as an annual breeding expense, or 2) hebuys a share in a stallion and treats it as a depreciable capital asset.
The practice ofsyndicating race horses at higher and higher prices will go on as long asracing grows more commercial and less sporting. With purses available to a goodhorse reaching astronomical figures, it stands to reason that sales prices willclimb too. An old rule of thumb for evaluating a stallion was to take his studfee, multiply it by three and then multiply it by 30 (the first multiplicationbecause after his first three crops a stallion's value will vary depending uponthe success of his first crop; the second multiplication because if he is bredto 40 mares a year he should expect to get 30 of them in foal). Today thissystem would put both Nashua and Gallant Man in the $900,000 bracket, whichstill seems grossly excessive for unproven stallions. A lot of potentialbreeders (particularly the commercial breeder who knows full well that themillion-dollar winner, born in an age of absurd racing economics, is no surebet to be a world beater at the stud) would prefer to send their mares to thecourts of less expensive stallions who have already made their mark in thestud. An example of this—and of the many smaller syndicates now in operation—isThe Doge. A share, at the moderate price of $1,500, has developed into asuccess story for most investors, and for one, E. Gay Drake, it was a windfall:his Swoon's Son, by The Doge, is almost a millionaire.
One or twostandout offspring can make all the difference in a breeder's mind. Nasrullah,of course, is the outstanding example. Bought by Bull Hancock for a34-way-split syndicate at $10,000 a share in 1950, one share last year sold for$55,000, and even though Nasrullah is 18 years old now, a share, if any werefor sale, would bring $40,000. Polynesian once stood for $3,500 a season. Afterproducing Native Dancer, his stud fee soared to $10,000. Windy City II wasstanding for $2,000. Then he sired Old Pueblo and Restless Wind, and his feeclimbed to $3,500.
This week, justwhen all of us thought we would have a chance to see Gallant Man have a head-onmeeting with Round Table in the Woodward Stakes at Belmont, the news comes thatThe Man has pulled up lame in a workout, thus ending his racing career for thisyear and perhaps for good. The injury is not likely to affect his prospects atstud unfavorably. Nevertheless, Gallant Man's retirement—following thebreakdowns of Tim Tarn, Bold Ruler and Cavan this year, and of Gen. Duke andothers last year—raises again in an acute form the question of whether there isnot something seriously wrong with training methods in this country.Specifically, the question is whether the crazy, uncoordinated economics ofmodern racing, which offer a precocious horse too many chances to win too muchmoney in too short a time, are not cutting short racing careers which are givenno chance of normal fulfillment. It would be sociologically analogous if wesaw, say, teen-agers being retired from the business of living, hobbled byexhaustion or other physical handicap, after winning a couple of TV giveawayprograms.
Anyway, thisseems to leave the road clear for Round Table to become the only high-classAmerican horse in the last two years to remain in business. Owner Travis Kerr,by the way, has indicated that when he retires Round Table he intends tosyndicate the colt at $90,000 a share. Even our most inflation-minded gamblerslaugh at this figure, but maybe the horse is worth it on the sole grounds ofdurability.
THE FABULOUS FITZSIMMONSES
Key to the family (pictured on pages 40, 41):
1. Mrs. Edward Carr Sr.
2. Mrs. James W. Fitzsimmons holding infant Sally Ann Fitzsimmons
3. Mrs. Joseph Harder Sr.
4. Sister Maria Annella
5. Edward Carr Sr.
6. Mrs. Harvey Fitzsimmons Jr.
7. Robert Hohmann
8. John Fitzsimmons
9. Mrs. Harold Fitzsimmons
10. Harold Fitzsimmons
11. Robert Carr
12. Lieutenant Jack Fitzsimmons
13. Thomas Fitzsimmons
14. Kathleen Fitzsimmons
15. Joseph Fitzsimmons
16. James W. Fitzsimmons
17. Frederick Fitzsimmons
18. Harvey Fitzsimmons Jr.
19. George Fitzsimmons
20. Walter Moffatt
21. William Carr
22. Joseph Harder Sr.
23. James Traub Sr.
24. Harvey Fitzsimmons III
25. William Fitzsimmons
26. Robert Moffatt
27. Mrs. John Fitzsimmons
28. Leo Hornung
29. Mrs. Harvey Fitzsimmons Sr.
30. Harvey Fitzsimmons Sr.
31. James Fitzsimmons Jr.
32. John A. Fitzsimmons
33. Edward Carr Jr.
34. Loraine Fitzsimmons
35. Barbara Fitzsimmons
36. Mrs. Robert Hohmann
37. John Hohmann
38. Mrs. Walter Moffatt
39. Christopher Moffatt
40. Mrs. James Traub
41. James Traub Jr.
42. Mrs. Edward Carr Jr.
43. Nancy Carr
44. Mrs. Paul Hornung
45. Patricia Hornung.
46. Mrs. William Carr
47. James Carr
48. Mrs. George Fitzsimmons
49. Catherine Carr
50. "Mr. Fitz"
51. Kathleen Fitzsimmons
52. Margaret Hohmann
53. Joanne Hohmann
54. Linda Moffatt
55. Susan Moffatt
56. Jeannie Harder
57. Elizabeth Fitzsimmons
58. Susan Fitzsimmons
59. Joseph Harder Jr.
60. Mary Ann Harder
61. Brian Hornung
62. Judith Moffatt
63. Teresa Hornung.
PHOTO
¬†NASHUA—$39,100 PER SHARE
PHOTO
GALLANT MAN—$41,666.67
PHOTO
BALLYMOSS—$17,500
PHOTO
¬†ROUNDTABLE—$90,000?
THREE PHOTOS
IRON LIEGE GOES OVER THERE: Never a great champion, Calumet's plucky Iron Liege still won the 1957 Derby with a feat unmatched before or since: he finished ahead of Gallant Man (above), Round Table, Bold Ruler. Now the onetime baby in whom SPORTS ILLUSTRATED has always taken a fond interest (SI, Feb. 25, May 13, 1957) goes to France, bought by Breeder Marcel Boussac.
PHOTO
BULL HANCOCK, son of famous breeder, owner of Claiborne Farm, bought Nasrullah, sire of Nashua, Bold Ruler, to be syndicated in 34 shares at $10,000.
PHOTO
LESLIE COMBS, victor in bidding for Nashua ($39,100 a share), Gallant Man ($41,666 a share) to syndicate at Spendthrift Farm, favors colt with real speed.
PHOTO
LOU DOHERTY, owner of Lexington's Stallion Station, boards 12 syndicated studs (and three owned privately), now adds Porterhouse at $7,000 a share.
ILLUSTRATION
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PHOTO
Richard Meek
Mr. Fitz and Family
The old gentleman in the sporty suit and straw hat seated on the left is themost beloved man in all of horse racing. He is sunny Jim Fitzsimmons, and thisphotograph is remarkable and touching because it shows him together with 63descendants in the paddock at New York's Belmont Park shortly before his 84thbirthday. To identify four generations of his family, turn page.