The lure of the long shot

Globe Investor Magazine, May 22, 2008

Is value dead? Glenn Sikura mentors the Canadian Thoroughbred Horse Society's other syndicate, which was formed a year and a half ago. As one of Canada's most respected breeders, he has a vested interest in recruiting more owners to the sport. Sikura's enthusiasm for winning is as infectious as Hillier's, but, like his co-mentor, he has gone out of his way to prepare his investors for the worst.

"Our hope is that people get involved and hopefully there is some success," Sikura says. "Losing every race is possible, and winning every race is probably not possible. We almost talk people out of investing. We tell them about all of the possible pitfalls that you can have and, if they are still anxious to participate, the hope is that it's discretionary income and they enjoy the lifestyle."

Still, as investor Stephen Crooks talks about his decision to join Sikura's group, you can hear the uncertainty in his voice. His gut tells him that his $10,000 investment isn't likely to give him a rate of return competitive with even the most conservative GIC. But he's been hooked since the early '80s, when he and some friends were visiting Louisville and had their wallets stolen. "We didn't know how we were going to get home. We managed to pool our change and asked one of our buddies to pick a horse. He picked a long shot," says Crooks, who owns a product-display business in Mississauga. Their long shot, Gato Del Sol, went on to win the Kentucky Derby, and paid out enough money to cover a night of mint juleps and the finest steaks Louisville had to offer.

While Crooks has been interested in horses ever since, it was only through the relative safety of a syndicate that he finally decided to jump in with an investment. "This [the syndicate] puts us in a position where we can't get hurt by stupid bills, or somebody coming back at us asking for $20,000 a month to hold a horse that's never going to run," he says. Ultimately, however, he'd like to own his own horse.

Should he, or anyone else, decide to go it alone, they'd do well to heed the advice of Jockey Club of Canada spokesman Richard Lister. The veteran horseman, a former mining chief executive officer at Zenex Corp., says the tax treatment of horse owners has long been a sore point for the industry. The problem for horse owners is the blurry line between a hobby and a business. If you're treating horse racing as a hobby, you can only claim $8,750 in losses annually, and your winnings are taxed as personal income. If you treat it as a business, you get all of the complicated paperwork that comes with incorporation. "This is a country that does not consider horse racing a business per se," he says. "So you can't put a lot of money into the business to start up, because most of it is not tax deductible." This is where partners come in handy, he says. If a group of investors buys a horse for $100,000, they can each claim the maximum tax deduction.

If there's one day when new owners don't care so much about the business end of things, it's race day. It is now 30 minutes from post time, and members of Hillier's syndicate wander down to the paddocks to see how their investment is holding up. The horses that are running in the sixth race with Fiddler's Green walk in a slow circle while owners and bettors take a last look, trying to pick out some detail that doesn't appear in the betting guide. One horse fights with its handlers as they try to get its saddle in place, and someone wonders aloud whether that's a bad sign.

The owners are upbeat as they choose seats near the finish line. The program has Fiddler's Green running at decent odds and, with a little luck, they'll defend their perfect record and add a portion of the $28,000 purse to their account. But moments after the announcer yells "And they're off," it's obvious this will not be a winning day. A slow start keeps Fiddler's Green at the back, and she spends the entire 1 1/16th miles trying to make up the difference. Anticipation turns to resignation exactly when Fiddler's Green comes in fifth, although this placement in a field of eight horses-fewer than the 10 they had expected-entitles the owners to a 3% cut of the purse. That's $867 back into the racing account, almost enough to cover the day's expenses.

The owners mumble quietly to each other about their horse's performance, but when they find out nobody claimed the horse at their asking price, there is an audible groan. Hillier has a difficult time providing an optimistic take on the day. "The idea is to win the race," says Hillier. "Coming in second is like kissing your sister. We're here to win, that's where the money is."