Maybe you saw the story in USA Today: average folks like us participating in the American dream of owning a potential Kentucky Derby-winning horse. For just a small amount of money, any of us can become part owner of a thoroughbred and possibly see thousands of dollars in return. But what kind of investment is that, really? Are there other, more profitable ways to participate in the sport of horse racing?
Own a horse
The 128th Preakness Stakes will be run Saturday, and the owners of Kentucky Derby winner Funny Cide are hoping to take another step toward immortality. A trip to the winner's circle this weekend would leave them just one victory away from capturing the first Triple Crown since Affirmed's brilliant performance 1978. Should that happen, the 10 owners -- who paid $75,000 for the horse -- will share not only in the approximately $2.5 million in total purse money, but also the $5 million bonus Visa has promised for winning all three races.
The lure of big prize money is a tempting reason to invest in a small-owner partnership. Fifty people chipping in $100 apiece can buy a bottom-level horse that runs for only the smallest of purses. But increase the investment some, and you're talking about better horses and better prize money.
Of course, it costs a little something to keep and train a horse. The USA Today columnist, Mindy Fetterman, is one of 50 owners of the four-year old filly Techno Vision. Their training bill alone reaches almost $2,000 a month. Then there are other minor details like feeding and medicating the horse and providing a place for her to live.
In the end, whether you make money or not depends solely on the horse's performance. If she wins her fair share, you'll eke out some profit as a 1/50th owner. But you also have more than an acceptable chance of losing your entire investment. It's not the kind of risk-reward ratio you should be looking for as an investor. However, if you love horses and racing, this is certainly something you can consider as a hobby. Just be prepared for the possibility you'll walk away with nothing but the experience (and a little barn odor).
Own a track
Just as you can buy part ownership in a horse, you can buy part ownership in a racetrack. Churchill Downs
The purpose of this column is not to determine whether Churchill Downs is a good investment. However, it's a strong company that plays a major role in the industry. If you're looking to make some money in horseracing, it's well worth adding to your research list.
Another to consider is Scientific Games Corp.
Finally, a more indirect way to invest in the sport is via any company that supplies tracks or horse farms -- makers of tractors and farm equipment, for example.
One thing to keep in mind: Horseracing has been in decline for several years now due to the proliferation of other forms of gambling. Back in the day -- when you had to go to Nevada or Atlantic City to gamble, and before state lotteries came into existence -- horse racing deserved its "Sport of Kings" moniker. Since then, however, every dollar spent on a lottery ticket or in a riverboat casino has been a dollar diverted from the track. The shakeout is still not complete, so it's hard to say whether the industry's worst days are behind it or not.
Own neither
There's another way to make money here that requires very little capital: Just plunk down $2 or so at the betting window. Believe it or not, many people do turn a profit playing the ponies. Some even make a living doing so.
But as one who has wagered his fair share at the track, I am here to tell you that to reach such a level requires more hard work and dedication than you can imagine. And even if you're willing to put in the work, the odds are still against you. Trust me on this one: It's better to spend your time on more fruitful endeavors, like developing money-growing trees.
That said, there are few things more fun than carefully reading the Daily Racing Form, selecting the horse you think will win, betting a 10-spot on him, and then cheering wildly as you watch him come around the top of the stretch in first place -- before fading to last. (OK, it's absolutely more fun when he wins.)
And that's the lesson here. Many people find betting at the track extremely entertaining. But that's what it is: entertainment. If you're going to do it, budget it like you would any other entertainment or recreation, and stick to the budget. Just don't think you're going to be able to put your kids through college with the winnings.
Finish line
The best way to participate in horse racing as an investor is through the stock market, not by owning a horse or betting on one. And even then you'll have a tough time finding a quality company that deserves your hard-earned money.
If you have the financial discipline and want to pursue it as a hobby or entertainment, though, go for it!
Rex Moore was raised by wild thoroughbreds on the plains of Montana. At press time, he owned no companies mentioned in this column, and no racehorses. The Motley Fool is investors writing for investors.
