Louisiana Racehorse Partnerships Ownership Seminar 2010 Today’s Card LRP Introduction So You Want to Buy A Racehorse! Cost of Ownership Partnership Facts and Figures UNDESIDED The Starting Gate LRP INTRODUCITON Frank Francois: Over 20 years in law enforcement Marine Corps veteran Farm Manager (The Braun) Sunny Francois: 20 years in Fortune 500 and Federal Government Financial Systems B.S Accounting 1995 Business Manager (The Brains) Together we are Louisiana Racehorse Partnerships. Married 20 years with three children, we are embedded in our community and share a love of horses and a passion for horse racing. We do this not to make a living, but because we LOVE it and believe 100% that homework and hard work pay off. Why do we syndicate? Breeder’s Rewards! The state of Louisiana compensates breeders of Louisiana Thoroughbreds at a rate of 22% of the horse’s earnings, no matter who owns the horse during it’s racing career. That’s an attractive incentive to breed winners! While pedigree is important, well bred horses don’t always win – they also need the correct balance of nutrition, training and care to be successful. We feel that by managing the nutrition, training and care of our stock, we have a better chance of creating winners. They go from our good hands to the best training hands we can afford. As breeders we can either sell our stock at public auction and hope for the best, or cultivate an owners group to give our babies the best possible start. Cultivating an owners group takes much more effort on our part, but we believe the payoff will be worthwhile. Entertainment! What better way to enjoy the success of our Thoroughbred offspring than to gather a group of racing enthusiasts together and share in the excitement? We love this game and hope to share it with people who never dreamed they could own a racehorse. THE BOTTOM LINE: WE ARE HARDWORKING, TRUSTWORTHY BREEDERS WHO WANT THE VERY BEST OPPORTUNITIES FOR OUR RACING STOCK. LRP Goals Bring new fans to Horse Racing in Louisiana Bring Racehorse Ownership to everyday people Provide the very best start for our Thoroughbreds Take lots of photos in the Winners Circle with our Thoroughbreds and friends! LIMITED RISK, UNLIMITED FUN! We hope you will love your LRP experience so much that you’ll be hooked on racing! So many people jump in with two feet and lose fortunes in horses. That’s not good for the industry – we want people to know upfront what they are getting into. We want people to have a positive experience and come back for more. So You Want To Own A Racehorse! Ownership as a Hobby LRP members buy not only an interest in a racehorse, but a ticket to entertainment for the duration of that horse’s career. Here’s a sample year of Ownership entertainment: November- Partnership dinner meeting to discuss fall racing plans December – LTBA Holiday Banquet/Champions Day Celebration January – Meet the trainer February-Trip to racetrack to watch your racehorse work March – Trip to the races to view his first race April –LRP Spring BBQ/Meet the newborn foals! May-Educational seminar on conformation/pedigree June-Visit to Evangeline Downs July-Evangeline Downs Night in the Clubhouse August-LRP Fall Planning Dinner September-Yearling Sales October-LRP Ownership Seminar Ownership as a Hobby In addition to ownership events, you will be invited to attend educational seminars to develop your industry knowledge. Sample seminars include: Veterinary open house Pedigree seminar Taxation seminar How to read a sales page You will also be invited to breeder events including: Mixed, yearling and two year old in training sales Pre sales parties Stallion parades Ownership as a Hobby What hobbies do you currently have that offer: Entertainment Social networking Thrill of competition Education in a new industry Opportunity to get your money back! Consider your annual outlay for such hobbies as golf memberships, rarely used health club memberships, hunting leases, boating/fishing trips, Mardi Gras clubs etc. Racehorse ownership with LRP offers you the entertainment and camaraderie of a social club, the thrill of a competitive sport AND the opportunity to get your money back and more! Not many hobbies can make a similar claim. Ownership as a Business Be wary of people who use the words ‘horse’ and ‘investment’ in the same sentence. You shouldn’t expect to become wealthy by way of racing horses, though some have done so. As we will demonstrate today, horse racing is a costly undertaking and the stakes are high. By entering the business of horse racing through a partnership you have many financial advantages including: Tax Benefits Limited Risk Diversification Industry Knowledge Shared Overhead How many business ventures have the same selling points? Our motto: LIMITED RISK, UNLIMITED FUN! COST OF OWNERSHIP Cost of Full Ownership Expense Description Yearling Year 2 Year Old Year 3 Year Old Year Purchase Price – September $ 8,500.00 Yearling Misc Transport 500.00 1,000.00 1,000.00 Farm Board (Layup) 350.00 1,050.00 1,050.00 Training 4,050.00 27,000.00 27,000.00 Veterinary Expenses 800.00 2,000.00 2,000.00 Farrier Expenses 300.00 1,200.00 1,200.00 Insurance 1,000.00 1,500.00 1,500.00 Annual Outlay $15,600.00 $33,750.00 $33,750.00 Grand Total $83,100.00 At the end of the two year old year you will need to decide whether to continue with your venture or retire the horse. You’ve spent $49,350.00 to determine that. About the Numbers Expense Considerations Purchase Price This will be the least of your expenses and your worries! Misc Transport Typically trainers charge to haul horses to and from the track, boarding facility or vet. Be sure to ask your trainer what items are not included in his day rate. Farm Board (Layup) Horses will need time off from training. We used 3 months per active year in our estimates. This will vary by horse and trainer. Training Day rates for trainers vary dramatically. We use an average of $100.00 per day. You may hear of trainers who’s day rate is as little as $45.00 per day. Evaluate their operation. Trainers who buy good feed, retain good help and have the amenities to train a champion are not cheap. Also, the day rate can exclude many items. $100.00 per day is a good figure to use to cover everything it costs to keep your horse well. Veterinary Expenses This varies widely by horse and trainer. We can only estimate what normal vet fees will be. Farrier Expenses We estimate $100.00 per month. Some horses will require more, some less. Insurance Varies by horse’s performance, age and level of training. PARTNERSHIP FACTS AND FIGURES How LRP Partnerships Work For every LRP horse, a new LLC is formed. The LLC is named after the horse – for example ‘Undesided Owners Group LLC’. 10 owners each purchase a 10% share in the LLC. Proceeds from selling the 10% interest are deposited into the LLC checking account to cover future expenses. The assets of the LLC include the horse and the balance of the LLC checking account. All expenses are paid directly from the LLC checking account. At any point in time, should the horse stop racing, his residual value (if anything), plus the balance in the checking account, is split equally between all partners. If the horse races beyond it’s 3 year old year, it will either sustain itself on purse winnings it previously earned, or the LLC will agree to contribute the funds required to continue at that time. How LRP Partnerships Work If the horse dies, the value of the insurance policy plus the balance of the LLC checking account are split between the partners. The Horse’s winnings are deposited into the LLC Checking Account. It will be the decision of the partners as to whether the winnings will be fully distributed to the partners, reserved for future racing expenses, or partially distributed and partially reserved for future expenses. This decision will depend on the timing of the winnings. LRP recommends a 50% split – distribute half and reserve half. LRP retains no ownership interest in the horse. The horse transfers fully to the partners. Decisions regarding training and racing are made by the management group (LRP) through the horse’s 3 year old racing year. The LLC will determine if they wish for this to continue at the end of the racing year. How LRP Partnerships Work There is a management fee included in the partnership pricing. This fee covers: – Transport to and from trainer – Communication with trainers, vets, farriers etc – Coordination of social events and meetings – Communication on horse’s status – Preparation of Financial Statements – Preparation of Tax Documents – Record Maintenance (receipts, registrations etc) At the conclusion of the horse’s racing career, if the owner group is unsuccessful in placing the horse, LRP will take responsibility for the horse’s placement. At the inception of the LLC, the Horse’s sales price is paid from the LLC checking account to LRP. The sales price represent’s the breeder’s costs of raising the foal to it’s current age and state. Partnership Savings Expense Description Individuals LRP Partners Reason for Savings Pay Pay Purchase Price – September Varies Varies Our horses will cost less Yearling because we have not incurred the costs of an organized sale. We save money on consignment fees, transport and commissions and we pass those onto our owners. Misc Transport 2,500.00 0.00 We transport all of our LRP managed horses FREE OF CHARGE. This does not include raceday transport as the trainer is responsible for raceday. Farm Board (Layup) 2,450.00 1,800.00 We discount board for layups for LRP managed horses. Administration (trips to Varies $20.00/month This is the purpose of the track/trainer/meet with vets) each management fee Partnership Cost - UNDESIDED Option 1: Paid in Full $2,950.00 Option 2: Payment Plan $500.00 down + $245.00 per month for 10 months What Expenses are Covered? •Purchase Price •Management Fee - Through the end of Undesided’s 3 year old racing year. •Entertainment – There is an annual entertainment budget. This covers an annual BBQ. Some events will require payment from the owner’s group for participation. An example would be a trip to the Fairgrounds for the Louisiana Derby. LRP provides a box but each owner is responsible for their food, drink and gambling. •Transport to and from trainer/boarding farm •Mortality Insurance to cover horse’s current value – adjusted throughout career •Boarding for layups, injuries etc. •Training including yearling breaking/training and race training through the three year old racing year •Estimated Vet and Farrier – We’ve done our homework on estimates but it’s possible that veterinary expenses due to an unforseen event could exceed the estimate. In this case, the owner’s group would need to contribute the additional funds unless offset by other savings/winnings. What Expenses are Not Covered? Expenses Beyond 3 Year Old Racing Year – It is assumed that if the owner’s group decides to continue racing the horse beyond it’s 3 year old, the horse must be paying his way. The owner’s group must at the time of deciding to continue the racing career, agree to the annual or monthly contribution to continue. Excess Veterinary – We’ve done our homework on estimates but it’s possible that veterinary expenses due to an unforseen event could exceed the estimate. In this case, the owner’s group would need to contribute the additional funds unless offset by other savings/winnings. Partnership Account Example At any point in time, your ownership value is one tenth of the partnership account balance less any outstanding bills. Should the horse be injured or stop racing, each partner will be refunded one tenth of the balance of the account less outstanding bills. Date Transaction Amount Account Balance 11/1/2010 Sell 10 Interests 29,500.00 29,500.00 11/1/2010 Sales Price (7500.00) 22,000.00 12/1/2010 Training Bill (2000.00) 20,000.00 1/1/2011 Training Bill (2000.00) 18,000.00 2/1/2011 Vet Bill and Farrier (450.00) 17,550.00 3/1/2011 Entry Fees – first (500.00) 17,050.00 race 3/1/2011 Proceeds from race 6000.00 23,050.00 Full Disclosure As an owner, you will receive: •Frequent emails describing your horse’s activities and progress •A monthly newsletter outlining events and industry news •Quarterly partnership Financial Statements accounting for all revenues and expenses •Copies of bank statements •Annual K-1 and copy of 1065 Tax Forms filed with the IRS •Ability to review receipts and invoices pertaining to your horse Frequently Asked Questions May I sell my partnership interest? You may sell your interest at any time. LRP does not broker individual shares but should you find a buyer you can sell your share. How do I get out of the partnership agreement? Once you purchase your share you are in this for the duration unless you sell your share. All fees and arrangements are hinged on ten partners sharing the cost of the horse. To exit the agreement would leave the remaining partners at risk. You may try to negotiate the sale of your interest to the remaining partners. What happens to the horse at the end of it’s career? If the horse needs to be sold or placed LRP will assist in doing so. If the owner group is unable to place the horse within 6 months of it’s retirement, LRP will assume responsibility for the horse. Can you split a 10% interest? Only one legal partner will be named per ten percent interest. If you choose to go in shares with someone on the ten percent interest, only one of you are a partner and only one entitled to the entertainment benefits. The other may attend events at their own cost. Are race winnings dispersed to the owner group or held in We want you to reep the rewards of your partnership the partnership account? interest. Race winnings will be distributed to owners as long as the training account is in good financial health. Why shouldn’t I just buy a claimer? When you are ready to carry all of a horse’s training expenses, a claimer is a great option. UNDESIDED THE SIRE IDE (Forty Niner) Remarkable 75% WINNERS & 10% STAKES HORSES THE SIRE IDE (Forty Niner) Average 2009 IDE yearlings sold for $14,860 14 progeny earning over 100K 2009 Louisiana Stallion of the year! In 2008 ALONE his progeny earned over $2.2M from 102 runners THE DAM Zarb’s Destiny (Zarbayev) A Winner over the mile From a Graded Stakes family Bred by Foxwood Plantation – the state’s leading breeder across several years. UNDESIDED is her first foal THE STARTING GATE The Starting Gate Now that you’re rearing to go - here’s a guide to getting started! Today: – Sign partnership agreement and provide either a deposit of $500.00 with remainder due in 30 days, or prepay your entire interest. Funds are placed in escrow. – Order your UNDESIDED merchandise (coming soon)! Within 30 days from seminar: – LRP forms the LLC, gathering your signatures on articles of incorporation. – LRP establishes checking account exclusively for the new LLC – LRP hosts a planning party for UNDESIDED!