Imagine, you buy shares in a horse that ends up winning (among other things), the $1,000,000 Haskell, the $3,000,000 Kentucky Derby and the $6,000,000 Breeder’s Cup Classic. As you celebrate your incredibly good fortune and anticipate the huge payback on your modest investment, you receive a message from the syndicate manager that your payout from these races will be…. nothing. Incredibly, that appears to be the case according to multiple sources with Authentic for the approximately 5000 people who purchased ‘micro shares’ in the horse through MyRacehorse.com. As Jay Hovdey put it after the Kentucky Derby in The Blood-Horse (The Final Turn, Sept. 12, 2020) “The press release from MyRacehorse.com that the 4600 people who “bought’ a piece of Authentic would not be sharing in the Derby win purse of 1.86 million came as a surprise only to those who either failed to understand the fine points of the purchase contract or have never seen “The Producers”. Max Bailystock and Leo Bloom would be proud”.  Basically, the ‘fine print’ in the contract stated that if the horse won major stakes like Triple Crown races and/or the Breeder’s Cup, the people that sold MyRacehorse the 12.5% interest they broke up into ‘Microshares’ would be paid a series of bonus ‘kickers’ (additional performance payments) amounting to more than the horse would earn, leaving the ‘shareholders’ with nothing to show from purse money and waiting for revenue from future stud fees to receive a return on their investment.

A little background here… I have met MyRacehorse founder Michael Behrens on multiple occasions. Before he launched Myracehorse.com we had lunch in New Jersey to discuss the concept. After he explained the structure I told him it was “a gamechanger” that had the potential to fill empty seats with thousands of new racing fans and I continue to firmly believe that to be the case. Michael has been a part of game changing innovations in other industries and is exactly the kind of person the frequently statis-bound thoroughbred game sorely needs to help develop new ways of doing business and shake up the status quo. In our conversations I found Michael to be focused on honesty and transparency and I have no doubt it was not his intention to mislead anyone with the terms of the Authentic syndicate. A friend of mine said ", the structure of the Authentic agreement was plainly clear on the mobile app and also in the agreement". Perhaps so, but judging by hundreds of comments from disgruntled Authentic shareholders on various forums, at the least it’s fair to say as Jay Hovdey said in his Blood-Horse commentary, a lot of people who purchased the micro shares failed to notice or understand the 'fine print'. Clearly it’s the responsibility of everyone who makes any investment to review legal documents. However, if the agreement includes terms that would effectively wipe out payment of purse income to the syndicate from winning the most lucrative races, it seems MyRacehorse had at least a moral obligation to highlight that fact in BIG BOLD LETTERS on the front page of the legal documents because that’s the kind of information that should never be relegated to the ‘fine print’.

Beyond the issue of proper disclosure there’s an equally important question as to the value to shareholders of a syndication that returns nothing after a horse wins a classic race. Properly structured syndicates that do not overpay for horses and don’t engage in unreasonable mark ups frequently produce profits with solid allowance horses and/or modest local stake winners. Surely the Authentic agreement could have been structured to allow micro share purchasers to share in at least some portion of the purse income, with bonus 'kickers' paid at least in part from future stud fees. To return nothing to micro share owners after the horse won over six million dollars in purses not only hurts the image of MyRacehorse’s innovative program, but serves to reinforce the image of the thoroughbred industry as a zero sum game.  Of course with any racehorse investment it should be about pleasure first, but there should be some kind of payout when your horse wins 6 million dollars without waiting to see what stud fees yield. Yes if stud fee revenues ultimately produce substantial profits disgruntled shareholders may feel a lot better, but the bad PR is everywhere right now and for years to come. This structure turned what should have been an incredible promo story for our industry into another controversy. What could have been a total tour-de-force for both MyRacehorse and the entire industry ends up to many feeling like another in the seemingly endless series of industry black eyes, one that didn’t have to be

Authentic is quite literally, the best horse out of a crop of over 20,000 three-year olds this year. A deal that tells investors to wait for income from future stud fees for any return after a horse earned over six million dollars on the racetrack does not seem like a user friendly business model likely to produce repeat customers. Everyone knows the economics of the thoroughbred industry make it a challenge to make money with any horse, but investors certainly have reason to expect a payout with a classic winning champion.  As one of the purchasers of Authentic micro shares, Paul Narpaul, wrote to me “On 20 shares around $4500.00 invested. No return on two big races but hopefully make it up in stud fees. Tough experience/beginners luck for me with this… This may simply be a situation where I did not look into it as much detail as I should but disappointed in the lack of the opportunity to learn the sport and the overall outcome” Paul gave me permission to use his comments, stating further “Every individual or organization have strengths & weaknesses. Transparency helps makes us all better”. That’s a message not only the founders of MyRacehorse, but a lot of other syndicates selling shares in racehorses would do well to take to heart.

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