Opinion: Sales ring practices

We have been following news reported late last year by Lee Mottershead from Racing Post, on claims of malpractice in the sales ring.

The article from October 2017 discussed the British Horseracing Authority (BHA) review of practices surrounding the sale of thoroughbreds – specifically the alleged practices of:

  1. payments (and more importantly the non-disclosure of payments) from vendors to buyers – referred to as “luck money” – post the successful sale, and
  2. “split the difference” arrangements between vendors and buyers where the buyer requests (or demands) some rebate or portion of the purchase price in excess of the under-bidder’s bid.

“The spotlight is on the sales ring after the BHA this week revealed it is reviewing how horses are bought and sold in Britain amid allegations of criminal malpractice. Lee Mottershead has spoken to two who believe current regulations and practices fall a long way short of being good enough” – Lee Mottershead, 11 Oct 2017

Racing Post’s article on 7 June reports that the BHA has made a senior appointment to lead the review into the buying and selling of horses.

“It is important that those who are looking to invest in horseracing – which is primarily a discretionary, leisure spend – can do so with confidence and trust in the purchasing procedure.” – Bruce Jackson, Racing Post | 7 June 2018

Both articles mentioned are centred on British sales auctions. Like almost everyone in the industry, we hear rumours of similar practices occurring in Australia & New Zealand.

We have no evidence. But it could be naive to assume the alleged practices discussed are not occurring.

We may make some enemies by writing about this, but our independence allows us to discuss this topic without fear.

Firstly, a reminder that we do not buy or sell our own horses. Instead, we provide an independent financial service to facilitate the sale of racehorse shares (typically yearlings) from Sellers to Buyers. Sellers are typically racehorse trainers who have purchased a thoroughbred at a yearling auction.

Our duty is to provide disclosure, transparency, security and the transfer of clear title free of encumbrances to Buyers, whilst equally supporting the Seller with professional sales practices that comply with ASIC and Racing Authority regulations.

Unhitched to any wagon, we believe there may be great advantages for a similar review into the Australia/New Zealand sales market.

A high percentage of yearlings sold publicly or privately by breeders to trainers, syndicators and bloodstock agents are onsold to multiple co-owners in subsequent transactions.

In all cases the purchase price AND any benefit, payment, rebate, commission or reimbursement from any person in relation to or in connection with the sale or purchase of the horse, should be disclosed when that horse is sold / syndicated.

Are such benefits, payments, rebates, commissions or reimbursements occurring? Are they always disclosed when a horse is on-sold or syndicated to new owners?

There is a code of ethics that guides Federation of Bloodstock Agents in Australia (FBAA members). Approved Promoters (commonly referred to as Syndicators) are also compelled to follow disclosure practices specified by the Australian and Securities Investment Commission (ASIC).

We are the latter category and can assure that we NEVER receive any benefit, payment, rebate, commission or reimbursement other than our service fee disclosed in each Product Disclosure Statement.

We also seek written declarations from the Seller of shares in racehorses whom we provide our services to, that the same applies.

On this topic, the Seller of any horse or shares in a horse, along with providers of professional services such as selection or management, should disclose any prior interest in the horse that they purchased (or in the horse’s sire or dam) and are consequently selling or syndicating.

In Australia and New Zealand, the actual seller of each thoroughbred yearling offered at auction is rarely disclosed in the catalogue. Yearlings are usually listed as being sold by a Vendor “as agent”.

Because of this lack of disclosure, ASIC and Racing Authority regulations were tightened to require Approved Promoters (Syndicators) to disclose any interest held in any horse, or in the sire or dam of the horse, prior to its purchase at auction and subsequent offering to the market.

We only hope all sellers of horses and shares in horses are providing full disclosure in these circumstances, whether they be a Trainer, Bloodstock Agent or Approved Promoter. In our view, regulations that compel this level of disclosure provide Buyers of shares with more valuable information upon which to make a decision.

Please contact us to ask any question.

You can watch this interview with Lee Mottershead which explains the investigation.

Read the full article on Racing Post | BHA appoints top policeman to lead review of alleged sales ring malpractice.

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