| Many people consider investing in stallion shares or 'interests' to be the most lucrative area for investment within the racing industry. The dream is to be lucky enough to be able to select a stallion that becomes very popular, and commands a stud fee high enough for you to recoup your original outlay and then some. Many investors are able to achieve just this. However there are also a large number of investors who don't have as much success. This is usually due to poor selection of their stallion prospect. What to look for in a stallion prospect The key things to look for in a stallion prospect are: - Does he have an outstanding pedigree?
- Was he successful on the track? Did he have early 2yo performance?
- Is the horse in good health? Is he fertile?
- Are you likely to want to send your mare to this stallion for three years, or is it likely that you will be able to sell your nomination/s?
- What type of mares will he attract? The quality of mares is vital, without good mares, the chance of producing great types is obviously significantly reduced.
- Is the proposed service fee appropriate?
- Does the proposed stud have a reputation for being able to market stallions effectively? Good stallion marketing is vital to the commercial success of a stallion.
- Do the stallion syndicators have a good reputation and management system?
Keep in mind when considering your investment, that you will also incur your proportion of the stallion's upkeep, including veterinary expenses, marketing and advertising costs and travel expenses, should he commence shuttle duties. Other points to consider include: Tax Implications
In order to do things like claim GST on expenses, you need to prove that your stallion interests are being conducted as an enterprise as opposed to a hobby. You will need a comprehensive business plan and efficient record-keeping methods. You may also need to detail the professional advisors you rely upon when making business decisions such as selecting horses to purchase, organising matings etc. Effectively, you need to prove to the Tax Office that there is a reasonable expectation of profit in the long term.
This further emphasises the importance of selecting commercially viable stallions, as it is difficult to prove that there is a reasonable expectation of profit with a stallion that you will struggle to book mares to. Click here to find out more about tax in the thoroughbred industry.
Leasing
A viable option for stallion investment, particularly if you yourself fall into the highest marginal tax bracket, is leasing your interest. A typical scenario is the following:
If you lease a stallion interest that costs $30,000, there are typically four re-payments. Payment 1 is due immediately i.e. you pay upfront. Consider this as a deposit. The amount is 1/3 the purchase price, so in this example it is $10,000. Payment 2 is due 12 months later, and is for another 1/3 = $10,000 Payment 3 is due another 12 months later, and is for another 1/3 = $10,000 Payment 4 is the residual or balloon payment. It is paid at the end of the lease, and is 25% the original purchase price, so in this example it is $7,500. Payments 1, 2 and 3 are tax deductible. Payment 4 (residual payment) is not, as it is capital. So effectively, you pay interest of $7,500 for a $20,000 loan over three years. (It is $20,000 because you have to pay $10,000 upfront so only $20,000 is financed). This may seem expensive, but if you are in the highest tax bracket, it can be a useful way to reduce your taxable income.
This scenario does not take into account any expenses or profits arising from keeping your broodmares or selling your nominations or any bonus nominations you may be entitled to. You should always consult your accountant or tax professional before undertaking finance.
Insurance
In most stallion syndicates, each shareholder individually insures their own interest in the horse, rather than there being one policy for the entire horse. A mortality policy can be extended to cover the stallion in the event that he becomes totally and permanently infertile, impotent or incapable of serving mares as a result of an accident, illness or disease. This type of cover typically does not cover a stallion for being congenitally infertile. Other additional policies include 'Loss of Income', where a loss of income occurs due to accident, infertility, illness or death. Find out more about your bloodstock insurance options here. Marketing
Good marketing for your stallion is vital. A lot of breeders have limited knowledge on pedigree, so it is important to make your stallion's breeding well known, particularly his dam line. You should emphasise highlights from your stallion's family in all marketing campaigns.
Another important point to emphasise is race performance. When marketing a young stallion, you have no option but to highlight his own career, but as his progeny begin to race you should highlight star performers.
Early 2yo performance is very important to the Australian market. Your stallions first 2yo's will be very closely watched in the spring. However, keep in mind that a trend that is becoming more and more apparent is trainers who are saving their best 2yo's for a later career, rather than potentially burning them out early on. The performance of your stallion and his first crop will determine which of these two trends you want to emphasise in your marketing i.e. early 2yo performance or saving a talented 2yo for a 3yo career.
Shuttling
One of the major reasons for shuttling stallions in the early days was to upgrade the local breeding stock. The success of Danehill supported this concept, leading to a belief foreign stallions were superior to Australian stallions. However, Danehill was an exception to the rule. Many believed that Australia was seen as a dumping ground for stallion deemed unsuitable for the US or Europe. In recent times, the success of local stallions such as Commands and Redoute's Choice has swung the market around, and now local stallions are increasing in popularity.
Many believe that all shuttle stallions are overpriced and over hyped. Whilst some are, the lack of success that some shuttle stallions experience in Australia is not due to the lack of quality of the stallion. The problem is that a lot of the stallions chosen to shuttle here are unsuitable for the tough Australian conditions.
The answer is to be careful when selecting a Northern Hemisphere stallion to bring to Australia. If the stallion is to have a chance at success in the Australian market, he needs to have a record and/or family history of early 2yo performance, which is very important to the Australian market. He must have the scope to go on as a 3yo and must also have speed, acceleration, and turn of foot.
Many Northern Hemisphere stallions are not tough enough to withstand the hard tracks of Australia. Horses that prefer the soft tracks of Europe will not be successful in Australia. The same goes for fine-boned horses.
The stallion must have the conformation of a sprinter. Whilst we are known for the Melbourne Cup, Australian racing loves a good sprinter, so any stallion that cannot produce this cannot be successful here. He must be built like an athlete, with a good shoulder and good hindquarters. | 
)
