Make the Receiver of Revenue your “partner” for the full extent of the investment
(Photo : Leigh Willson)
“A VOICE FROM THE WILDERNESS”
Summerhill CEOAs a boy who grew up in the bush, and who followed the sport of racing for the “sport”, and very little else, I have to confess, I had trouble coming to terms with the corporate age in racing. Of course, if you didn’t embrace the things that changed our sport, you were never going to survive in it, let alone thrive, and so most of us did. I belong to a fraternity though, that can still stand for hours in the wind and the rain watching weanlings romp in the paddock. That might help to explain why I had difficulty seeing horses as collateral: instinct told me they break too easily, and neither could I come to terms with horses being depreciated, like say, a printing press, or lease-financed, like a BMW. Until I asked myself why a printing press or a BMW was any better than a racehorse, and why a man should not be tempted into investing in what was obviously a nobler object to put his money, than a piece of equipment?
I had to adjust. There was no sense living the horsey version of cricket before Kerry Packer’s revolution. Racehorses long ago became more than sport. Remember the days when we were confronted by prospectus after prospectus offering a collection of well-bred yearlings, packaged as a partnership under a lease-financing scheme. What those documents told us, if only obliquely so, was that by paying just R10,000 in cash and borrowing another sixty to meet the first year’s payment to the partnership, you could claim a tax deduction of around R70,000, and more if your borrowings attracted interest. South Africa’s tax laws were, (and for those in breeding, continue to be,) the most favourable in the world, and when it comes to racing, provided you are serious enough about your endeavours and show enough in the way of income, even there, racing has more than just the sport to its attractions.
Supposing your horses are well bought, and your venture is serious and capable of making good profits, there should be no argument about the deduction in the case of breeding stock. As I understand it, “ring-fencing” has placed an onus on taxpayers to prove the seriousness of their endeavours, but provided your intent is genuine, you ought to be able to write down your capital outlay to zero or to what the taxing master terms “standard values” (less than a R100,) in the year of acquisition. The idea behind the dispensation, is to encourage investment in farming and farming stock, and I know of nowhere else in the world where the commissioner makes it this attractive for taxpayers to invest in the agricultural sector. If, for example, you occupy the space of the highest marginal taxpayers, and have a taxable income of say a R100,000, by borrowing R100,000 and investing in bloodstock, you can make the Receiver of Revenue your “partner” for the full extent of the investment, and not only saving yourself the tax, but acquire a handsome “blue blood” at the same time.
As they say in the financial community, that’s leverage. As we say on the racecourse, that’s odds of 5-2 in a one-horse race. It may be in the long haul, that all I’m doing is deferring tax, because when my investment is eventually sold, it may yield a substantial profit. In that case, I may owe the tax man, but that is the best sort of problem, anyway. Today’s odds remain 5-2.
The advent of the big tax schemes of the late 80s, gave birth to the new concept of racing partnerships, and while the concessions in the form they were in those days, were eventually withdrawn and replaced with the “saner” variety we have today, the partnerships remain a popular form of racehorse ownership; partly for their camaraderie, partly for their spread of risk, and especially because they make the game accessible to a broader spectrum of people for a smaller outlay in these times of big prices. Often enough, racing partnerships explain the buoyancy of the top end of yearling sales around the world, while breeding partnerships have helped underwrite the heady market for Black-type mares. The “sport” is still there: it always will be. But the method of financing a large portion of it has become as sophisticated as the financing of a takeover or of a large shopping mall.
One reason for this, is the people who figure on the finance pages these days, often also appear on the sport pages leading in a Group One winner, and sometimes, trying not to strangle themselves with the lead rein. But there are deeper reasons for the new financial vehicles.
First, nothing propelled the start of racing to “industry” status more surely than the advent of the TABs in the 70s. These guaranteed that part of every betting Rand went back to the sport, and a good portion of the residue went to the funding of hospitals, schools, roads and game parks: can you think of a better cause? You need look only at the rag-tag way English racing is financed, to realise the genius of the South African TAB system.
Secondly, prize money has soared. In the season just ended, it is just better than R300 million. Twenty years ago, it was less than half of that, and another twenty years before, it was down to a tenth of it. Yes, we have inflation, but the nett growth factor is around double for every decade. This was not always so. When Campanajo won the first Durban July in 1897, first prize was £100. When my grandfather won the Durban July with St Pauls in 1946, the prize was £7,500. I remember Elevation winning the third of his Holiday Inns in the mid 70s, when we thought a R100,000 was enormous. If you are on a really good horse these days, there is no need to bet: the Vodacom Durban July prize stands at R3.5 million, and the Emperors Palace Ready To Run Cup offers a handsome R3million.
Third, there is now the concept of “residuals”; in other words, what good fillies and mares and the odd colt, are worth when they leave the racecourse. Once, before Black type became important for breeders, prices were often none-too-fancy for racetrack retirees. Now, the figures can go like this. You buy a well-bred filly with fashionable blood and good looks for R100,000 at the Yearling Sales. She is a fair performer on the track, and wins a couple of hundred thousand Rands, let’s say, and is a Stakes winner. Someone working on the old figures in the old days, might say the deal didn’t work too well, that you finished a long way behind. Studs these days are owned by some of the wealthiest of the wealthy, and a good looking filly with a good looking record can double her price (and much more) at the point of retirement. A filly of the class of Igugu, would be worth many times what she made when we sold her at the Emperors Palace Ready To Run Sale, notwithstanding the million she cost in the first place.
Jet Master was bought for R15,000 as a foal. On the track he won the modern equivalent of about R10million with eight Group One victories. You could say the Devines finished strongly in front, but they did much better. When the horse went to stud, he made such an impression, he wound up commanding a stud fee of R250,000, payable up front. On the basis of a 100 mares (and perhaps more) a season, and about 80 foals on the ground, the sums are not difficult to work out. There is something of the order of R20 million in the annual kitty, and until his purchase price was repaid (of little account in his case, but often of considerable account with an expensive stallion) the income would be tax-free. Of course, there would be no argument with the Receiver Of Revenue about the seriousness of your endeavours.
And finally, racehorses have become an “industry”, because they generate turnovers of more than R7 billion a year. It’s natural that so much money would attract the big financiers. The recent entry forms for the Lanzarac-sponsored Cape Ready To Run Sale towards the end of the year, advertise that Cape Thoroughbred Sales will pay their vendors ten days after the sale is completed, and that buyers can pay them within six months. You can’t get those terms anywhere else in the world.
Whether you go the racing or the breeding route is a matter of choice, and often it’s a matter of temperament. The former is probably better suited to the high-flying gambling type, whose thrill lies in the throw of the dice, while the other takes time, patience, and a closer association with the horse, to name its attractions. You need an element of the “roulette wheel” if you do want to be a racer, and you need to be of the “little farmer” variety for the latter. On the face of it, breeding seems safer, and yet, to be truly fulfilled in the game, you need an element of both. We’ve all heard the adage about the “person who wants to make a small fortune, having to start out in horsebreeding with a big one”, but I’d like to tell you that we had neither. When we came to Summerhill in 1979, we had nothing but a burning obsession to breed horses the best way we could. Together with a team who were willing to share the sweat, the tears and the sacrifices with us, thirty-five years later and a with a helluva lot less hair than we started out with, the legacy is of a lot of people who’ve managed to make an honest living, to educate their kids, to enjoy a few parties, and who’ve occasionally got time to dust off the trophies on their mantlepieces.
And while we’ve been in it the past three decades and a bit, we’ve seen the game turned upside down in the mix of its offerings, its players and those that would “own” it, but it remains as irresistible as ever. You may think the way it is these days, that it all rather argues with the spirit of Rudyard Kipling and those battlers who dream of just one Jet Master. It does. But then a couple of decades ago, I never thought I would see international cricketers cavorting in pj’s while Tony Greig talked about their comfort levels. Cricket changed, and I often wondered what would’ve become of it, if it hadn’t. I guess the same applies to this glorious game of ours.
If these stories do nothing else, hopefully they will revive some memories. And if they do, they may even provoke some discussion.