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Tuesday, January 06, 2009

Marking Up

Remember last week we were talking about Mr. Fantasy.....no, this one...and, after I noted what he cost at sale, a reader wondered what West Point syndicated the horse for, their markup is usually pretty steep.

So, curious as always, I went to the West Point website. I've seen many partnership sites on which you can easily access the current offerings and what they're charging for shares. Then, it doesn't take that much research to find out what a group paid for a horse at auction, and thus get an idea of how much they're marking it up. Too late for Mr. Fantasy, but I thought I'd check out their current offerings.

But here, when I clicked on the Opportunities tab, I was taken to a login page. Access is restricted to Partners and Registered Visitors. I proceeded to the registration page, but was going to stop at this point, as I wasn't interested in wasting their time nor mine. However, underneath the address form is the question: Would you like to be contacted by a West Point Thoroughbreds Representative? Oh, OK, cool, NO. (Can you believe I fell for that??)

I got as far as the financial requirements on the next web page, checked the box to indicate that I did not qualify - I don't - and ended my quest there.

A few days later, I get an email from the Head Chef (did I mention that I used her name and email address on the form?), reading wtf? above a forward of an email from West Point that begins: Thank you for your inquiry. In order to make our phone call as productive as possible we have six quick questions for you. Seemed a bit pushy, especially considering the little 'No' box I'd checked, doncha think? Upon receipt of your e-mail I will phone you. So I told her of my aborted research project, and advised that she ignore it.

Now, we've gotten a big West Point Package; and though the cover letter is more restrained - Please give me a call with any questions you may have - still, I'm a little annoyed. Sure, I suppose I was snooping around their site for information to use in a context they would probably prefer people not to see. But I was at least trying to be considerate! I could have proceeded under false pretenses after all. So I think that the response was disproportionate..

The good news is that the package contains the very information I was looking for in the first place. I present it here without judgment, other than the fact that they're bugging me. It is a business, after all. Partnerships assume significant risk buying expensive horses, and have every right to sell them for what the market will bear. And the ones with solid track records like West Point have earned their right to charge a significant premium for their expertise and for their access to top horsemen like Kiaran McLaughlin. But it's sure interesting to see the numbers. This is all information which is either public, or was provided to me - despite my specific request that they not do so, I might add - by the company.

These are all two-year olds: They have a Ghostzapper filly out of a Seeking the Gold mare; she's a half sister to Pomeroy. West Point paid $475,000 for her at Saratoga last August; they're offering 10% shares for $95,000, including all training and maintenance through 2010. [NOTE: Please see response regarding this horse in the first comment below.] A colt by Exchange Rate out of a Caller ID mare cost West Point $250,000, also at Saratoga; he's available for $54,000 a share (same terms).

There's a Closing Argument colt for $43,000 a share; they bought him for $130,000; a More Than Ready filly, for $38,200, that cost them $160,000.

You gotta figure that the year of expenses could be worth up to $50,000 - even more in certain cases when things don't go well - and the partnership carries all the expenses - and, as I mentioned, the risk - incurred from the day they bought the horses as yearlings, to the time they're able to sell the shares. But clearly, they're making some money on the sale. Having said that, their markups don't really seem out of line from those I've seen in the past on other sites; that's the business, in most cases. I've run across the occasional partnership - such as Castle Village - that syndicate at cost, but their ambitions are typically more modest than what many investors are looking for. My main point is that buyers should be well-informed, as with any other prospective purchase. They should want to know what a horse being offered to them was deemed to be worth by the marketplace, and what a stable's markup percentage is in relation to the others. Only takes a little Googling and effort to do so.

2 Comments:

coooper23 said...

Hello. My name is Joshua A. Cooper, CPA the Chief Operating Officer of West Point Thoroughbreds, Inc. We really appreciate you taking the time to do some research on Mr. Fantasy on our site and sharing your thoughts. Your comments were insightful and well thought out.

A few points in response to your post:

-we restrict access to our offerings on-line because of the rules established under the Securities Act of 1933. It is amazing but true, the sale of units in an LLC (even one that owns a horse!) is deemed to be a sale of a security. I really could not comment on why our competitors display their offerings but based on our research and the advice from our counsel - displaying the available horses would be deemed an "offer" potentially violating exemptions available to us under the Securities Act.

-we actually purchased the 07 Ghostzapper/Questress filly at the Keeneland 2007 November Breeding Stock Sale for $735,000 (here is the link to the sales results http://ww2.keeneland.com/sales/frames/search_results.aspx). The purchase at the Fasig-Tipton Select sale this past August was a buyback.

-we buy all horses at public auction to promote transparency. We have nothing to hide and are more than willing to walk any qualified prospect or client through our pricing model.

-the package sent to you was an oversight. Please accept my apologies. Our desire is not to contact those that wish not to be contacted.

-infrastructure is a key factor in considering a partnership. We have a team of ten people in place focused on delivering a premium level of service to our clients. We communicate with each client through multiple channels: a dedicated service representative, our website, e-mails, videos, conference calls to name a few. We have one rule that we live by each day - the client comes first. It is up to the prospective investor to determine if that is the type of experience that they desire.

We are a Company based on integrity, honesty and transparency. Our passion is winning big races.

If you have any questions or comments, either now or in the future, feel free to contact me directly at josh@westpointtb.com.

We really appreciate you taking the time to learn about us and our horses.

Joshua A. Cooper, CPA
Chief Operating Officer
West Point Thoroughbreds, Inc.

Anonymous said...

It could be worse.You could have investedin a Karakorum partnership. The folks who run it have difficulty assessing what a good racehorse looks like. They buy anything that has 4 legs and a tail, regardless of the pedigree. Then, they'll sell shares marked way, way up from their own original cost. They don't really pay much for their horses but, they will make 1000% profit on horses that are not worth the effort to research or to invest in. Then, the fun begins. They then charge their partners well above the actual expense for any service, (shoeing, stable fees, training, etc.) that the horse needs. The outfit needs to make money somehow. Karakorum makes their money the old fashioned way, off the suckers that choose to invest with them. You pay their salaries by purchasing shares in their horses, and then paying extra money to Karakorum for any other service that the horse may need, which they will charge you extra for. It is a grand scam. Bernie Madoff has nothing on Karakorum.