It is not difficult to understand why horses like Devil's Bag, Chief's Crown and Spend A Buck are syndicated during their racing careers. The owners of such horses find themselves with an asset worth millions of dollars, but the asset has the potential to decrease significantly in value if the racing fortunes of the horse change. That creates pressure for owners to disinvest, at least partially, and spread the risk of loss. Investors, on the other hand, are often just as anxious to invest. Not only is there the chance of earnings and appreciation if the horse continues to win, but perhaps more importantly, the syndicate may provide a once-in-a-lifetime chance to own a Kentucky Derby winner or even a Triple Crown winner.
These same fundamental pressures are present in less expensive racing syndicates. Owners of less expensive horses also want to spread risk; investors similarly want to share in earnings, appreciation and excitement of owning a successful racehorse.
Whatever the horse's value, the formation of racing syndicates invariably involves significant and complicated issues under federal securities laws. This Article addresses these problems, shares certain observations and criticisms on these matters and provides advice on how to structure racing syndicates in ways that minimize the burden of federal securities laws.