Should you take a punt on the nags?

Can you really combine the thrill of owning a racehorse with the prospect of making a decent return? Maybe - but there's a lot more money to be made off the track than on it...

Owning a horse is becoming increasingly popular in the UK: 9,366 owners have a horse in training, compared with 8,862 in 2000. And the total amount of prize money has lept an impressive 39%, from £72m in 2000 to £100m last year.

But is it really possible to combine the thrill of a hobby with a genuine prospect of making money? Just because the popularity of owning a horse is on the up and the potential returns are higher doesn't mean that prospective investors should race into an industry that is as risky as it is profitable.

"You have to go in with your eyes wide open," says Richard Evans, associate editor of the Sportsman, the new daily national newspaper for those who like a punt on anything from horses to the FTSE 100. "Essentially, you have to be prepared to put money in and expect to get nothing back."

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Cathal Lynch, an Irish-based veterinary surgeon and racing expert, agrees: "Owning a horse is not very lucrative. Training the horse can cost between €200 (£138) and €500 (£345) a week. On top of that, only one in seven horses that go into training actually win a race. A lot of them don't even get as far as racing."

But there is money to be made. Earlier this month a two-year-old horse sold at auction for $16m, the highest price ever paid. But not only had it never won a race, it hadn't actually raced at all - it had done well on the gallops and in some trials.

But it is unlikely that the horse was bought to compete in any of the season's classic races. It was probably bought to put out to stud. And that is where the real money is. Lynch points out that Coolmore Stud, which paid the $16m for the horse, probably intends to make its return from sales of the horse's progeny.

This could prove very lucrative, as he boasts two Kentucky Derby winners in his bloodline. Storm Cat, one of America's most productive breeding stallions, mated with 109 mares last year, at $500,000 a pop. That's $54.5m in one year alone.

Racing horses brings in peanuts compared to the amount that can be made from stud. "He [the $16m two-year-old] would have to win every major race in the country [the United States] and the world to justify being purchased for $16m dollars. The new owners are definitely looking at this horse as a racing prospect, but ultimately they are going to make that money back in the breeding," Michele Blanco, a spokeswoman for Calder Racecourse, which sold the horse, told the Miami Herald.

Breeding certainly seems like the best way of getting a return on your investment, as the total prize money in the UK is far less than it is in other countries partly because the bookmakers take a bigger cut. But if what you really want is the thrill of the race and knowing that you own that speck in the distance running at Cheltenham, then for between £5,000 and £1,000,000 you could buy your own one-year-old colt or yearling (14 to 18 months old).

A price tag of £5,000 may sound a snip, but as it costs £20,000-£25,000 to have a horse in training, you may find the fees are just too much. To lower the costs, it is popular to get together a syndicate, in which you split the outgoings between you. But don't forget, you split the winnings too.

By Jody Clarke