Ever since the morning of October 25, 1870, when its doors first opened to admit Maryland horsemen and their elegant ladies, Pimlico's clubhouse has rung with lively debate over the buying and selling of Thoroughbreds. Of all the deals consummated in the Victorian rooms of the old structure, however, the most spectacular was the one signed there last Saturday, when Bally Ache changed hands for the staggering price of $1,250,000.
The announcement, coming just a week before the 84th running of the Preakness—in which he will attempt to reverse his Derby loss to Venetian Way—apparently had little effect on Bally Ache himself.
After being duly photographed with his old owner, Leonard Fruchtman, and his new one, Joseph L. Arnold, the beautiful bay colt easily won the Preakness Prep by four lengths for the 12th victory of his career, and increased his total earnings to $543,527.
The sale, naturally, caused more comment than the race, and well it might, in view of the fact that only Nashua has brought a higher amount: $1,251,200, paid by the Leslie Combs syndicate to the estate of the late William Woodward Jr. in 1955.
Fruchtman's stated reasons for selling Bally Ache are valid enough. "Having a horse like this simply takes too much time," he said. "I've got to get back to my business [president of Peters Stamping Co., Toledo] and my family." But what Fruchtman didn't have to add was that he could hardly have gotten a better price than that offered by Arnold.
SYNDICATE INCLUDES DU PONTS
A 46-year-old Lexington, Ky. attorney and land developer who lives with his wife and four children on a 36-acre farm in nearby Versailles, Joe Arnold has been in the horse business long enough to appreciate one vital fact: if you want to buy a ready-made horse these days you have to pay an astronomical price. Arnold started organizing a syndicate last winter. With the help of his good friend and neighbor, Bob Alexander, and the probable support of several members of the Du Pont family, he approached Fruchtman. Even before the Kentucky Derby, Fruchtman had decided to sell his horse and, if Bally Ache had beaten Venetian Way at Churchill Downs, it is more than likely that the price would have gone to an even million and a half.
After any sale of this magnitude, there is always a good deal of speculation (not the least of which originates in the Internal Revenue Service) about how such matters work. They can be highly complex. First, Bally Ache's total earnings of $543,527 are not shown as net profit. The expense of caring for him over the last two years totals about $20,000; winning percentages to Trainer Jimmy Pitt and the jockeys, along with gratuities to stable help, would take out another $115,000. If Bally Ache were heavily insured (say for $500,000) premiums would total about $20,000. After these deductions, Fruchtman would pay tax on the remaining income.
FULL PAYMENT DELAYED
In his deal with Arnold it is likely that Fruchtman retained a 15% interest in the colt (for future breeding purposes) and did not receive immediate cash payment of $1,250,000. Instead, the Arnold syndicate probably paid out a certain sum in cash, say $500,000, and will pay the balance out of Bally Ache's future earnings. Fruchtman, meanwhile, would pay the capital gains tax on the full purchase price, and everything coming to him afterward would be gravy. The new owners could set up a depreciation schedule of $625,000 a year (half the purchase price), based on Bally Ache's career as a race horse rather than his highly questionable potential as a stallion. Unless Bally Ache was good enough to win more than that sum in purse money this year and next, the Arnold syndicate would have a legitimate paper loss to hand over to any inquisitive inspector from the tax bureau. It's both clever and legal.