Back in the 1940s, when the value of thoroughbreds began to rise significantly, the more astute breeders in Kentucky began to look for ways to spread the expense—and the risk—of owning stallions. Group ownership was the answer. That way, if a colt bombed as a stud, nobody would be hurt badly. If he hit big, everybody would hit big enough. Thus the popularity of syndication. Each year the world's principal thoroughbred breeders compete to see who can put together the most attractive, and lucrative, syndicates for colts whose performances on the racetrack make them candidates for the stallion barns at blue-grass farms such as Spendthrift, Claiborne or Gainesway. Until Robert Sangster's $30 million deal for Storm Bird is formally transacted, the current world record for a syndication remains the $22 million raised by Seth Hancock for Spectacular Bid, the 1979 Kentucky Derby winner and alltime leading thoroughbred money-winner ($2,781,607). That syndication was based on 40 shares valued at $550,000 each.
Of other recent heroes of the American turf, 1978 Triple Crown winner Affirmed was syndicated for $14.4 million and 1977 Triple Crown winner Seattle Slew for $12 million, both by breeder Brownell Combs II of Spendthrift Farm. The value of the syndication and the number of shares are determined by what the breeder thinks the market will bear.
"It's a very simple formula," says Combs. "You first ask yourself what kind of stud fee the horse can command. For Affirmed, we figured it would be $80,000 [per mating]. Then you multiply the stud fee by four or five years, and that gives you the price of a share. In Affirmed's case, I figured it out to be $400,000 per share. You then multiply that by 36 or 40—however many shares you want in the syndicate—and that gives you the syndication figure."
Combs didn't have to compete with other breeders for Affirmed because of his father Leslie's long-standing friendship with Louis Wolfson, the former Wall Street financier who owned the colt. Cronyism is important in the syndication business. Not only does it help certain breeders get certain horses, but it also helps certain horsemen get preferential treatment when a breeder is putting together a syndicate. Combs will give his best customers first shot at getting in on an Affirmed or a Seattle Slew. If they decline, he goes down the list until the syndication is complete.
Syndication usually works out to the benefit of all. For an owner, even one as wealthy as Wolfson, it means that the risks, and the expenses, are shared. For a colt like Affirmed, insurance alone runs into millions. Naturally, the original owner will retain enough shares to make certain that he gets some of the stallion's colts or fillies every year of his breeding life. The way Combs worked it, Wolfson kept 50% of Affirmed, and Seattle Slew's owners kept 50% of that colt.
A share in an Affirmed or a Seattle Slew can be a bargain even at $500,000 or so. Each shareholder has the right to send one mare a year to be bred. The shareholder has the option of 1) keeping the foal to race himself, 2) selling the foal at auction or 3) selling breeding rights to another horseman. In the case of Seattle Slew, the current market value of a breeding right is about $200,000. Multiply that by the average breeding life of a stallion, which is about 15 years, and you get a tidy sum. If the stallion turns out to be a super-stud like Northern Dancer, the value of a share becomes sweet indeed. And even if the stallion doesn't prove to be notably successful—Secretariat, for example, has been a disappointment so far—his bloodlines and racing record may well be glamorous enough to ensure that a shareholder won't lose money.
Finally, the breeder also profits handsomely. By acting as syndicate manager, the agent for the owner, the breeder usually gets a couple of free breeding rights to each stallion. (It's customary for the colt's trainer also to be given a free season.) In addition, the breeder usually has an opportunity to buy one or more shares from the syndicate. In the case of Seattle Slew, the owners kept 20 shares, Combs bought five and the other 15 were sold to preferred Spendthrift clients. When the market value of Seattle Slew's shares went up, Combs sold three of his five shares.
Every buyer who purchased a colt at last week's Keeneland sales, especially those who coughed up $1 million or more, is hoping his acquisition proves out well enough on the racetrack to be syndicated as a breeding stallion. The odds are against it—and that's what makes the purchase a gamble of immense proportions. The Northern Dancer colt that sold for $3.5 million is odds-on not to earn that amount on the racetrack, but if he wins enough prestigious races, he could be syndicated for a large amount. But the chances are so remote, the gamble so huge, that it's a cheaper, and wiser, investment to buy a share in a breeding syndicate instead of shelling out for a million-dollar yearling.
It was only eight years ago that a son of Bold Ruler sold at Keeneland for the then staggering sum of $600,000, a world record. Bought by a Japanese syndicate, he was named Wajima, after a sumo wrestler, and he had a glorious career, including victories in the Travers and Marlboro Cup. Wajima almost won back his sales price—his earnings were $537,837—but that was small potatoes compared to the $7.2 million for which he was syndicated as a stallion only two years after he went through the sales ring. Wajima, however, is one of the few record-setting yearlings who made it big. For every Wajima there are a number of colts who don't. Kentucky Gold sold for $625,000 in 1974 and earned all of $5,950. Elegant Prince, who brought $715,000 in 1975, failed to earn a nickel. And then there's the first million-dollar yearling, a son of Secretariat named Canadian Bound, who sold for $1.5 million in 1976 and retired winless after four starts.
The real trick is to come out of the sales with a steal. Seattle Slew was bought for only $17,500, Spectacular Bid for $37,000. Yet either the buyers never learn, or else they're rich enough—and bold enough—to gamble on getting another Wajima instead of another Elegant Prince. And so the market soars.