When Racing Fans Up the Stakes : Investments: The high cost of owning racehorses has led some enthusiasts to buy shares through syndicates.

When a horse named Prized won the Arcadia Handicap at Santa Anita on March 4, the proud owners headed for the winner’s circle at trackside.

More than 75 proud owners.

The Sport of Kings--so named for the size of the fortune it takes to keep a racehorse in oats and his jockey in silks--has attracted some newcomers whose love for racing is deeper than their pockets.

One way for such fans to participate in racing--as owners--is to join a syndicate and buy a percentage of a horse. The risks and rewards are thus reduced because participants share expenses and winnings. But the enthusiasm seems to increase with the number of owners.

Apart from the social and sporting aspects of owning racehorses, owners say the sport has become a big business in California. Last year, racing fans wagered $2.6 billion at the state’s 14 race tracks. And the company that operates Santa Anita race track reported revenue of $72 million.

But because it is so costly to be involved on the ownership end, thoroughbred racing industry leaders recently launched a campaign to woo potential racehorse owners.

“There was a growing concern in the industry that ownership was steadily decreasing and we needed to encourage new owners,” said Laura Williams, executive director of the Lexington, Ky.-based Thoroughbred Owners and Breeders Assn.

The group is sponsoring a series of seminars and workshops at race tracks around the country. For a modest fee, the prospective owners are invited to tour the barns, meet with trainers and learn what it really takes to own a racehorse.

When Harvey Cohen bought a fraction of a racehorse as a young attorney, he never imagined that someday he would own eight thoroughbreds and be the father-in-law of a professional jockey.

Cohen’s passion for racehorses has prompted him to turn much of his Encino law practice over to his associates so that he can devote his energy to the business of owning racehorses.

Cohen is one of California’s luckier 10,448 licensed thoroughbred racehorse owners. He and his partner own a racehorse that actually makes money. They paid $51,000 for 2-year-old Music Merci. So far, he has won $1.3 million.

“Everyone in the racing business would like to make money, but only 5% of all the owners show a profit,” said Cohen, who bought two new horses earlier this month.

The expense of owning a racehorse drives more people out of the business than any other factor, according to a recent owners survey conducted by the association. It costs $20,000 to $36,000 a year to feed and train one racehorse, according to owners.

Although high cost led the list of problems, lack of information about the racing business and lack of communication with trainers were also cited as serious concerns. Based on the results of this survey, the 800-member association created a new owners committee to deal with these issues.

Although California is far behind Kentucky and Florida as a horse breeding state, about 5,000 of the 45,000 thoroughbreds born each year come from California.

Racehorse owners say anyone with an interest in horses and substantial disposable income can afford to buy at least a share in a racehorse. A thoroughbred with racing potential can be had for less than $10,000. But buying is the cheapest part of the venture. Training and transporting the horse to races cost thousands of dollars a year.

“It costs the same amount of money to feed a good horse as a poor horse,” quipped veteran thoroughbred owner Mary Jones Bradley.

While owning a race track may be a profitable venture, owning a race horse is, in most cases, a money-losing proposition. In fact, the Internal Revenue Service allows racehorse owners to report losses in five out of every seven years, compared to three out of five years for other types of businesses.

“The big issue always is, are you tinkering with this or is it a business?” said Jan Gribbon, a spokeswoman for the IRS in Los Angeles. “Racehorse ownership is one of the areas that tends to be audited because it tends to be abused.” But don’t expect to see IRS auditors skulking around the barns at Santa Anita.

“We don’t want auditors to go out and give an opinion on whether the horse is any good,” she said. “The determination is not based on the horse, it’s based on the intent of the owner.”

When a racehorse owner is audited, the auditor examines the quality of the owner’s advisers, how much time and effort is spent on the horse and the amount of profits, if any. The auditor also tries to figure out why the taxpayer is incurring repeated losses.

Lathrop Hoffman, who owns four Southern California car dealerships, said his racehorse business has weathered an IRS audit. He and his partners own 75 racehorses and a 100-acre horse ranch in Anza, Calif.

Hoffman’s partners are all Southern California business owners. George Strugar is a former Rams lineman who owns Pro Express, a Montebello trucking firm. David Kruse owns Kruse Meats in Monrovia, and Brian Sweeney is a horse trainer.

“We’ve been audited and never had a problem,” said Hoffman. “We are not in it as a game, we treat it as a business and work hard at it.”

Lathrop said he and his partners expect to make money eventually, but that hasn’t happened so far, although a few of their horses have made more than $100,000 a year.

“This is a business where you need all the help you can get,” said Mary Jones Bradley, whose Chilean-bred Cougar II won $1.1 million before he retired in 1973. “There is isn’t a day when you don’t learn something new in this business.”

Cougar, voted America’s best grass horse in 1972, died at 23 after siring offspring that won more than $11 million for their owners.

Bradley said owning racehorses is a good way to test your personal strength as well as your business savvy.

“It gets you way up and it knocks you way down,” said Bradley, who has spent much of her life around racehorses. As a child, she frequently visited Arlington Park race track in Chicago with her grandfather because he was on the board of trustees. Her family also raised horses on a farm in Libertyville, Illinois.

In the past 24 1/2 years, Bradley said she has bought and sold scores of racehorses and never taken a tax loss.

“When I don’t make money racing, I sell horses and make my expenses that way,” said Bradley, who declined to say how many horses she owns.

She agreed that racehorse owners are increasingly concerned about rising costs. Years ago, she paid esteemed trainer Charles Whittingham $18 a day to work with her horses; now he charges more than $70 a day.

Even with the best horses, the return on investment can be modest. In November, 1989, former San Diego Chargers owner Gene Klein sold his 114 horses for $29.6 million--an average of $259,851 a head. Although Klein’s horses earned more than $25 million, his profit after seven years in the business was reportedly small.

Klein told sportswriters that his monthly expenses sometimes reached $300,000, not including the $1 million a year that he spent just to fly his horses to races.

Although they do not operate on the scale of Gene Klein, owning six thoroughbred racehorses is not only a serious business proposition but also a way of life for the Cohen family.

Thea Cohen enjoys tracing the bloodlines of the horses that her husband is interested in buying. Their daughter, Carol, is married to jockey Martin Pedroza. Thea Cohen admits to being the inadvertent matchmaker. “I promised Martin he could have one date with Carol if he won a particular race,” laughs Cohen. “He won by three lengths and they were married a year later.”

The Cohens were among the owners who celebrated the opening of the new Barretts Equine Sales pavilion at the Fairplex in Pomona.

Since the 1984 closure of the sales pavilion at Hollywood Park, auctions have been held in temporary quarters at race tracks around the state. Earlier this month, hundreds of horse fanciers applauded the recent opening of a luxurious new $13-million pavilion built on 18 acres at the fairgrounds.

“Our theory is to give the owner the best chance possible to buy horses and to give our sellers premium prices,” said Gerald McMahon, president of Barretts.

McMahon, a veteran horse dealer, joined with Fred Sahadi, the owner of the state’s largest horse farm, Cardiff Stud Farm in Paso Robles, to open Barretts.

At the first two-day sale, buyers from as a far away as Japan spent $16.4 million on 196 2-year-olds in training. The highest price was $700,000 paid for Tell Your Tale, a horse that previously sold for $140,000.

WHAT BRINGS THEM IN

Percentage of 411 established, 65 exiting and 225 new racehorse owners citing various reasons for getting in the industry.

Established Existing New owners owners owners THOROUGHBREDS 47 32.5 51.2 SPORTS AND EXCITEMENT 36.3 34.9 38.7 FINANCIAL GAIN 15.8 16.9 12.4 FAMILY TRADITION 17.8 11.7 8.9

Source: Thoroughbred Owners and Breeders Assn.

WHAT KEEPS THEM THERE

Percentage of 411 established, 65 exiting and 225 new racehorse owners citing various benefits of racehorse ownership.

Established Existing New owners owners owners EXCITEMENT AND FUN 45.2 61.7 36 PERSONAL SATISFACTION 32.4 19.4 29.3 FINANCIAL GAIN 35.5 16.7 16.9 SOCIAL REWARDS 10.2 7.7 5.3

Source: Thoroughbred Owners and Breeders Assn.

WHAT MAKES THEM LEAVE

Percentage of 411 established, 65 exiting and 225 new racehorse owners citing various reasons for getting out of horse racing. FINANCIAL LOSES: 42.8 PERSONAL PROBLEMS: 13.9 HORSES NOT WINNING: 7.2

Source: Thoroughbred Owners and Breeders Assn.