Stakes are high as bloodstock industry keeps on winning
IT'S sales day at Keeneland, Kentucky, one of the biggest horse auctions in the world, and a colt with a sticker on his hip bearing the number '356' walks nervously into the sales pavilion.
Bidders from all around the world are seated in the tiered 700-seat amphitheatre but everyone knows there are only two serious contenders for the horse with no name.
In one corner is the Coolmore group, headed by millionaire Irish stud farm owner, John Magnier. In the other is the entourage of Sheikh Mohammed al Maktoum, the crown prince of Dubai. And both are here to do battle.
Tension mounts in the auditorium as furious bidding gets under way. It quickly passes the $3m mark. More rapid-fire bids in bewildering leaps of $100,000 see the figure pass $6m.
Magnier's crowd keep upping the stakes. The Sheikh makes two more bids. Short of $6.8m, the highest anyone has paid for a horse at an auction since 1985, the Sheik bows out. The Irish boys, peering out between reading glasses and battered Panama hats, barely blink.
And that's they way things go in the upper echelons of the sport of kings and it's the Irish who are kings of the castle at the moment.
Coolmore, one of the biggest stud farms in the world, is the axis around which the bloodstock world revolves.
Spread over 2,000 acres just outside Fethard in Co Tipperary, it is owned by John Magnier and has offshoots in Kentucky and Australia.
Those jealous of the power of Coolmore point to the tax breaks Charles Haughey introduced in 1969 as the jet fuel for an industry which has been soaring for the last 30 years. It means all nomination income, the money made in breeding fees from stallions, is tax-free.
Coolmore is home to some of the most valuable breeding stallions in the world, but none can match the peerless 19-year-old Sadler's Wells, who has acquired an awesome reputation for producing offspring who are outrageously successful on the racetrack.
His stud fee this season is anything up to 300,000. In a process described by writer Kevin Conley as "the most expensive 30 seconds in sport", lucky breeders get a chance of landing their own franchise thoroughbred.
Last year, Sadler's Wells serviced some 190 mares, which means that this year he is likely to earn around 40m for his owner.
In Ireland there are around 25 other stud farms with 350 thoroughbred stallions doing what stallions do and earning very tidy sums of money for their owners in a bloodstock industry worth anything between 300m and 400m.
But the astronomical figures bandied about are just estimates. Because of the secretive, but entirely legal way much of the bloodstock industry operates, no one can be really sure what kind of money is floating around.
The 1969 tax break may mean large amounts of money are not taxed, but the Revenue Commissioners have no record of how many people avail of it or how much money is lost to the Exchequer.
Finance Minister Charlie McCreevy, a keen racing enthusiast who made a series of cuts to betting tax, has no plans to review the operations, according to a spokesperson.
The people who make money from the duty-free sport do not even have to declare their income. All they have to do is let the tax authorities know that certain income is not taxable.
It is also a system which has been linked to unusual transactions. The Moriarty Tribunal, for example, unearthed a cheque from Magnier's Coolmore Stud to the former head of the Turf Club which ended up funding Charles Haughey's Celtic helicopters. Mr Magnier said the cheque was sent to Dr Michael Dargan for services of a stallion and he knew nothing about it.
Many of the main movers in the Irish bloodstock industry are tax exiles whose personal wealth is shrouded in secrecy.
Monte Carlo-based Michael Tabor is an English millionaire who has been involved in Coolmore. Financier and gambler JP McManus has also invested much in the industry. Millionaire businessman Dermot Desmond is another of the Coolmore set. Bahamas-based billionaire Joe Lewis, an East End trader who made it big by trading in currencies, has also been linked with the circle.
Company records show Magnier himself has companies based in Switzerland and in tax havens such as the Isle of Man and the Dutch Antilles. The businesses are generally unlimited or going unlimited, which means they yield little information about their operations.
Magnier is a quiet and solitary man. When appointed by Charles Haughey to the Senate in 1987, he spoke just three times. And he hasn't proved any more talkative about his financial affairs. His spokesman did not respond to queries from this newspaper.
Ireland is now the third biggest producer of foals in the world, has more breeding stallions in the country than Britain and the industry employs some 25,000 people in rural areas right around the country.
But at a time when the economy is beginning to hit a few speed bumps, some people are asking whether it is worth having such a generous tax regime.
"I don't believe that on economic or social grounds that this can continue to be justified," says Labour's finance spokesman Pat Rabbitte. "Certain charities are liable to tax, so why is a multi-million pound business exempt from tax? I don't believe a modest tax regime would impact on the industry, given the extent of the wealth generated."
Industry sources estimate the industry to be worth around 300m to 400m a year which, if taxed at the standard rate of 21%, would yield enough money to create almost 1,000 hospital beds.
But several reports have been conducted into the tax breaks, such as the Committee on Taxation report (1984) and Killalin report (1986), which have all advocated maintaining horse breeding's tax-free status. Paul Tansey, an economist who conducted a study into the commercial viability of the stallion industry in 1997, also concluded that maintaining the tax exemption was vital to the health of the industry.
"It's overstating the tax yield to assume that if you applied taxes to the bloodstock industry at the standard rate, that you'd get an equal return in tax. You wouldn't it's a mobile industry and work would move to somewhere else with a low tax regime," he says.
Officials in the thoroughbred industry are passionate about the need to keep breeding fees tax-free and say other industries are supported by Government grants or policies.
Michael O'Hagan of Irish Thoroughbred marketing says it's not just the big boys who benefit from the tax breaks. It's the ordinary people who, increasingly, are getting involved.
"There are hundreds of new people getting involved in race ownership through syndicates. They are ordinary people, we shouldn't lose sight of that."
Sean Barrett, who runs one of the country's leading bloodstock insurance firms, said the bloodstock industry contribution is immeasurable.
"We should be proud of the industry. At the end of they day they employ an awful lot of people.
