Getting over the costly Supreme hurdle

The Supreme Racing Club controversy has damaged trust in the syndicate model but Kemboy winning the Cheltenham Gold Cup in March would provide the happiest of endings.

Chaos theory

There’s a branch of mathematics concerned purely with the study of ‘Chaos Theory.’ Like most maths theories, it’s laden with long equations and generously sprinkled with letters and symbols from Ancient Greece.

But at heart, it is relatively simple.

A small random change of state anywhere can lead to unexpected consequences elsewhere.

For instance, a pebble thrown into a pool in Malawi causes a broken fingernail in Malahide. Or a witness statement in a random New York fraud trial badly damages confidence in Irish racehorse ownership.

Worryingly, the second of these propositions may soon prove to be true.

Konstantin Ignatov, the Bulgarian co-founder of a crypto currency called ‘OneCoin’ has recently pleaded guilty to fraud and money laundering charges, in a ‘Ponzi’ scam worth over four billion dollars. And, as they say over there in the city that never sleeps, Konstantin is singing like a canary.

Ignatov has named one Amer Abdulaziz Salman as a co-conspirator, alleging that he has hidden over a hundred million stolen dollars in an investment fund called Phoenix Thoroughbreds, or, as he calls it, “a major money-laundering operation for an international cryptocurrency fraud.”

Salman is vigorously contesting all allegations of wrongdoing.

The fund was pitched as a vehicle for high-worth individuals to invest in ‘a sustainable return realized through acquisition and breeding of top-quality thoroughbreds.’

Their mission, declared Amer modestly, was ‘to compete at the highest level, to position us at the top with Coolmore, Darley and Juddmonte.’

An early acquisition was Advertise, winner of the Group 1 Commonwealth Cup at Royal Ascot and within a couple of years, Phoenix had built a string of up to three hundred horses housed with 27 trainers all over the world.

However, the FBI are beginning to wonder if these ‘investors’ ever really existed at all and the enterprise has now been forced in liquidation. The sudden downfall of such a prominent global operation has shocked the upper echelons of racing.

The timing of the Phoenix failure is doubly uncomfortable for the Irish racing industry, coming on foot of the recent Supreme Racing Club difficulties.

The two events are vastly different in scale and although no criminality is suggested in the case of Supreme, the convergence of negative publicity could easily plant uncomfortable doubts in the minds of potential and existing owners.

That maybe horseracing clubs (funds, syndicates) are unreliable and that they should be approached with extreme caution.

Not so Supreme

The problems that emerged at the Supreme Racing Club are now widely familiar both within the industry and beyond. Growing anxiety from some members over governance standards invites scrutiny from Horse Racing Ireland (HRI).

Requests for information are not satisfied by the trustees so all Supreme registrations are cancelled. The horses, including the Cheltenham Gold Cup favourite Kemboy are placed in cold storage by HRI and can’t even be entered in upcoming races.

The owners, predominantly enthusiasts who had bought into their passion at a reasonable cost, have spent months fretting that their presumed one in ten ownership stakes might actually be one in 50. Or wondering if their accumulated prize money had disappeared on the wind.

For syndicate members, a breach of trust can be a deeper wound than mere financial loss.

A feature of syndicate ownership is that even a purchase of a proverbial hair in the tail brings a sense of pride and commitment is such that you feel you own the whole beast.

Family and friends are regaled (bored?) with optimistic narratives of how ‘our trainer has suggested that he puts my horse away for the rest of the winter to make sure we are well handicapped for the Galway Plate’.

Supreme Racing had many dreamers with large networks so there are now an awful lot of people up close and personal with an ownership disaster.

One such dreamer, a private London based investor, spoke to the Irish Examinerabout his recent turmoil.

“I had gradually wanted to invest, and syndicates are by far the best way to achieve this,” he says.

Until the problems that recently exploded, my experience was entirely a good one. I got to go to courses that I would never have got to and to meet people I would never have met. It was a blast. It was fantastic.

He soon hit the bullseye. His first investment was in the multiple Grade One-winning mare Airlie Beach and this was followed up with shares in Cadmium, Aramon, and Kemboy among others. The immediacy of these successes, which were not untypical for Supreme members, meant that he felt like a man who had fallen into the Thames and emerged wearing a new suit.

“All of a sudden I was turning up at the big Grade One days and winning races like the Royal Bond at Fairyhouse,” he continues.

“It was beyond our wildest dreams that we could be paying so little money yet be involved in a Grade One winner. I know lots of other owners would not say the same thing, but I always felt I had the information I needed, and it was a good experience. Until the end of October this year.”

In late October the elastic on the patience of HRI finally snapped and the horses went to the naughty step. Most Supreme members were taken by surprise. Sources within the club reported that they had been aware that not all the owners were happy, and that concerns were building for over a year.

Others optimistically assumed that this was just minor dissatisfaction about general efficiency rather than any direct allegations of wrongdoing.

When the crash finally came, shareholders were encouraged to sort things out between themselves.

That’s when they realised that they didn’t have a complete list of who exactly the other syndicate members were. Who were they supposed to talk to? Chaos reigned again.

Syndication consternation

The importance of clubs and syndicates to the health of horse racing goes way past their economic contribution. They are the accessible ‘yin’ to the monopolistic ‘yang’ remote owners such as McManus and Coolmore.

Their presence mushroomed during the tiger times and have been recovering strongly in recently after the inevitable recessionary lull. It is one of HRI’s key strategic imperatives to sustain this momentum.

The HRI 2018 annual review reported a year-on-year increase of 800 new individual owners and syndication - up by a third.

So, their need to curtail the activities of such a high-profile club as Supreme would have been a particularly painful step and the concern now is the depth of the wound and the amount of scar tissue remaining.

Oran Crean has managed syndicates under the ‘Winning Ways’ banner for many years and the initial fallout from the Supreme problem caused him some consternation.

“My initial reaction was that I needed to get a communication out to all my members reinforcing how transparency and accountability are important to me.

Then I thought – ‘hang on a minute – why am I sending this?’ If I’d sent that out that email, I’d be kind of telling the members that they had something to worry about and they don’t.”

Crean’s rigid modus operandi is to ensure that his members fully understand the value for which they are charged a premium.

“Every couple of months I’d sit down and reconcile all the accounts from a cash perspective,” he explains.

“I know where the cash is at any given time and that the members have a clear syndicate agreement, a set of accounts and supporting bank statements.

“It’s key that the syndicate manager has a share in the horse and has paid full price for it. That means that your objectives are aligned with the members. Secondly, you should have the courage and the confidence to tell syndicate members exactly what you make out of it.

“No member should be afraid to ask, and no syndicate manager should be afraid to tell what the all-in costs are.”

The exact depth of the Supreme Racing hole is not yet fully known, but our London-based member is now feeling the true pain inflicted by an absence of the transparency advocated by Oran Crean.

“It appears that my holdings in the horses are significantly diluted and that there are questions over the accumulated prize money,” he explains. “If the Supreme fiasco is not to put people off then we need to encourage transparency for people going into them. I’d advise people to ensure they can see a list of all the other shareholders in your horse. See a ‘red flag’ in anything that doesn’t seem transparent.”

If Phoenix Thoroughbred’s was merely a construction to hide money stolen from OneCoin speculators beneath the hooves of three hundred racehorses it will take lots of big-brained chaos theorists’ years to unravel the details.

A more immediate local concern is that the loss of trust from the Supreme Racing and Phoenix disasters will only prove as disruptive as a broken fingernail and will grow back quickly.

Ironically, the solution might rise, like a phoenix, from the ashes of the old Supreme syndicates.

As more of the members become known, refreshed syndicates are being re-registered with HRI and entries are being taken, including Kemboy in the Savills Chase next Saturday (December 28th).

The optimum outcome for Irish racing would be if he wins and then goes on to win the Cheltenham Gold Cup in March. Joyous syndicate members are televised making happy chaos on the presentation rostrum.Doubts forgotten. Dreams restored.