Legal Documentation for Owner / Trainer Profit Sharing Deals

Profit-sharing arrangements between a horse owner and his or her trainer are commonplace in the horse industry. They are often referred to as “partnerships,” but a written contract is seldom used. I strongly advise my clients against doing any kind of profit-sharing or partnership arrangement without putting the terms in writingI have seen countless relationships between owners and trainers break down over a profit-sharing deal, and it generally happens because the parties had a different idea about what the agreement was supposed to entail. These disputes can get ugly, and sometimes law enforcement even becomes involved in disputes over possession of the horse. 

Usual Scenario. The typical profit-sharing arrangement usually arises when the owner and trainer agree that the trainer will train, board, and promote the horse free of charge or at a very discounted rate to the owner in exchange for an increased percentage of the horse’s racing proceeds or a percentage of the proceeds from selling or breeding the horse.

 

Essential Documents. The following documents should be drafted to fit your specific terms and executed by the appropriated parties:

 

* A purchase and sale agreement between the owner and seller;

* A bill of sale transferring title of the horse from the seller to the owner; and

* A profit-sharing agreement between the trainer and owner.

 

Purchase and Sale Agreement. In a horse sales transaction, a lot of people skip a purchase and sale agreement and go straight to a bill of sale. I do not recommend doing this in most horse sale transactions. A bill of sale is the document that transfers actual legal title of the horse from the seller to the purchaser. Once a seller signs a bill of sale, the horse then belongs to the buyer. Under the Uniform Commercial Code (which governs horse sales transactions, including those where there is no written agreement), it is assumed that title passes to the buyer when the seller gives the buyer possession of the horse. Thus, a seller should never sign a bill of sale or give possession of the horse to the prospective buyer until the buyer has met all the terms and conditions of the sales agreement. 

 

The purchase and sale document should contain all the terms upon which the buyer and seller have agreed, such as when money will change hands, when and where the horse will be delivered, and the seller’s warranties about the horse. 

 

Bill of Sale. The bill of sale to be executed by the seller when the transaction is complete should contain language similar to the following:

For good and valuable consideration, including the sum of ________DOLLARS, ($__,000.00), the receipt and sufficiency of which are hereby acknowledged by ________ (“Seller”), Seller hereby acknowledges the sale and transfer to __________(“Purchaser”) of all title and ownership rights to a certain horse known as “________”, more particularly described as follows:

 

The bill of sale should also contain a detailed description of the horse changing hands, the date the title passes, and signature lines for both the buyer and seller.

 

Owner/Trainer Agreement. In typical profit-sharing deals, once a bill of sale is executed by the seller and the owner obtains title to the horse, the trainer will receive his or her commission from the seller and the seller and owner will make arrangements for the horse to begin training with the trainer. Before the horse goes is delivered to the trainer, an agreement between the owner and trainer needs to be executed to include all the pertinent terms of the agreement.

 

Disputes between owners and trainers where a profit or commission was to be paid to the trainer are one of the most common types of cases that come through our office. These disputes almost never involve a written contract. No matter the terms of the profit sharing deal between an owner and trainer, my advice to both owners and trainers is to get the agreement is in writing to avoid the assertion of liens on the horse, disputes over possession and profits, and billing uncertainties.

Equine Business Plans

Every horse business should have a written business plan.  There are a couple of reasons for this.  First, if your business is a start-up, the business plan will help you reduce financial risk by realistically assessing anticipated income and expenses before the business is launched.  Second, a written and regularly-updated business plan will help you in the case of an audit by the IRS, especially if the IRS suspects that your horse business may actually be a "hobby" or that you did not actively participate in the management of the business.  Finally, a written business plan, especially if attractively packaged, can help foster good business relationships with banks, creditors, and others in the horse industry who can either send you business or help you in some other way.

Since there is really no downside to have a written business plan, I suggest that every horse business (including businesses that have been operating for a while without a written business plan) keep an electronic and hard copy of a business plan that addresses the following items:

1)  A summary of the business goals and objectives of the business;

2)  An outline of how you will attain your business goals; 

3)  A list of the types of advisers you will consult (such as horse industry mentors, accountants, and attorneys);

4)  How the business will be owned (i.e. through and entity such as an LLC, who all owns an interest in the business, the percentage interest each owner holds, etc.);

5)  How the business will be financed (i.e. where you will obtain the initial capital needed to start up the business, and the amount needed);

6)  Projected income and expenses for the next 6 months and year (be conservative...most business plans underestimate expenses and necessary capital;  also, you should avoid projecting income and expenses further out than one year as these often become meaningless due to changing conditions and strategies);

7)  The method(s) you will use to find and secure good clients (advertising, networking, shows, etc.).

There really is no "magic formula" for a good business plan, nor should it be set in stone.  Your business is your dream, and your plan needs to set out your unique and individual vision and talents.  Your business plan will act as a "road map" for your business to help you stay on course with your goals and avoid foreseeable hazards.  It should be updated and revised at least once per year, if not more often.

To help you get started, see the attached Sample Equine Business Plan, to which you can add information to fit the needs of your particular horse business.  As you can see, my sample is fairly basic.  There are a lot of sample business plans you can pull up online, and most of those are pretty complex.  One site that provides sample business plans is BPlans.com.  Do not let the complexity of others' business plans intimidate you into not doing one at all.  While more detail is better in some instances, do not put off doing a business plan just because you don't know your exact numbers or you see others putting pie graphs in their business plans.  The key here is to have something in writing that you can add to and enhance as your business grows.