By Myles Neligan BBC News Online business reporter

Horseracing: Lots of fun, but don't count on big investment gains

According to the old adage, the best way of making a million in horseracing is to start out with two million.

Racehorses are expensive, temperamental creatures, and the financial returns from owning one are uncertain.

In fact, the industry pointedly avoids marketing racehorses as an investment opportunity, preferring instead to emphasise their emotional appeal to dedicated turf fans.

"At any level of horseracing, you've got to be prepared to tear up the cheque," says Harry Herbert, managing director of Newbury-based Highclere Thoroughbred Racing.

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"What you're really investing in is fun."

Even a cursory glance at the economics of racing lends added weight to this health warning.

Cash drain

In the UK, horses with strong racing potential fetch about �20,000 on average at auction, while running costs - including training and veterinary bills - come to �16,000 a year.

The potential returns on this hefty investment come in two forms - a share of the �90m in prize money up for grabs every year on the British racing circuit, and any profits made on the sale of the horse.

Owning a racehorse lends a touch of glamour

With each race offering an average of about �4,000 in prize money, a horse needs to win four times every year just to pay for its upkeep.

But, as racing fans know only too well, there is no such thing as a guaranteed winner.

Some initially promising horses never make the grade for competitive racing, and many of those that do rarely win.

The serious money in racing is made by selling horses on, usually for breeding purposes at the end of their careers.

But once again, the cash generated will depend entirely on how the horse has performed on the track.

Horseshare scheme

That said, strong demand for proven winners means that good racehorses can and do generate big returns for their owners.

What's more, joining the elite ranks of Sheikh Mohammed of Dubai's ruling Maktoum family and Ireland's John Magnier needn't break the bank.

Proven winners fetch big prices

Racing partnerships, in which up to 20 investors buy a share in a horse and split the costs between them, are an increasingly popular way of becoming a turf tycoon on the cheap.

"There has been strong growth in racing partnerships in recent years," says Tom Gittins, ownership marketing director at the British Horseracing Board.

"They are very affordable, and have made ownership much more accessible. It's no longer a pastime for the very rich."

In a partnership scheme, members pay an upfront joining fee to cover the cost of buying the horse - typically between �1,000 and �2,000 - and a monthly contribution towards its training and upkeep.

For added security, the partnership is underpinned by a legally binding contract which ensures that members are not faced with unexpected additional expenses.

The monthly payment will also include an administration fee levied by the scheme's organisers - usually an established racing stable - who select the horse and oversee its day to day care.

Syndicate members have little direct influence over how the horse is managed, but as its legal owners, they split any prize money between them, and also divide up any profits generated by selling it.

Winning big

It's an arrangement that can sometimes yield rich rewards.

In 2000, a 20-member syndicate set up by Highclere Thoroughbred Racing sold its horse, Petrushka, for �3.7m just two years after buying her for �100,000.

People who just want to make money probably won't enjoy it as much Peter Kerr, Peter Harris Racing Stables

The windfall gains from the sale of a racehorse are all the sweeter because they are exempt from capital gains tax.

However, selecting and training a champion racehorse is an inexact science, and the more usual scenario is that each syndicate loses a proportion of its outlay every year.

It's a loss that syndicate members - avid race fans for the most part - are happy to bear.

Indeed, the main appeal of racing partnerships is that they give members a taste of the high life associated with owning a racehorse.

Fringe benefits include experiencing the thrill of watching your horse compete from the comfort of the owners' enclosure at race meetings, and paying regular visits to the stables where the animal is trained.

But investors with no particular love of horseracing who are simply hoping to make an easy buck should probably look elsewhere.

"People who come into horseracing just to make money probably won't enjoy it as much," sums up Peter Kerr, a manager at Peter Harris Racing Stables in Hertfordshire.

"It's a high-risk investment."