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Auction Practices Under Spotlight

Is regulation needed here?

Some participants in the buying and selling of bloodstock in Britain are “in practice, entirely unregulated” and the whole process is in urgent need of “transformational and once-in-a-generation change”, according to a long-awaited report into sales industry practices published recently.

The report, commissioned by the British Horseracing Authority and conducted by Justin Felice OBE, a former chief superintendent of Lancashire police, includes recommendations that all bloodstock agents should be licensed and that the BHA should take on overall responsibility for the regulation of bloodstock sales.

Failure to act on the recommendations, Felice warns, would leave the industry “at serious risk of being publicly exposed by investigative media and/or those who have fallen victim to some of the improper practices [detailed by contributors to his report]”.

This, in turn, “would be likely to seriously damage the bloodstock industry’s reputation”.

The report lists four practices – secret profiteering, dual representation/commission, “luck” money and bidding up – which, though not described as being “endemic” in the sales process, are “unethical” and, in some cases, “potentially criminal” breaches of the Bribery Act (2010), the Fraud Act (2006) or the Criminal Law Act (1977).

Secret profiteering involves collusion between a bloodstock agent and a vendor to ensure that a purchaser pays more than the market value for a horse, with the agent and vendor splitting the difference.

In an example included in the report, a buyer might tell an agent they are willing to pay £200,000 for a horse when the vendor accepts its market value is £100,000. In agreement with the vendor, the agent will then ensure the bidding goes up to around £175,000. As a result, “in addition to the agent’s commission (usually 5%), the agent earns a secret profit of £37,500. The vendor also earns an additional £37,500 above the fair market value of £100,000 [while] the purchaser believes they have bought a horse that is below their maximum bid, so is happy and will use the agent again.”

Dual representation occurs when an agent acts for both vendor and purchaser while one or both parties are unaware of the potential conflict of interest, while “luck money” is a payment – in effect a “cashback” of up to 5% of the sale price – which is demanded from a vendor by an agent after a sale has been completed.

Many of the “improper practices” detailed in the report can involve bloodstock agents, whose activities – along with those of other stakeholders in the bloodstock industry – are currently self-regulated via the Bloodstock Industry Code of Practice, which was most recently updated in 2009.

The BHA, Felice says, should in future take charge of the regulation of all participants in the bloodstock industry, replace the 2009 code with a new version, which is “more robust and fit for purpose”, and introduce a licensing system for agents, with sanctions including fines and suspensions from auctions imposed for breaches of the rules.

Read the report here


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7 comments on “Auction Practices Under Spotlight

  1. Mojo says:

    Hasnt this been happening here for years..??
    The pundits will say prove it but come on isnt it obvoius?

  2. David Allan says:

    I write as an “agent/consultant” and as a breeder/vendor, pinhooking vendor, buyer at sales of all ages as owner and/or manager as opposed to “pure” agent i.e. from a variety of angles. The report has been widely welcomed including by the UK Federation of Bloodstock Agents, which only has jurisdiction (under the terms of its Code of Conduct) over its own members i.e. a minority of “buyers” in a diverse market place.

    Most importantly, the narrative above does not include the Report stating in Paragraph 8 “The Review found that the [UK] bloodstock industry was generally a safe environment in which to buy and sell bloodstock and the vast majority of industry participants appear to display high standards of integrity”. It then dwells on “5% bad apples” or “a few unscrupulous industry participants”, named or indicated by interviewees, which in the bidding and buying process can mean trainers or managers or bloodstock agents or principals acting as the buying agent.

    The damage done by such players whatever the actual percentage is disproportionately high, especially (in my view) in defrauding their own buying/owning clients by demanding high shares of the excess within artificially high hammer prices on which the Report also dwells in detail.

    Sales companies do not fall under BHA regulation (as the Report now recommends). They have codes but few teeth whilst serving hundreds of diverse buyers in a global market place. Certainly they, also, have welcomed the Report and are (and have been for some time) working with other bodies to reach accords on the majority of the recommendations if not quite all.

  3. Rob says:

    The question asked at the start of this article shows that in horse racing ignorance is bliss.

    The Consumer Protection Act regulates all public auctions in RSA.

    The regulations promulgated under the Consumer Protection Act contain some of the best protections in the world for consumers.

    Anyone going to an auction without knowing their rights does so at their own peril.

    Do the RSA consumers know that they can retract their bid before the hammer falls or the auctioneer concludes the bidding?

    There are so many obligations imposed on an Auction House that there is a real chance that they have not complied. The Consumer Protection Act is extremely helpful to consumers that have buyers remorse.

    The other day I saw a equine auction advertised. The non compliance was mind boggling. It is an essential part of any auction that the items being sold on auction can be inspected shortly before the sale, especially livestock.
    Any sale of a horse in absentia on auction that is not an online auction can be set aside. Do not trust the auctioneering company to tell you what is right or wrong. Rather get legal advice or contact the Consumer Protection Commission at [email protected]

  4. Yugen says:

    Some trainers have too much authority. They’do what they please, geld the horse, sell the horse without proper consultation. The owner trainer contracts is the biggest joke,in terms of it’s legality. NHRA does not have a proper legal standard in place.

  5. Joao says:

    “The Consumer Protection Act regulates all public auctions in RSA.”

    For me this simple line and the failure of MOST in the industry to come forth and divulge exactly what their instructions were by Mr Stellenbosch and his entourage to manipulate prices during auctions is the biggest scandal hanging over SA racing at the moment.

    Should they come forward and finally come clean on their behaviour ( even if they done a deal) and reported their instructions to the Auction Regulator we could finally eradicate the legacy of that man from horseracing in SA once and for all.

    The divide and conquer system which saw certain farms and stallions getting disproportionate support and prices needs to be exposed. The paper and money trail needs to be investigated.

  6. Don Mahen says:

    I commented in another article about Frankie … Frankie Zackey buying a horse on the Gabby Soma sales and it not being reflected in the records as being sold to him. Frankie … Frankie Zackey tried to find an excuse why he was not recorded as the buyer. He did not have a buyers card and according to the Consumer Act could not use anyone else’s. He could not bid. Maybe the auctioneer, Clyde Basel needs lessons. Our auctions are becoming a joke. There is ##### all regard for the law.

  7. Frankie says:

    Frankie Zackey…Don Mohen I would definitely take this matter further,,If you need any assistance I’m a call way🤣Don could you elaborate a bit more on our auctioneers I’m bit confused about that part Cheers Buddy

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