From Track to Five-Star Service: The Agency Problem in Horse Racing and Hospitality

Whether you own a racehorse, a resort, or simply dream of turning capital into something extraordinary, your biggest leap isn’t buying the asset, it’s handing the keys to someone else. Who guards your interests when the stable lights go out or the night‑shift manager prints tomorrow’s forecast? Can passion and profit share the same saddle, the same lobby? In the pages that follow, we’ll uncover why delegation so often drifts into disappointment and how a sharper, fairer alignment can change the story for owners, agents, and everyone in between.

1. Introduction: Why Delegation Can Be Costly

Picture this: You purchase a promising thoroughbred racehorse or invest in a new luxury hotel. You hire top professionals, trainers, and hotel operators to manage the operations. Yet soon, communication gaps emerge, expenses balloon, and you’re left wondering if your goals truly align with theirs.

I’ve experienced these disconnects firsthand. Throughout my career, as the owner of a thoroughbred horse racing and hospitality consultancy, I’ve seen time and again that “agency misalignment” can quietly erode profits and trust. While the stakes seem different at the racetrack and in a five-star hotel, the underlying problem is the same.

A study of 8,000 racehorses found that client-owned horses in small stables underperformed compared to those owned by trainers, highlighting the agency problem in the industry. However, in large stables where the owners’ business is more valuable, trainers are incentivized to provide better care and communication, reducing the performance gap. Additionally, a lack of communication remains a top reason for owner dissatisfaction and turnover, with some owners reporting months without updates from their trainers, even when their horses were injured or entered in races. Meanwhile, Cornell Hotel Research found a 14% average drop in potential asset value over five years when hotel owners and operators failed to align on performance metrics. Another example is the four years leading up to Enron's bankruptcy, during which shareholders lost an estimated $74 billion in value due to management acting in their interests rather than those of the shareholders.

In this article, we will unveil how horse racing and hotels mirror each other, and more importantly, what you can do about it. By the end, you’ll see how applying transparent communication, carefully designed incentives, and strategic oversight can transform underperforming ventures into thriving success stories.

2. What Is the Principal–Agent Problem?

In economics, the principal–agent problem describes a situation in which one party (the principal, often the owner) relies on another (the agent, such as a trainer, manager, or hotel operator) to make decisions on their behalf. Because the agent’s incentives or objectives might differ from the principal’s, conflicts of interest arise.

• Owner’s Perspective: Typically wants long-term value and optimal performance.
• Agent’s Perspective: May prioritize steady fees, reputation within their circle, or lower-risk strategies that don’t always align with the owner’s ambition.

This tension exists everywhere, from bloodstock purchases to hotel management agreements. The greater the amount at stake, the more significant the impact of misalignment.

3. The Core of Horse Racing: Owners, Trainers, and Jockeys

1. Owner (Principal)

Financial Backbone

Owners bear all costs associated with a racehorse, including:

• Training Fees: Daily or monthly payments to trainers.
• Veterinary Care: Routine check-ups, vaccinations, injury treatment.
• Race Entry Fees: Costs vary by race prestige and jurisdiction.
• Stabling & Transportation: Yard fees, travel to racecourses, etc.

In the UK, annual expenses per horse often exceed £30,000, according to data from the British Horseracing Authority (BHA). This can quickly accumulate if a horse races internationally or requires specialized care.

Motivations

Most owners have a blend of passion and ambition:

• Love of the Sport: The thrill of seeing their silks carried to victory.
• Social Status: Racing has long been associated with prestige and exclusivity.
• Financial Return: Prize money or potential stud/breeding value.

However, only 15–20% of racehorses in the UK and 20–25% in the USA break even financially, illustrating how racing is often an emotional rather than strictly profit-driven investment.

Responsibilities and Control

Owners:

1. Delegate Authority to trainers (and, indirectly, jockeys) for race decisions.
2. Retain Ultimate Accountability for the horse’s well-being, ensuring that the trainer’s instructions to the jockey align with the owner’s goals and racing rules.
3. Set Objectives (e.g., targeting specific race events or seeking certain performance levels).

Agency Tension: The owner invests the bulk of capital but relies on the trainer for daily decisions and the jockey for race-day tactics—creating potential misalignment if their incentives differ.

2. Trainer (Agent)

Day-to-Day Decision Maker

A trainer handles the horse’s complete regimen:

• Exercise Routines: Gallops, workouts, and fitness schedules.
• Diet & Nutrition: Tailoring feed to maintain optimal weight and energy.
• Race Placement: Choosing which events to enter, factoring in competition, distance, and track conditions.
• Jockey Selection: Recommending which rider fits the horse’s style.

Trainers often oversee multiple horses, juggling different ownership priorities, staff management, and stable logistics.

Fee Structure

Typically, a flat daily or monthly rate plus a share of prize money (often 8–10%). This guarantees a stable income for the trainer regardless of whether the horse finishes first or unplaced.

Agency Problem:

• Guaranteed Income: Since trainers earn a fixed fee, they may be less inclined to chase high-stakes races if lower-level ones provide a steady paycheck.
• Stable Statistics: Some trainers focus on improving their win percentage through cautious entries, potentially clashing with an owner’s ambition for lucrative but more competitive events.

Potential Conflicts

1. Risk Aversion: Preferring “safer” races to protect their reputation and ensure incremental gains over the possibility of big wins (but higher losses).
2. Resource Allocation: Prioritizing stable “stars” over other horses, possibly neglecting those with smaller potential or lesser-known owners.
3. Communication Gaps: Failing to update owners regularly can result in the owner feeling sidelined or uninformed about key training decisions.

3. Jockey (Race-Day Agent)

High-Impact Role

A jockey’s split-second decisions on pacing, positioning, and timing of the final run can profoundly shape race outcomes:

• Some racing analytics firms suggest a jockey’s tactics can influence up to 30% of a horse’s performance result.

Compensation

• Riding Fee: A set fee per race.
• Prize-Money Share: Often 6–9% of any winnings.

This setup incentivizes jockeys to maximize finishing positions but can also encourage them to ride for well-connected stables to secure more frequent, profitable mounts.

Career Path & Duties

• Apprenticeships: Young jockeys learn under experienced trainers, refining race tactics and horse handling skills.
• Physical & Mental Preparation: Weight management, race strategy analysis, and close study of each horse’s form.
• Communication: Reporting how a horse feels under race pressure back to the trainer and owner—vital intel for future planning.

Agency Dilemma: A jockey might ride conservatively to avoid injury or protect their license (and future rides), potentially conflicting with an owner’s desire for bold tactics in a high-stakes race.

4. The Role of Bloodstock Agents and Racing Managers

Bloodstock Agents

• Commission-Based: Usually 5-10% of a horse’s purchase price.
• Knowledge Gap: Agents often possess extensive knowledge of horse pedigrees and market trends, which can lead to hidden markups if trust is lacking.
• Regulatory Oversight: Major auction houses, such as Tattersalls, adhere to codes of practice that mandate transparent dealings; however, enforcement can vary globally.

Racing Managers

• Coordinator & Advisor: Oversees stable affairs, scheduling, and communication between owners and trainers.
• Fee Models: Can be a fixed retainer or a percentage of the prize money. If a manager is too close to specific trainers, owners may not receive impartial advice.
• Value-Add: A reputable racing manager can protect owners from unnecessary fees and suboptimal race plans, thereby improving overall return on investment (ROI).

5. Hospitality’s Mirror Image: Owners, Brands, Operators, and Staff

1. Hotel Owners (Principal)

Financial Risk

• Owners bear the bulk of capital costs, acquiring or developing the property, covering major renovations, and investing in high-end amenities. In luxury segments, this can easily reach multimillion-dollar figures per room (“per key”), according to industry observers like HVS and various hotel investment groups.
• Operating shortfalls, unexpected market downturns, or brand-driven capital expenditures often fall on the owner.

Information Gaps

• Many owners report limited transparency on day-to-day operations, unclear cost allocations, marketing decisions made without their input, and a lack of real-time financial performance metrics.
• This can mirror a racehorse owner’s frustration when decisions are made unilaterally by the “agent,” with minimal owner insight.

Principal–Agent Tension

• Owners want the highest possible ROI and long-term asset appreciation but must rely on outside entities (brand/operators) whose priorities or metrics might differ significantly.

2. Brand/Operator (Agent)

Fee Structure

• Typically involves a base management fee plus an incentive fee tied to certain performance metrics (often revenue or gross operating profit).
• Because these fees don’t always correlate with net profit or owner-focused goals (like debt servicing or property value growth), operators could focus on top-line results over bottom-line efficiency.

Brand vs. Owner Priorities

• Operators must uphold brand standards, from design guidelines to marketing and loyalty programs, that may emphasize consistency across the portfolio.
• The owner may prefer a localized strategy to boost direct profitability at their specific property. Conflicts arise when brand mandates override local needs.

Misaligned Incentives

• If the operator’s primary target is brand reputation or global brand expansion, they might push initiatives that benefit the larger corporate portfolio but not necessarily the individual hotel’s profitability.

3. On-Property Management & Staff (Sub-Agents)

Front-Line Impact

• The general manager (GM) and department heads (e.g., Front Office, Food & Beverage) make daily decisions shaping guest experience, revenue generation, and cost control.
• Staff performance heavily influences guest satisfaction, a crucial driver of repeat business and reputation.

Potential Misalignment

• Staff bonuses or evaluations often hinge on brand metrics, like loyalty enrollments, standardized audit scores, or guest satisfaction indices, rather than an owner’s net operating income.
• This situation can parallel a jockey focusing on overall ride count or personal career safety rather than a horse owner’s desire for an all-out push in a major race.

Key Conflict

Just as a trainer might favor “safe” lower-stakes races to protect stable stats, hotel operators might prioritize brand compliance and revenue-focused metrics that conflict with the owner’s desire for property-specific optimizations.

• Owners want maximum profitability and asset appreciation.
• Brands/Operators might push uniform standards or marketing campaigns that bolster the broader brand but don’t necessarily boost your individual hotel’s bottom line.

6. My Journey: “About Glory” and “Amorously”

“About Glory”: The First Reality Check

When I first ventured into racehorse ownership, I chose About Glory, a colt acquired on the recommendation of my racing manager. Despite high hopes, reality hit hard:

• Limited Performance: He managed only one victory and one placing throughout his career under my ownership,and I missed attending his sole win. I still have a CD of that race, a bittersweet memento.
• Communication Void: Updates were sporadic at best. I’d receive one email about 48 hours before a race entry and an occasional quarterly video showing him galloping. Post-race feedback was minimal, usually a single sentence indicating he “ran with the pace but couldn’t keep up,” “came back fine,” or “ate well.” Any strategic insight or excitement-building was virtually absent.
• Cost vs. Thrill Mismatch: Although the thrill of seeing him compete was genuinely exhilarating, and that rush leading up to each race was unforgettable, the monthly expenses far outweighed any financial return. Even the race-day experience left much to be desired: outdated owners’ lounges, subpar viewing angles, and no meaningful sense of hospitality or personalization.
• Exit Strategy: Ultimately, I sold About Glory to another owner who shifted him to jump racing, barely recouping a fraction of my initial investment. It highlighted how the agent’s vision and mine were never fully aligned.

“Amorously”: Doubling Down with Strategy

Determined to refine my approach, I purchased Amorously, a filly, based on two main assumptions:

• Stronger Resale Potential: Fillies can retain breeding value, one stallion can cover many mares, but a decent mare or filly might command a better price at resale.
• Improved Financial Logic: I again followed my racing manager’s advice, hoping clearer goals and better communication would yield a different outcome.

The Results: Amorously did win twice, which was an improvement over About Glory. Yet familiar problems soon resurfaced:

• Same Communication Gap: Race planning and development updates remained sparse, making it difficult to feel truly involved or steer strategic decisions.
• Escalating Costs: Monthly bills continued to surpass any realistic return prospects.
• Auction Exit: Eventually, I sold Amorously at auction (just before the COVID-19 pandemic), as ongoing maintenance costs became impractical.

The Industry Reality Check

These experiences underscored a crucial insight: horse racing often prioritizes passion over financial logic. Many owners, be they millionaires, royalty, or institutional stakeholders, participate for the prestige, tradition, and excitement rather than strict ROI. Consequently:

• Trainers and Managers may cater to emotional satisfaction (e.g., easier race entries, minimal updates) over genuine profit optimization.
• The Agency Problem intensifies when agents assume all owners value prestige above profitability or detailed oversight.
• Clear Goal-Setting becomes essential. Without explicit, mutual understanding of each owner’s motivations, misalignment can turn costly fast.

Key Takeaway: My experiences with About Glory and Amorously taught me that failing to establish genuine alignment, whether you’re chasing emotional fulfillment, social status, or returns, will lead to disappointment. This lesson proved invaluable when I turned to hospitality investments, where owner-operator dynamics mirror the same principal–agent tensions found on the racetrack.

7. Agency, Branding, and the Customer Experience

Racing’s Brand Promise

High-profile trainers function like luxury brands, and their reputations draw owners, such as Aidan O’Brien and Willie Mullins, in horse racing. Yet if they fail to deliver on communication or performance, owners exit in droves. According to the Racehorse Owners Association, poor communication is the number one reason for switching trainers.

Hospitality’s Brand Contract

Major hotel flags, such as Four Seasons and Marriott, promise high-end guest experiences. If local staff or operators can’t uphold those standards, the asset’s value and the owner’s profitability take the hit. J.D. Power data indicate that a negative brand perception resulting from one underperforming property often affects the owner more than the brand itself.

Common Thread: Whether you’re an owner of a champion colt or a five-star resort, brand reputation and customer experience hinge on the daily decisions of your agents. If their incentives aren’t aligned with yours, the brand inevitably suffers.

8. The Power of Contracts and Regulations

Formal agreements and robust oversight frameworks can mitigate principal–agent challenges, yet choosing the right partners and cultivating strong personal relationships are often just as critical for long-term success. Here’s why:

1. Training Agreements (Horse Racing)

• Clarity on Responsibilities: In the UK, the National Trainers Federation (NTF) offers standardized contracts that outline fees, billing procedures, and care requirements. Trainers and owners who adopt these guidelines typically experience fewer disputes, as each party understands their rights and obligations from the outset.
• Aligned Expectations: Regularly revisiting and updating the contract ensures that if an owner’s objectives (e.g., shifting from short to long-distance races) or the trainer’s operational model changes, both sides remain on the same page.

2. Hotel Management Contracts (Hospitality)

• Performance Tests: More hotel owners now include clauses linking management fees (or “key money”) to profitability targets rather than simple revenue metrics. This nudges operators to watch cost control and net operating income, aligning them more closely with the owner’s bottom line.
• Termination and Incentive Provisions: A well-crafted agreement also clarifies termination rights if performance lags, providing a safety net for owners while motivating operators to meet agreed benchmarks.

3. Bloodstock Codes of Practice

• Open Commission Disclosure: Leading auction houses (like Tattersalls in the UK, Keeneland in the USA, and Inglis in Australia) enforce rules requiring transparent fee structures and full disclosure of any commissions or kickbacks. This level of openness dissuades unscrupulous “dual agency” deals.
• Industry Confidence: As more owners see clarity in bloodstock transactions, trust in the market grows—benefiting reputable agents, trainers, and buyers alike.

4. Personal Relationships and Partner Selection

• Long-Term Trust: Even the best contracts won’t fix a fundamentally poor relationship. Owners who choose trainers, operators, or agents with compatible values and solid reputations report higher satisfaction and fewer disputes.
• Stakeholder Alignment: Whether in racing or hospitality, carefully evaluating potential partners’ track records, communication styles, and commitment to ethical standards can prevent friction before it starts. A handshake backed by shared principles and a solid contract is far more potent than any regulatory mandate alone.

Key Takeaway

Contracts, codes of practice, and regulatory oversight form the foundation of a clear principal–agent relationship, but human factors, such as mutual respect, integrity, and clear communication, are what sustain it over the long haul. Ensuring you work with partners who value transparency, accountability, and a shared vision may be the single most important step toward success, whether you’re sending a horse to the track or opening the doors of a luxury hotel.

9. Comparative Regulatory Environments

Horse Racing

• United States: The Horseracing Integrity and Safety Authority (HISA) has introduced more unified doping and safety regulations across multiple states, aiming to boost fairness and consistency.
• United Kingdom: The British Horseracing Authority (BHA) continues to refine licensing and oversight standards, fostering greater transparency and accountability in training and race management.

Hospitality

• U.S. Contracts: Many hotel owners now incorporate detailed performance clauses in management agreements, enabling clearer benchmarks for operators and improved owner rights if targets aren’t met.
• Europe & Middle East: Observers note a rising trend toward owner-favorable contract terms, giving property owners increased influence over branding and operational decisions.

Bottom Line

Regulations and standardized contracts can significantly reduce principal–agent friction; yet, careful contract negotiation and consistent monitoring often deliver the most tangible protection for your investments. Whether you’re navigating racing regulations or finalizing a hotel management agreement, customized terms and regular oversight remain your best safeguard.

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10. Creating Alignment: 5 Proven Strategies

1. Performance-Based Compensation
   
   • Racing: Offer higher prize-money percentages or bonuses for winning Group races.
   • Hotels: Incentive fees pegged to GOP or net income, rather than top-line revenue alone.
2. Transparent Dashboards
   
   • Racing: Online portals with workout logs, vet updates, and race plans.
   • Hotels: Real-time data on occupancy, RevPAR, and guest satisfaction.
3. Structured Communication Cadence
   
   • Weekly or monthly video calls with clear agendas reduce last-minute surprises and foster collaborative decision-making.
4. Goal Alignment Sessions
   
   • Quarterly reviews to ensure the plan (racing strategy or hotel marketing) still meets the owner’s evolving objectives.
5. Clear Authority Levels
   
   • Racing: Trainer autonomy for daily care; owner sign-off on major race choices.
   • Hotels: Operators handle daily operations, while owners approve capital expenditures and major brand initiatives.

11. Case Studies: When Alignment Pays Off

Case Study 1: Highclere Racing Syndicate

Context
Highclere Racing Syndicate is recognized for its group ownership model, which combines multiple investors into thoroughbreds under a professional management approach.

Approach

• Performance-Tied Compensation: Shifted trainer agreements to include specific performance incentives, linking a portion of trainer fees to race outcomes and horse progression milestones.
• Regular Owner Calls: Instituted weekly or fortnightly conference calls, keeping syndicate members informed on training updates, upcoming entries, and stable developments.

Outcome

• Improved Collaboration: Trainers and owners communicated more frequently about race placement and training regimens, leading to a shared vision on how best to campaign each horse.
• Elevated Satisfaction: Syndicate members felt more engaged and reported higher confidence in both the training team and the overall process, ultimately boosting retention and enthusiasm within the group.

Key Insight
By intertwining compensation with on-track results and enhancing transparency, Highclere reinforced a sense of partnership, reducing principal–agent friction and fostering trust between all stakeholders.

Case Study 2: The Waikiki Edition → The Modern Honolulu

Context
A high-profile partnership in Waikiki, Hawaii, was launched initially under Marriott International’s “Edition” boutique brand by Ian Schrager. The local owner hoped the global brand’s marketing reach would merge effectively with a distinctive, design-led concept.

Problem

• Operational Mismatch: The owner observed insufficient tailoring to local market conditions, feeling the operator’s broader brand strategies took precedence over property-specific needs.
• Breakdown of Trust: Limited transparency on financial decisions and marketing plans eroded confidence, illustrating how brand mandates can clash with an owner’s on-the-ground vision.

Solution

• Brand Exit: Within a year, the owner removed Marriott’s management team and rebranded the property as “The Modern Honolulu.”
• Independent Strategy: With autonomy to craft localized marketing campaigns and revamp guest experiences, the hotel repositioned itself to target a niche, design-conscious audience.

Result

• Operational Independence: Freed from the global corporate structure, the property adopted more agile sales and marketing strategies, gradually improving market share and owner returns.
• Legal Implications: Both parties entered litigation over the abrupt rebranding, highlighting the importance of robust contract terms and clear role delineations.

Key Insight
Even acclaimed global brands can fail to align with local ownership interests if they don’t accommodate unique market demands. A firm principal–agent relationship hinges on shared strategic goals, a comprehensive contract, and open channels for regular feedback.

Conclusion

Whether the stage is a racecourse or a luxury resort, these case studies illustrate how performance-based incentives, transparent communication, and defined responsibilities are paramount to resolving principal–agent dilemmas. Success, and mutual satisfaction, often hinge on ensuring agents have a vested interest in achieving the owner’s vision, a lesson as applicable to syndicate stables as it is to five-star hotels.

11. A Four-Step Approach

1. Assessment

• Evaluate Existing Structures: Conduct a detailed review of current contracts, compensation models, and daily workflows.
• Spot Hidden Gaps: Identify areas where incentives aren’t aligned or where communication breaks down, resulting in suboptimal decisions.

2. Design

• Tailor Performance Incentives: Develop or refine agreements so that fees and rewards are directly tied to achieving the owner’s objectives—whether that’s race wins, hotel profitability, or other key performance indicators (KPIs).
• Enable Transparency: Implement clear, user-friendly dashboards or reporting tools that keep all stakeholders updated on progress, costs, and results.

3. Implementation

• Educate Stakeholders: Ensure trainers, managers, and operators understand the new system and their roles within it, fostering buy-in and readiness to adapt.
• Oversee Rollout: Monitor the transition closely, addressing any hiccups early to maintain momentum and confidence.

4. Review & Evolve

• Regular Check-Ins: Schedule periodic performance evaluations, quarterly, monthly, or after key events, to measure outcomes against targets.
• Continuous Refinement: Make data-driven adjustments as conditions change, ensuring that everyone remains aligned with the overarching goals.

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Key Takeaway
From racing yards to luxury hotels, the principal–agent issue can only be solved when all parties share the same endgame, and have the right incentives to get there. This four-step approach not only structures that alignment but actively nurtures it over time, keeping agents accountable and owners confident in the path to success.

12. A Call to Action: How We Can Help

If you’re ready to close the gap between vision and execution, whether on the racetrack or in the hotel lobby, Ali Bahbahani & Partners can help you, acting as your advocate in complex discussions with trainers, hotel operators, or brand managers.

Ready to Align for Success?

Contact Ali Bahbahani and Partners to discover how our proven strategies can unlock the full potential of your racing or hospitality investments. Let’s make agency work for you, not against you and turn alugnement into your competitive edge.

Final Thoughts

Whether your dream is to guide a promising two-year-old to a Group race victory or to see a five-star property exceed market benchmarks, one thing is clear: alignment is everything. By combining strong contracts, transparent communication, and performance-based incentives, you can transform the principal–agent problem from a hidden liability into a collaborative opportunity.

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