Mr John Magnier and his associates at Coolmore Stud can expect their new stallion, Fusaichi Pegasus, to have paid for himself by the time the first of his progeny start racing in three years.
The Kentucky Derby winner, the purchase of which was confirmed this week for an estimated $60$70 million (€62.3E73 million), will command a stallion nomination fee of $200,000. Even if he only covers around 100 mares a year - and probably will cover many more - he will earn his new owners at least $20 million, maybe more, each year.
Should Fusaichi Pegasus ever stand at Mr Magnier's Coolmore Stud in Co Tipperary, the income generated will be tax free. The tax status of stud operations results from a decision taken in 1969 by the then Minister for Finance, Mr Charles Haughey.
But the stallion was bred for American racing and is expected to be based at Coolmore's US operation - Ashford in Kentucky - and presumably at the Coolmore Stud in New South Wales in Australia.
While the price paid is a record for a stallion, Sadler's Wells - bred by the Coolmore in Co Tipperary and standing at the stud there, commands a higher stallion fee - it has just gone up to £200,000, although his fee is still listed as "private" in the Racing Post Bloodstock Review. If he covered around 100 mares a year, he would earn his owner £20 million a year tax free.
Mr Magnier bought Fusaichi from the Japanese businessman, Mr Fusao Sekiguchi. It is understood that another Japanese businessman has a small interest in the stallion.
Mr Magnier and his partners tried to acquire this horse once before - for racing - when he came up for sale at the yearling sales at Keeneland. On that occasion, he was sold for $4 million and the Magnier partnership was the underbidder.
The previous record price for a stallion was $40 million for Shareef Dancer, sold by Sheik Mohammed in 1983.
Stallion nomination fees range from around £500 for a National Hunt horse to £2,500 for a flat racer, and, at the top, up to £200,000 for a stallion like Sadler's Wells, now thought to be the most expensive stallion standing in Ireland.
It is estimated that Sadler's Wells could have earned up to £200 million fees since he first went to stud, but nobody outside Coolmore knows the full extent of the income generated by him and other stallions.
He raced nine times in 1984, showing top class form and won three races at Group One level, the Irish 2,000 Guineas, the Eclipse Stakes and the Phoenix Champion Stakes. He was regarded as the best sire in Europe in 1991.
Danehill, another stallion in the Coolmore stud, is also unlisted or "private" in terms of fees: his fee is estimated at 50,000 guineas.
Other well-known stallion owners include the Aga Khan, the Dubai ruling family, the Maktoums and the National Stud.
Mr Magnier, who is a tax exile, controls the Coolmore operation. Married to the former Ms Susan O'Brien, daughter of the founder of Coolmore, the legendary trainer, Mr Vincent O'Brien, he is a former senator - having served as as a nominee of the then Taoiseach, Mr Haughey.
Mr Magnier, who sits on the board of the Irish Horseracing Authority (IHA), is a business partner of its chairman, Mr Denis Brosnan. They have been involved in a number of business ventures, including the Phoenix Park racecourse, which has now been sold for development.
The abolition by Mr Haughey of income tax on stallion nomination fees in 1969 allows some of the wealthiest men in Ireland to run extremely lucrative businesses, taxfree for the major part of the income from their stud farms.
In the early 1970s, Mr Haughey himself had a shareholding in the Simmonstown Stud in Co Meath, in which the late Captain Tim Rogers was the major shareholder. Evidence given to the Moriarty tribunal, in February 1999, showed that Mr Haughey stated he sold his shareholding in Simmonstown in 1971 for £48,000, to clear part of his debts to AIB Bank. Mr Haughey had a much bigger shareholding in the Rath Stud, also in Co Meath, but this was a mare farm.
In the 31 years since the legislation allowing stallion fees to be taxfree was introduced, the primary beneficiaries have become very rich as a result. While 30 years ago, a top class stallion might have serviced 40 to 50 mares a year, many are covering up to 200 now, due to the introduction of American breeding techniques.
While there has been some criticism of the huge advantages offered to studs like Coolmore, others in the industry fear that if tax is applied, the best sires will leave the State and, in the case of the Coolmore stallions, move to the group's US and Australian studs. Some already over-winter outside Ireland.
"If you take out the Arabs and the Aga Khan, you're left with Coolmore, which is the dominant stud in the world. In fact, they'll all move out and you'll have the National Stud as the only one left paying tax," one industry insider explained. "Magnier is a tax exile anyway." "Nobody owns a stallion anymore. All are owned by syndicates, even the ones at the National Stud. Part owners will be living abroad, so they won't pay full tax anyway," this insider says.
Mr Eddie Browne, formerly of SIPTU and a member of the Irish Horseracing Authority since its inception, is a defender of the tax relief.
"Ireland is recognised as a major thoroughbred horse breeding nation. We're competing with other countries. In Ireland, to get the best stallions, and keep them here, you have to be competitive. If you tax the hell out of it, you're going to lose it. If you lose it, you're putting the whole industry at risk. We're well established as a quality horse-producing nation. There are huge issues there," he says.
