How Bart Cummings and the bean counters blew up $22 million

When Bart Cummings is honoured with a state funeral in Sydney on Monday the focus will rightly be on his feats as a trainer. It's a resume, topped with 12 Melbourne Cups, that will never be matched.

But one part of Cummings' life that is unlikely to get much attention at the funeral is his period in the financial wilderness, when the man known as the "Cups King" stared down bankruptcy.

It's an extraordinary tale of 1980s excess that went all the way to the Federal Court, and almost took down a racing institution.

The episode started in early 1989 when Cummings and two top-tier accounting firms, Coopers & Lybrand and Peat Marwick, designed a horse syndication scheme based around a tax break for investment in racehorses that existed at the time.

Big punt

Fuelled by the success of a $6 million syndicate in 1988, Cummings bought a staggering $22 million worth of yearlings at sales in the space of a few months. At the traditional Sydney Easter sales, held by William Inglis & Sons, Cummings spent $13.6 million on 43 yearlings, including $1.5 million on a single horse.

Units in the syndicates were then offered at $49,446, plus $10,284 for the first year's running expenses – for a tax saving of $7462, as The Australian Financial Review reported at the time. But the prospectus documents for the scheme weren't ready until late June and Cummings needed to pay the Inglis's by June 30.

"We thought that as the economy had survived the 1987 stockmarket crash reasonably well, selling the units would be plain sailing," Cummings wrote in his autobiography. "But the recession and soaring interest rates really hit hard in 1989, and all of a sudden there was no money anywhere."

Cummings didn't get close to selling the 160 units he needed. But the sale houses, which had extended credit to Cummings, still had to pay the vendors of the yearlings and were left badly under water.

Reg Inglis, who ran the Inglis empire for almost two decades, recalled this week in an interview with AFR Weekend the growing sense of doom as the June 30 deadline approached.

In the weeks prior, Inglis had borrowed $8 million from a bank to pay vendors of the horses Cummings purchased. But as word spread of the trainer's problems, the lender became nervous.

"On the Thursday they gave me the money," Inglis says. "The next day they called and said they wanted the money back by Monday."

Fortunately Inglis had been talking with another banker – ironically introduced to him by Cummings – who came to the rescue, sending a cheque around by courier to meet the demands of the first bank.

"It saved our necks."

Grand folly

While it's easy with hindsight to see the Cups King syndicates as a grand folly, Inglis says he was reassured by Cummings' previous successes in syndication and the involvement of the big accounting firms.

"I was talking to their senior directors and they were very positive about it all. Bart wasn't the only one backing this," Inglis says.

The fight to recover the millions owed by Cummings started with a fire sale of the 64 yearlings he was left with, which reaped just $9 million of the $22 million Cummings had spent.

William Inglis called the sale "The Night of the Stars". "It felt like anything but that to me," Cummings later wrote.

Perhaps most painfully for the master trainer, rival trainer Tommy Smith would buy several of the most promising yearlings. One turned out to be Pharaoh, which won two Doncaster Handicaps for Tommy's daughter, Gai Waterhouse.

Failed bids

Cummings fought unsuccessfully in the Federal Court to force Coopers & Lybrand and Peat Marwick to assume some of the debt. A bid to appeal to the High Court also failed.

So in 1994, he agreed to a five-year repayment deal under which he had to hand 75 per cent of training income to his creditors, plus 50 per cent of his training fees from any group one victory.

He also had to liquidate his personal assets, including his luxury Sydney home. "It needed painting anyway," Cummings would quip after the payment plan ended.

Cummings' financial disaster was undoubtedly crippling, but Reg Inglis says it also took a decade for the family firm to "get back on track".

"When we ruled the line on Bart Cummings he owed us $14 million and we got $330,000."

Inglis says his family was disappointed with Cummings and the accounting firms, but says the tax rules had distorted the market and other prominent trainers and owners, including Tommy Smith and Robert Sangster, were caught out when the economy soured.

But just as no one will ever replicate Cummings' feats on the race track, no one will ever spend like he did at that Easter sale in 1989.

"I remember going back to our bar at the end of the sale and I said to my uncle, this is just not real," Inglis says.

"Everyone just got carried away – completely."