How will the High Court’s decision impact racing and wagering?

ScottWoodward.me Roar Guru

By ScottWoodward.me, ScottWoodward.me is a Roar Guru

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    Punters are the big losers following the High Court of Australia’s decision last Friday.

    The High Court rejected Sportsbet and Betfair’s claims that the decision to impose a 1.5 percent wagering turnover fee for the right to publish New South Wales race fields was unconstitutional on the grounds that it is discriminatory and protectionist in its nature.

    By now, we understand the views of Racing New South Wales (RNSW), the corporate bookmakers, as well as the betting company Betfair, who all have their own agendas to push in this dispute. So let us have an objective look from a punter’s perspective and see how the decision will impact the ability to wager in a competitive market place.

    RNSW CEO Peter V’Landys said on TVN on Sunday, “this was never about the punter”. However, what he has always failed to comprehend is that everything starts with the punter’s dollar and the finished product in his patch is likely now to be more expensive and slowly force racing punters to more attractive options, of which there are plenty.

    He claims to want to look after the 50,000 participants in the racing industry, but continues to ignore his most important and valuable participants, the four million punters who actually fund the industry.

    There are two burning questions. What will happen to Betfair, and what will happen to the bookies?

    It remains to be seen if Betfair Australia will test their arm at the ACCC, but given their business model is based on punters betting against each other with high turnover and potentially little or no gross profit, the new tax would render their business on horse racing in New South Wales unsustainable.

    Under the current model it is possible for two punters betting against each other to turn over $1m, with both breaking even, but Betfair has to cough up 1.5 percent tax of the amount ($15,000). Every day punters back horses at 1.01 “in the run” for large amounts, and while the punter who may invest $1,000 would stand to win only $10, Betfair would be taxed $15.

    James Packer, the 50 percent part owner of the Australian part of Betfair, is not noted for continuing to put in good money after bad, and the only way likely for him to stay would be for the exchange to apply for a corporate bookmakers’ licence. The odds are he will either dilute his stake or sever his ties to focus on his casino empire.

    Given that it will now be six times more expensive for Betfair to offer New South Wales racing to customers compared to offering racing from any other state in Australia, the only viable choice they appear to have is to withdraw, either blacklisting racing in NSW or marketing it from the U.K.

    This would dramatically and adversely impact liquidity and make the New South Wales racing product less attractive and competitive, forcing thousands of punters to turn to sports betting and online casinos.

    ChampionProfits.com trading guru Tony (The Badger) Hargraves underlined the dilemma facing Betfair Australia based on some typical trading scenarios that he experienced on Sunday. The Badger was pre-race trading on the Randwick meeting. On one race he turned over $2,400 and made a $30 profit on the race.

    Betfair took a commission payment from the Badger of 60 cents, but under the new 1.5 percent turnover tax law, a further $36 fee would have to be handed over to RNSW, who would actually make a bigger profit than the Badger.

    However, the big loser is Betfair Australia. This is a very typical trading scenario and one that the Badger typically implements on 15 or more races every day, like thousands of other traders.

    The flow-on impact will also reduce turnover for other operators like the TAB, as the very nature of the Betfair betting exchange generates millions of incremental dollars in bet backs and arbitrages.

    There will be many nervous Betfair employees in Hobart and Melbourne this week wondering what Easter will bring.

    The world’s second biggest exchange, Betdaq, owned by Irish billionaire Dermot Desmond, pulled out of Australia last July, promising to be back. But paying a tax based on turnover for any exchange does not compute.

    A horse is traded at the odds of 1.01 on almost every race. As an example, imagine Punter A wins $9.5 after paying Betfair 5 percent commission when he backed a horse (at $1000) in the run at 1.01 and it won. Punter B, who bet against Punter A, lost $10. Betfair, who facilitated the bet, won 50 cents from Punter A, but had to pay RNSW $15.

    As for the bookies, the major players will build the new tax into their product mix and look at different ways to develop incremental margins, like promoting multis and so on, but clearly the millions that they have invested into marketing racing in New South Wales will now be diverted into other states and sports.

    They have been promoting racing in New South Wales with expensive TV commercials and adverts in the print media, but due to RNSW’s exclusive arrangement with their buddies at the TAB, the bookies have been banned at the track.

    U.K. betting powerhouse Bet365 is one of the world’s largest gambling sites, and has been set up in North Sydney for almost six months now waiting on the High Court’s decision. We can expect an announcement shortly once they re-write their business plan.

    The small to medium bookies will likely struggle to maintain a tax on turnover, and it is known that not all bookies accrued back payments, with at least one high-profile mid-sized bookie not expected to be splashing out on expensive eggs this weekend.

    Sportsbet Executive Chairman, Matt Tripp, who also founded Sportingbet Aust, expressed concern that last Friday’s decision may lead to reduced income for racing.

    “As has been proven by the increase in wagering turnover since the emergence of corporate bookmakers, competition stimulates choice and in turn drives growth and revenue to racing. Giving the TAB a walk-up start will hinder competition, and restrict growth which may harm revenues to racing.” Tripp said.

    “However, we will continue to provide competition to the TAB by providing our one million-plus customers with the best prices, the best range of products, and the best service in Australia. For every dollar staked, the TAB takes more than twice as much from punters as we do. This won’t change as a result of the court’s decision,” he added.

    “If product fees are pushed too high, it has the potential to reduce both competition and consumer choice, to reduce racing’s wagering appeal compared to sports, and ultimately some wagering operators may decide to relocate offshore.”

    The major benefactors from the court decision are racing’s fat cats, the big breeders and owners, who can now buy and sell yearlings for more as the punters’ money will increase prize money.

    “Things just got more expensive after Friday,” according to Sky Racing’s Ron Dufficy, when asked if he will be buying at the sales.

    RNSW would have declined to prize money levels of the 60s had they been unsuccessful in court, and many observers are concerned that the industry should never have been put in such a precarious position, especially when Racing Victoria are thriving under a gross profit strategy with bookies.

    RNSW were on their financial knees when they were defeated in the initial court case almost three years ago by the corporate bookmakers, giving them a powerful bargaining position, but in the interests of the racing industry, the bookies agreed to allow RNSW access to the accrued funds of some $150m.

    The bookies could have played hard ball and withheld the funds pending the appeal which would have activated enormous pressure to negotiate a mutual early agreement. What RNSW do not know is that the major bookies would have passed on the funds even if they were successful in the High Court as a gesture of goodwill and to cement their position as a future long term strategic partner.

    Sadly, a tax on bookies’ turnover as opposed to gross profit will make the New South Wales racing product less attractive and competitive, and long term the turnover tax will continue to reduce consumer investment and crowds at the track.

    As Matt Tripp correctly pointed out, “the emergence of corporate bookmakers has been a wonderful shot in the arm for punters” as they have a choice now. They can experience expanded markets that are more attractive to consumers, stimulating interest levels that were not prevalent when the punter only had the TAB and SP bookie.

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    The Crowd Says (31)

    • Roar Guru

      April 3rd 2012 @ 4:29am
      peeeko said | April 3rd 2012 @ 4:29am | ! Report

      at last someone has presented this case from the punters point of view. sky radio waxed lyrical all weekend about how great the decision was for racing including the punter, its a shame that the punters radio station is owned by the TAB whch is happy taking 15-20% out of punters purses then claims it is good for the industry. basically prizemoney can now go up but will be paid for by ripping punters off more. Horse racing in australia is huge in prizemoney on a per capita basis, i dare say it is the largest in the world. average prices at yearling sales are now astronomical (in the hundreds of thousands) and these buyers obviously want some type of return in larger prizemoney. this is being increased by making the punter pay more. Of course the Tab is happy to pay the race clubs more – they take such a huge cut themselves. Great article Scott, its a shame we dont get the same out of sky racing radio

      • Roar Guru

        April 3rd 2012 @ 9:15am
        ScottWoodward.me said | April 3rd 2012 @ 9:15am | ! Report

        peeeko
        Thanks, your points are well made. Be intersting to see the prices for yearlings at the Easter sales. The boss of RNSW has enormous conflict of interest here as he is also the boss of a major stud.

        • April 3rd 2012 @ 10:23am
          Will Sinclair said | April 3rd 2012 @ 10:23am | ! Report

          Scott – you’re 100% correct about Messara’s conflict of interest here.

          On Sky on the weekend he said all the extra funding would be put into prize money, and I was a bit surprised that no-one on the Sky panel challenged him on the obvious benefit he would take from such a funding decision.

          It’s certainly something that – to my mind – needs to be addressed.

    • April 3rd 2012 @ 7:25am
      sheek said | April 3rd 2012 @ 7:25am | ! Report

      Hi Scott,

      I will continue this fascinating discussion when I can get some more info, but in the interim, some brief observations beginning with a pertinent question.

      Did on-course bookies pay a turnover tax in their hey-day? If they did, then what is happening today is a historical continuation of that circumstance. And the bookies of yore didn’t seem to suffer too badly.

      In your previous despatch, another poster claimed you were a professional punter. If this is true, then it’s understandable you are so down on Racing NSW & V’Landys. When I saw V’Landys interviewed by Racing Retro, I thought he came across very impressively.

      Punters will always punt. Sadly, some of them will have a punt with the last money required to put food on the family table. So the punters will adapt. It’s in the human DNA. Tom Waterhouse talks about doing the best deal for punters. Surely, he jests? This is an oxymoron statement, like “army intelligence”. Their idea is to do the best deal for themselves – the bookie.

      I’ve never been a fan of Betfair. Good riddance to them! Generally speaking, betting agencies are pariahs that feed off sporting organisations. So it’s about time they paid a fair percentage for benefitting off somebody else’s product. I’m amazed, no make that incredulous, this had to go to the highest court.

      Anyway, I’m going to try to contact some older mates who might remember how on-course bookies paid their tax. If they paid turnover tax, then I don’t see what the fuss is about, since this is a continuation of that tradition.

      • Roar Guru

        April 3rd 2012 @ 9:27am
        ScottWoodward.me said | April 3rd 2012 @ 9:27am | ! Report

        sheek
        I used to be a bookie and paid the turnover tax and I can tell you it is the single most important reason why we have almost no bookies left on course today. To turn over millions and break even or even lose and then pay 1.5% is “un-Australian” in my opinion. I believe governments and administrators should encourage growth as it benefits everyone.
        Everyone is happy to pay their fair share of tax but to pay a tax when you have just had a wipeout is very difficult for any business model.
        Go and look at how well Victoria are doing under a GP model. They are thriving compared to NSW.
        My greatest concern is that people are NOT going to the track and the main reason why people go to the track is to bet with bookies.
        RNSW are doing their best to keep punters away. They could not even get 10k to a wonderful day last Sat..
        The TAB are now promoting digital horse racing and RNSW sold their kick back so they can build a Grand Stand, but the only problem is no one wants to go to the races so this big stand will be empty. The industry will get zero for digital horse racing and long term it will continue to grow and take market share from real horses.
        This is the type of leadership we have at RNSW.

        • April 3rd 2012 @ 9:43am
          sheek said | April 3rd 2012 @ 9:43am | ! Report

          Scott,

          Thanks for your reply. I cannot agree with you on everything, although I acknowledge some of that might be due to my ignorance of the finer ins & outs of racing.

          I do agree the loss, or reduction of on-course bookies is one of the saddest things in racing. The “buzz” of the betting ring was always one of the attractions of a day at the races.

          I think there are more reasons why people are not attending races, than purely the betting side.

          The public is being denied seeing many champions race into their 4s, or 5s, or 6 year-olds of racing. Black Caviar is an obvious exception to the rule, but as a mare, she can only produce one foal per year anyway. Unlike a stallion that can impregnate many multiples of mares.

          Too many champions are retired off to stud obscenely early to satisfy the profit motives of owners & breeders. The Golden Slipper is the perfect example of a race designed purely to satisfy the purists of already wealthy owners & breeders.

          Win the group one Golden Slipper, then ship the horse immediately off to stud before 3yo career. Repeat process almost every year. Next!

          Also, by following the American path of numerous 1000-2000 metres races has robbed Australia of the rich variety in racing patterns it once enjoyed. A lot of people now look at 2000m being a staying race in the same way we once observed a 3200m race as a staying test.

          Finally, isn’t there any truth that the other states will eventually abandon their tax on GP to pursue the NSW model of tax on turnover?

          • Roar Guru

            April 3rd 2012 @ 9:55am
            ScottWoodward.me said | April 3rd 2012 @ 9:55am | ! Report

            sheek
            It is not all that difficult to comprehend.
            Racing needs punters – punters love bookies – the majority of bookies struggle under a turnover tax.
            I expect long term that most states will offer box models, but regardless of what they do they are killing the golden goose at the moment.
            They need to ensure punters have a good choice and want to come to the track.

    • April 3rd 2012 @ 8:38am
      Will Sinclair said | April 3rd 2012 @ 8:38am | ! Report

      Having read your piece, Scott, it appears to me that punters won’t necessarily be the losers from this decision.

      It seems to me that the big losers are Betfair, who need to rethink their business plan, and professional traders like The Badger (who is not actually a punter at all, and whose experiences and priorities in no way reflect those of millions of other punters). Forgive me if I don’t shed too many tears for them.

      Real punters – those who love the races, love watching good horses, and who generally only punt on Saturdays – will be winners.

      Make no mistake, if the corporate bookmakers had been allowed to strip hundreds of millions of dollars from racing, without giving anything back, then the sport would have withered and died. If they want to sell the NSW racing product, it is only fair that they pay for the right to do so.

      When these funds are invested in better infrastructure and higher prize money, it will only improve the racing product and help attract more people to the sport, which will create demand for the bookies and help offset the cost of doing business.

      • April 3rd 2012 @ 9:24am
        sheek said | April 3rd 2012 @ 9:24am | ! Report

        Well said Will.

        As a lover of the aesthetics of horse racing, I want to see good horses & good jockeys competing in lots of good races over varying distances & race conditions. Again & again. Over & over.

        The two next things I want to see are –

        a) champion racehorses remaining in racing for longer rather than being flicked off to stud obscenely early (better prize money might assist here) &

        b) re-engaging Aussies’ love affair with distance races apart from the annual Caulfield-Melbourne Cups double (again, better prize money might assist here).

        If racing improves its product to the general lovers of racing & the punters, then that will ultimately benefit the punters. Since we all know that the vast majority of punters are emotional punters.

        • Roar Guru

          April 3rd 2012 @ 9:48am
          peeeko said | April 3rd 2012 @ 9:48am | ! Report

          Sheek, may I ask what your problem with betfair is? Personally I think it is a brilliant invention, cutting out the middleman and giving punters better odds. Before betfair in sports betting the tab used to give 1.85 a piece in an even contest, competition made them move to 1.90 and now 1.92. The Tab has been the big supporter of this because they gauge punters the most and want to disable their competitors. Prize money in Australian racing is brilliant by world standards and the whole industry is made for rich breeders who make a fortune out of their studs

          • Roar Guru

            April 3rd 2012 @ 9:56am
            ScottWoodward.me said | April 3rd 2012 @ 9:56am | ! Report

            peeeko
            100% correct in every word.

          • April 3rd 2012 @ 10:03am
            sheek said | April 3rd 2012 @ 10:03am | ! Report

            Peeeko,

            Okay, maybe ignorance here. But isn’t Betfair the guys who came up with things like betting on last, etc? I don’t know, it just seems to me the more options you provide, eventually you create more opportunities for manipulation.

            Much easier to get a horse to run last, than manipulate the winner. But I’m willing to be corrected on this…..

            • Roar Guru

              April 3rd 2012 @ 11:27am
              peeeko said | April 3rd 2012 @ 11:27am | ! Report

              Yes it is but it is very easy to trace the bets and this has been done and people caught

            • Roar Guru

              April 3rd 2012 @ 11:39am
              ScottWoodward.me said | April 3rd 2012 @ 11:39am | ! Report

              sheek
              An exchange is punter v punter and it creates markets and is the only REAL market as it is created by the punter and people are prepared to bet to win and lay to lose.
              In terms of betting to run last, that is not what it is about. You can back horse v another horse on Centrebet. If you have a short priced horse and wanted it to not win, it would be simple to take exotic bets like quinellas, trifectas, first 4, quaddies and super 6 etc and leave the short priced horse out. It is the same thing.

      • Roar Guru

        April 3rd 2012 @ 9:40am
        ScottWoodward.me said | April 3rd 2012 @ 9:40am | ! Report

        Will
        Thanks for your points of view.
        You are incorrect to say that the Corporate bookies have not given anything back. Under the GP model they have paid hundreds of millions back to the industry and I would expect that each of the major bookies will hand over around $40m over the next 12 mths.
        Once again, just look at how well Victoria is going compared to NSW and Racing Victoria have a very strong partnership with the bookies based on GP.
        The corporate bookies have given the market and the TAB competition and choice and the punter has benefited.
        Guys like the Badger have many bet backs with the corporates and the TAB to balance his trading book. Betfair is an exchange and his wonderful for punters as an alternative, but importantly, they generate incremental revenue for the TAB and the bookies. They are good for punters and can be also for the racing industry but because they are an exchange, it is virtually impossible to tax them on turnover.
        Will, little point have a better infrastructure if racing continues to lose market share to sport and online casino, including the TABs digial horse racing.
        Ideally our administrators should be implementing strategies to stop this.

        • April 3rd 2012 @ 10:43am
          Will Sinclair said | April 3rd 2012 @ 10:43am | ! Report

          Scott,

          My understanding – based on Peter V’Landys comments – was that Betfair and Sportbet had taken an action to the Federal and High Courts challenging the validity of any fee at all. IE: They wanted to pay zero, nothing, donut.

          That was made clear by V’Landys, and it would have been a disaster for racing.

          But I take your points on the validity of a GP model as opposed to a Gross Turnover model – I can’t imagine any other industry where a tax on turnover would be accepted.

          I also agree that the competition provided by the corporate bookmakers has been an outstanding result for punters, and has made the TAB run a far better and leaner operation (interestingly, the TAB itself is more profitable than it’s ever been).

          Indeed, I think this competition will ultimately protect punters from being squeezed on prices – the likes of SportsBet, SportingBet, Centrebet etc etc provide a vibrant and engaging punting market – and it’s very hard to see a return to the bad old days when the TAB was the only option.

          Finally, if the money provided to NSW Racing is properly invested in infrastrucure, marketing, media content and in reducing the cost of attending the races – the crowds WILL return. I really believe this.

          I genuinely love horse racing – and have since I was a kid – and I want to see it thrive. And as a punter AND a fan of the game, I am excited about the opportunities the new funding model gives to racing in NSW.

          • Roar Guru

            April 3rd 2012 @ 3:28pm
            ScottWoodward.me said | April 3rd 2012 @ 3:28pm | ! Report

            Will
            Depends on your definition of “properly invested”. First and foremost the money will be used to fill a big financial hole that RNSW got into via poor management.
            But as I said, everything starts with the punter and they have been ignored and in fact been offered a more expensice product. What I mean by that is that it will be harder now for them to win when punting on NSW horses.

    • April 3rd 2012 @ 11:27am
      Julian said | April 3rd 2012 @ 11:27am | ! Report

      Scott, what you say is true for horse racing in NSW but not for greyhound racing.
      Greyhound racing declined to support the gross turnover model and have implemented a profit model, which has been running for a few years now. They also allow corporate bookmakers and betfair to sponsor race clubs, awards eg ‘The Betfair Greyhound of the Year Awards’
      Ironically, GRNSW say that having had the gross profit model has been financially superior for them to the turnover model – see the Blog written by GRNSW CEO Brent Hogan yesterday http://www.thedogs.com.au/DPage.aspx?id=54

      Perhaps the betting houses, exchanges, journalists and commentators that care about the punter, should be promoting and publicising that greyhound racing in NSW that has taken a more inclusive approach than the horse racing codes, which one would presume will lead to better wagering competition in NSW greyhound racing and therefore lead to better value for the punter.

    • Roar Guru

      April 3rd 2012 @ 11:46am
      ScottWoodward.me said | April 3rd 2012 @ 11:46am | ! Report

      Julian,
      Brent Hogan seems a good operator and Greyhound Racing are lucky to have him.
      Very few of our administrators look beyond a few years, when suerly part of their charter should be to grow and preserve their industry for generations ahead.
      GRNSW and RVIC are all thriving under the GP model, while RNSW have gone backwards – go figure.

    • April 3rd 2012 @ 11:59pm
      Ian said | April 3rd 2012 @ 11:59pm | ! Report

      Hi Scott,

      The head of Racing Victoria was quoted as saying that under their current GP model that bookies would return $53m to the industry for the year, while under the turnover model they would return $54m… perhaps it’s more complex than that but still a small difference. Whilst it may be that a turnover tax is un-Australian, much like my income tax, the difference doesn’t seem that huge. How about your average professional punters’ income tax? I’m not familiar with how that one works.

      Also, putting aside the possibility that the current RNSW administration are biased, surely some transparency in true punting profits has benefits. Whether its punters, owners, trainers, strappers etc, it’s beneficial to all that the industry remains sustainable.

      Whether the recent decision will be a good thing or not (for racing) is too early to call.

      Comment left via The Roar’s iPhone app. Download The Roar’s iPhone App in the App Store here.

      • Roar Guru

        April 4th 2012 @ 1:43pm
        ScottWoodward.me said | April 4th 2012 @ 1:43pm | ! Report

        Ian,
        This is not only my opinion but clear fact:
        * RVIC are flying under a GP model and miles ahead of NSW
        * A profit on turnover will kill racing in NSW for Betfair which is a wonderful alternative to punters, not only for punting, but trading and they grow the market by crreating bet backs and arbs for the bookies and TAB. The market in NSW will decline with no Betfair.
        * Governments and Racing administrators should be trying to grow the market, but a tax on turnover does not encourage growth.
        * The Racing product in NSW will be less competitive under a Turnover model which will force consumers to other states, sports betting and online casinos.

        Ian, you have to ask why would RNSW actively try to kill off a potential major partner in Betfair? The answer: Tab

        • April 13th 2012 @ 10:41am
          Ian said | April 13th 2012 @ 10:41am | ! Report

          Scott,
          It’s an interesting opinion, but no matter how many times you say it, a tax on turnover does not discourage growth. I’m not sure where that theory comes from, seems disingenious, sounds like something Tony Abbott would say. Mining royalties (also a tax on turnover) never slowed the growth BHP etc. On the upside for the bookies, won’t the percentage of turnover claimed by Racing NSW (and soon to be all of the other racing bodies in the country) further reduce the amount of company tax they pay to the ATO? Maybe they can share these savings with their customers too.

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