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.
George
Guest
How's this going Scott? Has Betfair survived? Is NSW racing less viable? With respect your opinion was as biased then as it is wrong now. My understanding of the Betfair model was obviously better than yours. I also factored in the likely behaviour of Betfair Australia and the response by BF punters and layers, which was never going to collapse on the back of a 1.5% impost.
The Judge
Guest
Add to Sportsbet, Sportingbet, Centrebet and IAS. If you don't mind a bet and have a decent sized win, they shut you down pretty quickly. I've been, or have had friends who have been shut down by all these corporates when having a bet on the dogs, and having a decent winning night. Guy, I agree at least when the tab starts scaling you back they still let you on to win $2000-$3000!
Guy Pounder
Guest
Quote "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" Funniest thing I have ever read, sportsbet just rejected a $10 bet at odds of $9. At least Tabcorp will take a bet. For racing use Tabcorp and sports use pinnaclesports.com. All corporates in Australia are an absolute disgrace with Tatts being just about as bad as kicking punters as sportsbet. Shame Matt Shaaaaaame.
David
Guest
Very interesting reading there George. Being one of those punters that will all but abandon horse racing betting if Betfair were to withdraw from Aussie Racing, I certainly hope that they can continue on as before with maybe a small adjustment to the commission structure being acceptable to me. All parties need to pay their fare share lest we see the industry we love go the way of UK & USA, that is 'down the dunny'. But to tax competitors out the door is unfair, yet the High Court contends that is not the case here & Betfair appear to have agreed with that during proceedings - I hope all parties are right...
George
Guest
ScottWoodward.me said | April 4th 2012 @ 1:49pm "With respect you dont understand the Betfair model. They cannot survive on 1.5% tax on turnover. The numbers do not compute." You need to update your information Scott. The last sentence is correct but not in the way you're suggesting. The High Court found exactly the opposite of your claim. In fact Betfair acknowledged this. It's all there in the court case summary: http://www.austlii.edu.au/au/cases/cth/HCA/2012/12.html Paragraph 30 addresses the survival comment.
Ian
Guest
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.
Jon
Guest
If Betfair pull the plug so will I there is no way I could win with a 17% take out on TAB with rounding down.The 5% to 7% win I can achieve on a decent t/o at Betfair would equate to a 11% loss with TAB and a 6% loss with Corporates. So soon just like Betfair it will be bye bye NSW RACING and don't think I wont have a lot of people leaving with me young punters who have grown up with Betfair and 102% markets are not fools and will certainly not migrate to the TAB and their blood sucking takeout.
George
Guest
"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." You can relax then Scott because your premise is simply wrong. You're living in the past. 30 years ago many people, including me, did go to the track regularly because it was our only way of finding value and locking in a price (and watching races live for that matter), but that hasn't been the case since the advent of online betting and live TV broadcasting . There are many many more options now available to punters. The Melb spring carnival attracts hundreds of thousands because of the event and tradition (and location - we all know how Melburnians love their big sporting carnivals), it has sfa to do with being able to bet with bookies. "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. " The product fee has been in place for more than 2 years and so far there is no evidence for your claim that the NSW product is less attractive. In fact so far it's the opposite, but we'll have to see in the long term as you suggest. The last bit about crowds at the track is simply ridiculous. Betfair punters and traders don't go to the track because they need to be sitting at their computers (4 or 5 or more in some cases) chasing every tiny bit of value they can find. Big punters who have been banned by corporates go oncourse to bet because they have few alternatives. For many rank and file punters it's far more comfortable and less hassle to stay at home or go to their local pubs and TABs. It has nothing at all to do with a 1.5% turnover fee.
ScottWoodward.me
Roar Guru
Croc With respect you dont understand the Betfair model. They cannot survive on 1.5% tax on turnover. The numbers do not compute. Thet can turn over a million dollars and make no profit or just a few ollars, but they would have to pay 1.5% on the $1m. RNSW know this and knew that they cannot compete in NSW so instead of negotiating a mutual arrangement that would benefit both parties plus the punters, they went for the jugular to kill them. This is a lose/lose scenario and long term will be percieved as incompetent.
ScottWoodward.me
Roar Guru
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
The Crocodile Punter
Guest
Is this really as difficult as it seems. Clearly the corporates weren't paying enough and the tax imposed, certainly to Betfair is too much. Couldn't they come to some agreement somewhere in the middle. My gripe against Betfair is the really are parasites to the sport and creative accounting could show aprofit that may not be valid. If they worked out an arrangement, it would still be a boon to the punter, albeit a bit smaller. This seems to me as much an issue of Betfair greed as the hard stance by RNSW.
Ian
Guest
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.
ScottWoodward.me
Roar Guru
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.
ScottWoodward.me
Roar Guru
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.
ScottWoodward.me
Roar Guru
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.
Julian
Guest
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.
peeeko
Roar Guru
Yes it is but it is very easy to trace the bets and this has been done and people caught
Will Sinclair
Guest
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.
Will Sinclair
Guest
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.
sheek
Guest
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.....