3WNC: What to make of Racing NSW's (very quiet) annual report

You might have missed it, but Racing NSW released its annual report and results on Monday, the day before the Melbourne Cup. You probably missed it as it did not include a press release nor any insightful comments from the chairman or chief executive.

Racing NSW does not hold an AGM so we don’t have any insightful or controversial questions relating to the results.

So, this intrigues me a lot!

For the benefit of The Roar‘s racing readers I have put my forensic accounting skills to the best use to provide a quick comparison between the Racing NSW report and result against the previously reported extraordinary profit of $50 million by Racing Victoria.

Racing Victoria’s (RVL) profit of $50 million versus Racing NSW (RNSW) reporting an operating profit of $1.7 million. If Racing NSW exclude earned interest, it would be an operating loss.

Revenues – RVL $361 million versus RNSW $119 million
Okay, this is where it starts to get very tricky and you really need a forensic accounting degree to direct.

RVL collect all revenue from Tabcorp and others, and then allocate prize money, expenses and grants to race clubs under its jurisdiction.

RNSW have a different arrangement with Tabcorp, with funding going to direct to clubs – supposedly totalling $150.4 million, as reported.

The only way to check would be to call up all the clubs in NSW and the revenues received by TAB. That is impossible as the racing clubs of NSW seem reluctant to publish annual results and seem to take forever to report. RNSW should demand all racing clubs publish annual results within 90 days from June 30.

So, revenue comparison is $361 million versus $270 million. In discussions with Racing NSW and as reported in the annual report – the big development for RNSW is tax parity – which was parity between NSW and VIC, which will supposedly deliver an extra $70 million revenue to RNSW which would take the revenue within $21 million of RVL.

But I have some serious reservations regarding these forecasts. I have extracted some quotes and figures from the NSW Budget with total racing revenues for 2014-15 at $156 million. And if thoroughbred racing was approximately 70 per cent that means only $109.2 million to state coffers and RNSW want $70 million of that?

Revenue from racing is expected to increase by 2.4 per cent per annum over the four years to 2018-19. The decision to provide tax rate parity with Victoria on totalisators is reflected in expenses and is not reflected in the racing tax revenue. Weaker growth in racing revenue is offset by stronger growth in other gaming duties.

NSW Government budget statement – Box 5.4: Wagering parity –
From January 1, 2016, while the actual wagering tax rates remain unchanged, the NSW government’s share of the tax will be gradually stepped down over a five-year period to match Victorian tax rates.

The reduction in notional tax rates will be used to increase racing industry funding for thoroughbreds, harness racing and greyhounds.

These funds will be available for the controlling bodies (Racing NSW, Harness Racing NSW and Greyhound Racing NSW) to invest in specific purposes such as racing infrastructure, prize money and apprenticeships.

The reinvestments of funds back into the racing industry in New South Wales will ensure that it remains sustainable and is competitive with other states.

The allocation of funds will be administered by the Minister for Racing.

Prizemoney: Total returns to owners – RVL $174 million versus RNSW $188 million
RVL had 549 race meetings with an average field size of 9.9, compared with RNSW’s 748 race meeting with an average field size of 9.81.

RNSW has a lot more race meetings (26 per cent) and thus a lower prize money figure per race. One of the successful strategies of RVL has been adding a permanent ninth race to each metro meeting thus creating wagering and operating efficiencies, something RNSW is now doing. The prize money ‘war’ will be an ongoing friction and focal point for each state.

Total and net assets
RVL’s total assets are $122 million, with net assets of $83 million, compared with RNSW total assets of $221 million and net assets of $30 million.

RVL have worked themselves out of a $40 million debt position over the past three years to be now debt free and with some revenue generating assets.

RNSW have large reserves ($85 million) related to the race fields case of 2012 with these funds slated for infrastructure improvements.

Detail in the report says $37 million has been already approved by the board, $9 million is under consideration, $10 million set aside for a future fund, and interestingly, a $17 million loan to the ATC.

When I read the ATC annual report last year – because this year’s is yet to be released – I don’t see a balancing $17 million loan payable to RNSW.

Also, just to muddy the figures more, RNSW is still holding $20 million of a $24 million grant provided for refurbishments to Rosehill in 2012 at the same time that the Randwick grandstand financing was announced.

Legal expenses – RVL $2.4 million versus RNSW $87,000
Wow, RNSW have either some cheap lawyers or they have allocated these expenses elsewhere. RVL have major ongoing lead cost – such as cobalt etc – but you would think these would be closer between the states.

Marketing expenses – RVL $6.4 million versus RNSW $970,000
This is the big issue for RNSW and obviously a priority out of any extra funds from tax parity.

Board expenses – RVL not disclosed versus RNSW $600,000
At the RVL AGM I actually asked the first question in three years and it’s surprising that RVL didn’t disclose this figure, which I estimate to be approximately $1 million. This is only in the context that the board directors of the race clubs, VRC and ATC for example are not remunerated at all.

Key management personal remuneration – RVL $4.2 million versus RNSW $3.8 million
The key takeout here is that RNSW seems under resourced.

I hope this provides a little bit of insight – thankfully both Victoria and NSW are not facing the losses of a badly run Queensland industry, and we await eagerly the first annual report of Racing Australia.

So if Racing wants to be serious competitor to major sports of Australian football, rugby league, football and cricket, issues of transparency, financial health and the media reporting of this is vitally important and certainly needs some improvement.

Your thoughts, Roarers?