Banking and racing consumer advocate Peter Mair has done more than anyone to keep the banks on their toes and now he’s running a persuasive tilt for the board of the NSW TAB.

The TAB share price reflects TAB betting off-course. The better the racing entertainment provided and the more the customers will bet, the higher will go the TAB share price. It is fair to say that TAB customers want the TAB share price to increase, as do those that speak for TAB customers and the wider community.

The over supply of no-bet ‘rubbish racing’ is holding TAB back. Over supplied with ‘free’ racing product on Saturdays, TAB bets and broadcasts the lot, a race every five minutes, in an overcrowded ‘entertainment’ program that drives the customers to distraction and indifference. There is no sense in this — for anyone.

Following some summary thoughts on ‘fixing the races’, Part A lists a few things that TAB customers reasonably ‘want’ and reasonably should get. Part B offers some explanation.

A. FIXING THE RACES TAB will not prosper until the races are fixed.

Australian racing is in disarray because Australian racing lacks any commercial discipline. The current socialist alliance of government and the ‘interests of racing’, against the wider community, is an affront to good public policy.

The automatic entitlement of the ‘interests of racing’ to public funding (a fixed share of betting turnover) has no sensible rationale. The current distribution of the ‘entitlement’ among the ‘interests of racing’ is simply perverse.

The predictable result is the delivery of no-bet ‘rubbish racing’ product to the TAB and its customers. There is a ‘catch 22’ in this game. It is a foolish belief that, no-bet rubbish racing, though delivered to TABs free-of-charge and force-fed to their customers, will maximise TAB turnover and profits. TAB executives who believe this had best start honing their mind changing skills. The customers are not that silly.

The failure of TABs to speak out on the perverse incentives driving them and the industry, not only condemns the Australian public to poor quality racing entertainment it causes the TAB share price to languish.

This situation, unchecked, will surely drive TAB customers away; debilitate the Australian racing industry and devalue the TAB franchise. The bigger shareholders in TAB are not likely to be racing aficionados and may well not understand the consequences of underestimating TAB customers. It is not fashionable to discuss the racing industry analytically in the business pages. On any reckoning, for a major national industry, this is remarkable — reporting on the business of providing racing entertainment will become more fashionable.

In a perverse way, the dedication of TAB to broadcasting ‘rubbish racing’ on Saturdays may help to change the industry focus. Such poor quality service delivery beckons competition. Some may see ‘magic millions’ in selective competition for a 2KSKY contracted to flogging a dead horse. Already, on 10 Saturdays each year, quality-racing entertainment is provided in the relaxed format of free-to-air TV. The customers know the difference — it reflects in their betting activity.

TAB is betting the customers want quantity rather than quality — I bet TAB customers want quality.

What TAB customers want?

TAB has a responsibility to use its powerful voice to protect TAB customers.

Quality Control: TAB customers want quality-controlled racing entertainment. The quality of racing entertainment is measured by TAB turnover — only by TAB turnover. The broadcast on Saturdays of no-bet ‘rubbish racing’ from anywhere in Australia, or New Zealand, insults most TAB customers. ‘Rubbish’ is identified by ‘no turnover’.

Respect: TAB customers want to be treated as professional punters like to be — armed with information critical to understanding race outcomes — and not as ‘mugs’. TAB customers ‘off course’, contributing 90% of TAB turnover, are insulted by their second-class treatment relative to the on-course ‘privileged’. TAB should overturn such apartheid.

Value: TAB customers want to be properly entertained for the time and money they put into their racing entertainment. An appropriate benchmark would see 2KSKY allocating broadcast time to individual races broadly proportional to expected betting turnover on the different races. Beyond that, 2KSKY has enough to do promoting and broadcasting racing: when TAB accepts advertisements for used car dealers, strippers, equine dietary supplements etc., it is declaring a problem with its primary product, racing entertainment. Every advertisement run on 2KSKY in the Saturday racing time slot lowers the TAB share price. TAB customers and shareholders want problem racing fixed, not compounded.

National focus: TAB customers want the debilitating separation of Australian racing across six states (and New Zealand) to be abandoned in favour of a national, Australasian, program of racing excellence perhaps centred on Victoria but accommodating ‘carnivals’ and ‘carnival’ lead-ups in most capital cities and some provincial centres. A national TAB betting pool would be a useful step in this direction — it would point up the misallocation of taxpayer funds to high-cost spongers on the national racing scene. The ‘interests of racing’ should be free to race when and where they like but low-grade racing should not be subsidised from the public purse nor broadcast to TAB customers on Saturdays — it wastes time and money.

Professional broadcasting: TAB customers want race broadcasters, and production teams, delivering thoughtful quality and not thoughtless and irrelevant quantity — broadcast journalists are driven to distraction by overcrowded race schedules overlaid with unnecessary advertising commitments. 2KSKY delivers poor quality broadcast journalism — it does not serve its customers properly. It is akin to a single national ABC station delivering the different local news to everyone in every State capital and major regional centre — it is simply crazy. That is not the fault of the journalists, it is a TAB management matter.

Accountability: TAB customers and the community more generally want government and the ‘interests of racing’, to be accountable on commercial criteria when spending public funds in the racing industry. If government does not care where ‘TAB money’ goes, it should be paid back to TAB customers as higher dividends. The general community would care about the misallocation of public funds to no-bet ‘rubbish racing’ — if it were disclosed. TAB knows the numbers that, if disclosed, would precipitate a revolt.

Professional administration: TAB customers want the conduct of racing to be administered professionally. A professional racing administration would, for example, eschew vague words and monitor and record track conditions objectively, incorporating race times into an index, ‘0’ to ‘100’.

For another example, the ‘mandatory sentencing’ of computerised handicapping would not be seriously contemplated, as it appears to be in a misguided essay in cost cutting. TAB cannot be indifferent to such issues; they are crucial to value in racing entertainment.

Fair-trading: TAB customers want on-course betting fluctuations broadcast to them, off-course. That’s a fair ask. Mobile phones on-course mock the current ‘prohibition’ to the benefit of a select few at the expense of the majority. More generally the transmission of on-course betting fluctuations to other on-course venues underscores the disrespect shown to the majority of the customer base that bets off-course with TABs. Similarly, TAB customers want race ‘tipsters’ to be accountable, to annotate any public statement of their ‘tips’ of race outcomes with their established record — advertising a ‘0’ to ‘100’ index of their prior ‘success’, calculated on objective criteria, should put this common use of media time and space in perspective.

Betting Services: As the retail distributor of racing ‘tickets’, TAB is betting each way. Innovative betting options and ‘smart’ phones are most certainly good for some but cut-cost service facilities — ‘no’ branches, ‘no’ phone TAB — overwhelm many TAB customers. PubTABs now face higher costs servicing hit-and-run TAB customers driven back to tickets. Playing very hardball with reduced customer services, low commissions for TAB-agents and the charges for race club broadcast rights is a risky strategy. There is a better way to do it — the TAB way makes the banks look good.

(Some other things the customers want are canvassed in other papers.)

B. BACKGROUND THINKING

— ‘puts’ and ‘takes’

The racing industry comprises two broad groups — those who ‘put in’ and those that ‘take out’. The ‘owners’ and TAB customers put money into racing — all other participants (and the government) take money from racing. Those that ‘put in’ are important to TAB shareholders — most are called TAB customers.

Owners ‘put in’ considerable amounts of money as both the 90% ‘excess’ of their owning and training expenses over average prize-money returned, and as substantial backers of their own and other ‘stable’ horses.

Nonetheless, it is the great mass of TAB customers off-course that contribute 90% of TAB betting turnover, 90% of TAB profits and 90% of the TAB share value. TAB customers are important to TAB shareholders.

— ‘ insider backers’ and ‘entertained gamblers’

Owners attend the races and make relatively large ‘win’ and ‘place’ bets with bookmakers as ‘backers’ of horses carefully selected with the advantage of superior information. Having ‘put in’ substantial net costs already, these ‘insider backers’ are sensitive to ‘deductions’ from the true odds of the horses they back. Not only do they pay a lower rate of ‘deduction’ on their wagers with bookmakers, they are better-informed ‘insiders’ and more likely to win (or lose less) than TAB customers. ‘Insider backers’ care about winning.

TAB customers are more typically ‘entertained gamblers’. With the average TAB house percentage at 16.78%, and the remaining TAB pool likely to be drained by better informed insiders, TAB customers know they will lose their betting budget. And they love it — they are buying a special kind of gambling entertainment.

Increasingly TAB turnover is about exotic gambling — small stake, big win — rather than wagering. This segmentation of the betting market has implications for marketing TAB facilities. TAB customers give sophisticated marketing advice to TAB every Saturday — and TAB apparently takes no notice of it. TAB seems not to realise, for example, that 90% of its customers are not at the races and that they should not need to be.

— bookmakers: competition beneficial to TAB

The less important are bookmakers, the lower will be the TAB share-price. Some think that every dollar bet with a bookmaker ‘costs’ the racing industry, the government and the TAB. Such thoughts could not be further from the truth. TAB needs a strong bookmaking ring.

The ‘customers’ have four betting options — the TAB; bookmakers; ‘overseas operators’ and don’t bet. We are led by TAB to believe that only TAB customers ‘contribute’ to racing (and to government).

Now, the biggest group of customers ‘not contributing’ is the ‘customers’ that don’t bet at all — these ‘customers’ cost the TAB heaps. As for customers betting ‘win’ and ‘place’ with bookmakers, the probabilities are that these customers would bet little if the percentage in their betting market was equivalent to TAB’s 15%. Bookmakers and their customers are in a quite different business to TAB and its customers, notwithstanding some overlap at the margin.

The conundrum is whether TAB turnover (and the TAB share price) is higher or lower as a consequence of bookmakers bringing colour and excitement (and integrity) to racing entertainment. Those at TAB who would drive the bookmakers from the industry would do well to research the importance of a strong and free betting market to protecting customer confidence — including in the integrity of TAB betting markets and dividends.

TAB should facilitate the disclosure off-course of bookmaker betting fluctuations and accept the option for customers to make ‘phone bets with bookmakers with a ‘low’, if any, required minimum. TAB ‘customers’ not presently betting may do so if treated more fairly in a competitive market.

It is the old ‘bigger slice’ or ‘bigger cake’ dilemma — increased bookmaker turnover could make the cake bigger and be very good for the TAB share price. In short, the true ‘backers’ on the races bet ‘big’ with bookmakers and are not really TAB customers anyway.

In another of life’s little ironies, the role of bookmakers is protected by setting the TAB house percentage at a relatively comfortable 15%, on win and place bets. In a sense it is the price the TAB pays bookmakers for their services to TAB customers. More ironic still, bookmakers find it hard to make a living — their customers have gone to the casino.

It would be quite perverse if one ‘error’, taking too high a rate of ‘deduction’ from TAB customers, were to be compounded by another, taking bookmakers out of the game. One really would like to identify the policy wizards at TAB who argue against bookmakers, already a species needing environmental protection.

— TAB v. the ‘interests of racing’

TAB shareholder interests are directly aligned with the interests of TAB customers and generally not with the ‘interests of racing’.

TAB and the racing industry have reached an impasse. The TAB share price will languish until the races are fixed. A privatised TAB accommodated a silly situation in the industry that has since got sillier. TAB now needs to protect its franchise.

Otherwise sensible people are apparently mesmerised by the deceptive ‘logic’ linking government funding of the racing industry in NSW to a fixed proportion of TAB bets accepted in NSW. In one’s reasonable experience of public policy mistakes, one is unlikely to come across anything as stupid as this — a stupidity compounded by enshrining it in a legislated contract with ’99 years’ still to run.

The stupidity in this arrangement is further compounded by the ‘interests of racing’ distributing the ‘entitlement’ among their members in a way that has no reliable connection to the quality of the racing entertainment produced as a consequence. We are talking about some $600 million annually, nationally — it is worth spending sensibly rather than not.

The ‘reformed’ management framework for the racing industry in NSW is now ‘frozen’, devoid of both industry and political leadership, and apparently incapable of operating effectively in its own interests. The industry is drifting aimlessly. It has lost contact with its customers. Industry ‘management’ can do nothing tomorrow that was not done yesterday. The politics of racing reform are horrendous. TAB is compromised and says publicly little of what it should — until it does, TAB is unlikely to prosper.

Want a certainty? — bet on the funding policy to be ‘revised’, especially if TAB decides to ride for reform in the interests of TAB shareholders. Want a tip? Don’t be a shareholder while TAB is dependent on such a fundamentally flawed political and industrial foundation as the Australian racing industry currently is.

— TAB and government

Australian State governments hold the key to higher TAB turnover and a higher TAB share price.

Government, on behalf of the people, is entitled to maximise the total deducted from TAB betting turnover. Government, having regard to the best interests of the community generally, is not then entitled to grant an entitlement to public funds to the racing industry (or to anyone else) without ensuring it gets value for that money. The ‘interests of racing’ are not automatically entitled to any public funding at all. Conversely, having regard to the public demand for racing entertainment, government would sensibly invest public funds into the racing industry — for a ‘commercial’ (net tax) return. Government will sensibly do so on terms that ensure the maximum excess of the tax it takes over the costs it outlays to underwrite the supply of an optimum quantity and quality of racing entertainment. That’s good government business on behalf of the people — it is in sharp contrast to the prevailing, stupid practice.

End piece

An insightful customer voice on the TAB board would be beneficial to TAB shareholders. Especially beneficial also would be a commitment to fix the races from the ‘Dads Army’ coalition of the ‘interests of racing’ and their allied government forces now ‘managing’ racing into an ever sillier mess. That commitment will not be given without a bloody fight. The TAB will have to fight on behalf of its shareholders and its customers.

It will be worth it — when TAB customers get what they deserve, the TAB share price will increase. I welcome TAB shareholders to the side of the angels, TAB customers.

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