Unless racing can come to grips with supporting its own lower cost betting partners and technologies aimed at producing a more competitive product, it risks losing the very people who help fund its existence – the punters. Here is part one, two and three of Ross Stapleton’s special report.

Racing industry fights for its wagering future

Part one of a special report:

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The success of the Spring Racing Carnival in Victoria glosses over the worrying reality that even in the industry’s number one racing state, just last week it was revealed two of Melbourne’s three racing clubs declared operating losses for the 2003-04 season, following on from losses the previous year also. Only the Victoria Racing Club remained in surplus from its massive Melbourne Cup Carnival success.

But clubs around Australia trying to balance the books while offering ever higher stake money is far less of a concern and easily corrected, when there are far more worrying storm clouds on the horizon? These relate to the future of race wagering and the remorseless march of technology. Primarily driving that fear factor is the advent of global exchange betting via the Internet where people are backing horses to lose rather than win races. Ultimately at stake are the wallets of punters if racing gets to the point where the integrity of its product is in serious doubt; that then risks a domino affect on racing’s future revenue streams.

It wasn’t so long ago you had a simple choice of betting via the TAB or with bookies, but now even bookmaking is a relative term since the arrival of the Internet. Yet even as online betting opened up fresh avenues for corporate and smaller bookies and TAB’s to expand their business, the arrival of betting exchanges which now need little or no explanation has turned online race wagering on its pointy head. It has also galvanized the world’s leading racing nations outside the UK (the exchanges home base), to campaign for the likes of Betfair as the dominant market leader, to be banned.

To say the local industry is baying for Betfair’s blood as it seeks to gain a legal toehold through a government license with erstwhile Australian partner, the media and gambling conglomerate Publishing and Broadcasting Ltd (PBL), hardly does their strident opposition justice.

Racing Victoria Limited (RVL) that oversees the industry in Victoria has bundled up online various strands of the industry’s global opposition including the decision reached at the Annual General Meeting of the International Federation of Horseracing Authorities (IFHA) in Paris recently, where 50 horse racing authorities agreed on a concerted campaign against exchanges operating betting in their jurisdictions.

RVL website here.

Corporate bookies hopeful they can finally agree product fee with racing

But even as racing frets over Betfair, the Australian Racing Board (ARB) is now smoking a peace pipe with leading corporate bookmakers who between them are estimated to boast an annual betting turnover of almost $1 billion. The bookies want to agree a betting “product fee” with racing as the forerunner to then hopefully cutting deals with other sports such as AFL, NRL, Rugby Union, cricket etc.

The Australian Association of Bookmaking Companies (ASBC) represents Australia’s biggest corporate bookie Sportingbet, along with IASbet, Centrebet/Sportsodds, Sportsbet and Sports Acumen. The association is keen to partner with racing to help pay its way, and in return expects racing to help deliver a raft of reforms to current wagering regulations that place some severe restrictions on how these companies currently operate, including being unable to advertise their business in most states.

This will ultimately also need the approval of various governments.

Last Tuesday four representatives from the association met with the ARB, that was attended by its chairman Andrew Ramsden, CEO Andrew Harding, RVL chairman Graham Duff, and Don Hopkins representing Racing NSW, as they looked to thrash out the basis for going forward with a fee structure racing and the association members could live with.

Sportingbet CEO Michael Sullivan, who attended the meeting, told Crikey today that both parties walked away from the meeting “a lot closer than we were previously – but still with some significant work to do”.

“It is now up to us to do some further modeling with regard to our position on that fee which will then be presented for consideration to an ARB board meeting in mid-December,” he said. “The product fee we support is one based on gross profit rather than turnover, and we will get back to them with our recommendation on that basis.”

Sullivan said the key to this whole process which was being conducted in a very positive atmosphere given past history, was the work being put in by ARB chairman Andrew Ramsden, whom he described as “a breath of fresh air” in bringing a willingness to the table to negotiate. He said his association saw the talks as now offering a fresh start and one that will lead to a solution that is negotiated and not litigated.

But he described the possibility of creating what he called a “virtual bookie pool” that is being pushed within Victorian racing as a future wagering model that could bring together all bookies to offer punters the means by which they could view comparative odds and select their preferred operator, as still very formative with a lot of work yet to be done. However, he believed ASBC members were more than happy to consider being part of such a scheme as they never closed the door on any competitive opportunity. But he stressed it wouldn’t be in place of their existing individual operations, but more the possibility of adding an additional wagering marketing layer.

The question of a product fee for the corporate bookies has long been a bone of contention for racing authorities, after the bookies have been described in the past by certain racing officials as “parasites” and “pirates”. But as Sullivan told leading industry expert and racing writer #Bill Saunders in a September Internet article “Peace Breaks Out Between Bookmakers/ARB”, the thawing in relations had also been assisted by the major changes in NSW racing this year, particularly the takeover of TAB Limited by TABCorp, and most significantly the departure of TAB Limited CEO Warren Wilson.

“In New South Wales they’ve marched to the tune of the TAB for years. The TAB was supposed to be the servant of the NSW industry, but it’s become the master. Warren Wilson was the most destructive person I’ve seen in racing for the past 30 years. I didn’t say it, but I applaud the person who made the observation that the one good thing Wilson did was to unite Sydney and Melbourne racing.”

Read about it here.

UK betting exchanges butsts its bank!

There’s also further good news for Australian racing after news out of the UK last week that the world’s second biggest betting exchange Sporting Options, with an estimated 5,300 customers (revised down from an earlier 15,000 which is interesting to say the least), had gone into administration while leaving the fate of punters’ cash unknown.

Betfair wasted little time in seeking to pick over the carcass of the failed rival in competition with another betting exchange iBetX who also fancied grabbing a significant customer base to top up its own. It was also reported that the failure was likely to be seized upon by supporters of the Blair Government’s gambling bill, much of which is designed to regulate online betting. But in a further embarrassment to the exchange industry, police were also believed to have been called in to investigate possible misuse of punters accounts, following allegations punting money could have been used to provide the business with liquidity.

For a detailed history on the rise and fall of Sporting Options read this Guardian article here.

However, before Australian racing officials get too excited at this exchange failure, when you consider Betfair claims to have cornered 90% of the exchange market – even allowing for exaggeration in an industry notorious for talking itself up; it’s hugely concerning that one company can have such a global monopoly in a particular form of betting. But then Betfair is succeeding because it is offering a whole new betting methodology, and its low commission attraction is proving enticing not only to first time racing clientele, but especially professional punters and also bookies wishing to lay off (spread the risk).

But so hostile is our racing industry to Betfair’s existence, even normally sensible racing officials seem to have occasionally taken leave of their senses when discussing the ways and means to send Betfair packing. Their concerns are mostly on two fronts – racing receiving an equitable product fee as a commission from betting; and racing’s integrity being placed under a huge threat of corruption from being able to back horses to lose rather than win.

This threat seems to have also helped racing officials now grasp the reality that they should no longer put all their future wagering eggs in the TAB’s basket? The exponential growth in exchange betting and success of corporate bookies when taken together, has hammered home how racing needs to get behind a more competitive and responsive wagering product, particularly in online betting. It also reinforces why the bookies shouldn’t have to compete against legal restrictions that leave them virtually with one arm tied behind their back in taking on the TAB’s. But without reforms to assist local bookies, many punters will quit racing for better returns elsewhere, which in turn only exacerbates the industry’s growth problems.

How Betfair put a burr under the saddle of race wagering

The spread of Internet race and sports betting services such as the current non-fee paying Northern Territory corporate bookies, the new Norfolk Island based AusTOTE, and of course the now ubiquitous exchange betting has spooked the racing industry. It dreads the prospect of a future where more and more wagering ends up with non-fee paying operators “leeching” off racing. Add to that nightmare the uncertainty of future TAB product deals still to be struck in the years ahead, and it all potentially can seriously undermine or erode racing’s whole revenue base.

You see that’s really the problem for racing where traditionally its principal partners the TAB’s aren’t a 21st century beacon of progress in wagering technology or genuine competition. Yet racing until now has been dependent on this fundamental Government approved money merry-go-round.

Sure the industry and the TAB’s can point to a sporting industry colossus that’s grown to employ upwards of 250,000 people and clocks a $7.7 billion annual economic impact (source RVL), but the traditional business model now leaves racing’s future vulnerable without significant reforms to wagering.

Now regular Crikey readers would probably know I am personally against exchange betting for the same reasons as the industry argument, but particularly as regards backing horses to lose.

But since July when the Betfair-PBL alliance was struck there has been a massive industry scare campaign warning of the manifest evils of exchange betting with some of it bordering on hysteria.

At the height of this recent flurry of Betfair bashing including my own, I began a fruitful dialogue with racing expert and journalist Bill Saunders whom I quoted earlier. But what made our discussions so much more informative given our differences relating to Betfair, is that Saunders also comes from a business technology background, including 30 years experience as a software developer. He also operates a number of horse-related websites under the Cyberhorse banner including the ground breaking (Virtualformguide) which you can see at www.cyberhorse.net.au/ where you will read some of the very best racing corporate journalism in Australia or anywhere else come to that.

Now while Bill Saunders agrees Australia, but particularly Victoria does operate a world class racing product, he argues the wagering side of the industry has failed to keep pace. That until now the industry has failed to offer best practice betting technology that combines lower racing commissions tied to higher returns to the punter. So that makes him a big fan of Betfair, but more because it successfully runs a low cost-high technology enterprise while offering better value wagering, than any “wow” factor in matching up bets.

“My company developed a system in the 1980’s called DR-One (Dealing Room Online Networking Environment). Essentially it (and others like it) did for financial markets what electronic trading is now doing for wagering,” Saunders told Crikey. “The main difference is that financial market trading became highly liquid, lubricated by progressively lower commissions brought about by competition, whereas wagering markets are still very illiquid due to extravagantly high commissions. This doesn’t have to be the case as can be seen from the emergence of AusTOTE, our newest tote operating legally on Norfolk Island.”

Saunders can’t claim to be totally independent when it comes to talking down the way the mainland TAB’s operate when his website offers a free download tied to major Northern Territory bookie Sportingbet. But the fact he supports Betfair in principle which doesn’t do bookmakers – local corporate or traditional any favors, shows he’s talking about the future of the betting industry with his head rather than his wallet!

Does new “Aussie” TAB show how tote betting can reinvent itself?

Saunders is highly critical of the TAB’s as technologically backward and sorely needing to change their whole approach to wagering. He believes that for too long racing sat in a comfort zone, and even after the arrival of the corporate bookies and Internet betting on other sports that now compete against racing, as it failed to come to terms with a technological and generational shift in wagering.

Today in Hong Kong which has long boasted the world’s biggest per capita betting in world racing, the Hong Kong Jockey club while helping operate the betting on UK Premier League matches, doesn’t receive the benefit other than a management fee, yet has to watch as its betting pools on racing is being eaten into by the popularity of football betting. There will also come a time where TV sports will become an inter-active betting medium via digital TV and broadband to your computer or TV set, personal digital assistant, or maybe even mobile phones, and how ready is racing to meet the challenge? This is certainly not lost on the bookies with their national pool model for racing and all major sports betting.

In another article “Banning Betfair: What Is The Racing Industry Alternative?” – Saunders made the following observations which you can read in full here.

“The racing industry wants to enjoy the cost saving benefits of such electronic markets, but to simultaneously continue to enjoy the fat margins previously available. For the entire time that wagering has been computerised, the cost of capturing and processing wagers has decreased due to computerisation, but the cost savings have never been passed on to the punter in the form of higher dividends. If anything, over time, punters have been slugged with higher takeouts from the totalisator pool. A deduction of 12.5% from win and place markets in the 1960’s has now become on average 16%. Dividends are routinely rounded down. The recently introduced Mystery 6 “lotto” product has a takeout of 25%.

Is it any wonder that when betting exchange technology offers punters deductions of only 2 to 5%, they snap to attention? The fledgling Norfolk Island based AusTOTE also offers volume based commission rates of 2 to 5%, proving that a totalisator can be run on those low margins. Where is the “official” racing product which competes? The racing industry and the TAB’s are hooked on high margins brought about by lack of competition. They are incapable of operating in a low margin environment, yet in every other field, from telecommunications, to car manufacturing, to textiles, governments have moved to facilitate competition, which has brought down prices and kept them there.”

In part two we ask whether New Corp and PBL have agreed to disagree over the mooted Packer tie up with Betfair, after one prominent News columnist warned racing to get on board with the Betfair-PBL alliance or suffer the consequences. But today Murdoch papers here and in the UK are hardly fans of Betfair or betting exchanges.

Did News Corp undergo a sea change on exchange betting?

Part two:One day Murdoch business commentator Terry McCrann is warning Government and the racing industry to get out of the way of the runaway Betfair-PBL betting exchange train or suffer the consequences. Then later another prominent Murdoch columnist warns that licensing Betfair is a recipe for corruption. What gives?

While the racing industry mounts a fierce campaign to ensure leading UK betting exchange company Betfair can’t secure a local operating license, the issue opened up another can of worms following the July announcement that the Packer-led PBL media and gambling conglomerate had entered into an estimated $30 million optional agreement.

The mooted PBL-Betfair alliance for the Australian-NZ market is contingent on that license. But since the initial positive burst of support for its alliance in certain quarters, has PBL now possibly backed off from the venture as politically too hot? Considering Australia and much of world racing hasn’t so much drawn a line in the sand, as carved Betfair’s name in blood to be opposed by whatever means it takes, is the potential upside of being a Betfair partner worth the agro?

Now that might partly explain why Murdoch newspapers in the UK are opposed to betting exchanges. But then in absolute fairness to Rupert Murdoch – he’s never been really supportive of a gambling culture and has continually warned against its social costs, particularly in his old home state of Victoria where some of its community-wide gambling excesses even make Las Vegas blanch. However, there’s no ignoring the fact that if there is one sporting industry in the world with huge political clout given the ties between Government and betting revenues, let alone wealthy horse owners, racing could even teach FIFA a few tricks.

So is it surprising as the political row to get Betfair banned has intensified there has been a discernible shift within the Murdoch press over recent months? First you had Betfair and PBL bounding out of the starting gates with predictably Herald Sun columnist (and Nine Business Sunday commentator) Terry McCrann firmly in the saddle in support. But in fact has McCrann backed the wrong horse after it now seems the Murdoch press both here and in the UK has become highly critical of betting exchanges.

Certainly since September when The Australian went into bat against Betfair, PBL has felt the sting of the national paper’s scathing attacks on exchange betting and Betfair? Attacks in stark contrast to McCrann’s earlier almost messianic Betfair rallying call

“Read my lips: Betfair-Packer is coming. Either all the states get together and license it nationally, so that there’s a sensible fair sharing of the tax revenues it will generate to the states and to the sports within them and across Australia that provide the ‘product’.

Or one state/territory will license it, and attract all those revenues. The other states and their sports will get zip – as they also start to lose revenue from their TABs and other existing gambling formats. Understand this and you can understand that there is actually only one outcome. It will be licensed in every state. The only question is whether you can get to that destination the hard way or the sensible way.”

Now I am no reader of McCrann ordinarily so maybe I’ve missed any recent Betfair endorsement he might have made – but since multiple attacks in the Murdoch papers here and overseas, and all manner of threats made by the industry itself, has McCrann been told to bite his Betfair tongue?

As I pointed out in an earlier Crikey article: “Racing industry united against Betfair” (July 30th), and then also seized on by David Marr on Media Watch, both of us were particularly enamoured of this McCrann quote as part of his Betfair ranting:

“Memo all state governments: you can do the sensible thing and work co-operatively to all license the Betfair-Packer betting exchange. Or you can take your cue from NSW Gaming and Racing Minister Grant McBride, and behave like complete idiots. Individually or collectively, shooting yourselves (and the citizens of your state) in the foot. To ultimately not the slightest benefit.”

McCrann went on to surmise it was hardly surprising the “gambling houses” were leading the campaign against, which must have raised a few chortles with his opposing TAB-led tag team!

“They’ve got a monopoly; and as monopolists have done since Cain was able, they’ve argued their monopoly is good for you. And that competition would be harmful in some ‘way’…”.

While I’m not getting bogged down in debate on McCrann’s curiously selective lecturing against the evils of gambling house monopolies given his Nine Network connection, he does at least score some brownie points for his criticism of the way the TAB’s have been traditionally protected from genuine competition to the general detriment of punters.

Yet even as the bookies look to strike a far-reaching betting and business accord with racing authorities that could well leave Betfair-PBL politically clutching a losing ticket, that’s precisely why Betfair needs PBL’s political clout now more than ever? So no wonder Betfair was understandably cock-a-hoop when PBL agreed to come on board as a partner, as their Australian spokesman Mark Davies confirmed back in July.

“The partnership is the most significant agreement yet concluded by Betfair, and represents a ringing endorsement of Betfair’s status as a UK exporter of cutting-edge technology. Betfair’s business – proven in the UK – has now been recognized by one of the biggest names in world media and leisure. Betfair looks forward to partnering its technology with PBL’s impressive sports coverage, and its unparalleled reach to the Australian public. The deal is a major fillip for Betfair’s drive to internationalize interest in sport across geographical boundaries, which will bring benefits for all stakeholders in the sports industry in the UK and in Australia.”

But if Terry McCrann’s ejaculation over the honeymoon before the marriage was actually consummated, made perfect sense to him at the time, it was quite a different story or stories when another prominent News columnist saw Betfair with very different eyes. The Australian’s Patrick Smith didn’t spare the horsepower when he started taking a close interest in the business of Betfair as the Spring Racing Carnival began to warm up. Smith’s position essentially mirrored the industry’s (and my own) concern with protecting racing’s betting integrity. He ridiculed the Betfair argument that among other things its electronic money trail made crooked betting even more transparent.

In a September 30 article headlined: “It is fair bet that corruption will win big” Smith wrote:

“Betting agencies like Betfair are a danger to Australia’s racing. For the moment forget the issues of money lost to the racing industry, of transparency of betting and other associated problems. The present and real threat is to the integrity of the industry…

Racing in Australia is only successful and healthy because people trust the product. Believe in its integrity. Breeders, owners, punters invest money because they know the systems are honest and well policed. Remove that confidence and faith and the business falls over. Betting agencies that allow punters to bet on horses to lose rip away protection for the product. It is an invitation to the corrupt. And they must be banned.”

You could not hope to see a greater contrast between McCrann’s vitriolic defence of Betfair, and Smith’s belief that backing horses to lose was inherently disastrous for racing. So was this simply two individuals seeing the same issue from opposite ends of the spectrum, or did the TAB’s take great exception to having their product or business so vehemently trashed? Given this is an industry estimated to annually spend $10 million advertising in the Murdoch papers, Smith’s multiple story offensive would have gone a considerable way to soothing the nerves of some very agitated industry folk after McCrann’s original Betfair boosting.

Leading racing writer and industry expert Bill Saunders was in little doubt the racing industry, but particularly the TAB’s were hardly likely to turn the other cheek when attacked.

“The Herald-Sun gets most of the TABCorp form guide funding in Victoria, as does the Courier Mail in Brisbane and the Advertiser in Adelaide. All form comes from AAP, owned 42% Fairfax and 42% Murdoch with WA News in there for a small shareholding and a few others. AAP maintain a central form database from which all the paper’s unique form layouts are produced electronically. This is paid for by a blanket content fee paid by each publication annually which covers all AAP content ie form, news, overseas news, pictures etc.

Fairfax gets very little out of racing form. In fact I was approached by The Age a few years ago to talk about the possibility of them outsourcing their form guide to us on the internet. They had done a survey which showed it was the least read part of The Age. Of course it also carries no advertising. At the time it was not being paid for by TABCorp although last year they did a deal which provided funding for a very much enhanced form guide.”

Betfair didn’t invent race fixing but does it make it worse?

While controversial corporate bookmaker Mark Read (IASbet) has had a lot to say – but produced precious little if any evidence to racing authorities to back up his claim of rampant local race fixing and doping of horses and stewards failing to keep up with the cheats, he’s not alone in ringing alarm bells. And events out of Brisbane in an ongoing investigation into race fixing are giving racing real cause for concern that it’s not nearly as on top of things as it likes to believe, and neither is Sydney or Melbourne immune?

But is our racing as remotely bent out of shape in its policing of race fixing and handle on industry “spivs” as the UK – the home of exchange betting? While there is plenty of evidence to prove race fixing in the UK has risen dramatically since Betfair allowed people to win by backing horses to lose, is it because of greater transparency via tracking exchange money trails, or simply a backlog of catching the more blatant cheats until the early abusers wash through the system? What I do know is that UK police have more people to charge still on the way, and when all our top horse trainers who know as much about racing as anyone, are all agreed when it comes to the “tricks of the trade” Australian racing is begging for trouble if it licenses local exchange betting.

However, Betfair supporter and technology expert Bill Saunders doesn’t buy the argument that the UK experience clearly shows exchange betting is a threat to our racing integrity?

“Look it’s about as valid an argument as saying retailers should not allow customers to do self-service because they might walk out of the shop without paying for the goods. The UK experience, which is the only one the world has to go on, is that introducing exchanges into an environment with lax stewards who know nothing about technology is an issue. Fully prepared, with a strong stewarding system in place as we have in some parts of Australia such as Victoria, the issues are not insurmountable. It makes sense to prohibit licensed racing people from betting on races on exchanges, although I see it as an infringement of civil liberties to stop them betting on football for instance.

But the surveillance program available from the likes of Betfair allows betting activity to be monitored in real time. Subject to reasonable privacy considerations, client data is readily available to racing authorities, so the punters identity is difficult to conceal. The UK experience has been that once it was obvious that licensed people using exchanges could be identified to the satisfaction of the courts and that severe penalties would be imposed, the incidence of suspicious betting patterns declined from three a week being reported by Betfair to the Jockey Club to virtually zero.

The British experienced could be likened to introducing self-service supermarkets without security cameras or store detectives in place. Of course some shoppers will steal something if they think they can get away with it. Otherwise the odd crazy will still try, but they will most likely be caught.”

Finding the middle ground in keeping racing solvent from betting revenue

But I will agree to disagree, as I share much of the current Murdoch press trepidation over Betfair and the principle of betting to lose. But I do accept the Saunders argument that Betfair’s innovation and low cost technology is the wake up call racing needed to have. He feels it’s finally bringing racing to its senses in coping with increased competition and the need to become more technologically savvy. That racing has to become less TAB dependent to better insulate itself against any dramatic drop in future revenues from the TAB’s, and he also talks horse sense when he warns that part of any new wagering revenue mix needs to come to grips with future taxation.

The racing industry needs to consider Australia’s changing taxation base, particularly the effect of the GST on state government funding. Recent projections suggest that state governments will enjoy funding increases of $12 billion over the next 5 years as a result of the GST. This is because all GST revenue is distributed to the states by the Federal government.

What this means is that betting taxes on race wagering will become less and less relevant to state governments as time goes on. Even now, we have a precedent where bookmakers turnover tax is no longer kept by government, but paid to the race clubs as a pseudo ‘product fee’. Ironically, TAB’s and bookmakers pay GST on their gross wagering margin, so the states are already getting an increased betting tax via their slice of that GST.

There is therefore the opportunity for the racing industry to get together with state governments and persuade them that state taxes on wagering should be eliminated, with the resultant cost savings passed back to the punter in the form of higher dividends. All wagering operators will therefore be in the same boat, with the taxes they pay being GST on their gross wagering margin, plus corporate tax on their profit after expenses, plus of course the PAYE tax paid by their employees.

Until the racing industry does get behind a far sighted way to provide the benefits of a lower cost wagering environment to Australia’s punters and greater competition such as being proposed by the corporate bookmakers national betting pool, plus better organising its own inefficient funding mechanisms; it has no right to demand that the Federal government take anti-competitive measures against Betfair or anyone else.

How Australian racing faces diffucult choices to stay on top

Part three:In the final article in this special examination of the problems confronting the Australian racing industry, Crikey gazes into the crystal ball with a leading racing authority and technology expert.

After reviewing a lot of the key issues that confront the multi-billion dollar racing industry and the tough decisions racing needs to make sooner rather than later, in this concluding article we take the opportunity to gaze into one man’s crystal ball.

We serve up a whole bunch of questions on racing’s key issues including how it needs to get it right in its current wagering war with leading betting exchange company Betfair, with industry authority and journalist # Bill Saunders. While Australia and 50 leading racing countries other than the UK want betting exchanges banned in their markets, Saunders says it is pointless trying to halt the inexorable march of technology, if our racing isn’t ready to become more responsive and reform its wagering mix radically.

Rather than opposing Betfair he welcomes the way it has opened up racing to greater competition. That it has been the prime mover in forcing racing to not only start thinking about reform, but lessening a dangerous reliance on uncertain future TAB revenue streams. Saunders is a firm believer in racing embracing the proliferation of low cost technically advanced wagering competition, but isn’t holding his breath waiting for the likes of TABCorp to lead the charge!

Q: There is some movement at the station that there are moves afoot in Victorian racing to look at how there could be some kind of national bookmaking pool. Is that a step in the right direction in offering punters greater competition, and wouldn’t the TAB’s fight hard to resist it?

A: I think it’s fair to say that if it wasn’t for the advent of Betfair and the growth of our corporate bookies, racing wouldn’t have the incentive to see how the existing structure can now be used to reform Australian wagering.

But even if there was some kind of national bookies online system, it would still only be one source of pricing information, and it would still be up to competing operators to find their own way of getting their odds out there. An industry backed system would certainly have an advantage as it would have a large number of licensed bookmakers competing with each other. However just about anyone who meets the criteria and is prepared to pay the going rate (probably 1% of turnover) should be able to become a bookmaker and add their odds to the mix. This includes the TAB’s fixed odds operations and the corporate bookmakers in the NT.

The other effect is that if the markets are sufficiently liquid, the combined bookies of Australia will undoubtedly present a viable alternative to the TAB’s tote odds and perhaps be as competitive as

Betfair. Under such circumstances, the TAB’s will undoubtedly squeal and I would not be surprised to see them pressuring to negotiate downwards their own product fee payments to racing.

Either way, racing will need to get used to a much lower percentage of each wagering dollar. Played properly however, increases in gross wagering turnover will account for a greater percentage of Australia’s gambling volume and its increased popularity will overcome the reduced overall percentage paid to racing.

Q: But in seeking reform, isn’t the existing nexus whereby racing is overwhelmingly funded through TAB commissions why racing in Australia whatever the current problems, has grown into this world class industry?

A: Australian racing is inordinately dependent on TAB funding and what funding there is is now propped up by Victorian racing. All TAB product fee distribution agreements come up for renewal in the next few years and the industry hasn’t got any alternative strategy if the TAB’s get greedy and halve the product fee.

They cannot continue to wish away new technology. Either it will become entrenched and people will gamble on lower cost non-racing alternatives, or it will become entrenched and people will bet on racing with lower cost alternatives like AusTOTE or the corporate Northern Territory bookies, with or without any future national pool. Low cost technology will not go away and it cannot simply be legislated out of business.

Q: Do you think there will come a time as Melbourne and Sydney race clubs have done to form their own elite TV racing channel, where racing might decide it might be better being its own TAB?

A: As it currently stands racing has got an altogether too close a relationship to the TAB’s. With the effect they are inextricably welded to the TAB as a wagering partner. Taking into account the poor record of TAB technology innovation, and coupled with excessively high overheads, I think a case could be made for saying the industry has backed the wrong horse. My belief is that racing should recognise the emergence of more competitive wagering operators, which clearly means the corporate bookmakers, and seek to forge alliances with them in order to take advantage of their undoubtedly high growth potential.

It’s all about backing winners and I’m not convinced racing is backing a winner in the shape of the TAB’s. Not just because of high costs and poor technology, but if you didn’t know better you would think they’re trying to take the horse out of horse racing! What I mean by that is that the TAB’s do little to promote the horse aspect of racing which is the only thing that differentiates it from betting on anything else.

I want to see racing associating with wagering operators who will actively promote and market racing as a sport and not purely a bet, although that’s obviously the end result. We need to look at fresh ways of enticing people to become active in racing. Not just as punters at the TAB, but become active racing fans who regularly go to the track. Who can become social members and maybe ultimately want to own a horse or at least be part of a syndicate, and who can easily appreciate racing as a fun sport. We need to identify and encourage such people, so that they will in turn want to spread their personal enthusiasm to their own family and friends. We need to see a better dividend in terms of fan creation.

Q: How badly do betting regulations need an overhaul where the bookies are clearly being restricted in how they operate and are allowed to advertise or market themselves where the TAB’s are a protected species?

A: We have legislation and regulations that actually prevent a racing administrator from thinking, let alone embarking on all kinds of initiatives and possibilities to more imaginatively market and promote racing. When it comes to restrictions on non-TAB wagering there are all sorts of legal barriers that make it difficult for the industry to develop sensible relationships with non-TAB parties. This current preferred supplier relationship is not only, not best of breed; but you’re prevented from dealing with those who could be.

Q: But wouldn’t giving the green light to betting exchanges or other low cost operators result in significantly canabalising racing’s primary existing revenue streams via the TAB’s?

A: Racing’s existing funding is dictated by the large percentage of the TAB commission granted to them under TAB licensing arrangements. Now that they are privatized, government will have little to do with commercial arrangements between TAB’s and racing and the TAB’s will undoubtedly try to negotiate down their racing product fee. After all when they bet on cricket, football, golf or tennis, TAB’s pay no product fee at all, so we know they do not regard it as compulsory.

Secondly the lower cost of exchanges is made up substantially of operational efficiencies. They have no network of shop front agencies to maintain, and their computer systems are very much more efficient and their clients do most of the keypunching. Roughly 8 cents in the dollar of the 16 cents TAB commission is gobbled up in running costs. For exchanges its less than one cent. Why should punters pay so much more for the operational inefficiency of the TAB’s?

In the UK, a large part of the reason why exchanges have been accepted by the government is that the Office of Fair Trading (like the ACCC here) recognized the competitive benefit to the average punter. In Australia, all the exchange argument has been coming from a very small coterie of highly paid TAB and racing industry insiders. Our millions of punters are being dictated to without any attempt to find out what they really think. Anecdotal evidence from Cyberhorse’s own clients suggests that punters generally are in favour of freedom of choice, providing that new wagering operators make a contribution to racing.

The funny thing is that Australian racing’s opposition to exchange betting is also designed to create the impression that the general public wants something done about exchanges when most of them couldn’t care less. But fortunately from what I understand, the “pollies” are rather better informed on the issues here than the industry gives them credit for. What a pollie might say in the comfort of the VRC committee room is a bit different to what his advisers will tell him later.

Q: Racing believes it has its own Intellectual Property (IP) in terms of its racing fixtures and fields and that unauthorised betting such as exchanges breaches such IP?

A: When the racing industry talks about intellectual property, I find it ironic that it gives away information to AAP, who in turn more or less give it to their shareholders, some of whom turn around and make millions out of selling it to the TAB’s. The industry (sort of) gets paid for the IP by virtue of its slice of the punting dollar, but there is a less than direct correlation.

It makes the question of what that data is worth very moot.

Another issue is that the racing industry maintains its own form database, so we have the ridiculous situation where there are two sets of virtually identical data, one of which is being sold for millions of dollars a year and the other virtually given away.

The recent decision in the European Court of Justice suggests that bookmaker William Hill is operating legally when it used limited amounts of racing data on its online web site without paying a license fee. That throws a real spanner in the works of Australia’s idea that this data is worth a lot of money. The situation is complicated here by the fact that most Australian papers get their racing data from AAP, which is not owned by the racing industry. All a betting operator has to do in Australia is get their data from the Fairfax or Murdoch press and they are in the clear.

Q: But over time Australia has been a very innovative country when it comes to race wagering starting with the system of tote betting.

A: Has it ever occurred to you what a waste of resources it is for the TAB’s to have computer systems that get used to full capacity on one day of the year? If it was any other industry, it couldn’t exist.

Our tote betting system was a world leader when it was invented in the 1920’s. It’s fair to say that it’s now a dinosaur. TABCorp’s system is so bad that the system for the combined TABCorp/TAB Limited will be an upgrade of the TAB system. It in turn crashed on Cup Day, which is not saying much. Now given that the first Betfair system was largely programmed by a single person in a spare room, I have no regard for the TAB’s ability to either see what new technology is coming or innovate it.

Q: While both PBL and News have mutual interests via Pay TV, future technology possibilities could see them either sharing or competing against one another?

A: Yes there is jockeying for position going on here. Don’t forget that Packer and Murdoch owned 50% each of Sky Channel before it was sold to sweeten up the TAB NSW float. Packer has always been keen on gambling, but Murdoch has only recently moved to stake a claim in this space. I’m sure at least some of Murdoch’s thinking is to put a leash on Packer in the online gambling sector.

Also as I have said previously, I do wonder if the recent spate of strident anti-Betfair articles emanating from the Murdoch press has anything to do with the fact that the Herald-Sun and its sister papers in other states receive millions of dollars a year in classified advertising income from the TAB’s for publishing form guides.

Q: Racing sees broadband as an exciting technology over which they can exert product control in line with the launch of the TVN racing channel?

A: Yes, but only in the context of merging TV with data transmission. The big sleeper is mobile data where people can get high quality video and data on a mobile phone like device.

Q: Off the back of Victoria’s hugely successful Spring Racing Carnival – shouldn’t racing be feeling pretty pleased with the way it is now marketing itself as a sport that anyone can enjoy?

A: Your vision of Australian racing is coloured by what we have here in Victoria. To its credit, Victoria started to clean up its act in the 1990’s. I still have a document called “Leadership 2000” which was published in the early ’90s. Most of the steps outlined in that document have been implemented. However, one of the by-products has been that Victoria has “sucked in” many of the best owners, trainers and horses from the rest of the country. You only have to read the Strategic Review put out by Peter V’landys about NSW racing to see how far it has slipped in the past decade.

That report also highlights the degree to which the backbone of the industry – owners and trainers – has been decimated over the past decade. I attend most of the yearling sales and the number of new buyers of $100,000 plus yearlings each year is appallingly small – maybe 10 or 20.

Q: But surely when you see loads of young people now forming syndicates and even winning big races, doesn’t that equate to healthy numbers of new owners entering racing – they’re just not active bidders at the sales ring?

A: There is no doubt that many new owners are being introduced to racing by syndicator’s. But again the numbers are not gigantic. Only a few hundred horses a year are syndicated. The process is incredibly complicated with ASIC licensing required which roughly doubles the cost compared to the owners compared to previously. Secondly the quality of the new owners racing experience is directly related to their treatment by the syndicator and the success of their horse.

Unfortunately rip-offs and incompetence are still common enough and new owners learn most of what they find out in the school of hard knocks. There is no industry sponsored “new owner induction program” which quality checks the experience of the first time owner. It goes without saying that the new owner whose experience is less than satisfactory not only shies away from racing in future, but also tells all his mates not to bother.

Q: With our access now to top European, U.S. and even Japanese bloodlines via shuttle stallions with NSW leading the way, isn’t that helping transform the industry to make us more globally competitive and improve the quality of our horseflesh both on the track and later at stud?

A: Don’t get too excited about NSW breeding. They have many of the best stallions, but many of the biggest clients live in Victoria. It’s actually the international breeding industry. It just so happens that their Australian “office” is in the Hunter Valley. Virtually all Victorian studs are owned locally, so at least some of the service fees stay here. Coolmore alone probably send $100 million (tax free) to Switzerland every year. Not a lot of those “thriving” yearling sale proceeds actually stay in the country.

Q: But we also benefit from locally bred and owned champions from these imported bloodlines who then become shuttle stallions in their own right?

A: Who pays for the yearlings? Mostly Australian owner’s that’s who. Why do they pay the prices they do? Because of the high prize money on offer. Where does the prize money come from? TAB turnover. So it’s a fairly circular argument whereby a fair chunk of the punter’s dollar finishes up in Swiss bank accounts rather than the pockets of Australian breeders.

If breeding horses was such a gravy train, why does the number of Australian breeders continue to decline?

Q: But expensive yearlings bred from top shuttle stallions such as the now deceased Danehill, or the imported Sir Tristram in New Zealand – who breeds Zabeel, who then produces the likes of Octagonal, who then “throws” Lonhro and so it goes. They not only revolutionise the quality of our bloodstock, but provide some of our great champions who excite the public interest in racing as a sport?

A: People do not bet on horses because they cost a million dollars. In my experience the horses that have attracted the greatest interest and enjoyment have been cheap horses like Sunline and Northerly. Frankly all that’s needed to have a “champion” horse is one that’s a bit faster than all the rest. Even when we didn’t have million dollar horses people would still bet on them. And every week too – not just once a year!

* Bill Saunders is a man for all racing seasons. A racing writer and industry expert, as well as a innovative web developer who also boasts a 30 year career in software development. You can learn more about him by visiting this website here www.cyberhorse.net.au


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Peter Fray
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