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. 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.

Get more Crikey, for less

It’s more than a newsletter. It’s where readers expect more – fearless journalism from a truly independent perspective. We don’t pander to anyone’s party biases. We question everything, explore the uncomfortable and dig deeper.

Join us this week for 50% off a year of Crikey.

Peter Fray
Peter Fray
Editor-in-chief of Crikey
50% off