Tuesday, 23 February 2010


I was at the BHA's AGM today - an event which contained a surprise or two (such as the presence of Jeremy Kyle) and, as ever, differing opinions at lunch afterwards. One person I would consider entirely independent commented to me that he felt BHA CEO Nic Coward had spoken extremely well; another of the same description that he had seemed nervous and not on top of his brief. The racing industry isn't well-known for having consistent views, and today was no exception.

From the substance of the speeches, though, only one paragraph from either of Paul Roy's or Nic Coward's was directly relevant from my point of view.

Paul Roy's reference to Betfair was as follows:

"Betting and Racing also need to work together to understand how the development of exchanges will affect us over the years to come. The impact of exchanges on liquidity, bookmaking margins and the maintenance of integrity services with its escalating costs is significant. This is an enormous challenge facing both traditional bookmakers and Racing and we must respond to it."

To say this is curious would somewhat understate it.

I'm not sure what is meant by our impact on liquidity. In Australia, TabCorp business has increased, and money into the Tote in Tasmania is up 20%, since we were licensed there. The idea that we have adversely impacted liquidity in the betting market is a new one on me.

The escalating costs of integrity services in contrast, is an argument which I think most people have left behind long ago. If the BHA is really setting itself up to argue that Betfair's levy payment should be proportionately higher than everyone else's because of integrity issues, I think it is on to a loser. By all means, we can withdraw the free access to our Bet Monitor on which the BHA's integrity unit basis much of its intelligence, or we could scale down the investment we have made internally in our own integrity team (which acts as a dedicated resource for organisations like the BHA with which we share information) if providing the support of either on a real time basis is seen to create a burden for the sport. But surely no sensible man is going to return to the whole 'you can bet on a horse to lose' red-herring and retain any credibility in the modern world.

But of the three things which Paul Roy points to, the 'impact on bookmakers margins' has got to be the strangest of the lot. There's far too much that could be said about margins to cover it here, so I will blog about it some other time; but even a short analysis of this statement is enough to demonstrate how odd it is.

First of all, as discussed many times before, margin is not the relevant metric, and as a man who has made all his money in the markets, it is inconceivable that Paul Roy doesn't understand that (although if he doesn't, I blogged about it in Noddy terms the other day). The industry gets paid on gross profit. Plenty of academic studies of horseracing will explain how when margin is cut, turnover goes up (and vice-versa); and gross profit is the product of the two.

Second, bookmaker margins have not consistently been going down, as racing seems to suggest. Yes, there was a period of prolonged bleating (which happened to mirror exactly the bleating about pitch auctions which pre-dated Betfair's existence), but if you look at what the bookmakers tell the City rather than what they tell the racing industry, you will know that there have been periods when they have stressed that margin is going up.

But both those points aside, it is worth recalling what the Treasury had to say about this issue when they did their review of betting exchanges. Although Racing will tell you today that 'that was a long time ago' (it finished in December 2005), the quote in question is timeless: "It is not the fault of the tax system that off course prices are set in such an arcane way, nor the responsibility of the tax system to correct for this."

Nic Coward's 'big paragraph' from my point of view was this one:

"Once the right number is established, then will be the time to get into the issue of what parts of the betting world will be contributing what proportion – the very different businesses of small independent, majors, exchanges, online and other remote operators. They will have differences of opinion between them, undoubtedly. Heated differences. But whatever those difficult issues are, and however they are resolved, does not, and will not, and cannot, alter the amount that is due to racing."

There are lots of things you could say about it, despite the fact that it's only one paragraph; but I shall limit myself to three comments.

The first is, perhaps, peripheral. But I can't read it without finding that what springs to mind is the observation made to me by one of racing's CEO's at Cheltenham last year: I remember him telling me that "Nic's rhetoric is Churchillian. We sit in meetings with him and you can see people hanging on his every word. But the trouble is, when you see it written down afterwards, you realise you can't actually work out what it means."

The second is more fundamental: it's curious to me that they don't yet know what the number should be. If they've spent the last three years saying that the levy is all wrong and racing needs to get a proper return, how is it possible that they are only just working out what number they think a proper return is?

And the third, most fundamental of all, is this: it's pretty clear, as was commented to me afterwards by someone who is part of the Horseman's Group, that the paragraph is a "shot across Betfair's bows", in that it flags the idea that not all operators should pay on the same basis as other operators. But surely, if the object of the exercise is to make sure that people pay commensurate to the amount that they benefit from racing, then what screams out as the solution is that everyone should be paying a percentage of their profits. Someone who only makes £100 pays £10; and someone who makes £100million pays £10million. What could be more consistent and proportionate than that?

Of course, if 10% of the overall profit figure doesn't get racing to the "right number" that we're about to have established, then what needs to change is the rate of the levy. As we've been saying since about 2004: if 10% across the industry isn't the right number, then change it; but you have to do that across the board, consistent across operators. And you also have to accept, as you make the product more and more expensive for the operators, that you risk accelerating the loss of market share to other sports.

Ultimately, that is a risk that Racing is going to have to take, if it wants to go down the route of hitting a pre-determined number; because the quest for that number can only be achieved by deciding what it is, and then working out what percentage of operators' profits is required to hit it.

Of course, the BHA will argue that the percentage will be determined by how many people are in the net, and therefore by what makes you a bookmaker; and we'll be back to the same old unsubstantiated arguments about bookmakers avoiding levy or punters who make money on Betfair being relevant (but not those who make money anywhere else). Flagging this appears to have been the purpose of this paragraph in the speech.

So, at an AGM to take us into a new decade, where Racing for Change was the principle topic, the Chairman wanted to underline the concerns that exchanges raise for integrity and margins; and the Chief Executive wanted to signal his plans to levy Betfair differently.

Who says Racing's not stuck in a groove?

No comments:

Post a Comment