Judgment

I received a text yesterday morning from a name well-known in the racing industry which read: "Have you seen the news about the Findlay fine? It makes the BHA look like twats."

Harsh words, perhaps, but to the point.

I can picture much wailing and gnashing of teeth on High Holborn. But as I mentioned yesterday, they need only create a decent rule and they wouldn't get themselves into this sort of pickle. I see Greg Wood has written as much in typically robust and sensible terms in the Guardian today.

I lunched soon after (someone asked me in the afternoon if all I do is have lunch and dinner; not far off, I admit) with another racing face, whose view it is that there'll be a change of leadership by November, on the grounds that increasing numbers of people are scratching their heads in dismay at the insistence on a strategy and numbers never justified when they were announced in 2008 (before the world's economy fell apart), but adhered to since, nonetheless; and supported with dubious theories and crazy plans. There are previously unpublished posts relating to each which I have published today here and here.

Meanwhile, Down Under, it appears possible that Peter V'Landys time as Chief Executive of NSW is finally drawing to a close. If you compare the interviews he is giving newspapers and the adverts that his organisation is putting out about there being a logic to their strategy (in the Sydney Morning Herald today on page 36) with the no-confidence vote they are receiving from the trainers in their state - brilliantly, as ever, written up by Bill Saunders on Cyberhorse - you will draw your own conclusions about that particular racing leader's rationality.

Me? Well, no time for that. I'm off for another client pitch. :)

Come on down - the price is right!

There is a certain gameshow feel to the Levy Board's statement that it is opening a consultation on whether Betfair has any customers who are liable for levy.

I can almost picture them hiring Cilla Black to make the announcement, given David Zeffman's article in May's Racing Post, which so obviously heralded the start of a concerted campaign that I wrote at the time, "I guess that only if the HBLB were suddenly to open up a consultation exercise on the issue on the back of the article, might the view that [the newspaper] was wittingly or unwittingly kicking off a campaign be reinforced."

Surprise, Surprise!

Perhaps the Nic Coward view is that if this time, racing plays its cards right, it might get what it has failed to get in every past exploration of this subject. Presumably Stuart Hall will be next up, declaring on Coward's behalf that "It's A Knock-Out!" and revealing the killer blow.

Except, a cursory glance at the Levy Board's consultation announcement reveals that there is nothing new in the paper. As Martin Cruddace, Betfair's Legal Director, declared in a statement published by the company yesterday, "After a thorough, independent review of this very issue throughout 2004 and 2005, the Treasury came to the conclusion that the treatment of betting exchanges and their customers was fair. Since then, there has not been one scrap of evidence produced by anyone to suggest the situation has changed".

Indeed, the opening section of the Levy Board's consultation document merely reiterates the extent to which we have covered all this ground before; and paragraph 112 is extraordinary: "First, there is a difficulty with a necessary premise: that there are customers of a betting exchange who are carrying on a business. That is ultimately a question of fact which would need to be demonstrated and in truth cannot be. Leaving aside that fatal initial objection, the following points arise."

So to my mind, this seems to me an admission that the Levy Board already knows that it is about to draw another Blankety Blank. Although I received an e-mail yesterday from one of my favourite racing journalists, who told me that, "David Zeffman I know not. What I do know is that bookmakers operate their business (rather than stand, uselessly, at the course) on Betfair.... Love you to death, love Betfair to death - but none of you are bookmakers and the nuances (dark arts) of racecourse betting are perhaps not your strong suit", in reality, perception and fact here are a long way apart.

While people might be making money as punters, that doesn't make any of them bookies. And as I tried to explain to Racing many times when it was my job to give a monkey's about it, laws, and law enforcement, need to be based on something other than rhetoric. Unfortunately for Racing, rhetoric is all that Nic Coward has on his side in this debate.

To give him credit, at times that rhetoric is Shakespearean in its stature. But at others, like in his statement yesterday, it is laughably poor. So desperate is he to connect Betfair to racing's ills, that he name-checked it in isolation in the most absurd manner, apparently missing completely the fact that the company has decided to pay a voluntary contribution to racing directly into projects of its choosing, rather than into coffers he controls. That decision, taken while I still worked there, was the direct result of Nic's approach to running the sport: he gave Betfair no credit for its voluntary contribution (despite the fact that it was unique at the time it was paid); he insisted it was not levy at all, but a payment Betfair should do what it wanted with; and he spent much of it on legal fees aimed at damaging the company's business.

It continues to pain me, even in my post-Betfair world, that he should keep leading Racing on a hopeless cause, just as it does that people in racing should blindly follow him. There are so many other things they need to get on and address, and their task in addressing them gets harder with every day that they waste tilting at windmills.

Evening Standard

I'm not sure which bit of yesterday's 'Big Interview' with Nic Coward made me laugh most.

First it was the way it was dubbed 'exclusive', as if to give the impression that other papers had been fighting to get it.

Second, I suspect, was the line that the "even more pressing problem, Coward believes, is the failure to address the issue of foreign races shown in betting shops or on their offshore operations. Coward estimates such online offshore operations set up by Betfair to be in the region of £10m-£15m."

Come again? Is that a journalistic misunderstanding, or is Betfair - onshore - responsible for the companies that are offshore? In a world where Betfair is to blame for everything, you can never be quite sure. I'm told Nic once started a meeting he was chairing with the comment, "you have to remember, these people are pure evil." So anything's possible.

And third, this delightful non-sequitur:

"Lord Triesman was secretly taped making claims — subsequently investigated and denied by FIFA — that Spanish officials were attempting to bribe officials and fix the results of matches at this summer's World Cup. “Where there is betting on any sport including racing there is an ever present, very severe threat of corruption,” Coward tells me."

Does Nic genuinely think that Triesman was implying that the bribes were for betting purposes, or is that, too, journalistic misuderstanding of the case that he was putting?

Strike!

Words reaches my ears that Paul Roy and Nic Coward have been holding secret meetings with trainers with a view to calling a one-week strike, should racing not secure what it is after in the current levy debate.

Surely not? It seems such an odd strategy that I struggle to believe it. But my source was at one of the meetings in question, and I can't believe he dreamt it!

The Big Debate

It lasted two hours; it went round in circles as these things often do; and, for a conference of international horseracing federations it spent too long on the parochial issue of the court case in New South Wales about whether Racing NSW has the right to charge on the basis of turnover.

But today's 'Big Debate' at the Asian Racing Conference in Sydney did at least do what it said in the programme. The discussion about wagering brought to the ARC what has previously been a taboo subject. Whether we are any further advanced is moot; but the audience's view of life was made clear by the single intra-debate round of applause that it gave, which came in response to the call from former BHB Chairman Peter Savill for racing to return to a funding model based on turnover.

On that basis, it was a bit depressing. In my view, a return to a turnover-based model would, at a stroke, remove all competition from the industry, and with it all innovation. In a competitive world, that would be a death knell for the racing industry, and I find it a shame that so many people in charge of racing in the audience around me continued to scoff when these points were all made by Edward Wray, co-founder and Chairman, as he put the Betfair view of the world.

But there were also reasons to be cheerful.

Followers of my career will know that rare are the occasions when I have agreed with Savill, but today I thought he made more sense than not.

I would dispute his turnover call, and his lauding of French legislation - praise for which was echoed by others on the panel (more of which another time, perhaps); and I think that his continued belief that the Betfair model is damaging for racing's integrity is mis-judged.

But he made the sensible point that of the sin taxes paid around the world - alcohol, cigarettes, petrol, and gambling - gambling stands alone as having no underlying commodity; and as such, it is easily avoided in an internet world. And if his solution - to legislate for IP rights to allow racing to set its product fee - has been tried (by him) without success, I still thought he put his case well. He certainly seemed more relaxed than I've heard him before. Perhaps retirement has mellowed him!

Equally, credit to Nic Coward, for the second day in a row, for what I thought was a measured and well-put position.

Inevitably, his oft-repeated and in my view nonsense line that there are bookmakers evading levy on Betfair made an appearance, but even more so than was true of Savill, I felt that more of what he said today suggested common ground than didn't.

He believes that both government and opposition are committed to replacing the levy for a commercial mechanism, which I am less confident about than he is; and he is convinced that if they do so, the amount of money that comes into racing will go up, which I fear he will end up being disappointed by (because I believe the product is worth less to the betting industry than he thinks it is). But that's a commercial negotiation, and I wouldn't quibble with him making his case. He did it well.

Ed, who spoke alongside bookmakers Alan Eskander and Con Kafataris (both of whom impressed), made all the points you would expect from our side. He pointed out that racing's share of the wagering market has plummeted in ten years, from more than 70 to less than 40% (in retail outlets, not to mention online); and he lamented the lack of punter representation in a debate which he said was too focused on the cost of racing for owners.

He underlined that a conference that has heard so much about how to attract "customers" should understand that "customers" means "punters", and attracting them means giving them the product they want to buy, and not the product you want to sell them; while in a similar vein, Eskander pointed out that monopoly totes return 80-84% to punters; bookies around 94%; sports bookies around 96%; and online casinos and poker around 99%; so racing needs to be wary of its competition.

Indeed, nothing from any of Ed, Alan or Con will have surprised any regular readers of this blog.

It could be argued, I suppose, that nothing in connection with this debate should surprise readers of this blog at all; but even a battle-worn veteran like me (told once that I could roll out the Queen if I wanted to - I just wasn't wanted in Australia) was surprised by the approach taken by the Chief Executive of Racing New South Wales, Peter V'Landys, alongside whom the rest of the panel could look relaxed without difficulty.

V'Landys' opening statement was that it would be good to take the emotion out of this debate, and with that, I agreed.

His second statement then did the opposite, although that is not the only reason that from then on, I didn't agree with anything else. I didn't agree with everything that was said by Coward or Savill, either, but where it would be impossible not to credit them both with being on top of their briefs and expressing their positions in a measured way, V'Landys seemed to me, in contrast, to struggle with some of the basic building-blocks of his argument.

Twice - I honestly thought the first time that I must have misunderstood him - he said that the argument that gambling is an elastic product had been proved to be wrong by the following piece of evidence: turnover had gone up by 36% this year, but revenue had only gone up by 8%. Ergo, the product wasn't elastic.

Now, I'm no economist. But surely anyone running a business needs to know that by "elasticity", people mean the relationship between turnover and margin, and their combined effect on revenue. So, turnover of 100 on margin of 10% makes revenue of 10. If margin is cut to 5% and turnover increases to 200, revenue remains 10; and the product being sold is deemed to have perfect elasticity (or, to be strictly accurate, elasticity of -1).

So, if turnover has gone up by 36%, then the big question is how much of that turnover has been the result of a fall in margin, and how much of it is new money coming in from other places. Given the fall in racing's market share, and the economic situation worldwide, it would seem likely that the revenue growth is driven by the margin cut. But if we speculate that it's unlikely that margin has gone down by more than 36%, wouldn't the figures presented make exactly the case that it was being suggested had been knocked down?

V'Landys' didn't mention margin other than saying 'but our margin has gone down'. This means that unfortunately we're none the wiser; but also, which seems to me to be key, it suggests that he didn't understand the point he was trying to make. Given that he has predicated his entire strategy as CEO on it, that must be worrying for supporters of Racing NSW's stance.

That aside, it was another much-repeated phase during the debate that got me thinking most. That phrase was, "racing must be allowed to set the price of its product".

I think this is an interesting one. On the face of it, I agree. But it seems to me that racing is not trying to set the price of its product, but the price of ours.

Racing's product is racing, whereas our product is betting. But what racing wants to do, to Peter Savill's call, is to set the price of racing on the back of betting turnover. Savill even stated that 'racing must be paid every time its product is used and not just when bookmakers make money'.

So, when is the racing product used? I would argue that it is used when someone makes a judgment on the fair value of a horse, having assessed the runners and riders, the going, the form, and the weather. That judgment is made, and then bets are placed. And betting turnover is predicated on - well, the cost of bets. It's not predicated on further use of the racing product at all.

An analogy which might resonate with Peter V'Landys would be this: V'Landys always argues that bookmakers paying a turnover fee is like people buying petrol, and the garage should be allowed to set its price.

OK, so the garage sets its price. You rock up in a big gas-guzzling car, and buy 50 litres of petrol. At the same moment, I arrive and fill up a series of tanks, also taking 50 litres. We pay the same price: 50 litres bought at the cost set by the garage.

But when I get home, it becomes apparent that I'm using my 50 litres differently from how you are using yours. Why not? I've paid for my 50 litres, and I can now do anything I want with it.

If I use half of it in my fuel-efficient Mini, a bit more of it in my lawn-mower, and the remainder in my scooter, such that I get 1000 miles out of my 50 litres of fuel to your 200, the garage doesn't suddenly get a mileage bonus. The point at which it stopped being the garage's product was the moment of sale.

So I'm interested by how this debate will end up panning out. Racing has a right to charge for its product - on that, I think we are all agreed. Where we differ is the basis on which it can charge, in order not to discriminate against different users.

And in my view, understanding exactly what the product is that it is selling is key to the debate. Because one thing is for certain: it isn't selling bets. We are.

Asian Racing Conference

The ARC kicked off today in Sydney, with the stand-out speaker being an Australian called Peter Sheahan.

He talked about how to engage Generation Y, and challenged the racing folk present to attract youth in order to make racing 'cool', citing brands such as Burberry and Mambo as organisations which had successfully recruited both young and old by targeting the former and getting the latter as a consequence.

Nic Coward briefly presented Racing for Change, and he came a creditable second place in the line of speakers - no disgrace given that Sheahan was outstandingly good, but also not difficult given what I thought were disappointing performances from the other speakers.

He (NC) was relaxed and authoritative, and spoke, in my view, better than I have heard him for a long time. His voice was pitched notably lower than recent occasions when I've been present, which probably has a lot to do with the fact that he wasn't ranting about us. He probably heads the (reasonably long) list of people who are effective and talented communicators on a range of subjects, but suddenly and inexplicably lose the plot when getting onto the subject of Betfair.

He said he fully supported Sheahan's views, which brought me back to the thoughts I had in January about how I think British racing talks about wanting to embrace the Facebook generation, without necessarily understanding that that means doing so on their (the FB generation's) terms, rather than their own (racing's). We'll see.

Tomorrow's schedule includes the 'Big Debate' on wagering, when our chairman and co-founder Edward Wray joins a panel which will include Peter Savill, the former Chairman of the BHB, and Peter V'Landys, the CEO of Racing NSW (and indeed Nic Coward). Ralph Topping was due to be on the panel, but hasn't made it. One can only assume that he's stuck somewhere.

No cheap jokes, please, given that I managed to avoid one myself.

FA CEO

I was disappointed to hear the news that Ian Watmore has resigned as CEO of the FA.

I had a coffee with him about 8 weeks or so ago, to talk about how the betting industry and the big sports could understand each other better. I found him pragmatic, receptive, and likeable. Admittedly, it helped that, as a mathematician and technologist, he understood Betfair immediately and saw through the arguments against us.

That aside, though, in my view it says little for the structures of our sports that people are hired to do a defined job and feel that they can't because of the system.

It's not an issue limited to football. Our sport is littered with organisations which seem to overlap just enough to make it impossible to get anything done. Sports politics is worse than the real thing.

So, who to succeed him?

Well I had thought until yesterday that Nic Coward must be dusting down his cv with a view to heading off to ITV to join up with Adam Crozier, but I would imagine that this latest news might make him think again.

Whether anyone would relish the role now, though, after Watmore has made it so abundantly clear that you can't pursue the mandate you're given, is anyone's guess.

BHA AGM

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?