READ PAUL DIXON'S SPEECH TO THE AGM IN FULL
Ladies and Gentlemen
If the darkest hour is before the dawn we have much to look forward to. If British racing is now experiencing the worst of times then this is our opportunity to emerge from the gloom to experience the best of times.
Yes, racing is now facing a deep financial crisis, of that there is no doubt, but I believe it is the magnitude of these problems that will spur us into making the radical changes that will eventually create a stronger, healthier industry. We have reached a point where doing nothing is not an option.
Of course, getting to the other side of this chasm is going to be very difficult. It is going to take a readiness to accept change and a huge strength of purpose. It is going to require an acceptance that the old structures that have underpinned the industry for many years must change fundamentally. It is going to mean owners and Horsemen becoming more resolute and radical in establishing their objectives and finding the route to achieving them.
So what are we faced with today?
We have the main funding structure of the industry, the Levy Board, with such a depleted income that minimum prize-money levels in the second half of this year are likely to decline by around 20%. Looking at next year, it seems we will struggle to get to the prize-money levels that existed a decade ago. The projected annual total figure of between £80m - £85m is 25% lower than 2009’s total prize-money.
We have a betting industry which refuses to acknowledge the continuing value of horseracing to them as their core betting product and uses every wheeze known to man to diminish what they pay to racing through the Levy.
And we have the racecourses closely guarding their impressive and increasing picture rights income as if nobody else has a right to know what these payments are or what they should be spent on.
The sum of this woeful tale is that the people who have suffered – and going to suffer more – from the pincer movement between bookmakers and racecourses are the Horsemen. Yes, the Horsemen – owners, trainers, breeders, jockeys and stable staff – we are the ones who are really paying the price for racing’s funding crisis.
It is an easy excuse for bookmakers to claim they are paying racing a fair price because of the additional money they are paying for racecourse picture rights.
Nobody denies that these payments are increasingly significant, but the bookmakers mustn’t be allowed to shrug off their own shortcomings with an attitude of ‘we give you the money, it’s racing’s problem to sort out’.
We need the support of government in taking the bookmakers to task over the strategy they have adopted in minimizing not only their Levy payments but also their tax liability. To get the government on side, we must first have the support of the independent members of the Levy Board in recognising what is wrong within the current Levy process. We must also continue to keep banging the drum about employment and the rural economy because, if racing suffers to the extent that the latest figures suggest it will, the fall-out will be something that any government would surely regret.
The betting industry’s disgraceful manipulation of the threshold system – which was only intended to protect the small independent bookmakers – and their reneging on a promise to the government not to go offshore are but two examples of what they are getting away with. The vast majority of betting shops must be made to return to making Levy payments on the full statutory 10% of gross profits and the government must find a way to ensure that bets on British horseracing made via overseas-based betting operators have to pay tax and Levy. Irish racing seems close to establishing a system for dealing with this. We should be too.
There is more. We must increase our resolve that Levy is reinstated on overseas racing shown in British betting shops and insist that a government investigation is made into those betting exchange users who operate their businesses at such a level that they are effectively bookmakers who are avoiding paying the proper levels of tax and Levy.
These are matters on which the whole of the racing industry can be united. The outcome of a government determination of the Levy – for which we seem destined this year - pivots on racing’s needs and the bookmakers’ capacity to pay. Needless to say, there is an abundance of statistics to show how both of these measures have increased during recent years.
It gives me no pleasure to tell you that average prize-money for a 0-60 to 0-70 handicap in the year 2000 was £3,500 and that the average figure for the equivalent races in 2010 has risen by just over £100. During that time, inflation has risen 26% and the earnings before tax and interest of those bookmakers listed on the stock exchange have more than doubled. Neither does it give me any pleasure to tell you that French racing, with its pool betting monopoly, receives eight times more of its betting turnover on horseracing than British racing.
Inevitably, there is scope for disunity between Horsemen and racecourses on questions of racing’s finances but we are working on this. Certainly, we have to acknowledge that the drastic Levy decline is also bad news for racecourses. The Capital Fund has been discontinued at least for the time being and the Fixture Incentive Scheme has been much reduced. But as I have said, when times get tough – and believe me they are as tough as they have ever been right now – it is the Horsemen who really feel the effects because prize-money is always treated as the balancing item when all other expenses have been paid.
Following research undertaken by the Horsemen’s executive management, we now have a fairly good idea of the overall income racecourses receive for their picture rights. While very little has improved for the Horsemen in recent years, racecourses have enhanced their own financial models through the introduction of TurfTV and the ability of racecourses, aligned to either TurfTV or SIS, to demand and receive much higher fees for their picture rights.
It is estimated this income was over £60m in 2009 and that it will increase to nearly £90m in 2013. At some point soon it may even overtake the Levy as the biggest source of funding coming into racing. By comparison the current Levy Scheme is likely to produce a relatively poor £80m.
We have long recognised that such a scenario provides us with a problem in that most of the money coming from the Levy to the racecourses has to be spent on prize-money through the Basic Daily Rates system, while picture rights money is entirely discretionary spend for the racecourses. It means that, with the balance of racing’s income beginning to tilt towards a rights-based system, it is essential that the Horsemen’s Group finds a way that gives us more confidence that a reasonable proportion of picture rights income is contributed to prize-money.
The problem has always been that the racecourses seem not to regard prize-money as a cost in the same way that they regard other overheads. It is seen as a balancing factor that can go up or down according to what is happening to the racecourses’ profitability. If a racecourse wants to pour money into capital projects, that’s their business, but not when it’s at the expense of prize-money and the Horsemen.
The ROA and the Horsemen’s Group must therefore now work with individual racecourses and racecourse groups to address this through negotiations that will lead to formal contracts on racecourses’ contributions to prize-money. We have no wish to fall out with racecourses – indeed we have to work with them - but it is clear that we, as the supplier of racing’s raw material, must know what we are going to get for our product before we supply it, as in any other walk of life. It is equally clear that this can no longer rely on a system of minimum prize-money values where the value is simply pegged, as now, to Levy Board contributions.
Some racecourses may not play ball. Well fine – that’s their prerogative but I would point out that the Horsemen’s Group represents one hell of a big constituent for any racecourse to ignore. And, let there be no mistake, we would make it abundantly clear to all our owners, trainers, breeders, jockeys and stable staff what our expectations are in terms of contributions to prize-money throughout the various grades of race for each racecourse. It is part of our remit to show which racecourses are playing the game and which of them are not.
With diminishing Levy revenues, it is not surprising that the size of the fixture list has come back into focus, with most members of the racing press advocating a significant reduction. While the complexities of this subject are not widely understood, I agree that it is difficult to see how a 2011 fixture list of 1,500 fixtures can be sustained under the current funding projections.
In pure financial terms there is a counter argument that says cutting fixtures would create what are known as Levy criteria gaps in betting shops with the result that the Levy would drop even more. I understand this argument but don’t entirely buy it. How can we continue to throw more and more product at the betting shops and get less money for it?
When racing assesses whether or not fixtures are profitable it is really asking whether or not they are profitable for the racecourses and bookmakers. The numbers take no account of owners’ training costs and all the other costs that fall on us in getting horses to the track.
By continuing to load on fixtures, all racing is doing is spreading the available money ever more thinly with the result that prize-money suffers and bookmakers get our product on the cheap.
It is a different argument if racecourses choose to put on self-funded fixtures so they can take advantage of days when they can maximise their attendances but here again self-funded fixtures must be subject to negotiations with the Horsemen’s Group.
Right now the racing industry needs a big idea to take to government as part of the Levy determination process. Apart from the details I have already mentioned, I believe serious consideration needs to be given to a return to the Levy being based on betting turnover rather than the current gross profits system.
Mention bookmakers’ gross profits as a means of funding racing to anybody outside of this country and they look at you with a mixture of bewilderment and amusement. No other country has this system and no other country would surely ever consider it.
It is not that we have to live with the extraordinary and uncomfortable position that what is bad for punters is good for British racing and vice versa. It is not that when bookmakers lose £50m at Royal Ascot we know that racing’s income is reduced by yet another £5m.It is not even the fact that the gross profits system makes forecasting racing’s income volatile and unpredictable.
All these factors we could live with – indeed, we have lived with them since 2001 – but the betting world has changed in a way that we could never have predicted nearly a decade ago. The reason for this is the extraordinary growth of betting exchanges. Exchanges have changed the whole dynamics of betting in recent years and, in particular, they have had a major effect on margins. Indeed, a by-product of returning to a turnover system would deal with the problem that racing has with the exchanges not paying an adequate amount into the Levy in one fell swoop – they would simply be paying a lot more than they are now.
I am, therefore, leaving you with one last thought. Deloittes estimated £12 billion was bet annually on British horseracing in 2007. It would now be considerably more. A turnover Levy of just one and a quarter per cent on that figure would produce a Levy of £150 million. Yes, I can already hear the cries that it’s not that simple.
The current gross profits system for paying tax and Levy was advocated by the bookmakers at the turn of the century and agreed by the government on the basis that the bookmakers would not go offshore. But they have gone off shore.
And now, in this time of crisis, racing must seriously consider whether a return to a system where the Levy is based on turnover would be in our best interests.
Ladies and Gentlemen, thank you.
24/06/2010