10 Jun 2004 Pre-2014 Releases

My Lords, Ladies and Gentlemen,

When I became BHB Chairman in June 1998, I had 2 basic goals: to put British Racing on a firm financial footing and to modernise the sport.

The first objective took up the whole of my first four years in office. It began with the Financial Plan for British Racing which was unveiled at the Industry Forum in January 1998. It called for a greater percentage of betting turnover to be paid by bookmakers to racing, for racing to control its own destiny through commercial negotiations with the betting industry and for the Levy to be replaced.

On 2 March 2000 the Home Secretary announced that Government had decided to abolish the Levy and called on BHB to propose a commercial replacement for it. At our AGM in June that year, we published the ‘Future Funding Plan’ which identified data as that commercial replacement.

Almost two years later on 17 April 2002, we licensed racing’s data to bookmakers in a deal worth £600 million over five years – an average of £120 million a year.

During a 12 month period between 2001 and 2002 we signed contracts for pictures and data worth almost £1 billion and doubled racing’s income from betting. Prize money, the lifeblood of any racing industry, which sustains the horse population and which is vital in keeping the quality of British Racing as the best in the world, has increased from £60 million in 1998 to a level of £100 million today and I’m confident that the changes I shall be telling you about today will see it increase to around £130 million in 2006.

As you are aware, William Hill have challenged our right to charge for data. If that challenge were to succeed the whole financing of racing would be under threat. I am therefore delighted to announce that on Tuesday, the Advocate General delivered her Opinion on the questions of interpretation put to the European Court of Justice arising out of the legal proceedings between the BHB and William Hill. In all material respects the Opinion endorses the principles on which Mr Justice Laddie based his robust Judgement in BHB’s favour in the High Court over three years ago. We are extremely happy with this Opinion and it would appear that identifying data as the commercial replacement for the Levy was a sound decision, and that Government can be reassured as they proceed with legislation to abolish the Levy.

We thought we had maximised racing’s income from betting, but the Racing Review, indirectly assisted by the OFT inquiry and the bookmakers, has shown that we can increase our income still further.

All industries and businesses need to use their assets in the most effective way in order to thrive. Racing’s number one asset is not its data but its horses and there is no question that we have been profligate in the way in which we have under-utilised the asset which is our horse population. Let me explain.

In each of the last few years an average of 14,000 horses a year have been eliminated from races because we didn’t put on enough fixtures – hardly a maximisation of our assets.

Meanwhile, Racing adopted a peaks and valleys approach to the fixture list it did put on, with as many as fourteen fixtures on a Bank Holiday, too many on a Saturday and often none on a Sunday. Hardly a maximisation of our assets.

In countless races, as many as 20-30 horses charge from the stalls only to split effectively into two races on either side of the track, with all but 3 or 4 of them going home empty-handed; with punters betting less than research shows they would have bet if there had been half the number of runners; and with spectators desperately trying to work out what was going on in the Charge of the Light Brigade taking place before their very eyes. Hardly a maximisation of our assets.

But, four changes have now taken place that will result in racing finally maximising the use of its horse population.

The Racing Review Committee was the catalyst for two of the changes. We recommended that opportunities for every class of horse be provided and that eliminations be reduced to the minimum. We also recommended that handicap bands be narrowed which has the effect of reducing field sizes.

The bookmakers were the catalyst for the third change when they announced that they would only pay for pictures if race meetings were positioned so that their punters had a more even spread of fixtures on every day.

And the OFT, indirectly, was the catalyst for the fourth change which has resulted this week in the BHB endorsing the introduction of a maximum field size of 14 runners for most races as soon as possible.

These four changes mean that by no later that 1 January 2006 British Racing will be able to expand to a fixture list of approximately 1500 fixtures without reducing field sizes and without needing an increase in the size of the horse population. By finally maximising the use of its assets, British Racing will generate approximately £40 million more in income for the industry and around £30 million more in prize money in 2006 compared to 2003.

But before I leave the subject of racing’s finances, there is one more change that will take place in 2006 that will increase racing’s income still further.

For years racecourses have been able to block other racecourses moving into their slots. The OFT objected, rightly calling it anti-competitive.

To give you an example, the five small Flat courses in Yorkshire race on 25 Saturdays each year, an average of 5 each; York races on just 3. Yet if York moves from a Thursday to a Saturday, where it may generate 15000 more people through the gates, while a smaller course moves from a Saturday to a Thursday (with lower costs of opening its doors and a much smaller reduction in its crowd) the improvement in racing’s income is substantial. Multiply that a hundredfold and you begin to see how much more income racing will generate by freeing up the fixture list, a subject to which I shall return shortly.

My second objective – the modernisation of the sport – not surprisingly has taken longer to achieve than putting racing on a firm financial footing. The programme of modernisation started with the establishment of the British Horseracing Board in June 1993 following a Home Affairs Select Committee Report in 1991 which recommended the formation of a more democratic, representative and accountable Governing Authority to take over from the Jockey Club.

But the pace has accelerated rapidly these past six years. The first stage of modernisation was to change the financial structure of the sport which we have done. More recently, we have concentrated on modernising the sport itself and its governance and administrative functions.

First the Racing Review Committee took a root and branch look at racing’s product and recommended changes, most of which have now been endorsed by the BHB Board. These changes will improve the integrity of the sport, will establish a true meritocratic system where owners and trainers are encouraged to seek promotion for their horses rather than relegation, will strengthen Jumping, will put British breeding on a more level playing field with its Irish and French counterparts, and will increase consumer interest in the sport.

We have been working for some time now on a document entitled ‘The Modernisation of British Racing’. Ironically, the OFT, which last year issued a Rule 14 Notice against the BHB and Jockey Club, has had a salutary effect on this process as indeed the process of modernisation has had on the OFT. Contrary to most people’s perceptions, the two have proved to be complimentary.

The OFT has encouraged us to speed up the process of modernisation and has enabled us to make changes which some sections of the industry would have resisted, probably successfully, unless the OFT had been looking over their shoulder.

Conversely the process of modernisation which we have embarked on has undoubtedly influenced the OFT and enabled them to view British Racing in a more positive way.

I would now like to take you through the significant changes which the BHB Board last week agreed to implement by 1 January 2006.

There are seven main areas of modernisation. They are as follows:

1. The Separation of the Governance and Commercial Functions of the BHB.
2. The Restructuring of the BHB Board.
3. Changes to the ownership and management of Racing’s Commercial Interests.
4. Changes to the method of allocation and distribution of data income.
5. The establishment of a prize money agreement between racecourses and the recipients of prize money.
6. The introduction of greater competition between racecourses for fixtures.
7. The Modernisation of the Orders & Rules of Racing.

Let’s now look at each area of modernisation in turn.

Starting with the Separation of the Governance and Commercial functions of the BHB.

BHB will retain its current governance functions which principally comprise the compilation of the annual fixture list; coordination of race programmes; the maintenance of the BHB Database; contracting Weatherbys to carry out a number of administrative functions; making the Orders of Racing; approving the regulatory and governance budgets; and developing central marketing, recruitment training and retention, and general strategic initiatives for the sport.

In addition, BHB will take over certain Levy Board functions when the Levy Board is abolished in 2006, in particular responsibility for the Horseracing Forensic Laboratory, the Capital Fund and grants for the improvement of the breed and veterinary science.

At the same time BHB will hand over its commercial functions, principally the central selling of data.

The second area of change is the restructure of the BHB Board which will be implemented this summer. The restructure will result in:

• A reduction for shareholder members (the Industry Committee, Jockey Club, Racecourse Association and Racehorse Owners Association) from nine voting seats to four (in other words one each);
• one additional independent member and one additional executive; and
• the addition of a representative from the National Trainers Federation and a representative from racecourse management who will provide the Board with expert advice as the practitioners from both sides of the industry.

I am quite sure that these changes will create a more independent, less sectional but more experienced Board that will be better equipped to govern the sport.

Next, let’s look at how the commercial side of racing will be managed. There will be no change to the negotiation of picture rights which will continue to be managed by the racecourses.

However, the selling of racing’s data, which is the largest income stream for racing, will in future be negotiated with data users by a commercial company owned and operated by the industry rather than by the BHB.

This is how it will work. The BHB will transfer ownership and control of BHB Enterprises, BHB’s commercial arm, jointly to the racecourses and a body representing the owners and Industry Committee members. The company will be renamed British Horseracing Enterprises or BHE.

BHB will grant a 10 year licence to BHE that will enable BHE to sell data to all users by licensing those users to have access to the content of the BHB Database. BHE will then ensure compliance, collection and audit of all use made and pay out all income according to an agreed formula.

BHB has been very successful in developing the value of data, probably too successful. For we have all seen the tensions that developed between the Football Association and the Premier League when the F.A. started to develop its commercial influence alongside its governance role.

I am quite sure that involving the rights holders and major investors in the commercial development of the sport and directing the BHB’s focus towards governance is the best way to achieve the sort of harmony in racing for which we all strive.

Let’s now look at the changes we are introducing to the method of allocation and distribution of this data income which in 2006 should total close to £140 million.

Data income is generated primarily from off-course bookmakers and largely from betting shops. It represents a percentage of the money lost by punters who bet on British horseracing.

Historically this money has been allocated by the Levy Board who have controlled racing’s purse strings. They paid it to racecourses according to a number of criteria, some of which had little to do with how much off-course punters were betting on each individual fixture.

When the BHB takes over from the Levy Board, the income will be distributed somewhat differently by means of an all-encompassing data payment to each course.

First, all regulatory, governance and commercial costs will be top-sliced from gross data income to pay for these important costs of running the sport.

Then an Incentive Fund will be set up to encourage racecourses to contribute their own money into the prize fund, with the balance hypothecated, in other words distributed, to racecourses in proportion to the amount of betting turnover generated by each fixture.

The next chart shows the level of gross and net data income we are projecting for 2006. You can see how significant an increase it shows compared to 2003. This is largely as a result of using our horse population in a more efficient way as I explained earlier.

But it would be irresponsible of the BHB to pass all our data income to racecourses without any commitment on their part to recognising the important part played by the horses and their connections in generating this income.

Consequently we have ensured that, before we devolve our commercial responsibilities, there will be in place, as a condition of the licence of the BHB Database, a prize money agreement between racecourses and the recipients of prize money – owners, trainers, jockeys and stable staff.

This has been the hardest part of the modernisation process on which to get consensus, as you would expect, but I am delighted to say that we have managed to get the whole industry to agree that the basic split of net data income will be 75% to prize money and 25% to racecourses.

Consequently, the projected level of prize money for 2006 could well be close to £130 million compared to £94 million in 2003, largely again because of the more efficient use of our horse population. When we witness the impact of this strategy, I hope we will finally see the end of the carping about too much racing, about of Regional Racing and about the odd racecard not being printed in the newspapers. We owe it to our customers – all of whom have made it quite clear that they support a strategy that encourages the industry to expand to meet the needs of the consumer – to let British Racing grow and flourish like any other industry.

Let’s move on now and take a look at the most complex of all the changes – the introduction of greater competition between racecourses for fixtures.

British Racing has been in need of this change for a long time. It was ludicrous that a course could block forever any other course wanting to move to race on the same day and I personally have always been willing to acknowledge its anti-competitive impact.

The challenge was to find a balance between racecourses’ claims to a proprietary interest in their fixtures and a fixture free-for-all. I believe we have succeeded in finding such a delicate balance.

I do not intend to go into all the detail of the new Fixture Allocation Policy which can be found anyway in the copies of the Report which will be distributed at the end of the AGM.

The key changes however are as follows:

The BHB will expand the Fixture List in 2006 to approximately 1500 fixtures from 1341 this year. This will be done after introducing narrow band handicaps, initially for Flat racing, and after limiting field sizes, other than in special cases and at certain times of the year, to 14 runners.

The BHB will then set up 2 separate Fixture Lists – one for Jumping and one for the Flat – and will establish an appropriate number of Flat and Jump fixtures on a week-by-week basis throughout the year, based on the needs of the horse population.

The BHB believes that Flat and Jump racing each have a different customer base and in general should be treated as separate branches of racing. As a result, Flat and Jumping courses will not compete against each other in the fixture allocation process other than in a very few instances. The Flat Fixture List will include Regional Racing and All-Weather Racing. Turf and All-Weather racing will compete against each other.

All fixtures will be divided into Racecourse Fixtures, of which there will be 1203, and BHB Fixtures, of which there will be 297.

Racecourse Fixtures will comprise all but 138 of the 2004 fixtures and will effectively be Class A fixtures.

BHB Fixtures will comprise the rest of the Fixture List, including Regional Racing. Over half of them will be created in 2006 for the first time. BHB Fixtures will effectively be Class B Fixtures and most will be on the Flat.

Racecourses will bid for BHB Fixtures competitively against each other for a 3-year lease with the winning bid going to prize money.

New racecourses will be defined as those courses that have never previously operated any fixtures. New surfaces at existing racecourses will not quality a course for the title ‘A New Racecourse’. New racecourses such as Great Leighs will receive preferential treatment in the acquisition of up to 16 BHB Fixtures since they will only be able to acquire Racecourse Fixtures over a period of time.

A racecourse will more easily in future be able to improve its own fixture list by:
• moving 10% of its Racecourse Fixtures every 3 years to other Racecourse Fixture slots into which they wish to move;
• moving 20% of its BHB National Fixtures every 3 years into Racecourse Fixtures;
• bidding for BHB Fixtures;
• Swapping, trading or purchasing fixtures.

The benefits of this New Fixture Policy are many:
• It ends ‘In Perpetuity Protection’ of a racecourse’s fixtures and replaces it with ‘3 Year Tenure’.
• It introduces open and objective competition into 20% of the Fixture List.
• It removes perceived barriers to entry to new racecourses.
• It creates a structure where efficient courses can prosper but inefficient courses decline.

But at the same time it takes consideration of racecourses’ claims to propriety in their existing fixtures and provides the necessary degree of stability to the Fixture List.

And finally we have modernised many of the Orders of Racing either by dispensing with or amending them. The key changes here are:
• Dispensing with the 50 mile rule which prevented a course from operating a fixture at the same time as another if it was within 50 miles.
• Dispensing with minimum entry fee levels.
• Dispensing with restrictions on the number of handicaps, sellers and claimers a course can run.
• Dispensing with restrictions on valuable races clashing with Pattern, Listed or other valuable races.

Minimum values will be replaced by meritocracy bands, as recommended in the Racing Review, with the bands set in such a way that owners and trainers will be encouraged to seek promotion rather than relegation for their horses.

Racecourses in future will be free to decide how much of their own money they want to contribute to the prize fund rather than being mandated to contribute a certain amount to it.

These, in summary, are the main changes which will be implemented between now and 1 January 2006. But how, I am sure you are asking yourself, is the OFT going to react to these changes?

Which brings me to the best piece of news I could possibly give this industry. Yesterday we reached agreement with the OFT which is satisfied that the changes we are making address its competition concerns. As a result, it is prepared, subject to a short consultation process, to close its investigation. We have given the OFT the appropriate commitments and now await the formal procedure which requires the OFT to invite third parties to make representations before they can finally sign off and close the book. I have no doubt that our own industry will support our vision for racing and I hope that the bookmaking industry will support the proposals which are good for the betting industry as well as for racing.

It is worth reminding ourselves of where we were a year ago. The OFT’s Rule 14 Notice indicated that the OFT was looking to impose on racing a number of structures that would, in our opinion, have destroyed racing as we know it:
• A fixture free-for-all, allowing courses to race whenever they wished, which would have handed control of our sport to the bookmakers and closed many of our smaller racecourses.
• Open competition between all-weather racing and jumping, which would have led to the demise of Jump Racing.
• The break-up of central selling of data, which would have destroyed the financial stability of the sport.
• The freedom for racecourses to run whatever races they wanted for whatever prize money they wanted to put on, which would have torn to shreds the whole sporting structure of racing and its integrity, as well as undermined the development of young horses and the breed.

Instead we have been able, through sensible negotiation, to maintain a structured fixture list under the BHB’s jurisdiction, responsive to the needs of the horse population and racing’s customers.

We have convinced the OFT that Jumping should be treated in the main as a separate sport to Flat Racing. By doing so, Jumping will now be able to flourish, as will the many small, community-driven racecourses that showcase this important part of country life.

We have preserved the central selling of data upon which the finances of racing depend and have been happy to give a formal commitment to the OFT that we will operate a non-exclusive, non-discriminatory policy at a fair market value.

And finally, we have maintained the ability to make orders and rules for our sport. Sporting rules are imperative for a proper sporting structure, and a strong governing body is vital in order to maintain the balance between the differing interests within racing.

That said, we were happy to find ways to introduce more competition into the fixture list, to separate commercial and governance, to relax some of the Orders & Rules of Racing and to enable the equal involvement of racecourses with the rest of the industry in the central selling, collection and distribution of data income.

I would like to acknowledge the part the OFT has played in this process. Since January 19 when we first sat down with them to negotiate, we have found them to be understanding and conciliatory and I have no doubt that we have reached an eminently sensible agreement that will have a profoundly beneficial influence on the sport.

We have made enormous progress these past six years. We have turned a Levy of £56 million a year into a commercial data deal with bookmakers worth £110 million a year now and a projected £140 million in 2006.

We have increased prize money from £60 million to £100 million. And, in 2006, it is projected to reach £125 million.

We have taken racecourse attendance from under 5 million to an all-time record of 6 million and we’re on course for reaching six and a half million this year.

We have put in place an Owners’ Premium Scheme that will have a dramatically positive impact on the health of the British Breeding industry; we have modernised the administration of the sport and created a structure for racing with narrow-band handicaps and meritocracy bands that will engender in owners and trainers a desire to seek promotion rather than relegation for their horses.

Sunday Racing has grown from just seven Sundays a year to a year-round raceday. We have a blueprint for modernising our approach to a career in racing; and the shadow cast by the OFT investigation has turned to sunshine.

This has been a tremendous team effort. There are so many people to thank. Those of you who gave me the chance to do the best job in world racing by supporting me back in 1998. Those of you who believed in what I set out to achieve and have supported me all the way. A huge thank you to the BHB Board and especially to the BHB Executive and staff who are the best bunch of people I have had the pleasure to work with. A special thank you to Greg Nichols, our Chief Executive, who has not had a day since he joined BHB 2 ½ years ago when he has not had to focus on the OFT issue and who, along with the legal team, did a magnificent job of rebutting the OFT’s arguments. I have greatly enjoyed working with him and sharing his friendship. I wish him well with the challenges that he and Martin Broughton, without question the right person to take over the Chairmanship, will face in the years to come.

I would like to thank Government and in particular Richard Caborn, the DCMS Racing team, and the All Party Racing Group for listening to us and playing their important part in modernising both racing and betting. Enormous thanks also to Claire Simmonds, my exceptional assistant, without whom I could not have managed these past four years and whose skills this poor computer illiterate man will undoubtedly miss the most.

And last but not least a very affectionate thank you to my family – to my mother and father who saw very little of me when I lived abroad for twenty five years and have seen almost as little of me since I came back. But above all to my wife, Ruth, who lost me to racing politics a month before we got married in 1996 but who has been selfless in supporting me 100% through the good days and the bad. With five young children, it would be inaccurate of me to say I have seen nothing of her these past few years but I look forward to the additional time that we and our young family will now be able to share together.

British Racing is in good health and in good hands. It remains only to wish you all well as you continue the work of maintaining British Racing as the best in the world. It is a sport I love and will go on loving. I hope I’ve made a difference.