My Lords, Ladies and Gentlemen,
Looking back exactly one year ago this week, the Advocate General had just delivered her Opinion on the questions of interpretation put to the European Court of Justice arising out of the legal proceedings between BHB and William Hill and her Opinion, in all material respects, endorsed the principle on which Mr Justice Laddie based his Judgement in BHB’s favour in the High Court.
It appeared that British Racing was set fair to proceed with implementing its blueprint for the future, developed under Peter Savill’s leadership, the Modernisation of British Racing which was endorsed by racing’s various factional interests and, importantly, the OFT, thus bringing their investigation into racing towards a satisfactory close.
However, in early November as we now know, the ECJ made a ruling which was diametrically opposite to the Advocate General’s Opinion in that BHB could not charge bookmakers for the use of its data.
Bookmakers have forever been enriched by longshots coming to their rescue and so it proved once again, at least temporarily.
However the legal process is not yet exhausted and the UK Court of Appeal is set to hear the case in just over two weeks’ time. We are not disputing the ECJ’s rulings in relation to the clarification of the law; what we are disputing is their application of their law to the facts on the basis that they misunderstood the facts which were presented to them in an extremely abbreviated form. We also dispute their jurisdiction to rule on the facts which is the prerogative of the UK Court of Appeal. We therefore will await the outcome of the appeal, hopefully by the end of July, if not, by mid-September.
However, this process has left the racing industry in limbo for the past 7 months, particularly as the ruling came at the worst possible time just when parliament had passed a bill to abolish the Levy Board and just before the industry restructuring proposals had received final shareholder approval. It has had a far-reaching impact in limiting how the industry could progress and I would like to run through the main areas on which it has impinged:
The separation of the governance and commercial functions of BHB has been put on hold awaiting the outcome of the appeal as has the restructuring of the BHB Board itself. The Board restructuring only needs shareholder approval to proceed but unfortunately shareholders seem reluctant to proceed on this in isolation.
2) Budget Cuts
Following the result of the ruling the BHB Board prudently took action to reduce costs. This included cuts in marketing expenditure, veterinary research and general overhead but the two most significant cuts were the Development Fund and Owners’ Premium Scheme.
3) Development Fund
This fund incentivises racecourses to put on races which develop young racehorses and the breed, for example novice races, fillies and mares races and listed staying races. The loss of the Development Fund has understandably caused many in the industry great concern and must be a top priority for reinstatement at the earliest opportunity.
4) Owners’ Premium Scheme
After a successful debut last season this scheme was suspended. The early signs were promising and it looked like achieving its objective of supporting British stallions. We were therefore pleased that, with the help of the Thoroughbred Breeders’ Association and the Levy Board it has been possible to reintroduce it, albeit on a much-reduced basis.
As various elements of the MBR have been put on hold, it has not been possible to complete the ‘Commitments documents’ for final approval by the OFT, thus preventing closure of their enquiry. Greg will cover this further in his presentation.
6) Horseracing Regulatory Authority (HRA)
The Jockey Club proposal to transfer their regulatory powers to an independent body (HRA) has been deferred as, under pension legislation, this would have required an additional sum of at least £3.5m to be put into the Jockey Club pension fund. Given the need to act prudently with its budget at this time, the sport was unwilling to do this. However, we welcome the appointment of John Bridgeman as Chairman of HRA who officially took over regulatory responsibility from the Senior Steward in April this year.
7) Future Funding Review Group
The Future Funding Review Group (FFRG) is an independent review group chaired by Lord Donoughue, set up by BHB with support from DCMS, the Bookmakers’ Committee and the Levy Board. The purpose of the group is to consider alternative means by which racing could generate revenue if the Court of Appeal does not find for BHB. The Group’s interim report recommended a 3-year extension of the Levy system to 2009 under the Levy Board which was accepted by DCMS. We are fortunate to have an understanding and sympathetic Minister in Richard Caborn, who shares our frustration at the deferral of the MBR proposals. We are delighted he has been reappointed to this role in the new post-election government. The FFRG have now commenced the second phase of their review which seeks to identify a long-term replacement for the Levy and is expected to report by the end of this year. The two principal options under discussion are well-known – one is fundamentally based around picture rights and the other based on a pre-condition to having a betting licence. Neither is straightforward and each have their pros and cons.
8) Levy Board
The 3-year extension to the Levy system means a similar extension of the Levy Board. This has extended the uncertainty that has surrounded the Levy Board employees’ continued existence. It also means further duplication in racing’s administration process and the potential for ongoing disputes between the parties. Although BHB has long campaigned for the abolition of the Levy Board we acknowledge the constructive role they have played during recent months and we want to continue this close cooperation to establish an efficient working relationship during the transition to an eventual successor structure.
The news this week that Tristram Ricketts has been offered the role of Chief Executive of the Levy Board will go a long way to ensure that this will be the case. We all offer Tristram our congratulations and our thanks for his unstinting work for the BHB and racing itself over the past 12 years and I know he will bring the same degree of commitment to the Levy Board.
9) Fixture Expansion
A considerable expansion of the Fixture List was planned as part of MBR but, with the continued existence of the Levy Board, funding of the fixture programme still requires their approval Given the outdated process for funding fixtures and the Levy Board’s historic caution, the planned fixture programme for 2005 has had to be reduced from the proposed 1500 fixtures to 1390. Plans to resolve the problem of excessive eliminations of runners, particularly on the Flat in the autumn, are thus not implemented, with continuing frustration for owners.
10) Hypothecation of Income
The MBR blueprint proposed that income from the commercialisation of data licensing be paid out to racecourses according to how much betting a racecourse generated, namely hypothecation of income. This would be the net income generated from the sale of data after ‘top-slicing’ regulatory and governance costs and an Incentive Fund. As a result the Levy Board’s BDRs, Fixture Incentives, Abandonment Payments and the Divided Race fund would be abolished. The hypothecation process was designed to instil competition between courses and is strongly supported by OFT and was planned to be implemented alongside a Prize Money commitment from racecourses to specific minimum levels of prize money. The extension of the Levy Board may mean a delay in the implementation of these changes but we are working with the Levy Board to see what changes can be implemented before the end of their 3-year extension.
11) Irish and Overseas Income
The introduction of data licensing meant that foreign bookmakers profiting from the exploitation of British Racing have been charged on a similar basis as British bookmakers. The William Hill Court challenge to BHB was already known about, and taken into consideration, when most of these contracts were entered into. If BHB were ultimately to lose the case on appeal those parties to these contracts may then give BHB notice of termination; in N Ireland and Ireland this requires a period of 6 months’ notice. Notwithstanding this, certain Irish bookmakers have initiated proceedings against BHB on the strength of the ECJ ruling seeking to void these contracts ab initio and seeking reimbursement of sums previously paid. Legal advice makes BHB extremely confident of its position in this respect. It merely proves that, as usual, another aspect of the ECJ judgement is that the lawyers continue to enrich themselves at racing’s expense.
12) Betting Exchanges
Betting exchanges are here to stay and we need to focus on two aspects. Firstly, and most importantly, we need to ensure that their positive impact on integrity through a much better audit trail outweighs their negative impact on integrity through enfranchising anyone to lay horses to lose. Secondly, that the exchanges should pay their fair share to racing for exploiting the Racing Show for their own benefit, which they patently do not currently. Again negotiations have been held up by uncertainty surrounding our ability to enforce fair payment for use of data.
These twelve examples of the damaging impact of the ECJ ruling are extremely frustrating but we are determined to work assiduously to overcome the obstacles thrown in our path. The sooner the UK Court of Appeal rules the better – racing needs clarity.
Just as many saw a win for Racing at the ECJ a formality in the light of the Advocate General’s Opinion, so many today see a loss for Racing as a formality in the light of the ECJ’s ruling. There is no need for such pessimism. The facts support our case and we enter the Court of Appeal optimistic about the outcome.
Recently, we were further encouraged by the dismissal by the High Court of Victor Chandler International’s claims for an injunction against BHB. This was to restrain BHB from cutting off VCI’s supply of pre-race data which BHB had advised it would do after VCI had refused to pay monies which were due to BHB. Mr Justice Laddie found that not only was BHB entitled to continue to charge for the service of compiling the pre-race data and making it available to VCI each day, irrespective of the ECJ Judgement, but also that VCI’s allegation of excessive pricing was ‘unarguable’. In Justice Laddie’s words “commercial common sense” prevails where consideration is given in return for payment. It makes absolutely clear that last November’s ECJ Judgement does not in any way prevent BHB from charging for the supply of pre-race data at the current rates.
Meanwhile, certain other aspects of the MBR are progressing well, most noticeably the classification of fixtures into ‘Racecourse fixtures’ and ‘BHB fixtures’ together with bidding being introduced for BHB fixtures – the bidding process actually commences in 10 days time after a second mock auction tomorrow. Proposals for new racecourses have progressed and we look forward to racing commencing at Great Leighs in Essex in late-2006, it being the first new racecourse opening since Taunton in 1927.
We have also introduced meritocratic prize money bands and changes have been made to various Orders & Rules, with the effect of removing unnecessary restrictions.
A major success last year was the Stable & Stud Staff Commission, chaired by Lord Donoughue, which outlined a clear strategy for the retention and recruitment of a skilled and motivated workforce for the sport. Since then, Baroness Mallalieu, a BHB Independent Director, has chaired a steering committee overseeing the implementation of the Commission’s recommendations through other parties.
At this point I would like to reinforce my thanks to Peter Savill, under whose committed leadership the MBR blueprint was drawn up; although it appears that some of British Racing’s plans have been temporarily thwarted by the ECJ ruling we should acknowledge that the work and effort that went into the development of MBR will still provide racing with a road map for the future, albeit now one with some detours en route.
There also remains further unfinished business including the transfer of the Tote to a Racing Trust – now seriously deferred pending a State Aid review by the European Commission; the Jockeys’ Working Schedules, an important safety and health issue being examined by the Jockey Club; and access to terrestrial television with Channel 4’s excellent coverage under threat. I’m optimistic that a positive outcome to the Channel 4 discussions will be announced shortly, although that is by no means certain.
If overall the last twelve months have fallen well short of the heady expectations of a year ago, it is not the fault of in-fighting amongst racing’s various constituencies, as has been the case so often in the past. There has been a recognition of the need to work together on issues and a willingness to do so constructively. An example of this was the gesture by the Jockey Club that one of their Board members, Nigel Clark, stand down to be replaced by Jim McGrath as an Independent Member of the Board, in order to effect a move in the direction of BHB Board restructure as recommended by MBR.
I would like to take the opportunity to thank Nigel for his contribution over the past few years, plus also the contribution made by Keith Brown, David Oldrey and Sir Eric Parker who also stepped down. As well as Jim McGrath, we have welcomed David Thorpe, Sir Michael Connell and Stephen Crown to the Board to represent three of BHB’s shareholders, Baroness Mallalieu as an Independent Director, plus also the very welcome addition of Rupert Arnold as a non-voting member, to represent the interests of trainers.
Finally, I would like to thank my Board colleagues for their support and the Executive for their commitment and hard work in trying circumstances.