Letter to the Racing Industry from BHB Chairman Martin Broughton
Governance Structure for British Racing
As you will be aware, the ruling by the European Court of Justice (ECJ) in November 2004 led to the creation of the Future Funding of Racing Review Group (FFRRG), principally to evaluate alternatives to data as the means by which Racing could be funded on a sustainable longer term basis. That Group, chaired by Lord Donoughue, concluded, after lengthy investigation, that there was no viable alternative to a statutory levy mechanism.
Racing is grateful to the Minister for Sport, Richard Caborn MP, for agreeing to take the necessary steps to extend the levy system, but he has done so on the understanding that the sport itself modernises and streamlines its governance structure. A Governance Structure Group (GSG) was set up with myself as Chairman and with the participation of BHB’s four shareholders, Robert Hughes from the Levy Board and Rodney Brack as a member of the FFRRG in order to review and make a recommendation regarding a governance structure for the industry. I am very pleased to be able to write to you today to confirm that the GSG has this week, on behalf of Racing, made a written submission to the Minister, with the full support of the sport’s constituents, which sets out such a proposed restructuring. The document is attached to this letter.
I personally very much welcome the proposals, which go even further than BHB itself had set out in 2004, prior to the ECJ ruling.
First, in relation to commercial rights, a new company, for now described as “Newco”, will be created and will assume those rights which BHB has held until now and also be responsible for developing commercial revenues domestically and overseas. It will be operated jointly by the RCA and the Horsemen’s Group. Although Newco’s role will be somewhat smaller than BHB had initially envisaged when we proposed in 2004 that BHB should divest itself of commercial responsibilities, it will still have a role to play.
Secondly, BHB’s governance functions will be merged with the responsibilities of the Horseracing Regulatory Authority (HRA), thus reuniting these two areas for the first time since BHB was formed in 1993 but without the involvement of the Jockey Club which will concentrate on its other racing interests. Again, this was a proposal of BHB’s in 2004 and we are pleased that it has happened more quickly than we had foreseen. Racing will therefore in future have a single governing body, the new British Horseracing Authority (BHA).
As a result of this the Board of the BHA will be composed on a significantly different basis from that of BHB, the key difference being the significant reduction in appointees by Racing industry organisations. Only two of the eight members will be “practitioners”. This positive move will, it is intended, bring an end to the sometimes very evident difficulties caused by the presence of factional interests at the decision-making table.
There are still some hurdles to clear, most obviously issues relating to the funding of the Jockey Club Pension Fund, which also covers BHB employees, but the target is that the new BHA should be up and running on 1st January 2007.
Not surprisingly, given the importance of what is at stake, this has not always been an easy process, but there has been a clear and genuine commitment from all parties within Racing to come together and decide on the way forward. I am delighted that such mutual agreement has now been reached.
I would be happy to discuss any aspect of the proposal if you would like to do so.
GOVERNANCE STRUCTURE FOR BRITISH RACING
Submission to the Rt Hon Richard Caborn MP by the Governance Structure Group
16 May 2006
1.1 The Governance Structure Group (GSG) was resumed, following the Minister’s round table meeting of 23 March 2006, to further develop the industry’s position on four key specific areas identified by the Minister as requiring industry agreement and resolution before the Minister would be prepared to consider reverting to Parliament to propose the withdrawal of the enabling legislation for the dissolution of the Levy Board so that a statutory levy system could continue as the future funding mechanism for British Racing.
1.2 For ease of reference the issues are:
i) The corporate structure of the new governing body;
ii) Incorporation of regulation within governance;
iii) Budget approval process;
iv) Resolution of the Jockey Club (JC) Pension Scheme liability.
1.3 The composition of the GSG remained the same, namely:
Martin Broughton (Chairman) – Chairman British Horseracing Board (BHB)
Robert Hughes – Chairman Horserace Betting Levy Board (HBLB)
Chris Deuters – President Racehorse Owners Association (ROA)
Rhydian Morgan-Jones – Chairman Industry Committee Horseracing Limited (ICHL)
Julian Richmond-Watson – Senior Steward The Jockey Club (JC)
David Thorpe – Chairman Racecourse Association (RCA)
Rodney Brack – Member Future Funding of Racing Review Group (FFRRG)
Greg Nichols – Chief Executive BHB
In addition John Bridgeman, Chairman Horseracing Regulatory Authority, has been invited to join the last 2 meetings of the GSG.
1.4 Following extensive discussion within British Racing, the GSG submits the following representation on each of the above issues. The basis of this consensus representation bears strong resemblance to the GSG’s submission of 17 March 2006 which is attached for the Minister’s reference.
2. Corporate Structure
2.1.1 The principle of a single holistic entity for British Racing to incorporate both governance and regulatory functions is agreed; the proposed British Horseracing Authority (BHA) would be a company limited by guarantee. Accordingly, the BHA guarantors will comprise:
i) the Racecourse Association (RCA)
ii) the Racehorse Owners Association (ROA)
iii) the group of licensed personnel
iv) the Thoroughbred Breeders’ Association (TBA).
With regards to the licensed personnel, it has been agreed that the National Trainers Federation (NTF) will represent the interests of licensed personnel at any guarantor meeting or in any capacity that requires a plenary of the guarantors.
The “shareholding” for BHA will be as follows:
RCA 3 shares;
ROA 1 share;
Licensees 1 share; and
TBA 1 share.
2.1.2 The guarantors will have the ultimate sanction of approving the Memorandum and Articles of Association of the BHA. Any amendment to the BHA’s Memorandum and Articles of Association will require a resolution to be supported unanimously by all guarantors.
2.2 Board Structure
2.2.1 The structure of the BHA Board as proposed in the GSG’s paper of 17 March 2006 is endorsed and will comprise of eight directors as follows:
one independent Chairman
one Chief Executive
four independent directors
two directors from this group should have specific regulatory experience.
two industry directors
These directors will be appointed by the guarantors and will provide strong practitioner experience to complement the Board structure. One director would be selected by the RCA as the body representing the venues of the sport. The other director would be selected collectively by the ROA, TBA and the licensed personnel, together the producers of the sport.
It has been agreed that personnel licensed under the Rules of Racing together with persons employed by such licensees will be excluded from joining the BHA Board. Consistent with previous representations and in order to ensure that no prejudicial conflict of interests will arise, it has been further determined that directors or employees of Newco will be precluded from becoming a BHA Director.
2.3 Appointments Process – Chairman and Independent Directors
2.3.1 It has been agreed to form a nominations panel with responsibility to appoint suitable candidates through a transparent process for the positions of Chairman, Chief Executive and the two non-executive directors not aligned with the Regulatory Unit. The Minister should be reassured of the impartiality of the initial nominations panel as it has been agreed that this panel will consist of Robert Hughes (HBLB Chairman), John Bridgeman (Chairman of HRA) and a BHB shareholder nominee. Future panels will be chaired by the BHA Chairman with two other members, not to be BHA directors, to be agreed unanimously by the guarantors. The GSG has determined that the initial focus of the nominations panel will be to appoint a Chairman and Chief Executive for the BHA which it is hoped will stimulate the restructuring process. The process for the appointment of non-executive directors with regulatory experience is dealt with under section 3.8.
2.3.2 The maximum term of office for BHA Directors is nine (9) years consisting of no more than three (3) consecutive terms.
2.4 BHA’s Responsibilities and the Executive
2.4.1 GSG sees the responsibility and role of the new governing authority as not only to regulate and administer the sport but equally so to determine its strategic direction, ensure its health and best enable racing to compete internationally and with other British sports and entertainment options for the public’s leisure pound and leisure time.
2.4.2 In accordance with objectives outlined in the GSG’s paper of 17 March the GSG has committed to establishing a streamlined, accountable, efficient, and effective Executive and organisational structure to best deliver the services outlined above. It has been agreed that the Executive should be an integrated team to manage all functions of regulation and governance, as this not only avoids or eradicates unnecessary duplication in cost but crucially establishes a perception that regulation and governance roles are indistinguishable in terms of importance.
2.5.1 The remaining substantive structural issue that needs to be addressed relates to Newco. As the Minister will recall it was proposed that Newco, comprising of the RCA and its constituent members and the Horsemen’s Group, was originally envisaged to exploit the various rights held within the sport for the commercial gain of British racing. The demise of a commercial mechanism as a future funding model for British horseracing has compelled the RCA and Horsemen’s Group to reassess the future of Newco.
2.5.2 It has been agreed that Newco should still be established and that it should consist solely of the racecourses and Horsemen’s Group and that it has, inter alia, sole responsibility for the remaining monetisation of industry rights. It is recognised that the role of Newco under a statutory funding model has significantly diminished. It has been left to the two constituent members to draw up their own structure and procedures.
2.5.3 The future establishment of Newco will complete the separation of governance from commercial activities. Resolution of further detail on Newco does not impinge on governance of racing.
3. The incorporation of regulation within governance
3.1 Following discussion with the HRA, in particular the Chairman and Chief Executive which the GSG understands have represented the unanimous view of the HRA Board, it has been agreed to establish a Regulatory Unit. It is envisaged that the Regulatory Unit will have the highest operational independence compatible with the principle of accountability.
3.2 The Regulatory Unit will comprise a non-executive Chairman, BHA Chief Executive, a minimum of three independent non-executive directors and the BHA Executives responsible for Racecourse Standards, Disciplinary and Licensing, Security and Equine Science and Welfare. The Chairman and one of the non-executives will also sit on the main BHA Board.
3.3 It is accepted by the GSG that the Regulatory Unit will administer this aspect of racing consistent with principles and objectives that the HRA currently employ, namely independence and impartiality. The principles of independence and impartiality will be defined in a Memorandum of Understanding between the BHA Board and the Regulatory Unit.
3.4 There will also be a scheme of delegated authorities which have already been agreed in outline.
3.5 The Regulatory Unit will propose changes to the Rules of Racing and regulatory policies and procedures to the board of BHA for final confirmation.
3.6 The concern of the HRA has been that the independence of the Regulatory Unit could be compromised by an intrusive BHA Board. We believe that this concern has been allayed by the fact that the BHA Board itself is an independent board and will have three members on the Regulatory Unit (BHA Chief Executive and the two BHA directors with regulatory experience). Any substantive disagreements are likely to be avoided by on-going dialogue. Accordingly, we believe that the independence and impartiality that all parties within racing deemed integral to the good administration of regulation will be enhanced under the proposed structure.
3.7 It has been agreed that all regulatory functions would reside with the Regulatory Unit including both the disciplinary and judicial roles which will be delegated by BHA through the Regulatory Unit, to separate committees/panels. There will be no right of appeal to the BHA Board.
3.8 Appointments to the Regulatory Unit
The GSG has considered representations from the HRA on this issue and have accepted that the initial board for the Regulatory Unit consist of those non executive Directors of HRA who currently sit on the Board of the HRA. In future, any appointment of a new Chairman to the Regulatory Unit will be carried out by a BHA panel as outlined under section 2.3.1. with the addition of a Non-Executive Director of the Regulatory Unit. This new Chairman would then be free to run their own process for selection of the three non-executives to sit on the Regulatory Unit and further recommend one of those non-executives to sit on the BHA Board. This recommendation would be subject to BHA Board agreement. To ensure further clarity, any committees under the auspices of the Regulatory Unit would comprise of appointments proposed by the Regulatory Unit to the Board of BHA for agreement.
4. BHA Budget Approval Process
4.1 With the retention of the Levy Board to fund racing in the future, then clearly it is appropriate for the Levy Board to approve its contribution to the funding of BHA and as a consequence the BHA budget.
4.2 The existence of Levy Board members nominated by RCA and ROA, as recommended by Lord Donoughue, will effectively allow Newco to play its role in the approval of the BHA budgetary submission without the need for a cumbersome, multi-stage process.
5. Restructuring of the Jockey Club Pension Scheme
5.1 The BHB Chairman and Chief Executive have undertaken initial discussions with the Chairman of Trustees to The Scheme to outline a proposed course of action, which the GSG has endorsed, to bring about a resolution to the Pension Scheme conundrum and allow for both the Jockey Club and BHB to transfer all staff to the new BHA.
5.2 The two issues that require resolution are well established and have been outlined in the GSG’s previous submission. The resolution of both issues requires the full support and financial backing of the Horserace Betting Levy Board (HBLB) and the HBLB Chairman and Chief Executive have been kept fully appraised as the proposed solutions have developed. Formal representation has been made to HBLB for consideration of these proposals at their Board meeting on 17 May.
5.3 The HBLB has rightly indicated that they would need to take legal advice and be persuaded that there would be no adverse impact upon HBLB achieving its statutory obligations in assuming the role of guarantor for the BHA pension fund and we are working with them in this regard.
5.4 We are awaiting the outcome of 17 May HBLB Board meeting but, with the Trustees having given in principle approval to the above proposals, we are extremely confident that we have provided an effective solution to resolve the two major issues affecting the Pension Scheme. The last remaining step will then be for the employers, together with the Scheme Trustees, to approach the Pensions Regulator and seek approval for the planned restructure of the scheme – in particular the scheme of arrangement to pay off the FRS based debt over ten years as opposed to immediate payment of the buy out debt. The scale of this final task should in no way be underestimated and the whole of British Racing would be most grateful if the Minister was able to provide assistance in this regard.
6.1 It will be clear from the above that although we have agreement on the structure and process and are committed to delivering them, not all of it can be delivered within an immediate time frame. An outline timetable is shown below:-
May 16 Delivery of GSG report to Minister
May 17 Levy Board to consider the BHB’s representations for it to act as guarantor of the Pension Fund.
Mid-July HBLB/BHB/HRA complete proposals in respect of Pension Scheme future benefits and contributions
Mid-July BHB Shareholders to give such approvals as necessary
July Agreement by trustees on funding plans and benefits alterations
Aug Pension Scheme restructuring plan submitted to Pensions Regulator for approval
Sept Appoint Chairman and Chief Executive
Sept Completion of statutory process of consultation on pension issues
Oct Approval by the Pension Regulator
Nov Appoint Non-exec Directors
1 Jan 2007 Implementation date
7.1 We are confident that the Minister’s concerns as elucidated at the meeting on 23 March have either been allayed or will be so in a foreseeable time frame. We make these representations with the unanimous and full support of all BHB shareholder directors.
7.2 The proposed structure advocated by the GSG is unique in British sport, in terms of establishing a governing authority with unprecedented levels of independence and accountability which will ensure British Racing assumes the benchmark for governance and regulation of sport in Great Britain.
7.3 Accordingly, the GSG encourages the Minister to initiate a Parliamentary process which will see the continuation of a statutory mechanism as a funding model for British Horseracing in the future. If the Minister or the Department for Culture, Media and Sport representatives require any clarification on any issue we are only too pleased to assist in that process.