13 Jan 1999 Pre-2014 Releases

It is exactly a year since the Financial Plan was launched. Despite attempts by the betting industry to undermine it for reasons of obvious self interest, and despite claims by some sections of the media that the requirement for £105 million additional annual investment in the British Racing industry is unachievable†_x0013_ note the word unachievable as opposed to inaccurate†_x0013_ the key points and conclusions of the Financial Plan remain today as they have been for the whole of the past year†_x0013_ rock solid, unchallenged and proven beyond all reasonable doubt.
The key conclusions of the Financial Plan bear repeating for they are at the heart of the massive underinvestment in British racing by the betting industry.
First, 1% is an inadequate and unacceptable percentage of horserace betting turnover for the British betting industry to pay for arguably the best racing product in the world. By comparison, all other major racing nations pay between 4.4% – 15% of their betting turnover.
Second, the overhead cost of Licensed Betting Offices as the only lawful betting distribution system for horseracing is unacceptably high at over 14% of betting turnover compared to between 5.5% – 10% in all other major racing nations.
And third, the betting industry’s 100% monopoly of betting on horseracing is anti-competitive, unfair to racing and unacceptable.
I make no apologies for repeating these facts because it is only by constant repetition that the message will finally get across to everyone in racing, to the betting industry, but most importantly, to Government.
Since it came to power in May 1997, New Labour has prided itself on purging the country of unfair practices and anachronisms. It now has the chance, through the progressive new Levy Board Chairman Rob Hughes, to correct the imbalances of the past thirty five years which have seen the iniquity of a 100% monopoly distributor – the betting industry – allowed to dictate what it claimed it could afford to pay to Racing for its product.
We have recently seen what New Labour thinks of monopolies. It did not take kindly to Ladbrokes controlling 36% of the betting industry; so I look forward to hearing what it makes of the betting industry’s 100% monopoly of the distribution of horserace betting. If Government continues to argue that, for social legislation reasons, the betting industry should continue to maintain its monopoly, the racing industry expects nothing less than a fair commercial price for its product that takes into consideration the value of that monopoly to the betting industry and compensates Racing for the enormous loss of income that would otherwise accrue from an infinitely more cost effective system of betting distribution than Licensed Betting Offices.
When the Levy System was introduced into law in 1961, it stated that the amount of the Levy should take into consideration two main factors:
1) The needs of the racing industry and

2) The capacity of the betting industry to pay
The Financial Plan laid out clearly and exactly what were the needs of the racing industry – a £105 million additional annual investment, £25 million of which would come from self help and £80 million from an increased percentage of betting turnover.
But, what about the capacity of the betting industry to pay? In 1995 the betting industry was claiming, with the help of the Henley Centre, that it was only making £100 million profit a year. The 1998 profits of the Big Three alone are estimated to exceed £240 million making the total betting industry profits in 1998 in excess of £350 million. Yet when I predicted £300 million profit in an article in the Sporting Life two years ago, Tom Kelly of BOLA dismissed it as pure fantasy.
Based on the recent valuations of Coral and Gus Demmy, the off course betting industry is worth over £3 billion. And its value is likely to continue to increase. Deutsche Bank has just paid £60 million more for Coral than Ladbrokes paid a year earlier without any of the synergies that Ladbrokes were able to enjoy. Indeed you might ask why Deutsche Bank was able to outbid the Tote who would also have been able to take advantage of synergies between the two businesses, which were not available to venture capitalists.
The answer lies without question in the overhead savings which the betting industry expects to make in the next few years. Betting industry experts believe that up to 2% of overhead costs can be saved by the introduction of improved computerisation systems. Based on 1998 betting turnover of £7 billion, that means up to a further £140 million in savings to the betting industry. Our own analysis shows that these figures are not unrealistic.
But have we heard the betting industry talk about passing the savings on to Racing so that it can pay us the 3% of turnover that we want, need and deserve – a figure still almost 30% lower than any other country gets from betting turnover?
Do you think Ladbrokes, as they desperately sought to salvage some pride from what looked at one time like becoming a commercial nightmare, told Deutsche Bank that the savings in overhead should go to the Levy rather than to their bottom line profit? Of course not.
The facts are irrefutable. The betting industry is getting richer and richer. In 1998 it made more than three times the profit it made three years earlier. It can clearly afford to pay a lot more and the Levy Board and the Government must ensure that it does. We will not be satisfied by offers of 10%, 20% or even 30% increases in the Levy as has recently been suggested in the press. The 1961 Betting Levy Act said that the Levy should be based on the needs of the racing industry and the capacity of the betting industry to pay. The Financial Plan has made out the case for a further £80 million from betting turnover, the betting industry can easily afford to pay it – without passing it on to the punter – and would still be making profits of 250% more than it did in 1995.
There is a further point worth making about the Levy system. It is a system which, quite unlike any commercial transaction, allows the buyer – the betting industry – to dictate the price to the seller – the racing industry. The betting industry establishes the price it offers by starting with the retail price it had decided upon, deducting its enormous overhead and the profit it feels entitled to, then deducting the almost £500 million the Government wants as betting duty and finally saying “”oh dear, all that’s left and all that we can afford to pay racing for the product is 1% of our turnover””. As a monopoly distributor, it can afford to take that approach because it knows we can’t sell our product to anyone else.
If the Levy System was a commercial transaction as it should be, the betting industry would have to start by negotiating a commercial price with the racing industry for the product, establish what its overhead and tax costs were and then establish a retail price as the last part of the equation. Past Governments have clearly not understood the weaknesses of the Levy System or have had no interest in making sure that monopoly power is not abused. This Government has already shown that it takes exception to monopolies. We must therefore surely expect that it will recognise the Levy System as a fundamentally non-commercial, monopolistic structure and make sure that Racing receives a commercial price for its product.
In the longer term though, we must replace the Levy System with a commercial transaction between the racing and betting industries which will allow Government to withdraw from involvement in the process. The replacement system which we should explore is the selling of the picture signal. This is the system by which American racing is financed and it is the system by which, in future, betting will be controlled and distributed around the world. The Signal System is the financing system of the future; the Levy System the anachronistic, uncommercial system of the past.
I would like now to talk about the future of the Tote since during the past few months, the spectre of Tote privatisation has raised its head. The BHB deliberately refrained from comment while the Tote was negotiating for the purchase of Corals but the Board discussed the matter in some detail yesterday and we are now in a position to make our conclusions public for the first time.
As many of you will know, the future of the Tote was reviewed at great length by the 1991 Home Affairs Select Committee. The Report makes interesting reading. It recommended that “”the Government announce in principle their intention to vest the Tote in the racing industry”” and that “”the Tote’s present relationship with Government should be ended””.
The Committee recommended that the transfer to Racing be without consideration noting “”it would not necessarily need to be sold since it has never received public funds.”” It went on to say “”we also note that both principal bookmakers’ organisations support the gift of the Tote to Racing”” and referred to Mr Kelly of BOLA’s statement that (and I quote) “”The Tote was set up principally to provide funds for Racing and it would seem rather strange to charge a racing body a sum of money to take control of it””.
The problem with a transfer to Racing at that time was that, in 1991 there was no obvious body to whom to transfer the Tote. The Committee stated “”we also consider it vital that the racing body which in our view should own the Tote ought to be a democratically accountable body and one which is truly responsible to representative groups of all who work in the racing industry””.
The BHB, established two years later in 1993, now fulfils the criteria laid down by the 1991 Home Affairs Select Committee. Yesterday the Board of the BHB unanimously decided to ask Government to transfer the Tote to the control of the British Horseracing Board without consideration. The Board felt that, at a time when the Tote is making around £20 million profit per year before its Contribution to Racing and when the BHB has made such a strong case for an additional annual investment of £105 million, it would be insensitive of Government to contemplate annexing the Tote and selling it to commercial interests.
There is no evidence that Government owns the Tote; no Government money has ever been given to the Tote either on its foundation or subsequently; and the Tote was founded specifically “”to raise money for horseracing””. The Tote’s advertising claim, presumably endorsed by the Home Office, is “”Bet with the Tote, our profits stay in Racing””.
The clear inference from these points is that Racing has a very obvious proprietary right to the Tote. The BHB, on behalf of British Racing, now asks Government to move to formalise that right and give BHB control of the Tote. I must however stress that the BHB will ensure that the commercial position and arrangements of the racecourses will be protected.
Part of British Racing’s problem is the degree to which it does not have control of its own destiny. Amongst other things, it has great difficulty in increasing the price of its product to the betting industry because of the structure of the Levy System; it cannot control the allocation of its income from betting turnover because it is controlled by the Levy Board; and it cannot control the development of the Tote and application of its profits because the Tote Board is appointed by and responsible to Government.
We do not wish to be constantly knocking on Government’s door with requests for more money any more than Government wants to involve itself in the commercial affairs of industry. Government’s role in Racing should be one of regulation of gambling not management of betting businesses and arbitration of inter-industry disputes.
We want to work with Government to assist its withdrawal from commercial matters. The twin goals of transferring the Tote to the BHB and the replacement of the Levy System with the Signal System should enable Government to concentrate on gambling regulation – and deregulation – and leave the racing and betting industries to enter into commercial agreements that will be to the ultimate benefit of racing, betting and the Government.
I call on the Tote and the Levy Board as well as the betting industry and Government to share these goals with us as being the way forward to a better future for all of us.