The State of #TheGreatGame

In the last 3 years percentages in racing fixed odds markets have crept up by 4 to 5 %. Horse racing SP fixed odds markets are now about 121%. That’s very high – to put it in perspective 121% equates to a head to head sport market of $1.65 each team. Further, racing markets are so lethargic at present that it mostly sits around 130% until 2 mins to go. Anyone betting into 130% is effectively betting into $1.50 head to head markets. Taking $1.50 in a head to head market most punters are going to lose their money very quickly and only the very, very sharpest will turn a long term profit. Betting at $1.50 head to head you lose your stake if you are wrong in 2 out of 4 bets. You are only 50% wrong but you lose 100% of your money. And I think this is bad for horse racing. If sophisticated gamblers like me can’t make money and recreational gamblers get the shits because they lose their money so quickly the industry suffers.

Obviously the percentages are increasing because bookies are being charged so much more by governments and principal racing authorities (PRA’s) for the products they bet on. These fee and tax increases have mostly come about with no industry consultation or uniformity. For the bookies it’s a shit fight, and of course many think they deserve their medicine – but we have reached the tipping point – there’s going to be casualties. Their businesses are no longer sustainable under the current fee and tax structures. If we start losing bookies we lose the forces of competition that create value for punters.

Impact of the POC tax

2 years ago the industry was humming along, prize money rising, plenty of winning punters and entertained recreational gamblers, and bookies were making reasonable profits. But the market wasn’t elastic – it had just absorbed a big product fee increase from PRA’s and was the highest taxed marketplace in the world. And then the SA Govt. announced their 15% POC tax. At the time I thought it was ill-thought and the industry couldn’t cope with it, and I still think I’m right. All the other states have followed and here we are.

TabCorp pushed for the introduction of the POC tax because they believed they were disadvantaged. And ironically whilst they pushed for this crushing tax to be introduced they closed their own corporate bookmaker brand LUXBET because it was a “loss making business”. From my research I believe now after its implementation that they have way too much advantage in the marketplace. And that advantage has come about because the implementation of the tax was not properly thought out.

I pored over their 2018 financial year annual report to try to deduce how POC would affect them. For FY18 TabCorp made $1.03 billion gross profit from the tote, $509 million gross profit on fixed odds through their retail network, and $416 million from fixed odds online bets. Why this is interesting is because 78% of their profit comes from revenue that is protected from their competitors because of their exclusive license agreements with state governments, and when you stack up that 78% figure against what their competitors pay in this new POC environment is where it seems grossly unfair to their competitors.

I have used Tabcorp’s FY2018 figures for my evaluation, and the POC tax only kicked in in NSW and Victoria at the start of this year, so you could think that TabCorp will be paying even more than 59% back to industry and government – but I highly doubt it as their chairwomen is on the record as saying “that we can’t be double taxed” and that the state governments would need to reimburse them if they were to be worse off under the new POC structure. So we can assume they probably pay about the same now as they did in 2018.

TabCorp always have been and probably always will be the foundation of the racing industry. They are a decent and progressive company and I enjoy betting with them, but they need to cede some advantage to their competitors if we are going to have a diverse marketplace. Under the current set-up no one would consider starting up as a corporate bookie, and if they did they would fail.

Tabcorp pay out 59% of their annual gross wagering revenue (and of which 78% is protected) back to industry and government, a considerable amount. With all the new taxes and fees Betfair pay 59%, SportsBet, Ladbrokes and BetEasy all pay 41%. The gap between what TabCorp pay and what the rest of the industry pay isn’t wide enough when you consider TabCorp have the exclusive right to the juggernaut retail and tote market in most of the country.

My facts and figures about TabCorp won’t be perfect as their financial reports are still pretty opaque, but even accounting for a small margin for error in my figures it’s still obvious things aren’t fair.

We need PRA’s and government to make things a bit financially easier for bookies, so in turn they will hopefully reduce their percentages, and make it easier for us to win or not lose more. I have some ideas and I’ve tried to be realistic with what both can do.

What government can do

TabCorp’s competitors deserve some relief. How that should look is complicated. PRA’s need all the revenue they can get so they continue to grow prize money and their sports. The industry those PRA’s run are huge economic drivers, and the governments know this, so it has to be the federal and state governments who get less.

I think that all state governments should cut their POC tax in half when applying it to sports that bookies pay product fees on (racing, NRL etc..) but it can remain at current levels on sports or events where they pay no product fees (NBA, NFL, elections etc…). And the federal government should do the same when applying GST. Further, the federal government also get over $100 million a year in GST receipts from yearling/tried horse sales and the breeding industry – every yearling/tried horse sold, or mare serviced by a stallion, attracts 10% GST. So this needs to be thrown into the argument because it’s punters who make the yearling sales happen.

BetEasy just released their results for the first quarter of this year. They were alarming as to how challenging the marketplace is. They are a mature business, and the third largest bookie in Australia and they lost $1 million for the quarter. Their gross revenue was $62 million (all in USD), taxes and fees were $25 million, wages, rent etc… $26 million, marketing $10 million and R and D $1.5 million. I don’t really see where they can cut costs to increase their profit. Their gross revenue or win margin was 8% so they could try and jack that up, but that just means we the punter pay for it.

Ladbrokes have forecast that POC tax will cost them double what their profit was last year. A proper blackout for them.

Clear evidence for relief on taxes.

What Principal Racing Authorities can do

The PRA’s across Australia do a fantastic job in a very challenging environment. I’ve always been able to organise meetings with them to give them my thoughts – which shows that anyone can have their ear. I have great respect for them.

Racing Victoria and their product fees

Racing Victoria have a crazy mechanism in their product fees which charge bookies a hybrid of a percentage of turnover, or a percentage of profit, whichever is higher, for the meeting a bookie works on. But they apply it on a per meeting basis. A bookie can take bets on Derby Day at Flemington and win 500K, then take bets on Melbourne Cup day and lose 500k. Racing Victoria would charge them 30% (150k) of what they won on Derby Day and then charge them 3% of their turnover when they lost on Cup Day, which hypothetically could be 50K. So they are square for the 2 days but still have to pay Racing Victoria 200k. It makes no sense and is manifestly unfair. There has to be consistency in the way RVL charge.

TopSport for the last 2 years have paid out 155% of their revenue on Victorian racing in product fees to RVL. That’s not a typo – it has actually cost them significant money to put up prices on Victorian racing.

I’ve spoken to the CEO’s of other major bookies and they all say they pay close to 100% of their revenue to RVL as well because of the per meeting charge. They say if the rule of charging per meeting was scrapped they would be able to reduce their percentages for punters.

RVL CEO Giles Thompson has said he’s aware and worried about the rising fixed odds percentages. Changing the per meeting charge will go a long way to helping punters.

Racing and Wagering Western Australia also apply their hybrid model on a per meeting basis. I’ve brought it up with both CEO’s and of course the bookies have long been campaigning against it. Let’s hope they change it.

Racing NSW and Betfair

As percentages have risen and fixed odds betting has become less inviting, punters look for other avenues, and Betfair is a great one, however Betfair markets on NSW and WA racing have their issues.

Racing NSW and Racing Western Australia make Betfair pay their product fees based on a punter’s turnover. All other jurisdictions charge BetFair 35% of their gross revenue. Betfair don’t charge their punters on turnover so product fees are a nightmare for them on NSW and WA horse racing.

Betfair have to charge punters betting on NSW twice as much as they do on say Victoria or Queensland racing just to keep what they pay to RNSW in product fees to 50% of their revenue. If they charged the normal rate they would pay RNSW 100% of their revenue. And that is also after they stop any punters trying to trade on Betfair on NSW racing. This is because RNSW charge Betfair for every bet a punter makes on Betfair but BetFair only charge their punters for their net position on a race.

All these factors lead to diminished liquidity on BetFair on NSW and WA racing. And when you can get a bet on it costs twice as much as betting on Victorian racing on Betfair.

Peter V’Landys and Racing NSW talk proudly about how they have captured and engaged the next generation of racegoers via the introduction of The Everest. It was a contrarian move by Peter and it has paid off well. But he needs to realise that others in the industry, like Betfair can be contrarian as well. BetFair is here to stay – it’s a great driver of turnover, is hugely popular with younger punters who RNSW so desperately want. The rest of the country’s PRA’s have embraced it – made it pay its fair share but also allowed it to prosper. It’s time for RNSW to do the same and charge BetFair on revenue. This is reinforced when you consider that the $45 million dollar Spring Carnival that RNSW just announced can happen because of the NSW government giving part of the newly collected POC tax to RNSW. Punters are paying for it, so please give us a break in return by charging Betfair less so they can charge punters less.

Wagering Summit

The industry is in a mess. Government and PRA’s have too much advantage in the current climate. The industry needs to meet in Canberra for a couple of days and sort out the best way forward where all participants have a chance. I’ve mooted the idea with some of the heavy hitters of the industry and they all say it’s a must event. The state and federal governments receive hundreds of millions of dollars off the industry each year, so they can at least give us a couple of days to work out a better way forward. I’ll be pushing hard for this.

Minimum bet limit rule changes

I’ve had a lot of correspondence with PRA’s about MBL rules. Here is a brief update.

9am raceday rule; this rule (that MBL doesn’t kick in until 9am race days) is about 50/50 to get changed. Regulators I’ve spoken to say that there is strong pushback from mid -tier bookies who say they won’t put prices up if they are forced to bet prior to 9am raceday. Regulators fear this will impact turnover. But the bookies who are threatening this simply copy the prices of all the market makers like SportsBet and Bet365. They can’t be protected for their own mediocrity. All the big bookies like Ladbrokes and Sportsbet are happy for the 9am rule to be abolished. Fingers crossed it is.

Betting limits look like they won’t change yet. I’m okay with that because you can still get on for decent amounts at present. PRA’s acknowledge that if there is further consolidation they will have to review limits.

I often have issues with some bookies who do everything they can to reject my bets or close my account. I’ve highlighted all the tricks the bookies play to PRA’s and they are making some changes to MBL rules to stop bookies always trying to find loopholes to stop betting certain punters.

Official Price Network

All PRA’s are reviewing their official price networks. With them agreeing that the rules need to be changed to create better value for punters. I’m hearing that they are looking at having a blended price of the 5 major bookies that would be the official price. I think that would work well.

Deductions

Deductions need serious attention. PRA’s need to have their own deductions scale and enforce bookies betting on their races to use it. I think there should be a system where a market, no matter how much percentage there is in it, is regressed back to 110% and deductions for a scratched horse would be applied then. Many recreational gamblers don’t understand deductions so making them as light as possible is the best look for the industry. 110% is fair for all.

7 thoughts on “The State of #TheGreatGame

  1. Outstanding analysis Richard !! Maybe common sense will prevail

  2. Great in depth analysis as usual. A calm and considered way forward to a fair resolution for all.
    Thanks Richard

  3. A good read, hoping you get the Wagering Summit up.

  4. Seeing bookies drop like flies tells me that the good old days are gone and gone forever. State governments will never lower tax burden on bookmakers, quite the opposite probably. State governments are probably what I dislike most about Australia, they are about as efficient as cooking a T-bone with a Bic lighter.

  5. i am so happy to be paying for millionaire owners to race for huge prizemoney. it allows them to pay even higher prices at yearling sales to breeders

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