by Brian de Lore
Published July 2017
“We are quite happy to allow planning processes to go on forever. It’s not the big that eats the little; it’s the fast that eats the slow.”
They were the frustrated words uttered by Employers and Manufacturing chief executive Kim Campbell a few years back when asked what it was that impeded the Kiwi psyche in business.
Campbell’s statement could be related to the psyche we have in New Zealand racing governance today: – “happy to allow planning processes to go on forever,” followed by a racing industry that continues to contract and disillusion the bulk of its participants.
The brief history goes like this: racing was doing fine until the late eighties. The economic crash of 1987 followed by the internet and technology revolutions in the 1990s brought globalisation, and since then we have been gradually losing ground.
The clubs started the TAB in 1951, but before long the Australians came, looked and copied the model before opening the Victoria TAB in1961. Their prolific betting, larger population (They bet A$2.10 per head for every NZ$1.00 we bet) soon produced higher revenues, superior betting services and consistent, sustainable profits for a healthy racing industry.
Then the big game-changer occurred in 1993 when the Northern Territory state government licensed Sportsbet, the first non-government organisation allowed to provide betting services in Australia. Three years later Centrebet became the first company to offer online betting – the tide had turned.
Dwindling race crowds and on-course betting occurred concurrently in the late 1990s with a burgeoning online betting industry. Then the Australian government stepped-in with the Interactive Gambling Act of 2001.
The Act served to rein-in the online bookmakers’ free-for-all which had been tolerated until that time with strict rules and guidelines, but then further game-changers occurred in 2007 and again in 2010 with the respective introduction of smart-phones and iPads/tablets.
As technology advanced, more online bookmakers arrived, necessitating the drafting of race fields legislation to force them to give something back to racing. They were hurting the tote and paying nothing for the use of the race fields.
Sportsbet and Betfair contested the legislation in the High Court, and after dragging it through the legal mire for four years, a landmark ruling was delivered in March 2012 in favour of Racing NSW. The 1.5 percent of turnover that had been held in trust for those four years amounting to over A$100 million was freed-up to allow Racing NSW CEO Peter V’landys to announce infrastructure improvements and massive prizemoney increases for the state.
The door was now open for New Zealand to follow but, more than five years on, we are still writing the legislation for our race fields. That Kiwi psyche kicked-in, we were slow leaving the barrier and have continued to fall further behind our counterparts across the Tasman.
My reasoning for regurgitating this 25-year history is to emphasise how much the game has changed and then to contemplate the doubling of that amount of change over the next 10 years. That’s where technology is taking us – a place unknown.
Meanwhile, it may be this time next year or even further down the track before the race fields legislation goes before parliament and undergoes three readings and is then is passed into law. Presently it’s in draft form only, still requiring fine tuning, and from what the writer has learned is ‘low priority’ from a government viewpoint.
The racing industry viewpoint is racefields is ‘high priority’ because for each year that flows by without it being passed into law it costs gallops around $10 million that would go straight into stakes money.
And that $10 million is potentially $20 million annually because at present Australians betting on NZ racing represents only 3.2 percent of their turnover. Unlike harness (6.7 percent) and greyhounds (6.5 percent), the gallops have been poorly marketed across the ditch and so the potential to double the percentage, given its exclusive time zone, is a very real one.
Aside from race fields which John Allen promised us in this session of parliament in his February ‘talking to the industry tour,’ the fixed-odds betting platform which is part of the $60-75 million the NZRB is spending and which was promised for early next year, is unlikely to arrive before the start of the 2018/19 season.
Late last week in a call to NZRB Head of Communications Kate Richards, she said: “The FOB platform has been agreed to in the partnership with Open Bet and Paddy Power, but it’s impossible to say how long it will take to implement – current estimation is that it will start in the 2018/19 season. The Board has approved the partnership to start the process.”
Does the time-frame blow-out also mean a budget blow-out? Cynicism for that comes from the perusal of annual reports, statements of intent, and budgets released by NZRB over the past six years that show a series of underestimated costs and over-stated returns.
For example, in the NZRB Annual Report for the year ended July 2012, the budget for employee expenses was $43,660,000 following the previous year’s actual of $41,149,000. But the actual for 2012 blew out to $47,155,000 – $3.5 million over budget.
Between 2012 and the year ended 2016, total revenue for the NZRB increased by over $50 million ($301,881,000 to $351,923,000), yet the thoroughbred industry stayed ‘flat-lining’ in terms of its returns. Why? Simply because costs at NZRB were and still are spiraling.
Is this the reason, or one of them, that prompted NZTR Chairman Alan Jackson to write the following in the Chairman’s Annual Report published in the November 2016 Thoroughbred Monthly?:
“Looking forward, there is only so much more running to stand still the Code can sustain. We cannot have another financial result like the current one, and we cannot simply continue to reduce the number of meetings and races to raise stakes.”
As stated here previously, the wages bill has now soared to $66,824,000 as per the P&L of the NZRB Financial Statements for the year ended 2016. Unacceptable in a public company environment, the difference here is that the NZRB came into being as a result of a now completely outdated Racing Act of 2003.
The Act and especially clause 16 is probably some of the dumbest legislation ever passed. It gives the NZRB ‘carte blanche’ on how much they return to the codes with no accountability on their costs. It was written by the bureaucrats for the bureaucrats and has placed us where we are today.
Back to the governance of racing, it’s not the fault of the NZRB but the government of the day and the legislation they passed that has put us in this hole. The NZRB comprises a group of people that don’t have their livelihoods at stake in racing because they are mainly corporates, marketing, and IT people whereas the NZTR is in the main body with a vested interest.
Ironically, the people at NZTR didn’t want to talk to me for this story, but the NZRB obliged.
But it’s the NZRB that’s setting off down the path to building its own FOB platform and an app for smart phones, all at considerable costs in a world that will continue to leave them behind in technology.
With at least 12 major bookmaking companies operating on Australian racing, some of which spend $120 million annually on IT to retain or gain market share, how could we believe the NZ TAB could be competitive long term.
Tabcorp recognised some time ago that scale was required to compete against the bookmakers. It’s now a massive, integrated betting organisation that supports all forms of wagering and is the rock that provides revenue for racing.
Tabcorp is currently in the process of taking over Tatts (Ubet) which is the Queensland equivalent of our TAB. They have signed a deal which now only requires ACCC approval for the corporate merger. The deal will strengthen Tabcorp and save Queensland racing hugely in annual expenses.
Tabcorp services also includes retail, digital and sky media platforms – their strength provides stability for a strong Australian industry. Scale gives them competitiveness in today’s globalised wagering business which gives better service to punters and more back to racing.
So why is the NZRB going it alone and risking massive capital to develop its own technology to compete against Tabcorp and the bookmakers who possess far bigger scale and budgets?
The reason New Zealand doesn’t have its own banks is simply a consequence of scale. We are not large enough to go it alone when the market is global.
Why wouldn’t they instead outsource all our betting services to Tabcorp and became part of the scale that would provide more certainty for our racing future? The answer may be in the DNA of the NZ psyche previously mentioned.
Outsourcing to Tabcorp would provide $50 million to $70 Million of savings over three codes in annual expenses. Those savings would transform racing in New Zealand as we know it. But the catch-22 is that most at NZRB would lose their jobs because that’s where the savings lie.
Instead, the racing business is all-aboard the Titanic and heading into the North Atlantic knowing there are icebergs to negotiate? And is the NZRB the band that continues to play while rearranging the deck chairs?
Maybe it’s not too late to head back to port to replot a safer course?