Month: April 2020

by Brian de Lore
Published 17 April 2020

We have no racing; we have no idea when Jacinda & friends will permit the resumption of racing; the TAB is likely to be in breach of the law for trading while insolvent; racing falls further into debt as each week passes.

The 135 employees quoted in this headline is really 136 but because Executive Chair Dean McKenzie who took over from John Allen on January 1st is on an unknown remuneration, he is left out of the calculation. They are not my figures but come from a reputable accountant equally concerned about the current state of racing and its apparent inability to adjust to the moving floor beneath it.

The cost of the infamous gravy-train. If 50% of the cost of these employees were gone tonight it would save the stakeholders of racing enough money to run an extra Saturday weekly eight-race card at $24,000/race.

A second, reputable and long-standing accountant in the industry, John Aubrey, has made an assessment of the fiscal state of the industry from last year’s Annual Report which is reproduced below. He also emphasises that the 2019 figures now have some age while expressing concern that the half-year result to January 31st has not yet surfaced despite the fact that we are now in the second half of April.

You don’t have to be Einstein to understand that New Zealand racing right now is flyblown (as the Aussies would say), destitute, insolvent, impecunious, penniless, impoverished, broke or on the rocks. Everyone knows it, but whatever adjectival description you prefer, no one wants to say it.

Let’s maintain the stiff-upper-lip they would say, as Kiwis with English and Scottish ancestors would have done; maintain your dignity, never say die and carry on to the bitter end. For NZ racing, however, the bitter end might be avoidable if we could only extract the truth and recognise those in charge are clueless.

RITA is awaiting the outcome of an application for a Government bail-out, citing the COVID-19 as the issue, no doubt. Will the people at Treasury with the Minister of Racing pushing the issue buy into it and give racing an estimated $80 million hand-out/loan?

If it was a level playing field the answer would probably be, no! But in New Zealand politics nothing much is on the level, I would suggest, and the forthcoming answer isn’t one to bet on without inside knowledge.

NOTES ON RITA FINANCIALS by John Aubrey

WHAT IS THE BOARD’S FINANCIAL POSITION?

NOTE: The figures below have been taken from the 31 July 2019 Financial Statements. The statements for the half year to 31 January 2020 are not yet available.

1. The financial statements of the NZ Racing Board (now called Racing Industry Transition Agency, or RITA ) do not show a strong position. As at 31 July 2019, the reported net profit before distributions was $136 million, down on 2018 by $9 million. Distributions to the Clubs and Gaming totalled just on $162 million.(2018, $159 million)
   
2. The equity or capital (assets less liabilities) of RITA has at 31 July 2019 dropped to a disturbing $24.8 million. In 2016 the comparable figure was $74 million. Go back to 2011 and the equity was $81 million.
   
3. Where have the funds gone ? The accounts disclose that some $105 million was spent on computer software. Presumably, most of this is on the fixed odds betting platform. This author’s calculation differs from that set out in the notes to the financial statements. Of the total cost, $65 million has been amortised to date leaving a book value at 31 July 2019 of $40 million.
   
4. In addition to expenditure on betting software RITA was propping up the codes/clubs by payments exceeding the available profit. In 2019 the payments to the codes and sports bodies exceeded the net profit by $28 million and in 2018 by $16 million.
   
5. The question that must now be asked is simply “is a second-hand betting software worth the $40 million?” Note 19 to the financial statements states that the software has an estimated useful life of 3-7 years and the amortisation is charged annually on a straight-line basis. Note 19 also states that “Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.”  Given the current liquidity issues and the COVID 19 outbreak would the auditors insist on an increased amortisation sum?  If the amortisation was for some reason to be “speeded up” the equity of RITA would be getting close to zero, or worse.
   
6. On a straight assets less debts calculation, the TAB, or RITA, is worth nothing, However, the real asset is the monopoly right to conduct betting in New Zealand. This comes in two forms. Firstly, the sole or exclusive right for this country. Secondly, the ability to conduct betting over a number of years. In Australia this latter sum is huge, but most of the funds paid have gone to Government for payment of a gaming licensing fee for 20 or 30 years. The value of this intangible asset can be realised only by an outsourcing arrangement or an outright sale of the TAB to another operator.
   
7. The notes to the 2019 RITA financial statements say only that the broadcasting licences are carried at cost less accumulated amortisation and impairment losses. There is no mention of the term of the licences but the original costs amounted to $2.9 million. The current book value, cost less depreciation or amortisation, is just over $1 million.
   
8. The RITA has an unsecured revolving credit facility totalling $45 million. $10 million was drawn in the 2018 year and $25 million in 2019, leaving $10 million undrawn. Rumour in the industry has it that this has been drawn down subsequent to balance date.
   
9. Disturbingly, the 2019 Statement of Financial Position discloses Current Assets of $49 million but Current Liabilities amount to $71 million.
   
10. Quick Assets ratio. This is the ratio of liquid current assets ($18.1 million) to all current liabilities ($47.8 million). As at balance date 31 July 2019 the ratio is .38. This is very poor. The betting account deposit and vouchers, ($23.4 million) balanced by the trust term deposit of $25 million have been removed from this calculation.
    
11. The RITA update of 2 April 2020, following the COVID 19 shutdown, makes distressing reading. RITA advise that the product available for betting is down about 75%. The telling comment is on page 2 – “…when we can’t sell any bets we can’t make any money and in fact with the fixed costs of the business (rent, insurance etc) continuing we are losing money.“  Not making a profit means no funds for the clubs.
    
12. RITA obviously have grave financial issues. If betting cannot be restored to reasonable levels in the next couple of months RITA must surely be close to insolvency. One definition of insolvency is “unable to pay debts as they fall due in the normal course of business” and another, “having liabilities in excess of a reasonable market value of assets held”.

The state of racing depicted after Nathan Guy’s term as Minister

by Brian de Lore
Published 11^th April 2020

It wasn’t a Dick Turpin* ‘stand and deliver’ robbery, condoned by an opportunist Government that reigned for nine long years until the last election, that has stripped the racing industry of its wealth.

It was more reminiscent of the stealth of an undercover petrol-siphoning operation that trickled the fuel out slowly but surely over many years until the gauge was displaying the red light and illuminating ‘reserve tank’ by October 2017.

And at that time in history when National was usurped by a Labour Party Coalition and Winston was entrusted with steering the ship, racing was hopeful the siphoning operation would be suspended in the interests of the future health of the racing industry, and the pre-election promises would slowly bring about a refilling of the tank.

Alas, the siphoning has continued. Mismanagement and self-interest is endemic in the administration. Everyone knows the problem but no one talks about it, at least publicly. The people in charge don’t want change – they’re looking after their own interests – we have a business model that defrauds the people it was set up to benefit, and the culprits carry on as though nothing is wrong.

The question is, to what are we transitioning?

The Government appointed RITA stands for Racing Industry Transition Authority. The question is, to what are we transitioning?  Whatever it is, it does not resemble recovery. Neither does it resemble the outcome visualised in MACs Terms of Reference or later outlined in the Racing Minister’s Letter of Expectation to RITA.

Since the appointment of MAC 15 months ago, which became RITA on July 1^st last year, the industry debt has gone from $25 million to $45 million. The realisable tangible assets are few, and the daily running costs continue unabated with only token efforts at reducing costs from either RITA or NZTR (New Zealand Thoroughbred Racing).

Last Tuesday, Tabcorp announced that due to the impact of the Covid-19 pandemic it was taking the action of the “temporary standing down of over 700 Tabcorp employees to 30 June 2020 in businesses of the Group where there is no work as a result of COVID-19 shutdowns.”

By comparison, RITA and NZTR have only tweaked staff costs with no apparent downscaling of numbers, and have been slow even to tweak. We have no racing in New Zealand but have basically maintained staff levels, yet Australia continues to race but is appropriately downsizing – go figure that one out!

Is it because the Wages Subsidy is paying salaries to keep those people fully employed? The answer is unclear. The last round of annual reports showed that the administration costs of running racing are as follows: $200,000 a week each for Greyhounds and Harness, $400,000 a week for thoroughbreds, and $4.1 million a week for RITA – quite a lot for an industry not operating and one likely to return as a ‘cottage industry.’

Does anyone dispute the potential for substantial cost savings?

Does anyone dispute the potential for substantial cost savings?

Australian racing is all that’s keeping our TAB afloat. Since I mentioned the weekly cost of ~$ 5 million last week, we are another ~$5 million worse off.

My information says punters have been leaving Tabcorp in droves in favour of the corporate bookmakers because all Tabcorp’s retail outlets at clubs, pubs and franchised TABs are closed due to Covid-19. Tabcorp is reputably down as much as 40 percent in GBR (Gross Betting Revenue). The NZ TAB with a markedly reduced GBR is also struggling to compete (with no local racing) with the Australian corporates offering more attractive fixed betting odds due to their luxury of scale in a diminished marketplace.   

RITA is now awaiting the outcome of an application for a cash bail-out of the industry from the Government.  Whether or not its granted is problematic either way. To get the bail-out will put money in the hands of an administration that has been recidivist mismanagers and shown no inclination to restructure and outsource the TAB. It would be BAU, which projects a prolonged but inevitable outcome.

To be rejected exacerbates an already dire predicament. RITA is currently not paying its bills with debt maxed out at $45 million and, therefore, must be close to going into administration. Not knowing who would be in charge of our industry’s future decision-making, particularly in relation to outsourcing the TAB, would be of major concern given the astonishingly poor record of government appointments to racing over the past 15 years.

It was Nathan Guy who became the ultimate ‘Dick Turpin’

It was Nathan Guy who became the ultimate ‘Dick Turpin’ for the National Party when appointed Minister of Racing in 2011, a position he held for six years until David Bennett replaced him in 2017. Nathan Guy showed zero interest in racing despite his position and did the industry two massive disservices when he sat on the ‘racefields’ legislation throughout his entire tenure and did nothing with it despite a visit from Australia’s Peter V’landys to convince him otherwise.

But then in 2015, Guy committed the ultimate offense when appointing National Party Director Glenda Hughes as Chair of the NZRB. Hughes did not qualify under the Racing Act of 2003 terms of appointment (‘no racing experience’) but nevertheless the appointment wasn’t challenged by any of the codes.

That was the most blatant ‘jobs for the boys’ appointment of them all. But it was soon followed in turn by the double sideways nepotistic shift of John Allen, who arrived as a present for racing from Hughes and the then PM John Key.  He came via the Department of Foreign Affairs and New Zealand Post – the former euphoric to see the back of him after a 42 Diplomatic signed petition to get rid of him.

…not one with an ounce of racing knowledge or previous experience in racing…

The John Allen ruse was consummated by the infiltration of his civil servant workmates who like all good troopers trundled along after him in the spirit of the Pied Piper to join the circus. And like Allen himself, not one with an ounce of racing knowledge or previous experience in racing on their cv.

Nathan Guy was also the MP who stood up in parliament less than a year ago and declared the unconditional ownership of the TAB to be the Government, amongst his other deprecatory and uninformed remarks that further unendeared him to the stakeholders of racing – as if he hadn’t put the boot in enough during his six years as racing’s ‘mute’ minister.

This bunch of National Party freeloaders and failed civil servants became known as the NZRB gravy-trainers who have since thundered down the railway tracks of New Zealand, slowing only to throw scraps from their champagne luncheons to the grass-roots participants of racing as they passed each of the 58 thoroughbred racecourses throughout the country.

Incredulity is to the fore when considering the Racing Act of 2003 opened the door for this siphoning of racing’s blood. It was a heinously poor document but even worse was the one offered to racing as its replacement in the first week of December last year. It was nothing but an invitation to hand gratis control of the TAB to Sport NZ.

…blatantly insulting the racing fraternity with a document so appallingly anti-racing…

No apology or explanation has been offered as an excuse for blatantly insulting the racing fraternity with a document so appallingly anti-racing – but not knowing the origins of its purpose or the original authors, one can only be suspicious to the extreme.

Regurgitating all this government bashing of racing, which you will all be so familiar with, leads us to raise two important questions. How will New Zealand racing get through this current Covid-19 lockdown predicament and come out the other side – in what sort of shape?

Secondly, what and who will put a new administrative model in place and reverse the graph’s steep line of descent which is the one and only thing in racing that’s been constant?

History tells us racing can’t trust anything orchestrated by a government. The second albeit delayed reading of the Racing Reform Bill will be eyebrow-raising. Will it be a reflection of the 960 written and 90-odd oral submissions that were painstakingly processed in February, or will the rewriting for its second reading have again been infilrated by that same anti-racing, pro-sport lobbyists that authored the original?

NZTR is promoting a return to racing by July 1^st which could only happen if the lockdown is relaxed on Wednesday week. That seems unlikely given the PMs inclination for erring on the side of caution and the conservative nature of Kiwis as a nation.

Even if racing did return on that date, does anyone know what we’ll be using for prizemoney? Sacks of potatoes are out due to the off-season unless leftovers remain from last season.

A cash hand-out from the Government would represent compensation for past misdemeanours but offer only an interim solution. It would be out of character, however, and show a benevolence towards racing against all manner of recent and past history.

* Dick Turpin (21 September 1705 – 7 April 1739) was an English highwayman whose exploits were romanticised following his execution in York for horse theft.

by Brian de Lore
Published 3^rd April 2020

Racing Minister but more poignantly Foreign Affairs Minister Winston Peters, who turns 75 tomorrow week, was talking-up a post-COVID-19 pandemic economy for New Zealand in the press earlier this week.

He was comparing our current predicament to that of the Great Depression of the 1930s in the USA from which the then-President Franklin Roosevelt with his New Deal turned things around and made the USA the most powerful economy in the world.

The USA in the 1930s had the scale New Zealand lacks, however, and no constrictions from an economy dependent on tourism and trade with China. Scale is racing’s most crucial issue with an administrative mindset shown to be reluctant to join a globalised wagering market and bring in the New Deal for New Zealand’s racing future.

Since the Messara Report was released two years ago this July, its author John Messara has openly emphasised the importance of recommendation number seven: “Begin negotiations for the outsourcing/partnering of the TAbs commercial activities to an international wagering operator to gain significant advantages of scale.”

“Begin negotiations for the outsourcing/partnering of the TAB’s commercial activities to an international wagering operator to gain the significant advantages of scale.” – recommendation seven, Messara Review

Messara has consistently stated that without the implementation of this recommendation, you may as well bin the others. He emphasised the importance of adopting all 17 as a suite of remedies that were not for cherry-picking.

Minister Peters acknowledged the Messara Review at its launch by saying he didn’t commission an Australian expert to ignore the advice. And in appointing MAC/RITA, it was clearly the intention of the Minister to adopt the Messara Review and RITA’s instructions in the ‘Terms of Reference’ to operationalise it.

However, RITA’s actions haven’t reflected the recommendations of the Messara Review or displayed an inclination to seriously investigate the prospect of outsourcing/partnering the TAB. Establishing that the ownership of the TAB resides with the codes, would enable outsourcing/partnering to commence as part of a major restructuring of the industry.

In a text to the Minister earlier this week, my request for a discussion on the subjects of ‘ownership of the TAB, the progress of the legislation, and racing post-COVID-19 and RITA,’ was rhetorical as much as hopeful of a return text.

Winston Peters: It is likely the racing bill will face delays

But a response did arrive by email in which Peters said: “It is likely the racing bill will face delays. Parliament is not sitting because of the alert level and all parliamentary business is slower as a consequence.  Timelines have to be taken with a grain of salt.  The bill is before the select committee for consideration, and ultimately the committee members will determine the timing.

“The existential threat for racing at present, like all New Zealand industry and sport, is surviving the economic consequences of COVID19. And being in a fit state to pick up the reins when the time comes.

“RITA is a commercial operation and its leadership has been taking the necessary commercial decisions. The Government has been doing its bit.  The wage subsidy scheme – which is likely to cost up to 12 billion dollars overall – is being utilised by many in racing.  The Government will consider other measures as well, but no further decisions have been taken so far.”

Peters made no mention of the ownership of the TAB, however. For the past month, he has been in possession of and conducting due diligence on, a copy of the 1950 document ‘Off-Course Betting Scheme’ which outlines the formation of the TAB and conclusively determines the NZ Racing and Trotting Conferences started the TAB with the approval with the Minister of Internal Affairs.

In an ideal world, the Minister would publicly state the codes to be the true owners of the TAB

In an ideal world, the Minister would publicly state the codes to be the true owners, and the matter put to bed once and for all by having it written into the Racing Reform Bill. That would stop the tail wagging the dog as it has done for many years, place the codes in a position to commence outsourcing/partnering which is the main source of revenue to rescue this now destitute business.

Even the COVID-19 pandemic, which is a dagger in the side of an already crippled racing industry, hasn’t been enough to move racing administrators to look at reducing costs seriously. In particular, to follow other industries with which have adapted with significant pay cuts and downsizing to skeleton staffing.

Consider a week’s worth of news: Woolworths and Michael Hill Jewellers announced 9000 job losses between them; Job losses in New Zealand may number 67,000; Radio Sport is no more; Air New Zealand is letting go around 3,500 staff; MediaWorks is asking all staff to take pay cuts, Newstalk ZB and The New Zealand Herald is warning of job losses; Forestry is saying 4,000 logging jobs are going; Bauer has just closed its NZ operation with the loss of about 250 journalists.

What’s RITA doing? This is what the Executive Chairman of RITA, Mr Dean McKenzie, said in his latest Update dated April 2^nd: “I’ve spoken previously of the steps the TAB has taken to cut costs and we continue to maintain this focus. The Board and executive management team have taken pay cuts and a significant number of the organisation’s staff are voluntarily taking leave, while in some cases we’ve had to ask staff with high leave balances to use them”

In an organisation more top-heavy than Humpty Dumpty…

In an organisation more top-heavy than Dolly Parton, McKenzie’s statement says nothing about staff reductions or how much the pay reductions are – if they were significant they would be stated.

Saying “…while in some cases we’ve had to ask staff with high leave balances to use them,” is bordering on pathetic. Further evidence of McKenzie’s inability to show decisive and strong leadership in a desperate financial situation where most properly run businesses have leaders who make morally responsible decisions in the best interests of industry stakeholders.

Even worse is what McKenzie wrote in his opening paragraph. He said, “the overwhelming message I’ve heard is that the measures in place provide us with the best opportunity to return to normal – even if it’s clear that it will be a ‘new normal.’

McKenzie needs reminding that in this calamitous epoch, where cash is king, RITA is indebted to the bank for $45 million! The last thing we want to do is a return to normal or what McKenzie’s idea is of a ‘new normal.’ Today’s normal or reality is that we are a racing industry with no racing and only a small percentage of our usual income. We are also a racing industry that between the codes and RITA costs ~$250 million annually, and they’re acting as though its business as usual – it’s lunacy.

Look at the situation in more simple weekly terms. The average running costs of the racing industry (RITA + codes) is $4.5 million a week. Even with a booming week last week at $3.7 million (GBR) the industry went backward by a further $800,000.

Without brutal cost-cutting, if racing in Australia stopped because of COVID-19, the industry without The Championships to bet on is bankrupt within a week. Racing’s inability to react quickly in this dire state of the current economics could mean our industry becomes the most spectacular casualty of all the sports – nearly all of which has been man-made.

Three years ago, when the NZRB 2017 Annual Report was released, cash on hand and assets amounted to $38 million. Winston Peters became Minister but the big-spending of CEO John Allen on the FOB was already set in stone. Less than three years later, racing has no tangible assets of any value and owes the ASB (new bankers for whatever reason) $45 million – how was this allowed to happen?