by Brian de Lore
Published 6 December 2018
On the backside on of a disappointing Ready To Run Sale at Karaka and an equally disappointing TAB result for November, the racing industry is heading into the New Year with a fair degree of trepidation.
It’s good to be positive and be optimising our hopes for the best result in the coming year but how long has this business been doing that? How long have we been waiting for something positive to happen?
The fiction has been in plentiful supply; the promises have been flowing forever, but the disappointments have continued relentlessly. Isn’t it about time we looked the truth in the face and got rid of all the pretenders or more drastically considered locking the gate and walking away?
The around 20 percent decline in the Ready To Run Sale held on November 22 and 23 was well documented within these pages last week, but the double whammy came with the November TAB betting figures showing betting domestically on thoroughbreds was down six percent compared to the same month in 2017.
Harness was worse at 23.2 percent down while Greyhounds took the biggest hit and were down 33.6%. Betting on Australian thoroughbreds was up at 5.2 percent while Harness was up 14.1 percent in Australia and Greyhounds only marginally better at 0.4 percent. Overall, betting declined in November by six percent.
Looking for reasons for the downward betting trend, one industry observer put it down to increased petrol and food prices and a general tightening of the NZ economy which inhibits the cash flow. Another industry stakeholder dismissed that reasoning in favour of NZ punters becoming disenchanted with the local product which is reflected in both a diminishing annual foal crop, fewer domestic buyers at the recent sale and a succession of cancelled race meetings.
Whatever the reason, the crisis appears to be worsening. And make no mistake; it is a crisis. Betting is the lifeblood of racing with stake money being dependent on betting revenue not only maintaining its current level but increasing as the NZRB is proposing with the introduction of the Fixed-Odds-Betting platform for which the launch has had four delays.
NZRB CEO John Allen has for a very long time been saying that the FOB will be the savior of the racing industry but racing people generally have very little confidence in the former lawyer, CEO of NZ Post and Head of the Department of Foreign Affairs delivering the silver bullet to save the industry.
Almost two years ago in February of 2017, Allen told an industry discussion meeting at Riccarton that his board would be deciding in April (2017) as to how they implement Paddy Power/Bet Fair and Open Bet with the expectation that implementation would take one year.
That is verified in a recording of that meeting attended by around 30 people which was revisited this week and in which Allen also said, “About saying one year, you’ll say that if I say it’s one year that will be three years and if I say it will cost $25 million it will cost $50 million.
“Two comments about that – the one-year judgement is the judgement of Openbet as to the time it will take; they have done this in multiple jurisdictions around the world and have never exceeded one year, and they are very confident it will be done in the time frame. The reason that matters is because we have committed ourselves to increased distributions to the codes.”
The year in which Allen was speaking was up last April and while this industry remains in a state of ‘serious malaise’ the FOB is yet to arrive after a further eight months have elapsed. Furthermore, the cost has gone from $25 million then to an admitted $40 million but likely to be the $50 million which was the figure that Allen was ridiculing following the delays for which NZRB are paying IT contractors an estimated $3 million per month in over-run time.
Allen also said at that meeting, “We are expecting an additional $45 million of distributable profit in the following year (meaning the current 2018/19 season), and that rests on the FOB platform being in place and operational. And that’s increasing to $60 million the following year (2019/20).
“We are very confident we can do that, and we are confident that that $45 million profit is a real number that can be delivered. We are reliant upon that 1.5 percent of our VIP and Elite customers delivering about 56 percent of our turnover.”
Not only has Allen failed to deliver the FOB on time but his figures are going to be well awry with the TAB’s failure to retain its market share of the VIP and Elite customers.
At a more recent industry discussion meeting at Riccarton, about six months ago, Allen stated, “We could not be clearer about what we are doing – we are investing that money (by admitting the cost had risen to $39 million) and the payback is three years; the benefits are 19 million; and only once have I gone back to the board for the approval of another two million dollars.
“It’s a damn good process; it’s a damn good deal. It’s a sensible business decision and will create real value for the racing industry of New Zealand. It you don’t have a competitive fixed odds betting platform then you drive the customer to the competitors. It’s been well managed. The partners have done a damn good job – they are serious partners with real capability.
“We have a 10-year contract with Openbet so it will be at least 10-years, but the thing about Openbet is that we get access to that technology – they do all the big betting agencies around the world, and those agencies are driving them constantly to be lifting their game.
At that same meeting when with Allen, when this writer suggested he hadn’t been delivering but only spending money he replied, “I agree with that, so the acid test is this next season in which we need to deliver FOB and racefields. The truth is that it’s this next season that is the test.”
We are now well into that season and no further advanced except in debt. It is also worth pointing out that the Openbet work done around the world is mostly for corporates that accept bets globally as opposed to this FOB which aimed solely at the domestic market.
The decline in betting is a considerable worry for racing and potentially could scuttle the ship. The industry has known for years about the excessive running costs of NZRB, and here we are on the verge on another NZRB AGM where the rhetoric will continue about saving $100,000 here and $200,000 somewhere else and how they are doing everything imaginable to get costs down.
The profit and loss statement for this not yet released report says that total expenses have risen from $204.6 million to $213.3 million. Implementation of the Messara Report would rip out a large hunk of that cost through restructuring and outsourcing the wagering services to Tabcorp.
This annual report also says that debt is currently at $10 million which is very interesting considering the SOI released only one day before the end of the season in July showed debt to be $24.1 million – how that discrepancy occurred will be one for the accountants to check.
The report also says that NZRB has capital commitments for next season of $20 million – probably arising from the new TV vans for outdoor broadcasting they have ordered. How’s the cash to pay for that going to be raised?
It also says the borrowings are capped at $25 million so if the $10 million of current debt is genuine then that leaves only $15 million for capital commitments which no doubt is intended to be supplemented by profits from the FOB. Add a further $10 million to keep stakes at the current level which may also be dubiously aligned to increased FOB profits.
The FOB is carrying a huge weight of responsibility because without any income from Racefields it’s the only vehicle that will prevent this industry drifting into a state of insolvency which is a destination it slides closer towards daily. That’s not even considering the FOB cost may now be $50 million and not the $40 million which is the current claim.
Even if the FOB can be launched before the end of the year which must be seriously doubted, the betting trend shown in November’s result will have to do a U-turn to release a flow of money large enough to arrest this downward spiral.
The warning signs have been visible for quite a long time, building all the time and strongly identified through two authoritative reports compiled in the past 18 months. It just so happens it’s an industry that has been sitting and waiting to be rescued rather than getting proactive and saving itself.
Has the NZRB netted debt off against some bank money. Cash on hand before bills have been paid could be a factor.
