by Brian de Lore
Published 9 December 2022
A poorly performing TAB NZ last week announced to the three codes that distributions would be reduced for the current season, a move that places the present low levels of New Zealand thoroughbred prizemoney in jeopardy and further undermines the future of racing in New Zealand.
If you thought that the New Zealand racing fraternity’s morale had sunk to record-low levels by the middle of this past year, then think again. This announcement has plummeted the outlook to Mariana Trench depth.
TAB CEO Mike Tod responded promptly to The Optimist’s request for an explanation for the reduction and the current state of TAB’s finances.
Tod said: “TAB NZ will reduce distributions by nine percent in the 2022/23 financial year (year ended 31 July 2023).
$175 million reduces to $160 million
“Total distributions to the thoroughbred, harness and greyhound racing codes are anticipated to fall from $175m in the 2021/22 financial year to around $160m million for this financial year. The $15 million decline will put overall distributions on a similar footing to the 2020/21 financial year.
“The drop in distributions is a reflection of multiple headwinds facing the business, not least the battle TAB NZ is in with offshore operators for New Zealand-based customers.”
Thankfully, NZTR has $24 million of stakeholders’ money on deposit and the current stakes level, as low as it is, will be maintained through to the end of the season. What happens after that is anyone’s guess, but it could be ugly.
Mike Tod does not specify the ‘multiple headwinds’ but those following TAB NZ’s progress from NZRB and RITA days through to TAB NZ which commenced with a new board on August 1st 2020, could have predicted this whirlpool of decline which is another nail in the coffin of domestic racing in New Zealand.
Worldwide wagering has metamorphosed in the past five years with mergers, the opening of the USA market and hundreds of millions of dollars spent annually by a plethora of aggressive corporates attempting to gain a competitive advantage.
Wagering scale was always the problem
Here in good old conservative NZ, we have lived in a wagering bubble, seemingly oblivious to the outside world and pretending we are doing nicely while stuck in reverse gear. Whatever wagering scale our TAB lacked five years ago, the gap has further widened.
Looking from the outside in and identifying our biggest problem four and a half years ago, the Messara Review urged NZ to immediately investigate partnering the TAB and predicted we could double prizemoney by enacting a suite of 17 recommendations. Racing Minister Winston Peters agreed until the Kiwi oligarchs got in his ear and scuttled the notion.
And now, with the highest inflation for over 30 years and a dramatic rise in the cost of living affecting the expendable dollar, the TAB’s profit has shrunk and it’s now a wounded animal cowering in a corner.
CEO Mike Tod inherited the demise
To be fair to CEO Mike Tod, his tenure commenced only in March of this year and his current problems come inherited from previous administrative regimes with the most damage done before his arrival. The turnover in August and September rose through aggressive promotions but profit fell in the same months compared to 2021, and the only figure that matters is the bottom line.
October figures posted on the TAB website this past Thursday came up ugly. The month produced a profit of only $12 million (-13%) compared to the $13.8 for October 2021, despite increased turnover. October was the first full month of the ‘no deductions’ promotion which can only increase turnover, but simultaneously can only lessen the profit line. Substantial losses could occur in some races where multiple late scratchings result from a track downgrade after rain.
The first quarter result for this season shows profit decreased by $2.8 million for the same period in 2021. If you believe the economists who say things will worsen by the middle of next year, that figure could easily blow out to $15 million or more by the end of the fourth quarter.
Tod: Inadequate regulatory settings
On the question of how he intended to tackle these problems, Tod told The Optimist: “Inadequate regulatory settings are seeing increasingly intense competition from much larger unregulated offshore operators, the tightening economic conditions are putting pressure on Kiwis’ discretionary spend, and there continues to be challenges with racing abandonments and small field sizes.”
Does Mike Tod understand that small field sizes are a direct result of inadequate distributions which delivers poor stakes money resulting in reduced ownership? – it’s called a Catch-22
I asked him if he agreed that a reduction of distribution to fund prizemoney levels would speed up the shrinkage of ownership numbers, foal numbers and consequently the number of racehorses in work. And when those groups reduce we will have fewer race meetings with smaller field sizes which result in decreased TAB turnover, thus strengthening the headwinds to which he refers.
He responded: “It is a matter for the Codes to advise on how they will manage the impact of a cut to distributions and any flow-on effects.”
Tod: cost pressures in this environment of global high inflation
Tod continued: “Alongside this, TAB NZ is facing significant cost pressures in this environment of global high inflation, while also needing to deeply invest in its customer experience, brand, infrastructure and gambling harm minimisation to ensure that it can compete against these behemoth offshore operators.
“We estimate that Kiwis are losing up to $150 million annually to those unregulated offshore operators. That is money that could be staying in New Zealand for the betterment of racing, sport and communities with a simple change to the regulatory settings. This is a matter that we are actively engaged with the Government on.”
Tod’s estimate of a $150 million loss annually might be ‘a long stretch of the bow.’ It’s impossible to calculate a figure because it’s private credit card information, and the only guide we have is the figure released by Kiwibank. They said last March they processed $30 million a month to online gambling sites, of which 80 percent is off-shore.
Online betting surged during COVID lockdown
Kiwibank represents only four percent of the banking market, so the total figure might amortise out to around $72 million annually for the entire country. The bulk of this figure is expected to be online casino-type gambling which surged to these levels with the onset of the COVID-19 lockdown.
Few people will know that TAB NZ has $85 million on deposit, and intends building it to $100 million. When I asked Tod why the TAB is compelled to hold a reserve fund, he responded thus: “We need to ensure that we hold appropriate balance sheet strength to ensure the long-term viability of the business.”
He also added: “Under the Racing Industry Act 2020, TAB NZ is required to operate in a financially responsible manner and if it were to maintain distributions at the current level, it would likely breach recommendations made by PWC and Grant Thornton to maintain a strong balance sheet. The advisory firms issued the recommendations at the time the Government provided funding support when the racing industry was brought to a standstill by the initial Covid-19 lockdown.”
I take issue with Tod’s above comment because, while the Act requires the TAB to be responsible about money management, it says nothing about retaining money that rightfully belongs to the entire racing industry. The TAB grew out of the need to financially support the thoroughbred and harness racing clubs, not to collect betting profits to invest and build wealth as a corporate entity might.
Tod: We are required to operate responsibly for a sustainable future
In a letter Tod wrote to the codes last week to announce the distribution reduction, he said: “Under the Racing Industry Act 2020, TAB NZ is required to operate in a financially responsible manner to remain a sustainable business for the long term.
“In 2020, during the first Covid-19 lockdown and in light of the Government’s $72.5m Covid-19 racing support package, the Racing Industry Transition Agency took advice from both PWC and Grant Thornton to ensure that the future TAB NZ business would have independent analysis on what the business’ adequate net asset and minimum capital requirements should be, in order that TAB NZ would be able to meet this statutory obligation.”
The above statement typifies an administrative attitude of governance by people with no stake in the industry they govern. They appear to lack interest in the preservation of the horse industry and are disconnected from the problems facing racing. They have sadly prioritised preserving themselves over the industry.
The letter further stated: “If TAB NZ was to maintain distributions at $175m for FY23, the business would likely breach these balance sheet recommendations and put its ability to withstand any future shock at risk.”
PWC and Grant Thornton don’t understand racing
The problem with the PWC and Grant Thornton recommendations is they make them not giving a toss about the future of the racing industry.
The three big issues coming up for Mike Tod soon concern his support for geo-blocking New Zealand punters, rebranding TAB NZ, and partnering the business with an overseas corporate.
Tod told me six weeks ago he believes the current brand of ‘TAB NZ’ is not trendy and that the younger demographic of New Zealand punters has deserted the TAB for the likes of Bet365. In view of the distribution reduction, I asked him if it would still proceed and how much would it cost.
Tod said: “Work on the future direction of the TAB NZ brand is well advanced and a decision is expected in the first quarter of next year.”
He made no mention of the cost but independent information supplied says it would be in the range of $12 million plus.
On geo-blocking which would require a legislative change to the Gaming Act of 2003, he stated: “We are actively engaged with Government on potential changes and are expecting an update within the next two months.”
TAB partnering crucial for sustainable racing
The third and most important item for Mike Tod comes up next week when he will meet with potential partners with the prospect signing a partnership arrangement for the TAB in 2023. The success of this negotiation should be seen as the only long-term saviour for New Zealand racing.
If they do it right it will greatly enhance their income while substantially reducing costs, provide New Zealand punters with a vastly improved service, and potentially increase stakes money to a sustainable level.
Tod’s letter to the codes last week also said:
“Four international businesses will deliver proposals in person for a partnership with TAB NZ on 12 and 13 December. Our Board will meet before Christmas to decide whether to move into formal negotiations in the New Year with one or more parties.
“I have been deeply heartened by the level of engagement from the Chief Executive Officers and their due diligence teams over the past three months, and I am expecting to see distinctly different proposals from each party.
“If a preferred partner is identified, we are currently targeting the third week of January for a meeting of Chief Executive Officers from the Codes and representatives of the preferred party/parties.”
While the reduced TAB distribution is a blow, it does seem that Mike Tod is taking the right steps on the two critical requirements for the future of domestic racing, geo-blocking and partnering with an offshore betting entity to secure scale and access to the much larger overseas markets. Despite the current, grim picture, I detect a hint of The Optimist possibly feeling stirrings of optimism which is encouraging in itself.
On geo-blocking, can you explain to me why Kiwi card players should be banned from taking part in poker tournaments at sites such as PokerStars and GGPoker just because the NZTAB is financially strapped?
What is the problem with introducing a Point of Consumption Tax and a Race Fields levy tax just like each state in Australia has in place. The big corporate bookmakers should be told – this is how it is going to be. If TAB NZ can’t do this how CD an they negotiate with a betting corporate company to partner the TAB and get a good deal for the industry?
The sale of the Western Australian TAB was recently abandoned by the state Premier/Treasurer because he couldn’t get a good enough deal for the long term sustainability for the WA racing industry – the final potential buyer was Betr (33% owned by Rupert Murdoch – thank goodness that didn’t happen). The WA TAB remains the only state owned TAB in Australia.
There are no pokie machines in WA outside of the one casino while in NZ every TAB or pub TAB there is a pokie den taking the gambling money away from racing and causing gambling addiction problems.
We already have introduced PoC and racefields – BIUC – taxes.
The TAB already has a C4 gaming licence which enables them to have pokies and use the proceeds.
As well, racing gets a proportion of offshore racing proceeds and sports betting.
They pay no income tax. No licence fees. No gaming duty. Face no terrstrial competition.
Maybe we should rename our industry to reflect our subsidised existence?
The only tax corporate bookmakers pay in Australia is the 1% racefeilds levy tax and the point of consumption tax which is between 10%and 15% depending on the state.
Why did Tod say they are having difficulty with big offshore betting corporations?
well need to fi d the reason behind busines is going off shore that is way to try to get business back . when clubs owned tab it was world leader in field
The biggest reason business is going offshore, is the crap service and uncompetitive pricing.
If Geo-blocking comes in – and I doubt that Grant Roberson would think it imperative, given his other pressing issues – price sensitive punters will either, through use of a VPN or other means, go where they like, or give up altogether.
What do you mean by when clubs owned tab ‘
TAB invented an founded by people hear in nz
an then taken to Australia in the time of
Dr McGregor Grant’s big push to improve racing
Early 1900s for someone to say nztr an the tab are
not one is confused for the tab to be a separate
Identity it would have to be in private ownership or
By a corporate an if this is the case I want to know ,
How that happened an was the transition legal
Or behind closed doors hand shakes while sipping
Champagne,
The financial problems of New Zealand racing are not entirely the TAB’s fault, even given how poorly that organisation has been run in the past twenty years.
Racing needs to cut its cloth to suit its coat.
There may have been a case for every city, town, village and hamlet to have its own racecourse in the first hundred years since the signing of the Treaty of Waitangi, when taking racing to where the people lived was the sport’s modus operandi.
But in this day and age of motorways, aeroplanes, television and the internet, the people are perfectly capable of either getting to the races themselves or sitting in their lounges and having it piped in. And to that point, why does a country of five million need fifty racecourses? Ten would be plenty, even extravagant in some thinking.
And do we need racing five days a week?
I see that Tod mentioned “gambling harm minimisation” in one of his anwers. Well, if you’re putting on races five days a week you’re contributing to “gambling harm” in my book. You are asking your customers to keep reaching into their pockets, much the same as a drug pusher keeps addicts craving more.
Difference is, it is much easier to break the habit of betting on horses than it is to bust out of the grip of drugs. And plenty have.
How much discretionary income does the TAB think Kiwis have, both collectively and independently?
My guess is that, collectively, it isn’t enough to support racing as a five-day-a-week enterprise and, individually, it isn’t enough to indulge in more than a couple of times a week. We know there simply aren’t enough owners to support the entire foal crop each year . . . but seemingly there’s a vast untapped army of punters ready to load up their accounts.
I don’t see it.
Any reformation of the TAB has to go hand-in-hand with a reformation of the racing industry.
When I started out in this game, the big grizzle was that getting a start for your horse was difficult . . . racing on Saturdays and public holidays only, no more than eight races a day.
Well, we’ve gone full circle. We’ve now got seven-race cards with eight-horse fields, comprising horses that don’t deserve feeding.
Cull them and the tracks they’re on, concentrate on the quality end of the product and maybe, just maybe, the dollar-bet-per-starter figures will improve.
What a massive week next week for the future of the NZ Racing Industry, probably its biggest week in the last three decades. The discussions set down for Dec 12, 13 with potential wagering partners are critical to the survival of the industry, not a trivial matter.
History would suggest there is significant potential for some woeful decisions to be made such as the deal done a few years ago with the technology platforms but I have confidence that Mike Todd has a fair degree more business acumen than some of his predecessors.
This is a crucial negotiation that will impact some brilliant horse people that continue to produce an incredibly competitive product on the racetrack.
On the offshore betting all I would say to that is it’s a competitive world and if the TAB had the resources to provide competitive odds on racing products we wouldn’t see the exodus of betting dollars to offshore operators.
In terms of rebranding the TAB name I would suggest that is simply tinkering and will happen as a natural result if indeed we partner with another wagering operator. On that one Mike I would save all those brand consultants and advertising agency fees and pop those funds back into stakes.
Good luck for next week guys you will be carrying the hopes and dreams of a lot of passionate New Zealanders into the room with you.
One would hope that the Industry leaders have been actively involved with the TAB for some time.
The biggest frustration for all participants is the lack of information being provided in a timely manner.
The expectation is that they are transparent about their endeavors. That doesn’t mean we are entitled to know every detail, but at least give more regular updates.
Learning from other forums, often includes misinformation, contributes greatly to the frustration I see and hear on a regular basis.
One relevant question, on a different topic, which nobody close to the situation is willing to answer.
What is the status of Green Fields , or whatever they are choosing to call it now .
When I moved back to NZ from Australia 7 years ago I first heard about this.
I suggested to a person involved at the time that they should embrace the same model Pakenham used.
They would be only to willing to give some direction.
Pakenham is the new Flemington.
It was designed on a blank canvas, and its revenue came from the sale of the old Pakenham track in the middle of the TOWN. sold for millions.
NZs Ellerslie had the same options , but at $1.5 billion.
rocket science
The headline sums it up pretty well – Thankyou Brian – but there are a few other supporting aspects that also need addressing.
There is no doubt that the industry must have greater stakes monies delivered to it by the TAB – that such monies have not been delivered over many,many decades is one of the main reasons why we are where we are. The Messara Report identified how to bring about major change in this area (partnering) – it seems that the TAB might finally be about to advance on this front. I can only hope that they GET ON WITH IT and with significant urgency.
I have heard it said that the TAB is not of sufficient scale to be able to generate the funds required to keep their operating platform up to date, safe and secure whilst still delivering the funds required to the four industry bodies. This seems a reasonable proposition in IT investment terms and if correct is another reason for GETTING ON WITH IT – implementing the Messara Report – in full – not in part.
Re-branding the TAB? No, No, No – there is no money!! Maybe rebranding can occur one day but only after the operating model has been properly set up and is delivering or is close to delivering what is needed. Yes, I understand that re-branding might assist that outcome but the matter is not of sufficient importance given the current overall state of affairs. Feed the children first comes to mind!
Another important matter but this one belongs to NZTR. Messara was correct when he said we have too many tracks. Many within the industry keep looking back and talking about the good old days and how our local track cant be closed. Things change – LOTTO didn’t exist; pokies didn’t exist; tobacco sponsorship of racing was strong; current Health and Safety legislation was not in place to name just a few. We have to accept that Racing has to change with the times and one of those changes is that track surfaces have to be safe for both horses and jockeys. That needs substantial and ongoing investment in track surfaces – NZTR, to their credit, is making progress on this front – Ellerslie and Te Aroha to mention a couple – but there is no way that all existing tracks can be upgraded – there is not the money available! So, some tracks can’t be raced on.
There is another important competitor for the NZTR investment dollar. Some on-course facilities are just awful – in fact, it is hard to come up with names of more than one or two courses where the facilities could be described as ‘good’. There is no doubt that there is an ‘entertainment industry’ aspect to the racing industry. Good money can be earned from on-course hosting but that needs decent facilities. This investment consideration is another reason to support a reduction in course numbers.
So, to the TAB, mainly. Stop beating about the bush, get on with fully implementing the Messara Report and focus on the BIG ROCKS first!!
Another great column Brian and some excellent comments above. Mike Tod seems to have missed the lessons at Harvard when they taught the difference between turnover and profit margin.
As for re branding the TAB, this makes about as much (non)sense as re branding the Country. As Rex Pearce says, a waste of money on agencies and consultants that will likely come up with the same sort of godawful crass, amateur and tactless campaign as The Grand Tour.
And it is certainly time the ownership of the TAB was determined once and for all.
Gil and Mike both come up with commonsense arguments.
Too many tracks for our population and too many dud horses, and why has it taken this long and so much money to finally instigate what John Messara recommended. He must be looking and laughing at the way things have gone down.
Gils point about too many horses that are never going to amount to much is well said.
Finally, do not let Winston Peters get his hands near racing again.
Best we give Mr Tod the benefit of the doubt. He surely can improve on the formline of his predecessors. I do not have an issue with his working on the TAB brand as those ideas should form part of a partnering negotiation. However to rebuild the brand separately whilst pursuing a partnership agreement would be naive. Geo blocking is also naive. We live in one of the worlds most democratic countries (except for the last year or so) who live and breathe free trade. We must choose who and how we bet with and therefore it is up to the TAB to up their game.
If the TAB is page 1 then NZTR is page 2 and needs a comprehensive edit. A through cleanout, putting a genuine change manager in charge. The previous CEO wanted to reduce the number of tracks but had no appetite to force it to happen. The smaller clubs will squeal but most of them have to be culled. Some such as Taupo, Tauherenikau and Reefton are important for some of todays holiday makers children will become tomorrows punters. We should also ensure diversity between city and town. Te Aroha/Matamata in the north and Hawera in CD. Why is Timaru not that equivalent in the south. Do not think that all large clubs are off the hook. Awapuni over the last month has been woeful. Sell the land, rebuild, regroup. Trentham is under utilized but poorly managed. Internal competition is healthy, sibling rivalry if you will. If Avondale can lose the very large chip on their shoulder they could become the richest club in the country. Do a deal selling their course to the Government for social housing and have a handful of seriously rich race days at the re configurated Te Aroha racetrack. Let’s face it, they cannot stand their snobby cousin, Ellerslie.
The calendar needs serious attention and change. The progression path for lower grade horses is not fit for purpose. Their are a few ways that this could be done with the bottom line being keeping owners in the game longer with better returns. Also importantly, creating superior betting races. There has also been far too many ‘tweaks’ to the calendar over the last two decades. A prime example is the staying cups. To fit in with Karaka the Auckland cup was pushed out to March. When Ellerslie is back in action that race should be back where it belongs on New Years day.
In closing I feel the decisions and outcomes during the second half of our current season will determine once and for all if we are to be toast or a rising phoenix.
seasons greetings
Tim Parry
The CEO needs to stop using scare tactics saying NZ punters are betting with unregulated bookmakers. Every online bookmaker in Australia is regulated and that is their main competition. The disaster of a betting platform was overpriced and it’s annual cost to maintain and upgrade has caused the current situation. They were advised by an accountancy firm that it wouldn’t deliver the extra revenue needed, this advice was given on a lot less figure than it finally cost. The Industry was told it would pay for itself in three years. It’s a liability that would be better served as an anchor.
One would expect that anyone associated with sourcing and recommending it to the Board was shown the door months ago. Because of this incompetence and total lack of spending within the TAB’s financial means they want to GEO block punters. The opening percentages on markets are crazy 145 – 149% on some NZ races yesterday which is uncompetitive with overseas markets. You drive customers away because you can’t operate a fair market and then want them to be unable to seek value for their spending dollar.
The bottom line is you had it good when the internet wasn’t around and now it is you can’t compete with the opposition.
As this blog has rightly pointed out there is only one way out.
I imagine the rush to partner is to advance the Geo block timetable. What TAB Minimise is that yes Australia introduced geo blocking but only able to because they have multiple betting options inside the country. We have none and there would have to b options before blocking could happen. Going back to the first Racing Act administrators have consistently failed to read future trends Their plan was to ringfence the TAB and to hell with punter choice Competition in Australia has stimulated the industry ours static lurching from 1 new charge to overseas providers after another It’s a house of straw. I notice for eg that some days Betfair are paying the “boosted” TAB odds. Any laying off?. Will geo blocking apply to TAB? 1 xcuse after another for failing to thrive when only game in town. We need competition
We do indeed, Dave. But I fear the train has long swished past, leaving us all on the platform wondering why.