Aussie Debate Rings True in North America

The Australian racing industry is making a case for a "fair return" on wagering.

Racing industry participants in Australia are seeking “certainty based on a fair return” from betting operators and have taken their case to a commission charged with helping government make better policies.

In a Dec. 23 release, the National Horse Racing Alliance said it provided the Productivity Commission with detailed submissions related to “the fight for a better deal from wagering operators.” The NHRA said it represents owners, trainers, breeders, agents, auction companies, and other organizations in Australia.

Horsemen in the United States for years have attempted to update the pari-mutuel revenue model to increase purses with limited success.

The Productivity Commission, created by an act of Parliament, calls itself independent and open to public scrutiny. It currently is tackling the issue of gambling as a whole in Australia.

The NHRA said it has argued that “future investment and employment in the industry was largely dependent on wagering operators paying an appropriate product fee based on betting (handle) rather than gross profit.” The group said it told the commission a tax “based on wagering operators’ gross profit was filled with uncertainty and exposed the future of industry participants to unacceptable risk, with declines in employment and investment in the racing industry as a probable outcome.”

Martin Einfield, who spoke on behalf of the NHRA during a public hearing held by the commission, noted the importance of jobs in the horse racing industry.

“No consideration is given in the draft report to the prospect of unemployment should the search for greater competition between corporate bookmakers ultimately constrain rather than expand the industry’s scope,” Einfield said. “It is not reasonable or practicable to discuss the racing industry merely from the perspective of those who wager on its events.

“The commission has not recognized that a contracting industry will deliver the opposite outcome to (bettors) than that which is envisaged. Reduction in horse numbers may produce smaller fields (poor betting mediums), lesser returns to (bettors) and owners, and lower quality racing, as horses migrate to jurisdictions with higher prize money such as in Asia.”

The draft report characterizes horse racing as an adjunct to gambling. The NHRA contends racing needs the “investment of owners, breeders, and other participants, as well as (bettors), to put on a world-class show that, in turn, generated (handle). The group said the gambling wouldn’t exist if owners and other participants don’t “invest the hundreds of millions of dollars required each year, often without certainty of any return.”

The draft report by the commission suggests the issues of today resemble those of 1950s prior to the start of Totalisator Agency Boards, called TABs.

“The issue revolves around adequate compensation of the racing industry for wagering on its product,” the report states. “Whereas the current debate centers on the appropriate level of remuneration and how to enforce it, in the 1950s, the industry was struggling to deal with the growth in illegal off-course bookmakers who did not pay the racing industry for the right to bet on races, and took market share from the on-course bookmakers who did (pay).

“In both cases, the problem arose because the racing industry relies chiefly on the sale of intellectual property (essentially the outcome of the race), rather than on a physical product. In the usual course of market operations, common law provides a framework for disputes over property rights, contractual obligations, and other potential areas of contention. This framework allows a price to be determined through bargaining between self-interested actors who will only trade on terms that benefit all parties to the transaction.

“However, it appears that that the underlying legal framework does not protect the intellectual property produced by the racing industry. This allows some wagering operators to ‘free-ride’ on the contributions to the racing industry made by their competitors, without paying anything themselves.”

The draft report recommended the Australian government work with state and territory governments to develop a national funding model for horse racing. It says the model "should be underpinned by national legislation and should replace state- and territory-based arrangements."

Also recommended is a "single (tax), universally paid on a gross-revenue basis," not handle. The tax would be set and periodically reviewed by an independent entity, the report states.