Racing is under review in New South Wales, and our man at the track says Australian racing is in decline with no national co-ordination and a state based system of “administrative discretion” thank ranks with the old Soviet Union as a lousy way to run anything.

Thoroughbred Racing Board Review

This paper responds to the call for submissions about a review of policy objectives in the Thoroughbred Racing Board Act 1996 and the provisions of that Act appropriate for securing those objectives.

Though addressed to the nominated Minister, many relevant issues warrant the close attention of the NSW Treasurer as well as the Office of State Revenue and the Minister for Fair Trading.

Notwithstanding that the operational focus of this legislation is the State of New South Wales, I see the appropriate policy objectives for TRB as including:

* the provision of high-quality racing gambling entertainment to customers in Australia (and overseas) that is acquired from the racing industry in both NSW and Australia more generally and, in due course, from other countries, especially those in the Asian region;

* contracting with local race clubs and interstate and overseas suppliers, for the delivery of racing product on terms that will maximise the betting tax revenue accruing to government net of any ‘purchase’ costs that government may incur to secure the delivery of appropriate racing product; and

* the delivery to ‘racing’ customers of high-quality racing entertainment that is conducted without question as to its integrity; appropriately supported by print and broadcast media outlets meeting high standards of racing product presentation and more generally is delivered on fair-trading terms that demonstrably protect the best interests of all customers.

There is a way to go.

Setting the scene

10 years on will the Australian racing industry bear any substantial resemblance to its current situation? One very sobering thought is that it might. A better prospect is that Australian racing will again stand proudly, this time alongside its peers in our Asian region.

The choice is being made now in Australia. The NSW ‘review’ will hopefully be joined by, and draw contributions from, other States.

Such ‘reviews’ of the public policy framework are critical to the future of Australian racing as a major industry and a substantial trader of racing product (exporter and importer) both interstate and globally. Some relevant issues were canvassed in the discussion paper “Australian Racing: Out Of Control?” (Copy attached). The following, though less provocative in tone, is equally heartfelt.

This submission has three parts. First, there is some in-principle ground to be cleared. Second, separable racing industry functions need to be identified in broad terms and allocated to racing industry institutions. The third part draws some general implications for the TRB.

A. Clearing The Ground

In management jargon the following proposition may be described as a paradigm shift — which simply means a completely different way of seeing things in the future. And that is what is needed to save Australian racing.

The proposition is:

The Australian racing industry is not automatically entitled to any of the taxes that are legitimately collected from racing gambling by Australian State Governments.

The key words here are “not” and “any”.

The corollary is that government will choose to allocate funds to purchase racing product from general consolidated revenue on commercial criteria.

A key commercial criterion is that the purchase of racing product from local, interstate and overseas sources is structured to maximise the excess of gambling tax “revenues” over the “costs” of any government contribution to the purchase price of the racing product that is the gambling medium. The key words are “maximum revenues” and “minimum costs”, for government.

— “objection your Honour!”

One reasonable objection will be that the existing ‘L’ ‘A’ ‘W’ law guarantees ‘forever’ that a fixed share of racing gambling turnover is first, taken from racing customers and second, automatically distributed to the racing industry as prize-money. That ‘industry share’ currently runs to some $600 million nationally. Much of that money could be better spent.

The real people and loved animals that may become surplus to industry needs should be grateful that such a (always rather silly) ‘L’ ‘A’ ‘W’ is on the books. Because it is, there is a chance that any redundant resources in the racing industry will be given a redundancy package. As in other industries payouts will be compensation for agreeing not to be a ‘cost’ in an industry that is both ‘downsized’ (smaller) and in which important product delivery arrangements are ‘outsourced’ (gambling product imported from overseas and interstate).

The ‘who’ and ‘how much’ details of a redundancy package are issues to be resolved politically, possibly by an auction akin to those conducted by overbooked US airlines needing to ‘bump’ some passengers on fair terms and conditions, to take another flight.

— is this ‘proposition’ believable?

What is not believable is letting Australian ‘racing’ run on ‘as is’.

It will be easier all-round if the industry nationally accepts that there will be much less taxpayer money used to subsidise racing and that redundant racing industry resources will be equitably retrenched.

The commonsense of all this will be more easily marketed to the industry nationally if there is a reasonable consensus reached between the separate Australian States.

National policy coordination for the Australian racing industry is long overdue. It will come. What remains to be agreed is “who will make the coordination decisions?” and “by what process will the coordination issues be decided?”. Among the options for clear answers to those questions are ‘the market will decide’ and ‘the process will be brutal’.

The process of ‘downsizing’, ‘outsourcing’ and ‘restructuring’ is going to be fairly brutal anyway — it always is, no matter what anyone says.

The best prospect is that across the nation, the separate State and local industries accept the inevitable and now move in a spirit of cooperation — and resolutely. It is especially important that there be cooperation between Victoria and NSW — albeit negotiating very commercially ‘fair’ outcomes for the taxpayers in each State.

Lest there be any misunderstanding, on current indications, this means that Racing Victoria will be a net recipient of payments made by the other States (and eventually other countries).

B. RACING FUNCTIONS AND RACING INSTITUTIONS

The TRB in NSW does not stand alone, it stands alongside other institutions that also service the racing entertainment industry.

Those other institutions importantly include other States from which national racing gambling product is imported. Prospectively it will include other countries from which ‘racing’ will be imported. In NSW, the other institutions involved in producing a total product package, include the race clubs that put on the show; the print and broadcast media that deliver the show and the TAB that sells the tickets for the gambling.

The proposed future role and policy objectives of the TRB in NSW can only be understood in relation to an appropriate allocation of separable ‘functions’ to ‘institutions’ in the racing industry — including to the TRB. There is some scope for synergies between States (and countries) and between otherwise separable functional operations. An obvious synergy is in the ‘media’ area where national networks have advantages — but it cannot be ruled out that there may be acceptable amalgamations of race clubs and ticket sellers (TABs), and eventually State racing administrations.

— k.i.s.s. racing

In making decisions about ‘functions’ and ‘institutions’ it is best to keep it simple.

To achieve simplicity it is necessary to have a guiding principle. The guiding light is:

Government is entitled to tax racing gambling so as to maximise the taxes collected on behalf of the general community. Government will spend general taxpayer funds to buy racing entertainment (product packages) that will generate the maximum net tax take in the relevant window of racing broadcast time.

The key words here are “maximum net tax revenues for government in every time slot”.

In this context, racing entertainment is defined as the quantity and quality of racing product from local and imported (interstate/overseas) sources that over the long run maximises the net excess of taxes collected over purchase costs outlayed by government. It is a business proposition.

Notice, there is no overt concern for the financial well-being of anyone participating in providing racing entertainment. Nor is there any mock concern for the taxpaying customers of racing — although, in setting betting tax rates, government will be mindful of the possibility that ‘high’ tax rates will drive betting activity beyond their reach, either legally or illegally

Provided there is high prize-money for high quality (well-contested) races, people will pay their money and take their chances. They will participate as owners of racehorses responsible for paying breeders, trainers, jockeys and the many others involved along the line.

Racing product acquired from local sources will compete with product imported from suppliers located interstate and overseas. The choice of product will be based solely on a hard commercial reality, it is:

The purchase of racing product from local, interstate and overseas sources will be based solely on prospective gambling turnover (net taxes) that would be substantially guaranteed by the supplier of the racing product. The prices paid to purchase racing product would be competitive but they could also accumulate to a very high total if the product were widely sold on the Australian and international market. There will be big rewards to those able to market the complete racing product packages that will ‘win’ the betting customers.

Using ‘pay-only-for-performance’ as the guiding light, other policy decisions about the national racing industry will follow fairly simply.

— what functions and which institutions?

There is one central function in the supply of racing product.

The central function is to generate in the community a passionate difference of opinion about the winning chance of every horse in the race.

There are four complementary functions.

One, the races have to be programmed, organised and run, preferably sponsored and preferably (but not necessarily) witnessed by people at the track. Race clubs have that function — too many of which presently do far too much of it.

Two, passions in the community must be aroused to generate betting turnover. This is done by promoting the entertainment and supplying current information that meets strict criteria of soundness and completeness, as a basis for ordinary people to make confident judgments about the likely outcome of races. The print and broadcast media have that function (in association with the race clubs). The media function is presently done poorly because there is little if any competitive discipline and there is far too much to print and broadcast. (A wonderful exception is the facts-only “Sportsman”)

Third, someone has to sell the tickets to exploit the passion for betting aroused in the community. The TAB performs this mass-distribution function — and it does it exceptionally well. The TAB is the best retail ‘bank’ in town, has been for years. (Bookmakers are an essential element of racing entertainment but usually in a low-tax niche of the overall ticket-selling operation. Ideally they would be allowed to ‘stand’ in local pubs and clubs.)

Finally, the racing industry being naturally prone to corruption must be properly regulated. And it must be clearly seen as ‘no question’ properly regulated if local racing product is to be marketed successfully interstate and overseas. This regulatory function is performed by the TRB (presumably sometimes in association with the Minister for Racing).

Most TRB functions are generally performed well in NSW. This includes licencing, handicapping and the oversight of industry integrity by the stewards as well as a raft of administrative industry support roles.

Some regulatory functions that are appropriate for the TRB are not yet fully recognised. For example, normal fair-trading protections do not extend to TAB customers in Australia and the general fairness of TAB betting market activity is not intelligently monitored either. The industry should be made more accountable to its customers.

Some functional responsibilities for the governance of racing now discharged under the auspices of the TRB are not well suited to its current membership structure. Key decisions about the allocation of community funds are processed by ‘administrative discretion’ at the Board rather than on conventional commercial business principles. Put plainly, the TRB needs to be substantially reformed in respect of its functions and composition (see below). That is not meant as a criticism of the members of the TRB — it is meant to point up an allocation of responsibilities to the present TRB for industry funding that I regard as inappropriate.

There are, of course, many other functions to be performed by breeders, owners, trainers and jockeys among many other people whose competent and trustworthy participation in the racing industry is pre-requisite to horses actually racing and racing on their merits on the day.

— a book could be written

…..in elaboration of each of those four groupings of functions and institutions. Those books will be written later. There will be enormous challenges for a racing entertainment industry newly subject to commercial disciplines and newly coming to grips with importing and exporting the complete racing packages — product, promotion, tickets and integrity.

Meeting those challenges will be essential to the Australian racing industry being able to guarantee racing betting turnover and compete effectively internationally.

Hopefully there will be concepts that industry management will in future embrace with passion — concepts like total quality management and keeping the customers satisfied. The racing industry’s penchant for behaving like a stuff-the-customers monopolist is no longer appropriate. It never was. Many would like to think changes are afoot on this score.

C. Some Implications For The TRB

— preamble

Where does one begin to draw out the implications for the TRB; for policy in reach of the Minister for Racing and, more comprehensively, the implications for the community generally, whose interest is perhaps best represented by the Office of State Revenue, the Treasury and the Fair Trading Authority.

This TRB question can be put differently in terms of what would happen if the proposed ‘no entitlement’ commercial disciplines were imposed on the racing industry and the four clearly separate functions were performed by appropriately separate institutions.

Much of the needed industry restructuring will be self evident once commercial disciplines are in place and individual race clubs are, newly, only given funding from the public purse in proportion to the actual betting turnover on races they conduct. In contrast to present arrangements, that means race clubs would not get government funding automatically. In more stark detail, if a club were to conduct a race meeting and its pre-agreed share of betting turnover on the meeting fell short of its costs, that club would lose money. Importantly, for example, allocations of race dates would be less contentious if made on the basis of tender bids lodged by race clubs. The winning tender would be the club guaranteeing the maximum excess of betting turnover taxes over costs it required be met from the public purse.

In short, race clubs making businesslike decisions and taking business risks would replace decision-making by administrative discretion.

Race clubs may need to be reconstituted as conventional companies with share capital — a rather different business focus to decision-making in a not-for-profit cooperative that now automatically gets a share of the betting turnover on races conducted nationally whether it ‘races’ successfully or not.

Putting in place commercial disciplines at all levels of the racing product supply chain would more easily resolve some perennially contentious issues.

The competition would include tenders called from interstate and overseas to supply complete racing product packages. Governments will be trading off betting activity (and taxes) ‘guaranteed’ by all potential suppliers against the cost (to public revenue) of ‘buying’ the local product or importing product from interstate or abroad.

Conversely, local race clubs stand to make money if they are able to put together a complete ‘export quality’ racing product package and to guarantee betting activity to an interstate or overseas ‘importer’.

It’s a matter of time — and business acumen overlaid on good government in terms of spending community funds wisely.

— striding out boldly

The practical implications of conducting racing as a commercially disciplined business enterprise are obviously profoundly challenging.

The first step is to get ‘right’ the policy principles and the operational framework.

In respect of the TRB in NSW a number of consequential changes would be in order. The general thrust of these changes would be to rely much less on board members associated with the conduct of commercial racing operations and to rely much more on board members that are representative of the community generally and racing customers in particular.

As a basis for discussion, I would suggest that membership of the TRB include:

* persons appointed to represent the general community interest as reflected in the roles of The Department of Gaming and Racing, the Department of Fair Trading and the Treasury / Office of State Revenue;

* persons appointed ex-officio including the chief executive of TRB, the chief executive of TAB Limited, the chief steward of the TRB and a representative of Racing Victoria; and

* persons appointed to represent the interests of race clubs, the print and broadcast media and the tax paying customers of racing.

Such a TRB would comprise ten persons.

End Piece

In November 2000 a submission was lodged with the relevant Minister (and others) in respect of a review of the Fair Trading Act.

The submission advocated that well established fair trading principles be newly applied faithfully to the benefit of the gambling customers of the racing industry.

Issues raised in that submission would seem to be relevant to a review of the TRB Act: in particular, it would seem to be entirely appropriate for the TRB to be now given a comprehensive ‘customer protection’ brief.

I especially commend that thought to the Minister for Racing in his conduct of this review.

For consideration.

Peter Mair 1 August 2001

(Peter Mair is the consumer representative on the RIPAC racing industry body in NSW. While the views expressed are his own, he hopes others will embrace them in the interests of Australian racing and its customers)