World Economy

Racing industry bets on reform to keep bigger share of profit

Malcolm Moore
A jockey celebrates victory at Cheltenham Festival at Cheltenham Racecourse on March 12, 2014
Mike Hewitt I Getty Images

Saturday is expected to be the most lucrative day in the UK horseracing calendar, with £200m likely to be staked on the Grand National.

But to the anger of the industry, huge numbers of bets are likely to escape the tax that funds the sport. These bets will come through smartphones, tablets and computers and be routed to offshore hubs.

William Hill said it was likely to take "in excess of a million" bets on its mobile app, with more than 10,000 bets a minute coming through smartphones and computers in the run-up to the race.

"Forty per cent of digital bets do not contribute to British racing because they go offshore," said Nick Rust, the former Ladbrokes executive who now runs the British Horseracing Authority, the sport's regulator.

He said the big four bookmakers, William Hill, Ladbrokes, Gala Coral and Betfred, did pay a "voluntary contribution" but said it did not fully reflect the profits they made from online betting. Others, such as Paddy Power and Sky Bet, did not pay a contribution.

"That is not something that the average member of the public is aware of. If they understood their bets do not support the 85,000 people who work in horseracing, the people who wake up at 5.30am to look after the horses, they might be horrified."

The feud between racing authorities and the bookmakers over how to support the sport has been raging for decades. A tax on gambling, called the Horserace Betting Levy, was introduced in the 1960s to compensate racecourses for the money they lost when people place bets off-course, in betting shops.

The levy remains in place, charging bookmakers 10.75 per cent of their gross profits for taking off-course bets.

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But the racing industry, which also funds itself by selling media rights, believes that between £20m and £35m is being dodged as bets migrate offshore. "We do not want to gouge the bookmakers," Mr Rust said. "We want to close the net."

The bookmakers have strongly resisted any change to the status quo. Despite the glamour of big events such as the Grand National, the sport is becoming less important to them.

Grand National: Banking on horse racing

Horseracing earned William Hill £281m in 2008 but just £182m last year.

"Betting in shops on racing is obviously in decline," said Paul Darling, the chairman of the Association of British Bookmakers. "Racing is in denial about the appeal of football and other sports. Some bookmakers now see racing as a loss leader. They do not want to keep it, but they do for their customers. Other bookmakers say they could focus on foreign or virtual races. The point where they will balk at the total cost of racing is very close."

The government has said it will radically change the way the industry raises money by giving it the right to charge all bookmakers for a licence to take bets on the sport, overseen by an industry forum.

"It will lead to a substantial shift in bargaining power from the betting industry to the racing industry," said an impact assessment from the Department of Culture, Media and Sport, adding that the change would in effect grant the racing industry a "commercial monopoly".

One racing source said the bookmakers had "brought it on themselves" by refusing to negotiate for years over a new funding mechanism. The bookmakers have threatened legal action to stymie any change in legal battles and anti-competition inquiries.

A representative of the betting industry said behind the scenes there have been moves to dilute the proposal and modify the existing system with promises that overseas companies will cough up their share.

But Simon Bazalgette, the chief executive of the Jockey Club which runs 15 racecourses including Aintree, said there was no alternative to the new "racing right". "The problem with voluntary commitments is they are voluntary and can be withdrawn at any time. The current system only allows us to make a deal [with the bookmakers] for one year. But what if we wanted to plan for five years?"

Mr Rust has proposed a meeting next month with the chief executives of five of the UK's largest gambling companies to discuss how the money could be used to improve racing.

"No one has formally come out to say [they are ready to work on the new rights], but one or two have made noises about the need to solve this in a reasonable way," he said.