I went to a dinner recently where Matthew Hancock was the guest speaker. I found him impressive. Amusing in parts; erudite; informed: he made some interesting points about the coalition government, and generally came across as bright. So I have been surprised to hear his views on betting exchanges, as expressed in the three hours of parliamentary time which he secured to discuss the levy and horseracing yesterday – a full transcript of which, if you are interested, you can read here. It is not the fact that we disagree that bothers me, but that his argument seems to me to be so inconsistent and poorly founded. In a world of gross profit tax, for example, it seems rather bizarre to be exercised by the number of bets that people place.
In having what appeared a hazy grasp of the issues, he did at least share much in common with many others. With a few notable exceptions of those who have been close to the issues revolving around racing for many years, most who spoke did so with much passion but very little knowledge. But, despite both that and the glaring problem pointed out in a comment attached to yesterday’s posting, Racing will doubtless feel it had a win yesterday: what it served up was classic constituency fodder, and unsurprisingly, therefore got a decent turnout. After all, there are 60 racecourses in the country, and any politician offered the chance to stand up and claim that theirs is the best (as every one of them did) is likely to take it. The result was three hours of people telling the world (or the few of us watching it streamed) what a jolly good sport it is.
But while it has of course made some noise in the press, the debate seems to me to have been a missed opportunity, because having three hours’ of MPs standing up to talk about a subject about which, on the whole, they knew very little doesn’t get us far along the road to solutions. As it was put to me this morning by someone from the City, people are “all ranting and raving about how great the debate was, but all it really did was highlight how crazy a system we have that lets these totally uninformed people make crucial decisions about areas in which they are ignorant and ignore simple facts.” Having lots of people, one after the next, read from the same briefing paper makes for much repetition and not a lot of analysis.
The extent to which that is what happened was underlined when one MP commented, “I shall not repeat statistics others have given, but I shall mention one that has not been given: some 5.8 million people a year attend race meetings”. The statement comes about 40 lines – that is to say something like two minutes – after someone else had pointed out that “just under 5.8 million people went racing in 2010”.
So we didn’t get, as was claimed towards the end of the session, “an absolutely fascinating debate…examining a complex and detailed issue from all sides of the argument”. Instead, there was barely any scrutiny, or indeed understanding, of the arguments advanced by the BHA, upon which the debate was set. “Near unanimity” in this context is meaningless.
Take this, from one participant: “The British Horseracing Authority says that action is needed in four key areas to ensure that racing gets a fair return on its product. I shall consider each in turn. First, the betting exchanges that have grown up in recent years should pay a proper commercial return to British racing. To me, that argument is compelling.” Or this from another: “The return from betting to racing, expressed as a ratio percentage, is about 1%.”
Wow, I thought, and I found myself being reminded of the time when I walked into a Salvation Army press conference in Australia, called at Parliament House to tell people why Betfair should not be allowed in. I had chanced upon it on after having a meeting cancelled at short notice, and I sneaked it at the back just as a TabCorp lobbyist introduced a chap called John Dalyell to the assembled media throng. For fifteen minutes, Mr. Dalyell proceeded to tell everyone how awful betting exchanges were and how they needed to be stopped. When he had finished speaking, the first question he was asked was, “I’m sorry – you’ll have to go back to first principles for me because I’m new to this: what exactly is a betting exchange?” He replied, “I don’t know… But I know they are bad news”.
In a similar fashion, I wonder what the first MP quoted above would reply if asked, “and can you tell me what return they pay at the moment?”; or how the second would respond to the question, “a ratio percentage of what; and assuming (as seems likely) your answer is ‘turnover’, why is it relevant if they’re taxed on profit?”. You just never got the impression that those speaking on this subject for the first time, knew more than was written on the bits of paper they had in front of them.
As a result, I thought that the whole debate, rather depressingly, had a sort of ‘end of Empire’ feel to it: evoking Charles II and beating your chest about what a great marriage of man and beast our noble sport is might well be ‘eloquent and well-argued’, but it is, frankly, a load of codswallop when you’re looking to debate its future as part of the global leisure economy in a competitive internet age. Watching it, I could imagine the predecessors of those present yesterday spouting similarly about passing eras, evoking Kipling and quietly shedding a tear for Gunga Din.
In fact, I found myself wondering whether any sensible and unbiased person could watch yesterday’s debate and believe that the sport will be saved from its precipitous decline into the mire by having people repeatedly spout the racing mantra? I know the objective here is to persuade the Minister at DCMS that there is a weight of opinion for change, but surely there needs to be empirical analysis in addition to hot air? Are all parliamentary debates like this? It makes you seriously fear for the future of the NHS.
We surely need a little bit more than having people lining up to say what a wonderful sport racing is, if we are to secure its future. MPs might now be able to go back to their constituencies and say that they’ve done their bit, and the BHA can continue to believe, against all the evidence, that everything would be fine if it wasn’t for that nasty old booking industry. But it’s hardly going to get us anywhere. Parliamentary debates of this sort surely need to start asking some sensible and difficult questions about racing’s leadership and structure; about the reality of today’s markets; about consumer behaviour; about what “a commercial mechanism” actually means for racing; and what the sport will do if, as many suspect, it ends up delivering less from the bookies, not more.
The closest we got to any of this was in the closing moments. The Minister alluded to part of it in answering a question asking whether the mooted “commercial relationship” should sit simply between bookmakers and racecourses. His reply, pasted in full below, effectively says that a commercial mechanism can’t be created while Racing can’t decide who owns the product, so although the general point of the debate was that the bookmaking industry should pay more under a new mechanism going forward, it’s not actually clear who they should be paying. It makes you wonder why the title of the debate wasn’t, “This House thinks Racing should get its own house in order before it whinges about the world falling apart being everyone else’s fault”. Here’s his quote:
That illustrates one of the difficulties in designing a sustainable system for the future. My hon. Friend is quite right that that is one potential solution, but I think many people would have grave problems with it. I hope that Members will wish me luck in coming up with a solution that pleases everybody, or at least does not displease too many people. Many people in the Horsemen’s Group and other parts of racing would be extremely worried by my hon. Friend’s suggestion, but I take his perfectly legitimate point.
It might have been sensible to spend more of the debate looking at this point, since it seems rather key. Instead, despite the way it has been written up in the press, we seem to me to be no closer today to coming up with ideas for the future that might work. And that’s because rather than looking for them, we all seem to be more interested in having friendly MPs repeat comments which don’t stand up to scrutiny in an environment where they thankfully won’t get any. Pray that it’s not like that for every issue that makes it to the floor of the House.
Having read the transcript, it’s scary to think that uninformed debates like this play any part in our legislative process. Ian Austin MP’s observation that this debate was more informed than most that take place in the house, because at least two of the contributors had some knowledge of the subject matter (one an ex-bookie, the other an ex-jockey) beggars belief. It’s frightening to think that on matters more important than horseracing or betting there are debates that are even more clueless.
I did learn a few new things from the experts on show, among others:
1. that Don Foster MP thinks betting exchanges make no contribution to the Levy.
2. that Guy Opperman MP doesn’t know the difference between “remote” and “offshore”.
3. that Claire Perry MP is able to channel the spirit of John Prescott. There should be a prize for anyone who can divine the meaning of this gem: “Exchange transactions are frequently concerned with how many goals will be scored in a football match or whether a player will show up, and other things that do not have a cost associated with them and have almost no benefit to the rural economies we are so proud to represent.”
Two broader themes stood out for me. The first is that not one of the MPs taking part seemed to be aware that Gordon Brown, the then Chancellor of the Exchequer, already instructed HM Treasury to review “the taxation of betting exchanges and their customers” in 2004/5. That’s a master stroke for Racing if they can convince MPs that a 20-month long Treasury review never happened, or more concerning perhaps if they can persuade MPs with unsubstantiated anecdotes to reach a different conclusion to the one HMT reached with unfettered access to actual data.
The second observation was that there wasn’t a single mention of the biggest issue facing the Levy – that customers are spending decreasing amounts betting on British horse racing. Even if you believe Racing’s “four loopholes” story, what amount of Levy decline since the 2008 peak do they account for?
1. Non-British racing wasn’t included in 2008, so that can’t account for any decline.
2. As Betfair’s disappointing recent results showed, volumes bet on British racing are roughly what they were a couple of years ago. Whatever bonkers number you pluck out of thin air as the amount you think winning punters (but only those on Betfair, naturally) cause in “Levy leakage” today, you’d have to assume roughly the same number for 2008. So that doesn’t account for any decline either.
3. I don’t know the numbers for the amount that the small shops’ threshold reduces the Levy, but again we’re talking about *change* since 2008. Whatever benefit small shops get for that now, they’ll have got a similar benefit in 2008. the only change will be for shops above the threshold then who are below it now. I can’t see how that could possibly lead to a drop in Levy of more than a couple of million. I’m happy for someone with data to correct me, though.
4. Bookies who were onshore in 2008 being offshore in 2011. Again I don’t have a precise figure, but Hills and Ladbrokes moving just phone and internet business offshore can’t have reduced the Levy by more than £10m, can it?
So we’ve got MPs debating a Levy drop of £50m, and “four loopholes” that couldn’t possibly even account for a quarter of the decline from the peak. There’s not one mention of that in the whole debate. Three quarters of the decline isn’t accounted for. If it wasn’t on the crib sheet provided by Racing to the MPs in the debate, then they didn’t “know” anything about it.
A couple of John Penrose MP’s comments were the most telling for me, although perhaps inadvertently. Firstly regarding replacing the Levy with a Commercial Arrangement, where he complains that William Hill’s rather obvious statement – that as soon as you remove any Government involvement in the process at all, a Commercial Arrangement is precisely what you’d end up with, is unhelpful because “We don’t have a willing buyer and a willing seller”. But that’s true of any commercial negotiation, where the seller isn’t prepared to accept the price offered by the buyer and vice versa. They either agree a price or no deal is done.
His other interesting comment was this one:
“…it is essential that we have a level playing field between British horse racing, other sports and events that are bet on-given the innovation in the industry, it seems that we will be able to put a bet on many more things in future-and foreign racing. It would clearly not be in the interests of British racing if a significant, or even modest, contribution was inherent in the cost of placing a bet, but was not applied to other events on which people could place a bet in a bookmaker’s. We have to understand whether we can either whittle that differential down or get as close to a level playing field as we can, so that we do not disadvantage British racing.”
It’s not clear quite what he’s suggesting, but I read it as some suggestion that products offered by betting operators that aren’t British Racing should somehow be made artificially expensive, presumably via taxation. It doesn’t seem like that’s been thought through particularly, not least how you’d deal with a betting operator who doesn’t even offer betting on British racing, but at least he’s spotted part of the problem. If Racing equates a “fair return” with making betting on Racing far and away the most expensive / least profitable product for a betting operator to offer, then that’s only going to hasten declining volume, by far and away the biggest issue facing Racing.
Ultimately the money being squabbled over is the spend of customers of the betting industry. Racing’s seemingly happy to ignore why that’s in such drastic decline. To keep Levy yield where it is as volumes decline will mean Racing needing to take a bigger and bigger slice of the shrinking pie each year, and each year making Racing less and less attractive to betting operators. Even an MP without detailed expertise ought to be able to work out what happens to next year’s sales when customers are buying less of your product and you put your prices up to plug the gap in this year’s profits.