Smoke clearing, mirrors break

When I wrote on Friday in relation to the bids for the Tote that the £11m payments to racing being offered by the SIP bid didn’t automatically make for a better offer than £9m a year from the Betfred bid, I was speculating on what the headline number was, and how it would affect (or be affected by) the annual payments. I commented that without looking at the whole bid, it was hard to make a judgment on a selected part of it, because we might not be comparing like with like.

Over the weekend, someone sent me a document which appears to confirm my suspicions that we weren’t.

The document in question is the presentation being sent round by SIP to potential investors in their business, and it turns out (according to that document) that the £11m a year actually comprises £7m a year in direct commercial payment to racecourses, and then £4m in charitable payments.

As you let that piece of information sink in, don’t forget that Racing is also being asked to give up the up-front payment that would come from its 50/50 share of the net proceeds, which in the case of the Betfred bid comes to £57.5million.

So, first up we have £7m a year against £11m in the first year and £9m going forward from the Betfred bid – a difference of  (£4m + (6x£2m)), or £16m over the seven years.

Then, the £4m a year to charity comes instead of the £57.5m up-front to racing charities, which constitutes a difference of £57.5 – (7x£4m), or £29.5m.

Add the £29.5m to the £16m, and you get a difference in value to the racing industry of £45.5million over the seven years of the licence.

Meanwhile, the document also seems to call into question another big selling point that has been put out there – namely that the SIP bid is worth £200million. The £200million apparently includes £90million in charitable contributions, which appears to be the £4million multiplied by 23. The 23, it would seem, is basically made up, so that the £4m a year can be grossed up to match the £90million cash proceeds that are going to government. Confused? I am!

By the by, the document also shows that the SIP bid is reliant on £50m of debt funding, which seems to me to conflict directly with Sir Martin Broughton’s statement on Sky on Tuesday last week that there was no debt. Originally Sir Martin said there was no Private Equity, and then it turned out that there was. Then he said that there was no debt, and it turns out that there is. Oscar Wilde might have had something to say about that.

I asked on Friday, “what am I missing?”. I had two responses: the first was that my numbers were slightly wrong, in that a float of the new Tote business would raise only £100m in equity, such that therefore the 10% share being offered to racing (for which they were giving up their £57.5m share of the net proceeds) would be worth only £10m, not the £20m I suggested. In other words, my correspondent pointed out that the offer to Racing was even worse than I had painted it.

And the second response was to send me the funding proposal which confirmed my suspicions that the annual £11mm to Racing is a fudge. As I suggested on Friday’s blog might be the case, the number relating to Racing is a meaningless number unless given within the full context of the bid.

So, both pieces of correspondence I have had have reinforced the view that these two bids, far from being close to each other, are miles apart. Neither note came from natural supporters of the Betfred bid.

If anyone has any evidence on the counter-side, I’d be happy to publish it.