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The Big Debate

It lasted two hours; it went round in circles as these things often do; and, for a conference of international horseracing federations it spent too long on the parochial issue of the court case in New South Wales about whether Racing NSW has the right to charge on the basis of turnover.

But today’s ‘Big Debate‘ at the Asian Racing Conference in Sydney did at least do what it said in the programme. The discussion about wagering brought to the ARC what has previously been a taboo subject. Whether we are any further advanced is moot; but the audience’s view of life was made clear by the single intra-debate round of applause that it gave, which came in response to the call from former BHB Chairman Peter Savill for racing to return to a funding model based on turnover.

On that basis, it was a bit depressing. In my view, a return to a turnover-based model would, at a stroke, remove all competition from the industry, and with it all innovation. In a competitive world, that would be a death knell for the racing industry, and I find it a shame that so many people in charge of racing in the audience around me continued to scoff when these points were all made by Edward Wray, co-founder and Chairman, as he put the Betfair view of the world.

But there were also reasons to be cheerful.

Followers of my career will know that rare are the occasions when I have agreed with Savill, but today I thought he made more sense than not.

I would dispute his turnover call, and his lauding of French legislation – praise for which was echoed by others on the panel (more of which another time, perhaps); and I think that his continued belief that the Betfair model is damaging for racing’s integrity is mis-judged.

But he made the sensible point that of the sin taxes paid around the world – alcohol, cigarettes, petrol, and gambling – gambling stands alone as having no underlying commodity; and as such, it is easily avoided in an internet world. And if his solution – to legislate for IP rights to allow racing to set its product fee – has been tried (by him) without success, I still thought he put his case well. He certainly seemed more relaxed than I’ve heard him before. Perhaps retirement has mellowed him!

Equally, credit to Nic Coward, for the second day in a row, for what I thought was a measured and well-put position.

Inevitably, his oft-repeated and in my view nonsense line that there are bookmakers evading levy on Betfair made an appearance, but even more so than was true of Savill, I felt that more of what he said today suggested common ground than didn’t.

He believes that both government and opposition are committed to replacing the levy for a commercial mechanism, which I am less confident about than he is; and he is convinced that if they do so, the amount of money that comes into racing will go up, which I fear he will end up being disappointed by (because I believe the product is worth less to the betting industry than he thinks it is). But that’s a commercial negotiation, and I wouldn’t quibble with him making his case. He did it well.

Ed, who spoke alongside bookmakers Alan Eskander and Con Kafataris (both of whom impressed), made all the points you would expect from our side. He pointed out that racing’s share of the wagering market has plummeted in ten years, from more than 70 to less than 40% (in retail outlets, not to mention online); and he lamented the lack of punter representation in a debate which he said was too focused on the cost of racing for owners.

He underlined that a conference that has heard so much about how to attract “customers” should understand that “customers” means “punters”, and attracting them means giving them the product they want to buy, and not the product you want to sell them; while in a similar vein, Eskander pointed out that monopoly totes return 80-84% to punters; bookies around 94%; sports bookies around 96%; and online casinos and poker around 99%; so racing needs to be wary of its competition.

Indeed, nothing from any of Ed, Alan or Con will have surprised any regular readers of this blog.

It could be argued, I suppose, that nothing in connection with this debate should surprise readers of this blog at all; but even a battle-worn veteran like me (told once that I could roll out the Queen if I wanted to – I just wasn’t wanted in Australia) was surprised by the approach taken by the Chief Executive of Racing New South Wales, Peter V’Landys, alongside whom the rest of the panel could look relaxed without difficulty.

V’Landys’ opening statement was that it would be good to take the emotion out of this debate, and with that, I agreed.

His second statement then did the opposite, although that is not the only reason that from then on, I didn’t agree with anything else. I didn’t agree with everything that was said by Coward or Savill, either, but where it would be impossible not to credit them both with being on top of their briefs and expressing their positions in a measured way, V’Landys seemed to me, in contrast, to struggle with some of the basic building-blocks of his argument.

Twice – I honestly thought the first time that I must have misunderstood him – he said that the argument that gambling is an elastic product had been proved to be wrong by the following piece of evidence: turnover had gone up by 36% this year, but revenue had only gone up by 8%. Ergo, the product wasn’t elastic.

Now, I’m no economist. But surely anyone running a business needs to know that by “elasticity”, people mean the relationship between turnover and margin, and their combined effect on revenue. So, turnover of 100 on margin of 10% makes revenue of 10. If margin is cut to 5% and turnover increases to 200, revenue remains 10; and the product being sold is deemed to have perfect elasticity (or, to be strictly accurate, elasticity of -1).

So, if turnover has gone up by 36%, then the big question is how much of that turnover has been the result of a fall in margin, and how much of it is new money coming in from other places. Given the fall in racing’s market share, and the economic situation worldwide, it would seem likely that the revenue growth is driven by the margin cut. But if we speculate that it’s unlikely that margin has gone down by more than 36%, wouldn’t the figures presented make exactly the case that it was being suggested had been knocked down?

V’Landys’ didn’t mention margin other than saying ‘but our margin has gone down’. This means that unfortunately we’re none the wiser; but also, which seems to me to be key, it suggests that he didn’t understand the point he was trying to make. Given that he has predicated his entire strategy as CEO on it, that must be worrying for supporters of Racing NSW’s stance.

That aside, it was another much-repeated phase during the debate that got me thinking most. That phrase was, “racing must be allowed to set the price of its product”.

I think this is an interesting one. On the face of it, I agree. But it seems to me that racing is not trying to set the price of its product, but the price of ours.

Racing’s product is racing, whereas our product is betting. But what racing wants to do, to Peter Savill’s call, is to set the price of racing on the back of betting turnover. Savill even stated that ‘racing must be paid every time its product is used and not just when bookmakers make money’.

So, when is the racing product used? I would argue that it is used when someone makes a judgment on the fair value of a horse, having assessed the runners and riders, the going, the form, and the weather. That judgment is made, and then bets are placed. And betting turnover is predicated on – well, the cost of bets. It’s not predicated on further use of the racing product at all.

An analogy which might resonate with Peter V’Landys would be this: V’Landys always argues that bookmakers paying a turnover fee is like people buying petrol, and the garage should be allowed to set its price.

OK, so the garage sets its price. You rock up in a big gas-guzzling car, and buy 50 litres of petrol. At the same moment, I arrive and fill up a series of tanks, also taking 50 litres. We pay the same price: 50 litres bought at the cost set by the garage.

But when I get home, it becomes apparent that I’m using my 50 litres differently from how you are using yours. Why not? I’ve paid for my 50 litres, and I can now do anything I want with it.

If I use half of it in my fuel-efficient Mini, a bit more of it in my lawn-mower, and the remainder in my scooter, such that I get 1000 miles out of my 50 litres of fuel to your 200, the garage doesn’t suddenly get a mileage bonus. The point at which it stopped being the garage’s product was the moment of sale.

So I’m interested by how this debate will end up panning out. Racing has a right to charge for its product – on that, I think we are all agreed. Where we differ is the basis on which it can charge, in order not to discriminate against different users.

And in my view, understanding exactly what the product is that it is selling is key to the debate. Because one thing is for certain: it isn’t selling bets. We are.

Posted in Australia, Betfair, Betting industry, Regulation.

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3 Responses

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  1. Back High Lay Low says

    Mr.V'landys has a very clever debating technique where he repeatably talks gibberish until his opponents are in such a state of confusion they forget what they were going to say.

    I suggest a good pair of ear plugs are in order for the next time your paths cross.

  2. Scott Ferguson says

    "it suggests that he didn't understand the point he was trying to make"

    sums up the career of Peter V'Landys perfectly. In any proper business, fools like this would be held accountable by the people they represent.

  3. Back High Lay Low says

    Without laboring the point too much about Mr.Vlandys being unfit for the office he holds, this is what he had to say at the Productivity Commission's gambling inquiry public hearing in Sydney on 01/12/09.

    'The biggest illusion in my eyes is a betting exchange. In the court, I was stunned in the evidence to find that punters on a betting exchange only get 80 per cent back of their turnover.
    So basically it means there's a margin on a betting exchange of 20 per cent, but that 20 per cent doesn't go the racing industry or Betfair, it goes to the person that's on the other side of the bet which is called the layer.'

    'Now, the layer, from what we understand, is either a bookmaker or a professional punter, so basically any recreational punter that's going through a betting exchange is only getting 80 per cent back of his turnover.'

    'To equate that to a corporate bookmaker who's got a 6 per cent margin, he would have got 94 per cent back if he went through the bookmaker, and if he bets through the tote, on a win bet which has got a 14 and a half per cent deduction, he would have got 86 per cent back or around that mark.'

    'So you can see that a recreational punter who's using a betting exchange is actually paying the highest possible margin of 20 per cent.'

    I think racing participants in NSW should very worried about having this man in the drivers seat.

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