Month: September 2019

by Brian de Lore
Published 26 September 2019

The downward trending TAB results has provided a double-edged sword problem for RITA in both the sustaining prizemoney aspect and the value of the TAB for any future outsourcing negotiations.

Meanwhile, yesterday a letter from Minister Winston Peters to RITA Chair Dean McKenzie which was dated July 25^th was posted live on the RITA website two months later. Why would that occur unless it had come as a directive from the Minister himself?

The introduction to the letter states: “The Minister for Racing, Rt Hon Winston Peters outlines the matters that the Board of the Racing Industry Transition Agency (RITA) are expected to address in the business planning process for the 2019/20 financial year. This Letter of Expectations is provided under Clause 3 of Schedule 1AA of the Racing Reform Act 2019 (the Act).”

The letter is well worth a read and can be located at https://www.rita.org.nz/201920-ministerial-expectations-racing-industry-transition-agency

How do you fathom the reasoning for the delayed publication?  The letter strongly reinforces the said NZ First racing manifesto, the terms of reference for MAC and RITA and seems to send a strong reminder message that RITA needs to get on with it. Is the Minister, who devotes only two hours weekly to the racing portfolio and relies on delegation to get the job done, himself becoming impatient with a lack of visible progress?

Draw your own conclusions but the letter suddenly appearing two months after receipt is not standard practice. Some would suggest the Minister wouldn’t be happy with the current rate of progress and that if he looks closely at the way the TAB is trending then he may subside into semi-depression.

In the week to September 15^th the five thoroughbred meetings at Tauranga, Wingatui, Awapuni, Ruakaka, and Rotorua were collectively down 18.81 percent in tote turnover for the same meetings last year which is the statistic most critical for thoroughbred racing’s income. The tote provides the thoroughbred racing code with a net 14 to 15 percent of its income for stakes.

Fixed-Odds-Betting increased by 10 percent for the same week, but remember that when the margin on the FOB is eight percent, the net return to racing is a mere two percent. But since the FOB was launched the margin hasn’t been as high as eight – it was only three percent early, five to six percent after six or seven months with anecdotal evidence saying it’s still nowhere near eight percent.

The financial benefit to racing from FOB sports betting requires a turnover seven to eight times greater to equal what racing gets paid from the tote. Why the codes ever allowed this happen is beyond belief. Why they didn’t unify and go tear down the NZRB walls at Jackson Street Petone, is a mystery? Probably because most of them reside in the same building – very cosy!

If this isn’t proof that the unscrupulous executives at NZRB didn’t deliberately cannibalise racing’s tote betting for the benefit of sports betting and promoting its FOB platform, then what is? No one with any racing in their blood would have done that. And they used $50 million belonging to the racing codes to do it. Anyone who opens the TAB website will see that sports betting is to the forefront, and you have to go and find racing.

For that level of misuse of shareholders funds in a public company, jail sentences would result. But in racing, no one cares what happens to it, least of all a civil servant organisation such as the DIA which now has a firm grip on racing’s testicles and isn’t letting go anytime soon.

But back to the double-edged sword problem facing RITA. For instance, the deal the TAB could negotiate in a partnership outsourcing arrangement would be far less attractive today than it would have been 12 months or two years ago. No use crying over spilled outsourcing milk, but as the TAB turnover declines, so does your attractiveness to a company such as Tabcorp or Sportsbet.

Outsourcing is the big carrot. The primary component in the goal of the Messara Report is to double prizemoney with the main contributor identified as an outsourcing arrangement. RITA has stayed quiet on the subject and said in the Interim Report that outsourcing is not a foregone conclusion. A seventh member to the RITA board (Minister’s prerogative) with expertise in that area has so far failed to materialise –  nothing to date which indicates a lack of desire to go down that road.

In July RITA’s CEO Dean McKenzie said that on the question of outsourcing he would look at everything from the status quo to full outsourcing. A committee was set-up by MAC five months ago to investigate outsourcing, but its appointees are nameless and findings remain a guarded secret.

Last season’s distribution to the codes was $151 million of which $40 million was used-up in administrative running-costs – $20 million for thoroughbreds and $10 million each for the other two. Why is that figure so high and particularly in the case of Greyhounds NZ which recently announced its unique version of self-harm by appointing former NZRB Chair Glenda Hughes as its interim CEO – the gravy-train continues – the only difference is it’s changed tracks.

In John Allen’s Statement of Intent (SOI) released in August 2018, it budgeted distribution to the codes of $151.6 million, but the failed strategic initiatives including the FOB will see a shortfall of around $18 million for distribution – that’s the historical figure which means that NZRB/RITA has been using-up cash-on-hand to pay for their commitment to keeping the stakemoney minimums of $10,000.

In the Half-Year Report released last January, it showed NZRB had at that point only $8 million in cash. Since then, the income to outgoings ratio situation has worsened to the point where $12.5 million per month ($151.6 million p.a.) is required to keep the status quo, but the TAB profit level has dropped to $10 million per month, a short-fall of $2.5 million every month.

When the Minister announced through RITA that the stakes would stay the same for the current season, and CEO McKenzie in July stated it would be a challenge – it was racing’s understatement of the year. It’s no coincidence that the budget for season 2019-20 which normally would have surfaced in August has not yet seen the cold light of day.

I have only hearsay evidence that incumbent but albeit resigned CEO Allen made four attempts to deliver a budget to RITA quite recently, but all were considered works of fiction and accordingly rejected.

As every week passes the perilous state of New Zealand racing worsens. Forget the arguments on venue closures because this is far more serious and it’s blatantly obvious it’s been a cover-up. The resignation of Allen should by rights only be the start of further departures including the CFO and the rest of the executive team.

These are the people that signed this industry up to committed payments of $17 million annually to Paddy Power (10 years) and Openbet (five years). Not knowing the detail of those commitments a guestimate could be a $130 million commitment in total. Add the cost of building the FOB at $50 million, plus other strategic initiative failures and all the exorbitant salaries paid over the past four to five years and you arrive at a total wastage round figure of $200 million.

And since The Optimist posted last week’s blog, CEO Allen has picked up another weekly pay cheque of $13,000, just to make the industry happy.

The cash on hand in January this year of only $8 million was by July supplemented to the tune of $4 million from the first year of the Betting Levy rebate but if the monthly deficit is $2.5 million it doesn’t take an Einstein to conclude this business is running out of cash at the rate of a good gallop. Further to racing’s woes, the economy is slowing and betting turnover will take a hit on that factor alone.

The predicament again reemphasises the cost of not having the Betting Information Use Charges agreements in place for July 1^st which should be bringing in $250,000 every week.

If the current trend continues, then sooner or later the monthly creditor payments will be slowed, or the codes will be slow-paid, and as a consequence owners stakes payments will be slow paid. But the apathy displayed by this industry to the situation has been mindbogglingly staggering. It’s a little like a community’s hurricane warning that goes unheeded.

The Minister’s letter is very stern about what he wants from RITA, and he is focused on what he sees as the end result for racing. Be aware, racing is deeper into the crises than it’s ever been before, and that predicament is mostly a man-made one through exceedingly poor governance.

Peters has passed the ball to McKenzie who he now expects to maul his way up the length of the field with the rest of RITA and get over the try line. Nothing less will save the day.

by Brian de Lore
Published 19 September 2019

The object of The Optimist as a weekly blog is to try and keep the truth flowing and the participants in the thoroughbred world informed on various important aspects of racing and breeding.

It gets harder when some administrators close ranks and won’t talk, but funnily enough, it then becomes more intriguing. Over the past few years, I have developed a network of informers and supporters who are reliable and more than willing to help for one reason only – they love the game and want desperately to see it recover and achieve sustainability. They are racing people who possess passion; they know and live racing.

Had it not been for them, I may long ago have curtailed this campaign of disseminating facts from the fiction and calling for justice on behalf of people at the coal-face of racing. They encourage me weekly and that’s what drives the blog. I merely write it but rest assured, it’s a collaborative effort which is mostly driven by a few die-hards who also refuse to allow racing to go down without a fight.

Communication is everything, and almost everyone I speak to sorely misses The Informant. So many people relied upon it, and I don’t believe NZRB had any understanding of how valuable its form guide has been for TAB turnover. Directly from a TAB outlet this past week I’m told the retail side of the TAB is $1 million a week down on last year’s figures which were also down on the previous year’s numbers.

It makes you wonder why the TAB denied The Informant free access to the form which necessitated the form’s purchase from Australia at an annual cost of $100,000. That was the main reason The Informant fell over, and the day it did, a spy communicated that TAB employees were high-fiving in the halls of the NZRB at Petone.

That’s how sick these people are – all in the misguided belief the TAB’s money-losing publication known as Best Bets had scored a victory and would benefit with increased sales – perhaps my continual justified criticism of NZRB may also have been a factor.

The circulation of Best Bets declined considerably under NZRB’s management; the unconfirmed talk is that it went from 3,500 down to 1,500 after NZRB reputedly purchased it for $250,000 when it was losing money and was effectively worth nothing. It continued to lose money and is yet another example of their fiscal irresponsibility.

So, I’ve written seven paragraphs and haven’t mentioned the name of John Allen (until now). By this time everyone will know Allen resigned on Monday morning and officially will depart in December. However, it will not be surprising if gardening duty becomes his main activity between now and Christmas – perhaps only punctuated by questions from RITA arising from his decision making over the past four and a half years.

It is no coincidence Allen’s resignation comes soon after RITA’s receipt of the Performance and Efficiency Audit from Grant-Thornton and the financial year 2018-19 audit by Price Waterhouse Cooper. They will be telling documents that will eventually become industry knowledge as we near the RITA AGM before the end of the year.

Much of the content in Allen’s resignation statement to the media can be disregarded. The quotes were typical of an agreement between two parties when someone is getting the shove. They always say beautiful things when the letter writer is ushered through the door.

And while I’m doing acronyms, it’s worth mentioning BBA which is a well-known one in the thoroughbred world – British Bloodstock Agency which has been a big player in the sale and purchase of horses worldwide for more than 100 years.

But BBA in New Zealand could be construed as Brown, Bayliss, and Allen. They are the all-in-a-row last three CEO’s of NZRB. History will record them as a trifecta of characters who have left the horse industry with a legacy of unmitigated disasters – I can confirm that will be recorded in history because I’m currently in the process of writing the book.

What can’t be allowed to happen is that the powers-that-be go for the First4. The cycle must be broken, and the criteria for the next appointment changed. The BBA common denominator of high academic qualifications, no skin in the racing game and no previous knowledge of the racing industry is a losing combo.

V’landys type people are rare commodities, but if RITA could come up with someone half as good it would be a vast improvement on the BBA. Allen’s departure is a positive move forward, and while it will open the door for further inroads into cost-saving, it is only the first of a thousand steps.

Below is a welcome letter of support received this week from NZ Trainers’ Association:

Hi Brian,

The Trainers’ Association wishes to record its support for the recent articles dated 5th and 13th September, you wrote and included on the blog, The Optimist. The Executive share your concerns regarding the perceived lack of progress in regards to the reforms as outlined in the John Messara Report. 

It is understood that the legislation has proceeded as planned with a focus on new revenue streams. However, there does not appear to be any urgency in the actual collection of this revenue, nor addressing the reduction of overhead costs at RITA.

Dean McKenzie and Anna Stove attended the National AGM of the Trainers’ Association in August.  The notes from the meeting follow this email for your information. Many of the concerns raised echo the views expressed in your blogs.

The Trainers Association is very aware of the need for urgent action as the situation is so dire. There are many trainers very close to being unable to continue as their livelihoods are at risk due to the current state of the industry.

Regards,
Wendy Cooper 

Executive Officer
NZ Trainers’ Association Inc

by Brian de Lore
Published 13 September 2019

Police raided the Kim Dotcom mansion in January 2012, and the US Department of Justice has been trying to extradite him to America ever since, to face charges relating to illegal file-sharing to his Megaupload site that earned him millions of dollars.

New Zealand’s bureaucracy has stretched the extradition into its eighth year, and we are still counting. Let it be a warning to New Zealand racing that the industry is now in the hands of like-minded bureaucrats in Wellington who have no conception of time and no care for racing’s future

The bureaucracy in Petone and Wellington has probably never heard of Charles Darwin who once said: “A man who dares to waste one hour of time has not discovered the value of life.”

Time is the one critical ingredient in very short supply for racing, and as long as the DIA is controlling the schedule, time won’t be a consideration. If the Minister doesn’t intervene and rev-up the DIA and RITA and get the Messara Report actioned then it may become another statistic and go dusty somewhere on a shelf like every other review in racing’s history.

RITA was expected to take control of racing and make a big splash but instead has barely dipped its toe in the water. If you read MAC’s interim report released in late April it talked about taking action; the actual words were, “Change will happen quickly and disruption must be carefully managed,” but no such action is has occurred.

MAC/RITA said that from July 1^st it would, “enable initiatives that will drive revenue growth and reduce the cost for the racing industry.” But the legislation that became law on that date has shown just how ill-prepared the DIA-RITA co-operative was by having no agreements in place and nothing to collect which is simply money down-the-drain as a consequence. From all accounts, the rates are not yet set.

The lack of preparation to collect racefields levies that could be supporting stakes money is a disgrace. And the complete disregard for taking action to reduce racing’s massive administrative costs is also a disgrace. The NZRB which has a new name called RITA still has a CEO earning $680,000 annually, a total of 14 employees on $220,000 or above and 144 employees on $100,000 or more.

The wastage is diabolical and is nothing short of thievery from a starving industry. For years and years, the ever-fattening NZRB has been siphoning off the cash that belongs to the owners and workers of racing. That it has been allowed to continue this long is extraordinary.

The hatchet-man needs to come in to slash and burn the costs. Tweaking, convening more meetings, continued full involvement with the DIA and the failure to be honest with the coal-face people of racing is not making the drastic changes required to salvage whatever can be salvaged of this once great industry.

Does racing need to be once more reminded about our 2006 status when the combined cash and property assets amounted to more than $106 million and interest was an income stream? Now, it owes $25 million which is the upper level of the limit, couldn’t pay back the due $9 million at the end of July and has effectively rolled over the loan and has placed itself in a tight corner with no room to move.

Racing is displaying all the signs of self-harm and needs a financial shrink. Instead of facing up to the issues three years ago when the writing was clearly on the wall, John Allen intensified his campaign of fake news and borrowed money to put the stakes up – tantamount to putting a bandaid on a severed limb.

All the while Allen was singing the praises of everything he was doing, releasing Statements of Intent that showed profits of up to $220 million and acting like the court jester. Many people believed the bullshit, and look what we have now – a FOB that has cost $50 million which is a crock.

Worse still, he’s still employed and effectively in charge and still collecting his weekly pay packet of $13,000. WHAT A JOKE!, metaphorically speaking. Yet, the Interim Report said that RITA from July 1^st “supports the Change Management Programme,” which can only mean one thing.

The cover-ups and the lying to the participants has been going on for years and has become the norm rather than the exception – same as the politicians. We have been lied to so much we expect lies and deception. Proof is everywhere between the lines in the annual reports.

A recently departed employee from NZRB has stated that if the top three executives at this dysfunctional organisation failed to get out of bed for a month or two it would make no difference whatsoever to the running of the TAB.

The gravy train rolls on at full-pace and today on the RITA website a total of 17 jobs were in the offing. A couple of months ago NZRB employed a new IT Manager and will relocate that person and his family from Australia at a massive cost and pay him $350,000 to $400,000. Where is the cost-cutting?

The scope for cost-cutting is massive. Apart from salaries, the last annual report shows they spent $58,700 each and every week on travel and accommodation. Another weekly debit of $49,000 comes in the form of hiring consultants. A further $65,000 a week was spent on items listed as ‘other operating expenses’ with no further explanation offered.

No accountability and no transparency. No broom through management to clean out the dead-wood and costs, and no apparent show of strength in the leadership of RITA to give stakeholders a glimmer of hope. RITA should seriously address all these issues and take drastic action.

It makes this paragraph which appeared on page six of the executive summary quite laughable:

“The committee also want to reverse the historical model where the stakeholders of the business get what’s left after the administrators have taken what they believed they needed to run the industry. The stakeholders can no longer be left at the end of the food chain. Their interests must sit at the heart of an efficient, responsive, future-proofed commercial model.”

Lip service at best. Too much self-interest and job protection going on and a lack of strong leadership. Someone needs to make a statement as this industry is fed-up to the teeth with the same old, same old as the inertia of the downward spiral intensifies.

Where is the accountability? Why is this industry allowing these people to write such promises, not deliver them and get away with it? The codes have displayed their total apathy and lack of grit in failing to protest in any positive way while racing is dying a slow and agonising death. 

And for the lack of recent statements from the Minister while he continues his absence on sick leave, it is worth regurgitating the NZ First Racing Manifesto which included these promises:

• Introduce a new (below Premium Meeting) where every race will be for a $15,000 minimum with relativity across the codes.
• Restore marque racing plans and prize money initiatives in-line with NZ First Implementation 2005-2008.
• Urgently review the operations and costs of the New Zealand Racing Board.
• Enhance employment and export opportunities by working with the industry to improve the international status of New Zealand Group One races to attract greater international interest

Two years hence and none of these have happened. All we have to date is the promise of maintaining stakes at the current paltry level of last season – a directive from the Minister to RITA.

But on the figures shown here in last week’s blog (and those figures are correct), the prospect of keeping the status quo with an underperforming TAB looks bleak without an infusion of revenue from some unknown source.

The hole is getting deeper. The list of unfulfilled promises is mounting, and the industry morale is badly in need of a massive dose of decisive action.

by Brian de Lore
Published 6 September 2019

The month of September is the first anniversary of the Racing Minister’s Claudeland’s release of the Messara report where Peters, in his speech, said, “I know a dead horse when I see one,” in obvious reference to the NZRB.

But everyone in racing knows the horse isn’t dead; far from it! The despised steed is in a paddock of clover and still regularly has its snout in a trough full of nutrient-rich Dunstan’s Pasture Plus.

On the night of that speech from the Minister, NZRB Chair Glenda Hughes remonstrated with Peters immediately after the meeting’s conclusion, but here we are one year later and Hughes is still in the Jackson Street, Petone building as CEO of Greyhounds NZ.

CEO John Allen and his band of merry henchmen also remain in the building and will have new business cards in their ever-fattening wallets with the metamorphising of NZRB into RITA the only discernable change. Have a close look at the table below and comprehend that these are the very people that have guided this industry into a shortfall of around $27 million required for code funding in this current season.

In a public company environment the shareholders would be demanding blood. The CEO and Chief Financial Officer would both be down the road in quick time – remember that this result is all about poor governance and lack of foresight and consultation with the industry on a substantive scale.

The profit against budget looks to be down in the vicinity of 19 percent. Gaming is the only figure that’s risen, but overall the actual against budget are poles apart. That’s how misguided the building of the FOB has been with its $17 million in running costs payments to Paddy Power and Openbet. All advice against doing it including a Deloitte Report which stated it was the path to penury fell on deaf ears.

Interestingly, the budget for 2019-20 would typically be out in July/August along with a Statement of Intent, but to date no sign of it. Surprisingly, though, RITA announced that current stake levels would be maintained which by the above calculation would require a racing profit of $151 million – not $124 million.

The total profit, including the growth in gaming of $140 million somewhat camouflages what will be a lamentable result for racing. McKenzie has already said that maintaining the stakes level will be a challenge – climbing Everest in bare feet could also be described as a challenge.

The Allen appointment was a monumental mistake in the first place, and he has cost the industry tens of millions. But we are keeping him – go figure that one out. Last year’s outgoing NZRB board who were due for retirement in July, but stayed on for another year at the Minister’s behest, apparently renewed his contract for a further three years and it will cost $2 million to sack him.

Why would an outgoing board go and do that? Where is the accountability for a board that has clearly failed in both employee appointments, the industry’s strategic plan and its failure to comprehend, consult, and alter the direction of an ailing industry?

The slash and burn transition the industry needed is not happening. Change is slow and cumbersome and is ignoring Messara’s advice in his review on ‘urgency’ and is at odds with his introduction to Part One of the Review when referring to the challenges by saying, “…which protects and enhances the financial welfare and livelihoods of the many thousands of persons involved with the racing industry.”  

The softly, softly approach is not endearing to the thousands of participants who are falling further behind with every passing month. The collective returns to owners the Messara Report calculated to be 22.9 percent in the 2016-17 season, compared to NSW at 48.1 percent, have fallen further behind. With rising costs, would it be a surprise to discover they are now around 20 percent?

The Minister always said, through his electioneering and post-election, the owners are the most important people in racing and need much higher stakes money. Two years ago he said it was urgent, but instead of maintaining the off-the-bit full gallop momentum of the Messara Report he has eased his charge down to barely a trot.

NZ First Chief of Staff and political scientist Jon Johansson told me a few months ago the Minister spends two hours a week only, on racing, and that if the portfolio requires more time, then something must be going wrong. I interpret that to mean that Johansson is the one conducting the orchestra and there has to be a triangular degree of cooperation between he, RITA and the DIA for this thing to move forward at any pace.

The result is a bureaucratic process that has no feel for racing’s plight. RITA will understand but is between the rock of Johansson, and the hard place of the DIA and has constraints in the terms of reference which clearly states the Minister is in charge of every decision made, i.e., Johansson.

It’s the antithesis of what occurred in NSW when after years of continuous lobbying the state government, the powers that be, gave John Messara the mandate to go and fix the problem. He as Chairman and Peter V’landys as CEO went and did just that which resulted NSW becoming the most successful racing jurisdiction in the world. They didn’t conduct reviews and form investigative sub-committees; like Nike, they just did it.

On September 3^rd, RITA Chair Dean McKenzie issued an update on the progress which sounded more like a justification for the bureaucratic pace of change more than anything else. It talked about only having existed for 60 days, the complicated process it faced, a more sustainable structure, the JCA, the RIU, harm minimisation, responsible gambling, the betting levy, off-shore charges from 2020 and industry discussions.

The update did not talk about the most critical issue contained in the Messara Report which is the outsourcing or progress of partnering the outsourcing of the TAB which could save the industry $50 million to $70 million in costs. It did not talk about the goal of doubling the stakes money but only a more sustainable structure. It reeked of DIA influence and would not have left stakeholders doing a jig after reading it.

The critical thing about this process is the involvement of the DIA. Because that body is the designated authority, it is taking forever to get the agreements in place with overseas betting operators and collect the Racing Information Use Charges (racefields) and Point of Consumption (POC) levies. They were asleep at the wheel for six months and should have had everything in place when the legislation went through on July 1^st.

The rates have still yet to be set or at least announced. The only collection of levies has been the voluntary contributors who are known to be Tabcorp and Sportsbet.

DIA’s level of inactivity is costing the codes hundreds of thousands of dollars monthly. Why the Minister appointed DIA and not the codes is a mystery – the money belongs to codes, and they should have been allowed to set it up and manage it instead of this government interference.

Racing in New Zealand has also suffered significantly through the lack of a publication since the demise of The Informant six months ago. Sorely missed is the loss of both a decent form guide along with the information-flow through the editorials, and this impairment must have effected betting turnover.

NZRB was in part responsible for the loss of The Informant by denying the use of the form which added another $100,00/year to The Informants costs, and now, under RITA, they are proving to be the stumbling block again in a plan to overhaul Best Bets and make it into something worthwhile.  

It’s hard to understand why unless no news is better than getting the truth out, exposing the incompetents and the freedom of expression. Could the reason be that cynical – surely not?