Racing Bill misses some vital ingredients of the Messara Review

by Brian de Lore
Published 27^th June 2020

As of this week, racing has new legislation which the Minister has designated for enforcement from August 1^st. That will be the day the Racing Act of 2003 gets consigned to the dustbin and the day the new Racing Bill comes into effect.

Few in racing will have read the legislation for its reworded second reading (103 pages), and of those that did read it,  few will be aware of the SOP (Supplementary Order Papers) introduced by the Minister on Tuesday which made quite a few changes to the Bill.

How much influence the three codes had on those changes is unknown. Very little information of that nature is coming out of Petone.  

Today, prizemoney of $139.6 million was announced for the 2020/21 season for less races in both thoroughbred and harness racing which is a retention of the amount allocated over a year ago for 2019/20. Owners and trainers will be relieved about the commitment not to reduce, but it is hard to know precisely how this is being funded.

The $10 million saved in recent redundancies may be budgeted into prizemoney, and so it should be. After paying the outstanding debts of $26 million and keeping the clubs in idling mode during COVID-19, $15 million out of the $50 million bailout might be left for stakes money but that would mean none of the debt to the bank of $47 million has been paid down.

Throw in the $4 million of betting levy for this season, and budget in the $8 million of betting levy for next season and a flaky SOI can be visualised. Then budget-in some Betting Information User Charges (Racefields) yet to be earned for the coming season, and you might get to $139.6 million – how else do you get there?

No one wanted to talk today, so the above is a bit of guesswork. But if you know the profit is heading for the small figures and prizemoney is announced for $40 million more than it should be on previously used distribution protocols, the top-up has to have come from somewhere.

Don’t get me wrong, it’s an outstanding announcement for owners after what’s happened. But if it’s based on allocation of profits not yet earned, then it’s fundamentally flawed and might have serious repercussions if something goes amiss.

The success of any operation is reliant on the people running it, and racing needs to bear that in mind as it enters the uncertainty of the 2020/21 racing season , already facing a financial cliff face of jagged edges to climb.

About 18 months ago, Cabinet approved the Messara Review as its guide for the reform of racing. Has Cabinet’s resolution been followed? Here’s a comparison of the 17 recommendations of the Messara Review with what appeared this week in the Racing Bill.

The Messara Review recommendations are in bold:

1 Change the governance structure, so the NZRB becomes Wagering NZ with racing responsibilities devolving to the individual Codes. This will sharpen the commercial focus of TAB operations and improve the decision-making and accountability of the Codes.

Many of the responsibilities have devolved to the codes but not all. The opportunity for Ministerial intervention appears everywhere in the Racing Bill but more importantly the makeup of the board of TAB NZ will be the crucial factor in the future governance of racing.

The Messara Review (MR) recommended the following:

The existing NZRB should be renamed Wagering NZ and all of its racing regulatory functions should be transferred to the Racing Codes.

The Board of Wagering NZ should comprise 7 members as follows: • Independent Chair appointed by the Minister on the recommendation of the Selection Panel appointed by the Minister, 14

• Chairs of three Racing Codes or their delegates,

• Three Independent members appointed by Panel comprising above four members. • All Independent members including the Chair of Wagering NZ must meet the following criteria: • have experience in a senior administrative role or experience at a senior level in one or more of the fields of business, finance, law, marketing, technology or commerce; and

• have a proven knowledge of the Racing or Wagering Industries; and

• are not members of the Board of a Racing Code, a Race Club or a kindred body.

The Chair and the independent Directors should be appointed for three year terms and be eligible for re-appointment with a maximum period of appointment of six years.

The legislation should also stipulate that a member of the Board appointed in the member’s capacity as Chair of a Racing Code does not have a conflict of interest merely because of the members’ role with the Racing Code.

The Racing Bill says:

Governing body of TAB NZ

(1) The governing body of TAB NZ consists of up to 7 members appointed by the Minister, as follows:

(a) 3 persons appointed by the Minister on the recommendation of the selection panel following:

(i) the nomination of New Zealand Thoroughbred Racing Incorporated, Harness Racing New Zealand Incorporated, and New ZeaPart 3 cl 45 Proposed amendments to Racing Industry Bill 36 198—2/SOP No 516 land Greyhound Racing Association Incorporated (or by Racing New Zealand acting on behalf of the racing codes); and

(ii) the process described in section 46A; and

(b) the rest of the members appointed by the Minister on the recommendation of the selection panel following the nomination and consultation process described in section 46A. (1A)

The Minister may veto a nomination made by the racing codes under subsection (1) but, if the Minister does so, the codes may make 1 or more further nominations until the Minister and the codes agree on the nominee.

2 Establish Racing NZ as a consultative forum for the three Codes to agree on issues such as entering into commercial agreements with Wagering NZ, approving betting rules and budgets for the integrity bodies, equine health & research, etc.

Originally left out of the first draft of the Racing Bill, the overwhelming support of the submissions and the Transport and Infrastructure Select Committee, this MR recommendation was reinstated for the second reading for very good reason. The MR said:

There are several facets of racing administration where the Codes will need to act collectively for the efficient operation of the overall Racing Industry. These include:

• Entering into commercial arrangements with Wagering NZ • Development of racing calendar in conjunction with Wagering NZ

• Approving budgets, plans and administrative support for the JCA, RIU and the Laboratory where required. 17

• Consulting with Wagering NZ on whole of industry issues such as Betting Rules, and financial support of the NZ Equine Research Foundation and the Equine Health Association.

To effectively manage these functions, it is recommended that the Codes participate in a body named Racing NZ. This body would not be established as a separate administrative body but would merely act as a consultative forum between the Codes. It would not be empowered to act unilaterally without the approval of the Codes.

3 Change the composition and qualifications for directors of regulatory bodies.

The Racing Bill has not followed the recommendation of the MR. Instead, the powers that be have penned their own wording but that is not say that it isn’t satisfactory as it specifies a representative from each of the codes plus two who are appointed by the racing codes acting jointly.

4 Request that a Performance and Efficiency Audit of the NZRB be initiated under section 14 of the Racing Act 2003, with particular emphasis on the operating costs of the NZRB.

This recommendation wasn’t followed as specified as no emphasis was placed on operating costs. As well, John Allen engaged Grant Thornton – a company with no previous experience in the thoroughbred industry – who produced a five-year performance and efficiency report at great expense which has been of no value to the industry.

5 Amend the Section 16 distribution formula of the Racing Act 2003 to a more equitable basis for fixed 10-year terms.

Recommendation 5 has not been followed and the wording in the new Racing Bill leaves the door open for Sport to cease being a customer of the TAB by participating on the board and taking a larger slice of the profits. The Racing Bill offers no formula to guarantee racing’s take which may be reduced as a percentage of revenue.

6 Initiate a special review of the structure and efficacy of the RIU and allied integrity bodies, to be conducted by an independent qualified person.

This recommendation was not carried out in the manner prescribed because the MR implication was that the Reviewer be a person who had previous experience in the integrity side of racing. The MR stated: “…it is recommended that the Minister retains the services of an appropriate person well versed in stewarding policies and procedures to review the overall Integrity model for its efficacy, independence and accountability.” Instead, an ex-policeman unfamiliar with the racing industry was appointed which rendered his report toothless due to his lack of experience.

7 Begin negotiations for the outsourcing of the TAB’s commercial activities to an international wagering operator, to gain the significant advantages of scale.

Rated by John Messara as the most important of all 17 recommendations, this clause has not yet been attempted in any shape or form.

8 Seek approval for a suite of new wagering products to increase funding for the industry.

The introduction of new wagering products hasn’t occurred. It would have been an automatic follow on from a partnering/outsourcing agreement by piggybacking on the partner’s IT development   

9 Confirm the assignment of Intellectual Property (IP) by the Clubs to the Codes.

The IP stays with the clubs/codes after Clause 81 to assign full control of it to TAB NZ was deleted from the legislation after appearing in the first reading in December. Strong opposition to Clause 81 came through the submissions and the Select Committee complied.  

10. Introduce Race Field and Point of Consumption Tax legislation expeditiously. These two measures will bring New Zealand’s racing industry into line with its Australian counterparts and provide much needed additional revenue.

The MR devoted four full pages of the 82 pages of the Review as a blueprint on the procedure to make it work. Two years on, New Zealand is receiving some voluntary Betting Information Use Charges (Racefields) but the lack of urgency to get the rates set and finalise the whole deal has cost millions. Feeling the need to change the name from Racefields to BIUC and also Wagering NZ to TAB NZ is suggestive of the RITA insecurity in putting its own stamp on the changes or its reluctance to follow the MR, as was the brief. The bottom line is that RITA has been found wanting on wagering issues and particularly on setting these revenue earning streams in place.

11. Repeal the existing betting levy of approximately $13 million per annum paid by the NZRB, given that the thoroughbred Code is a loss maker overall, with the net owners’ losses outweighing the NZRB’s net profit.

This Recommendation was enacted at the next May Budget when Minister Peters negotiated the repeal of the Betting Levy, even if he had to compromise and claw it back gradually over three years. This season’s levy ($4 million) and next season ($8 million) are likely to be part of the make-up of the promised prizemoney pool for next season of $139.6 million.

12. Clarify legislation to vest Race Club property and assets to the Code regulatory bodies for the benefit of the industry as a whole.

The most controversial and emotional Recommendation is 12. Most people in racing want to see racing thrive nationally but for some not if it means taking something out of their backyard. The legislation to achieve a national result is well covered in the legislation from Clauses 22 through to 27 but despite it becoming law on August 1^st there is little doubt we have not heard the last of it.

13. Reduce the number of thoroughbred racetracks from 48 to 28 tracks under a scheduled program. This does not require the closure of any Club.

Recommendation 13 is in the process of happening, as much from the NZTR venue reduction plan had already commenced when research commenced for the writing of the MR. On publication, the MR stated: “Our research indicates that there are too many tracks for the scale of the industry — a conclusion also reached by a number of previous reviews and reports dating back as far as 1965. I believe that the number of thoroughbred racetracks can be reduced from 48 to 28 tracks progressively over the next five years commencing 2019/20; this will free up property assets which can be realised for the benefit of the industry as a whole.”

14. Upgrade the facilities and tracks of the remaining racecourses with funds generated from the sale of surplus property resulting from track closures to provide a streamlined, modern and competitive thoroughbred racing sector capable of marketing itself globally.

Little if any upgrading has happened in recent times due to the parlous state of racing. The MR was clearly relying on the upgrading of facilities through increased profits and John Messara has repeated many times it is a suite of recommendations that will be effective only if all are adopted.

15. Construct three synthetic all-weather tracks at Cambridge, Awapuni & Riccarton with assistance from the New Zealand Government’s Provincial Growth Fund. Support the development of the Waikato Greenfields Project.

One of the first recommendations adopted by Minister Peters was funding to be made available from the Provincial Development Fund. The Cambridge track is in the process of completion while Awapuni and Riccarton are guaranteed funding, albeit both clubs are cash strapped but need to find the funds to accommodate racing’s side of the agreement. Again, the activation of this recommendation was dependent upon the new revenue streams of other recommendations in the MR.

16. Introduce robust processes to establish traceability from birth and the re-homing of the entire thoroughbred herd, as the foundation stone of the industry’s ongoing animal welfare program.

Traceability of foals from birth to re-homing has not yet happened and may not for some time at the current rate of progress. The MR stated: “…we recommend the introduction of robust processes to establish traceability from birth and the re-homing of the entire thoroughbred herd, as the foundation stone of the industry’s ongoing welfare program.”

17. Increase thoroughbred prizemoney gradually to over $100 million per annum through a simplified three-tier racing model, with payments extended to tenth place in all races.

The MR did a significant amount of work on the distribution and tiering of prizemoney, but again the size of the prizemoney pool increasing was dependent upon the adoption of all the recommendations, and especially Recommendation 7.

The MR stated: “It seems that the NZTR have a very complicated minimum prizemoney matrix with minimum prizemoney for the same class of race varying across 6 different meeting categories and for minimums to be different for different classes of race at the same meeting.

We have proposed to NZTR that they adopt a different model with minimums being the same for all classes of races for each venue Tier that we propose should apply in the future in New Zealand, that is for what we call Tier 1, Tier 2 and Tier 3 venues. Given the different qualities of meetings at each Tier level, and particularly at different times of the year, we propose that Tier 1 and Tier 2 meetings be divided into A and B categories.

We have also taken into account a potential doubling of prizemoney in New Zealand to about $100 million, arising from the initiatives described in other Parts of this Review, and determined what the appropriate allocations of prizemoney between the Tiers should be given the likely number of races run to be at each tier level.”

Footnote:

The completion of the legislative process and the passing into law of the Racing Bill 2020 is the end of a long, drawn-out process that began three years ago when Minister Winston Peters campaigned to the racing industry for reform and won the racing vote.

The end result is this Racing Bill. The arguments of what it should be, how it should happen, and what benefits it should provide have been long and tiring, and win, lose or draw the time comes to withdraw from the battle. These pages have attempted to inform, highlight the injustices and present the best options for the stakeholders, but barring the failure of the final process of ‘Royal Assent,’ the industry has a new set of rules ready for the new season.

No more flogging a dead horse. I’m consigning this episode to the history side of my bookcase, and moving on to write about something else. Thanks for reading this far.

Brian