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 25th 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 15th 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 1st 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.
