by Brian de Lore
Published 8 November 2017
If our new Racing Minister Winston Peters keeps his promise and sweeps a wide broom through racing administration and the Racing Act is dismantled and rebuilt, the facility for complete transparency and accountability to the stakeholders must be adopted.
Racing doesn’t operate like usual businesses in that the stakeholders are not bona fide shareholders and in reality have no say in their destiny. The administration of racing began in the first instance with the appointment of racing people who came from within the industry but also had administrative skills.
It’s fair to say that for many years they did a very good job, although racing like every other business has had its share of ups and downs. But when the Racing Act of 2003 was passed, few could have envisaged our administration would grow horns and develop into the monster it has become today.
Once it was administered from one office in Wellington with a staff of around 20 people, and the TAB came into being when racing clubs got together to set up this new betting platform for the benefit of racing. Time lends enchantment but let’s not get nostalgic – we have to deal with what we have today and where we are heading.
It’s been only a few weeks since the election, and our Racing Minister has been relatively quiet; understandably so given that as well as being the Deputy Prime Minister he is also Minister of Foreign Affairs and this week, for instance, has gone overseas to attend the APEC conference in Vietnam.
Peters wasn’t available for any comments pre-departure, but the NZ First racing spokesman Clayton Mitchell did speak to The Informant to convey what progress they had made. He said that Peters understood the urgency for racing concerning the Racefields legislation and they would have liked to have achieved something before the Christmas parliament adjournment, but that was now looking very unlikely.
Mitchell explained that with the protocols required for a new, incoming government and other matters deemed more urgent than racing, the five and a half weeks in which Parliament would sit would not allow time for further progress.
Eliminate January and February, and March is the earliest we can expect action. Rest assured it will happen as fast as Peters can make it happen and the importance of it happening fast is that it will alleviate the debt this business is racking up through NZRB borrowing $24 million for increased stake-money over this and next season.
Australia has had Racefields legislation for years, and annually it returns in the order of A$160 million in actual prize-money. Racing and Wagering Western Australia (RWWA) runs a similar sized business to the NZRB and gains between A$27 million and A$30 million annually from Racefields. South Australia gains more than A$30 million.
One source says that after three years of Racefields in New Zealand, the return could be around $20 million annually to our stakes. Add that to the savings that could be made through a restructured NZRB administration, which is blatantly top heavy and extravagant, and racing could get back to an economically sound footing – as Winston Peters says, ‘decent stakes for the owners’.
Anyone who has been in business knows that you can’t always control your income, but costs are completely controllable. The problem with the NZRB is that while they claim to be transparent in their dealings and their Statement of Intent (SOI) always claims they are cost-cutting, there is no real evidence to back it up.
Look at this excerpt from the most recent SOI: “…NZRB’s underlying operating costs are reducing by $200,000 over the past year, with a significant reduction in staff expenses. Operating costs are budgeted to reduce by a further $500,000 in 2017/18. It’s an ongoing focus area with further initiatives being progressed to minimise future growth in operating costs.”
Does it need to be pointed again that the operating costs last year were $205 million, so reducing them by $500,000 is hardly significant, even if that budgeted figure is achieved without any creative accounting? Then we have last week’s announcement that the NZRB has appointed a new five-person team to ‘manage our communication and engagement with our government and industry stakeholders.’
What the hell! The NZRB already has 488 employees, and now we have more? And for what – communications. In the press release, it stated that one of the appointments was for four years the Ministerial advisor to former Racing Minister Nathan Guy and therefore he understood racing – Guy was the minister who sat on his hands with the Racefields legislation for years and contributed little to racing.
Another appointee worked in Parliament for Bill English for six years, and yet another formerly worked with John Allen at the post office. The five-person appointment which reeks of more National Party nepotism is very well summed by journalist Mary Burgess in her blog entitled ‘More climb aboard the NZRB gravy train.’
In my most recent communication with NZRB CEO John Allen, I expressed scepticism about the NZRB’s ability to make the FOB platform work financially after spending $30 million to build it and then having to pay a further $17 million annually in running costs – presumably there is an on-going commission to be paid to Paddy Power.
Allen declined the request to show any figures as to how he arrived at the projected profit of the FOB in the first year of $11.6 million andthe second year of $17.4 million, citing the sensitive nature of such information to the TAB’s competitors. What competitors?
The TAB doesn’t have any competitors domestically, unlike Tabcorp has in Australia with a plethora of bookmaking companies operating. With no bookmakers in New Zealand, the TAB has the whole market, and as Allen pointed out, they have no interest in selling the FOB offshore. Its success is based solely on increasing their margin by recruiting more punters at home through sports betting and then converting them to racing.
The problem for racing is that the net return on sports betting is only two percent, whereas betting on horses across all the exotics and the pari-mutuel tote returns racing 15 percent. In other words, horse racing turnover of $1 million will return racing the same profit margin that a sports turnover of $7 million will return.
Having to get extra profit just to cover the $17 million running costs, and then achieve the objective to recruit sports bettors to be converted to racing seems to be akin to a plot you would find in a Jules Verne novel. The required increase in TAB turnover must be astronomical – and remember that we are living in times when most businesses are happy to retain their margins and reduce costs as a path to success.
On page 57 of the 2015-16 NZRB annual report, under Turnover Related Expenses, there appears a figure of $7,519,000 for advertising and promotions. Upon enquiring as to how that expense was incurred a brief breakdown of ‘the spend’ was supplied in an email. Requesting more detail, a second email informed that the information could be supplied only under the Official Information Act (OIA).
The reason for the interest in this figure was based solely upon being told by a reliable source that a $1 million Joseph Parker fight promotion conducted by the TAB has delivered only a small return. The cost of such promotions comes under turnover-related expenses, which in the last annual report amounted to $66,436,000 and which when added to the year’s operating expenses of $138,751,000 produced the total expenses for the year of $205,187,000.
Every dollar spent by the NZRB on expenses that doesn’t yield a return is a dollar that’s not coming back to the three codes for prize-money distribution and other dire needs such as infrastructure investment. And if the $1 million spent on a fight promotion which is essentially racing’s money, and the potential return is only two percent net back to racing, then racing stake-holders might consider that a very poor investment – and remember that for racing to benefit the sports betting fans then have to be converted to racing.
