Landmark High Court Decision

By Scott Woodward from www.ChampionProfits.comPunters are the big losers following the High Court of Australia’s decision last Friday to reject Sportsbet and Betfair’s claims that the decision to impose a 1.5% wagering turnover fee for the right to publish NSW race fields was unconstitutional on the grounds that it is discriminatory and protectionist in its nature. We have all consumed the biased views from Racing NSW, the corporate bookmakers as well as the betting exchange Betfair, so let us have an objective look from a punter’s perspective and how the decision will impact on them and their ability to wager in a competitive market place. Racing NSW CEO Peter V’Landys said on TVN on Sunday:  “this was never about the punter”, but what he has always failed to comprehend is that everything starts with the punters dollar and the finished product in his patch is likely now to be more expensive and slowly force racing punters to more attractive options, and they are plenty. He claims to want to look after the 50, 000 participants in the racing industry, but continues to ignore his most important and valuable participants, the four million punters who actually fund everyone’s job. The burning questions being asked are: What will happen to Betfair in Australia? It remains to be seen if BF Australia will test their arm at the ACCC, but given their business model is based on punters betting against each other with high turnover and potentially little or no gross profit; the new tax would render their business on horse racing in NSW unsustainable. I.e. it is possible for two punters betting against each other to turnover say $1m and both could break even, but BF has to cough up 1.5% tax of the $1m ($15,000). Every day punters back horses at 1.01 “in the run” for large amounts and while the punter who may invest $1,000 would stand to win only $10, Betfair would be taxed $15. James Packer, the 50% part owner of the Australian part of BF, is not noted for continuing to put in good money after bad and the only way likely for him to stay in would be for the exchange to apply for a corporate bookmakers licence, but the odds are he will either dilute or sever his ties to focus on his casino empire. Given that it will now be six-times more expensive for Betfair to offer New South Wales racing to customers compared to offering racing from any other state in Australia, the only viable choice they appear to have is to withdraw and either “black list” racing in NSW, or market it from the U.K., which would dramatically and adversely impact liquidity and make the NSW racing product less attractive and competitive forcing thousands of punters to turn to sports betting and online casinos. ChampionProfits.com trading guru Tony (The Badger) Hargraves underlined the dilemma facing BF Australia just on some typical trading scenarios that he experienced on Sunday. The Badger was pre-race trading on the Randwick meeting and on one race he turned over $2,400 and made a $30 profit on the race. Betfair took a commission payment from the Badger of 60 cents, but now under the new 1.5% turnover tax law, a further $36 fee must be handed over to RNSW who will actually make a bigger profit than the Badger, but the big loser is BF Australia. This is a very typical trading scenario and one that the Badger typically implements on 15 or more races every day like thousands of other traders. The flow on impact will also reduce turnover for other operators like the TAB as the very nature of the Betfair betting exchange generates millions of incremental dollars in bet backs and arbitrages. There will be many nervous Betfair employees in Hobart and Melbourne this week wondering what Easter will bring. The world’s second biggest Exchange, Betdaq, owned by Irish billionaire Dermot Desmond, pulled out of Australia last July, but promised to be back, but paying a tax based on turnover for any exchange does not compute. A horse is traded at the odds of 1.01 on almost every race and below is the stark reality of the future of trading in the run on races in NSW.

 

Price

Back

Risk

Result

5% Comm

Collect

Summary

Punter A

1.01

1,000

1,000

Wins 10

50 cents

9.5

Punter B

1.01

10

Loses 10

0

Betfair

-14.5

Punter A 50 cents 50 cents
Punter B 0

0

RNSW

15

15

The table above shows how punter A won $9.50 after paying Betfair 5% commission when he backed a horse in the run at 1.01 and it won. Punter B lost $10, while Betfair won 50 cents from punter A, but had to pay RNSW $15 which leaves Betfair with a $14.5 loss. What will have happen to the bookmakers? The major bookies will build the new tax into their product mix and look at different ways to develop incremental margin like promoting multis etc., but clearly the millions that they have invested into marketing racing in NSW will now be diverted into the other states and sport. They have been promoting racing in NSW with expensive TV commercials and adverts in the print media, but due to RNSW exclusive arrangement with their buddies at the TAB, the bookies have been banned at the track. U.K. Betting power house, Bet365 is one of the world’s largest gambling sites and has been set up in North Sydney for almost six months now waiting on the High Court’s decision. We can expect an announcement shortly once they re-write their business plan. The small to medium bookies will likely struggle to maintain a tax on turnover and it is known that not all bookies accrued the back payments with at least one high profile medium bookie not expected to be splashing out of expensive eggs this weekend. Sportsbet Executive Chairman, Matt Tripp, who also founded Sportingbet Aust., expressed concern that last Fridays decision may lead to reduced income for racing. “As has been proven by the increase in wagering turnover since the emergence of corporate bookmakers, competition stimulates choice and in turn drives growth and revenue to racing. Giving the TAB a walk-up start will hinder competition, and restrict growth which may harm revenues to Racing.” Tripp said. “However, we will continue to provide competition to the TAB by providing our one million-plus customers with the best prices, the best range of products, and the best service in Australia. For every dollar staked, the TAB takes more than twice as much from punters as we do. This won’t change as a result of the court’s decision.”, he added. “If product fees are pushed too high, it has the potential to reduce both competition and consumer choice, to reduce racing’s wagering appeal compared to sports, and ultimately some wagering operators may decide to relocate offshore.” The 10 to 20 year window The major benefactors from the court decision is racing’s “fat cats”, the big breeders and owners,  who can now buy and sell yearlings for more as the punters money will increase prize money. “Things just got more expensive after Friday”, according to Sky Racing’s Ron Dufficy when asked if he will be buying at the sales. Racing in NSW would have declined to prize money levels of the 60s had they been unsuccessful in court, and many observers are concerned that the industry should  never have been put in such a precarious position, especially when Racing Victoria are thriving under a gross profit strategy with bookies. RNSW were on their financial knees when they were defeated in the initial court case almost three years ago by the corporate bookmakers, giving them a powerful bargaining position, but in the interests of the racing industry, the bookies agreed to allow RNSW access to the accrued funds of some $150m. The bookies could have played hard ball and withheld the funds pending the appeal which would have activated enormous pressure to negotiate a mutual early agreement. What RNSW do not know is that the major bookies would have passed on the funds even if they were successful in the High Court as a gesture of good will and to cement their position as a future long term strategic partner. Sadly, a tax on bookies turnover as opposed to gross profit will make the NSW racing product less attractive and competitive, and long term the turnover tax will continue to reduce consumer investment and crowds at the track. As Matt Tripp correctly pointed out, “the emergence of corporate bookmakers has been a wonderful shot in the arm for punters” as they have a choice now and experience expanded markets that are more attractive to consumers stimulating interest levels that where not prevalent when the punter only had the TAB and SP Bookie.