Where Your Punting Money Is Going

Does it all add up?

Did you feel that?

Don’t be alarmed. It’s just the hands in your back pocket, jockeying for position.

Unfortunately, racing has a funding problem. And as a punter, your cash will have to fix it.

It wasn’t always this way, of course. Back in the day, if anybody had a bet off-track, they did it on the tote.

The state racing bodies are all in the tote business, in joint ventures with Tabcorp. Racing loves totes, because it gets paid first. Their cut is assured. The takeout rate is skimmed straight off the pools in each and every race no matter what the result. Only after that is the rest divided up among punters by way of dividends.

All was well and good until 2008, when that off-track betting monopoly ended. The High Court ruled that it was legal for online bookies for offer their services across state lines. Flooding into the Australian market, the bookies rejoiced. So did punters. More choice, more competition, better deals.

And it turns out punters love fixed-odds… because that’s where they get paid first. Their price is assured, and it’s up to the operator to manage the book if they want a profit.

Having the choice, punters have voted with their feet and headed to fixed-odds and the corporate bookmakers that largely supply them.

Take Racing Victoria for example. Back in 2010, they made $206 million from their joint venture with Tabcorp, which was 72% of their total revenue. Fast forward to 2017 and that figure is $186 million, or just 46% of total revenue.

Yes, in this golden age of the punting boom, the money RV makes from their wagering joint venture has not only not grown, it’s gone backwards at a rate of knots.

Punters have voted with their feet, and they’ve continued to absolutely reject the tote as a substandard product.

So how to make up for this dwindling revenue share? Take a cut of the bookies’ profits, given that’s where the punters have gone.

The race field fees that are collected from bookies are booming: in 2010 RV took $48m in race fields. In 2017, it was $157m. And as has been widely reported this week, RV are currently in negotiations to increase the rates further and collect yet more.

The problem there, of course, is that the bookies’ pockets aren’t bottomless. For every $100 punters bet on racing with them, we get around $90 back in winnings. That leaves $10 for the bookies, the racing bodies and the governments to fight over. They’re the hands in your pocket.

The governments – who already take 10% in GST as well as 30% in final profits in company tax, have now grabbed more via their new point-of-consumption taxes. Victoria and New South Wales went slightly gentler with 8 and 10 per cent respectively, while everybody else has decreed 15 per cent.

Add in further increased race field fees as racing bodies try to protect their revenue base, and you start to see why bookies are shifting in their seats.

Most galling for them when it comes to the fees is that they’re often calculated on both turnover and net revenue, then charged on whatever is greater. If they manage their book well or have a good day, they pay on what they take home. If they get wiped out, they pay up anyway based on total turnover. Racing protecting its revenue base.

So Where To?

It’s a good bet that bookies will continue to be squeezed. The worst outcome there would be them passing it on to punters through a wholesale increase in market percentages. But the corporate bookies are increasingly pubic companies with shareholders. And that means that earnings must grow, come hell or high water.

In terms of racing’s revenue, solving the tote versus fixed-odds conundrum is vexing, particularly as newer punters increasingly come into the game through fixed-odds sports betting.

There is, of course, the third model: the betting exchange. There’s a bit of “best of both worlds” there. Punters can have the fixed-odds they clearly prefer, while the revenue for the operator (and the racing bodies) is guaranteed via commission rates, no matter who wins or loses. And for those who will take a floating tote-style dividend, there’s the exchange starting price products.

Victoria and other states have been relatively friendly to the exchanges, taking just a cut of the commission revenues as their fee. Racing NSW, on the other hand, have smashed the concept by refusing to recognise the exchange model, simply taking fees based on turnover – a move that has seen NSW commission rates soar.

Was that the right move? Time will tell. But as punters continue to reject the tote, and the juice that can be squeezed from bookies dwindles, it might not hurt to put all models back on the table.