Bookies fees risk inflating illegal market, may change business models

Published in: Latest Intelligence Fee hikes for bookies in Australia’s horse betting market threaten to boost illegal gambling, push players back offshore and may force companies to change their business models, experts said.
Victoria has changed its fee structure, while New South Wales has also proposed similar hikes, sparking concern others may follow suit and raising a furore among the nation’s bookmakers.
According to the Australian Wagering Council, racing accounted for 13.6 percent of Australia’s total A$19 billion ($17.8 billion) spend in the 2008 - 2009 period. A report by the The Victorian Commission for Liquor and Gambling Regulation for 2012 - 2013 estimated that the combined racing and sports betting take had risen to some 15 percent of total spend.
Under the new fee structure, for pari mutuel bets, bookmakers in Victoria will have to pay the higher of 1.5 percent of turnover, or 15 percent of gross revenue for 440 standard race meetings in Victoria. For the 45 group and listed meetings the charges rise to the higher of 2 percent of turnover, or 20 percent of gross revenue, while for the 10 premium group one meetings, including the Melbourne Cup, the fees are increased to 2.5 percent, or 30 percent of gross revenue. For non-pari mutuel bets the fees rise to 3 percent for premium meetings.
In Queensland, the proposed structure will see totalisator bets charged at 1.5 percent of turnover for standard meetings and 2.0 percent for premium meetings. Non-totalisator bets will be charged at 2.5 percent of turnover for standard and 3.5 percent for premium. New South Wales may also follow suit.
According to Tabcorp, without mitigating strategies the Queensland changes would have cut net profit after tax by $3 million, while the Victoria hikes would have cost $4 million.
Paddy Power has condemned the increase and has threatened to redirect promotional activity to sports betting and racing in other states.
A representative of the Australian Wagering Council told AGB that “regular reviews of the product fees levied to bet on racing in Australia impact significantly on wagering service providers and the racing industry itself.”
The AWC believes that these fees will limit competitiveness and may drive punters towards either “illegal, unregulated starting price (SP), or offshore bookmakers.” They do not pay tax and do not have policies in place to maintain responsible gambling, the body argues.
Karen Avery, Senior Director Gambling and Licensing Services, Department of Business, for the Northern Territory said the state doesn’t plan to follow suit with fee hikes.
In May, when the changes were first announced Cormac Barry, chief executive of Sportsbet, told media that they were a “lazy option,” agreeing with the AWC that the move may force betting to other states or areas.
James Henderson, Group Operations Director at William Hill, told AGB that he concurs with the AWC's assessment that the increase in racing fees will negatively affect both punters and the industry more generally.
"The real risk is that the increase in fees pushes consumers to unregulated offshore operators, which defeats Racing Victoria's objectives as revenues are funneled offshore”, said Henderson. He believes that such operators do not have the same commitments to responsible gambling or harm minimization. 
William Hill does not yet have a plan of how it will deal with the increase in fees, he said. 
“We are currently assessing the impact of the change and next steps.” The fee hikes may also help to accelerate a trend in the country’s betting market away from wagering on horses to a broader sports betting model, especially online.
Bill Brown, of law firm Rockwell Olivier, predicts that these fee hikes will not necessarily lead to investment back into racing. Brown says “there are no external checks and balances on how the racing controlling bodies spend the money raised.” He says the race fields legislation needs to be re-visited so that “the fees are not frittered away on administration rather than on improving the quality of the racing product.”
Overall the online sports betting market in Australia is booming. The growth has attracted an influx of foreign investment, with many local bookmakers being bought up by overseas giants.
However this growth marks more of a move from one platform to another, rather than an expansion in the overall market. The wagering market has not, overall, expanded tremendously in the past four or five years but merely kept pace with Australia’s general economic growth at about 4 to 5 percent, according to AWC figures.
More Australians are now using online wagering systems than before, which has reduced offshore wagering in Australia from 37.7 percent in 2003 to 13.8 per cent in 2011. However, H2 Gambling Capital suggests that some A$900 million still heads overseas.
Avery of the NT also said betting on other kinds of sports, rather than race wagering was becoming more popular as the demographic changes. Sports betting appeals to a younger, predominantly male audience, who are attracted by the better cost efficiency and better live odds.
The sports betting industry also appears to have dodged a potential bullet, at least for the time being, with no changes to sports advertising rules. There was concern last year that the government planned strict regulations on advertising, which had been seen as one of the main reasons fuelling the sports betting boom.
South Australia did bring into place new advertising codes in March. However, there has been a misconception that laws have changed or been tightened, which may be because regulators are now more vigilant in spotting and cracking down on breaches, says Jamie Nettleton, a partner at law firm Addisons in Sydney.
 

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